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Operator: Hello, everyone, and welcome to the Jackson Financial Inc. 3Q '25 Earnings Call. My name is Charlie, and I'll be coordinating the call today. [Operator Instructions] I'll now hand the call over to our host, Liz Werner, Head of Investor Relations, to begin. Liz, please go ahead. Elizabeth Werner: Good morning, everyone, and welcome to Jackson's Third Quarter 2025 Earnings Call. Today's remarks may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations. Jackson's filings with the SEC provide details on important factors that may cause actual results or events to differ materially. Except as required by law, Jackson is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change. Today's remarks also refer to certain non-GAAP financial measures. The reconciliation of those measures to the most comparable U.S. GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on the Investor Relations page of our website at investors.jackson.com. Presenting on today's call are our CEO, Laura Prieskorn; and our CFO, Don Cummings. Joining us in the room are our President of Jackson National Life Insurance Company, Chris Raub; our President of PPM, Craig Smith; and the Head of Asset Liability Management, Brian Walta. At this time, I'll turn the call over to our CEO, Laura Prieskorn. Laura Prieskorn: Thank you, Liz. Good morning, and thank you for joining our third quarter 2025 earnings call. I'll begin by reviewing the quarter's positive results, including strong sales growth and diversification, robust capital generation and consistent capital return to shareholders. Following my remarks, our CFO, Don Cummings, will discuss our financial performance in further detail. Beginning with Slide 3, Jackson's third quarter performance highlights our strong earnings diversification and healthy book of business. Adjusted operating earnings of $433 million increased over 20% from the year ago quarter, led by our Retail Annuities business. Retail Annuities continued to see significant growth and diversification from investment spread income as well as solid fee income from nearly $240 billion of separate account value. Retail annuity sales for the quarter reached their highest level since we became an independent company, exceeding $5 billion for the quarter, driven by growth in RILA and traditional variable annuities. Last quarter, we highlighted the launch of Jackson's Market Link Pro III and Market Link Pro Advisory III, which we refer to as RILA 3.0. The positive reception to RILA 3.0, combined with a robust RILA market resulted in record sales of $2 billion in the quarter, accounting for 38% of overall retail annuity sales. We expect RILA to remain a valuable source of growth, providing sustainable investment spread income and earnings diversification. Our RILA account balance approached $18 billion, a 21% increase from the second quarter and a 74% increase from the prior year. While the RILA market continues to evolve and grow, we believe our RILA 3.0 product offering provides advisers and their clients with a broad range of index and crediting options and a valuable range of protection levels. Jackson's long-held focus on product innovation and consumer choice has differentiated us and is highly valued by our distribution partners and their clients. Our RILA offerings continue to drive growth in the breadth and depth of our distribution. Since launching RILA 3.0 in May, we've added over 500 new advisers. Our new RILA relationship with JPMorgan Chase is one example of accelerating RILA sales through a valued partnership. Traditional variable annuities remain core to our business and accounted for over 1/2 of our third quarter retail annuity sales. Variable annuity sales increased 13% from the second quarter and 8% from a year ago. The growth of variable annuities sold without a lifetime benefit continued and sales increased 24% for the first nine months of 2025. Year-to-date, variable annuity sales without a living benefit accounted for 38% of Jackson's total variable annuity sales. Importantly, average variable annuity balances increased by $10 billion from the second quarter, supporting an increase in third quarter fee income of 8% quarter-over-quarter. Variable annuity net outflows improved from a year ago and were consistent with strong equity market performance. For the third quarter, strong investment performance exceeded the impact of net flows by over $7 billion. The diversity of Jackson's variable annuity fund offerings remains a valued feature and for the first nine months of 2025, separate account performance exceeded 13%. We continue to believe the asset growth potential, investment flexibility and guaranteed income provided by Jackson's traditional variable annuities meet a long-term need for millions of Americans retiring each year. This profitable book of business exhibits Jackson's thoughtful product design and disciplined risk management capabilities. Fixed and fixed index annuity sales reflect our opportunistic approach to pricing and have contributed to our sales diversification. Looking ahead, we expect our recent fixed index annuity launch will contribute to future sales growth. The Jackson Income Assurance Suite has an embedded guaranteed minimum withdrawal benefit designed to meet consumer demand for income and protected growth. Jackson's fixed index products further expand our portfolio of annuity solutions, meeting a wide range of retirement planning goals for advisers and their clients. Complementing the growth of our business is the investment expertise and asset growth of our investment manager, PPM America. Last quarter, we highlighted PPM's additional investment capabilities, which support the competitiveness and profitability of our spread-based products in the market. We believe our disciplined approach to the market, combined with incremental yield provided by PPM investment capabilities position us well for future growth and profitability across spread-based annuity solutions. The profitability of our in-force business and capital generation resulted in continued free cash flow and capital distributions. Through the first three quarters of this year, free capital generation exceeded $1 billion and free cash flow was $719 million. Quarterly distributions to our holding company through the first nine months of this year have totaled $815 million. These strong results lead us to believe we are well positioned to maintain capital flexibility at our holding company and sustain future capital return to our common shareholders. We continue to return capital consistently and for the third quarter, returned $210 million, bringing our year-to-date capital return total to $657 million. Given this pace and our outlook for the fourth quarter, we expect to exceed our 2025 capital return target range of $700 million to $800 million. Since becoming an independent company, we have returned nearly $2.5 billion to common shareholders, exceeding our initial market capitalization. We believe that our balanced approach to capital management will continue to support Jackson's financial strength, ongoing investments in long-term growth and future capital return to shareholders. Turning to Slide 4. We began the fourth quarter with great momentum and are approaching the end of 2025 in a very strong position with respect to all our financial targets. I've already addressed capital return and would add that in September, our Board of Directors approved a $1 billion increase to our common share repurchase authorization. Yesterday, we announced our Board also approved a fourth quarter cash dividend of $0.80 per common share. We believe shareholder dividends underscore our outlook for long-term profitability and combined with share buyback, highlight our commitment to shareholder returns. Over the course of 2025, our strong capital generation resulted in a risk-based capital ratio that was consistently well above our targeted minimum level of 425%, and we ended the third quarter at an estimated 579%. In addition, at the end of the quarter, the cash and liquid securities position at our holding company was over $750 million. Our strong capital position, combined with holding company liquidity provides valuable capital flexibility. Jackson's resilient capital, effective hedging strategy and disciplined risk management have enabled us to navigate through periods of market uncertainty. In today's environment, we believe this experience is essential to maintaining long-term leadership in the annuity market. At this time, I'll turn it over to Don. Don Cummings: Thank you, Laura. I'll begin on Slide 5 with our consolidated financial results for the third quarter. Adjusted operating earnings were $433 million, reflecting strong performance from our spread products, where earnings were supported by the continued expansion of our RILA fixed, fixed index annuities and institutional products. Additionally, strong equity markets in the quarter led to increased variable annuity assets under management, driving stronger fee income. Our high-quality, conservative investment portfolio supporting the spread product business is well positioned with diversification and strong credit quality, a theme throughout the portfolio. The exposure of our portfolio to commercial office loans and below investment-grade securities is less than 2% and 1%, respectively. Given recent headlines on asset quality, it is also important to note that our regional bank exposure is about 1% of our portfolio, and we have no material exposure to First Brands or Tricolor. Furthermore, our CLO portfolio remains highly rated and well diversified. Our spread product sales continue to benefit from enhanced asset sourcing capabilities at PPM America, which enabled recent new money allocation to certain higher-yielding asset classes, including emerging markets, residential home mortgages and investment-grade structured securities. We believe this modest shift in our new money asset allocation, combined with an attractive product lineup will allow Jackson to maintain a consistent and stable presence in the spread product marketplace. Before discussing notable items for the quarter, I want to highlight our strong performance in book value per common share. During the first nine months of the year, we returned $657 million of capital to shareholders, which has contributed to a modest decrease in adjusted book value since year-end. Importantly, our share repurchase activity reduced the diluted share count, driving a 6% increase in adjusted book value per share to $158.44. Additionally, our adjusted operating return on common equity for the first nine months of this year was 14%, up from 13% in the first nine months of last year. Slide 6 outlines the notable items included in adjusted operating earnings. Reported adjusted operating earnings per share was $6.16 for the current quarter. Adjusting for $0.04 of notable items and the difference in tax rates from our 15% guidance, adjusted operating earnings per share was $6.15 for the current quarter, up 27% from $4.86 in the prior year's third quarter. This improvement was primarily due to the growth in spread income noted earlier as well as a reduction in diluted share count from share repurchase activity. The only notable item for the current quarter was a $0.04 negative as limited partnership results came in slightly below our 10% long-term assumption. The prior year's third quarter included a larger $0.28 negative impact from this item. On Slide 7, we highlight the diverse and growing new business profile of our Retail Annuities segment, which achieved 2% growth over last year's strong third quarter and 22% growth from the second quarter of this year. Our RILA product suite delivered record sales of $2.1 billion, up 28% from the prior year's third quarter and 49% compared to the second quarter of this year. Since its launch in 2021, RILA assets under management have grown consistently, reaching a record high of nearly $18 billion at the end of the third quarter. As mentioned earlier, our spread product offerings were further supported by enhanced capabilities at PPM, resulting in $444 million in fixed and fixed index annuity sales for the third quarter. We are confident about the future growth potential of our spread business with strong early momentum from our recently launched fixed indexed annuity suite of products. Our sales mix continues to be capital efficient, which has provided flexibility to allocate additional capital to spread products as we focus on diversifying our business. We are pleased with the progress that we've made in building a well-diversified new business mix since becoming an independent public company, and we continue to explore opportunities to write higher levels of spread business on a capital-efficient basis. Turning to net flows. The sales we generated in RILA and other spread products translated to $2.3 billion of nonvariable annuity net flows in the third quarter. Variable annuity net outflows have been elevated in recent quarters, reflecting the moneyness profile of our book, the aging of policyholders and some larger past sales years coming out of the surrender period. On a year-to-date basis, our surrender rate was flat, even though strong equity market returns led to a higher surrender rate in the third quarter. These strong market returns also resulted in separate account investment performance of nearly $25 billion year-to-date, exceeding variable annuity net outflows by over $11 billion. This has driven variable annuity account value growth year-to-date and supported our strong levels of fee income. Slide 8 highlights pretax adjusted operating earnings across our business segments. In Retail Annuities, we benefited from a favorable environment for spread products and higher levels of fee income. Like an asset management business, retail annuity earnings are driven by the level of assets under management. Growing nonvariable annuity net flows and strong separate account returns have increased our average retail annuity AUM to $263 billion, up from year-end 2024. For the Institutional segment, pretax adjusted operating earnings were up from the third quarter of last year, reflecting higher spread income from our growing book of business. Our higher level of new business activity this year reflects strong demand for spread lending and our opportunistic approach in the institutional marketplace. Our Closed Block segment reported pretax adjusted operating earnings that were up from the third quarter of last year, primarily due to higher spread income. Earnings were down modestly on a sequential basis, reflecting higher levels of mortality. Slide 9 includes a waterfall comparison of our third quarter pretax adjusted operating earnings of $505 million to GAAP pretax income attributable to Jackson Financial of $57 million. The stability in our nonoperating results has significantly improved after moving to a more economic hedging approach in 2024, which has also contributed to our consistent capital generation. During the third quarter, our hedge results included a $14 million net loss on hedging instruments supporting our variable annuity and RILA businesses. This loss was primarily from equity hedges, reflecting S&P returns of about 8% during the quarter and gains on interest rate hedges resulting from lower long-term interest rates. Our RILA business continues to provide a natural offset to the equity risk of our variable annuity guarantees. This enhances our overall hedging efficiency as higher equity markets typically result in losses on our variable annuity hedges while resulting in gains for our RILA hedges. Changes in market risk benefits, or MRB, were driven in part by the same interest rate and equity market movements in the quarter, leading to a $226 million gain that more than offset the loss on our hedges. As a reminder, changes in the MRB relate primarily to our variable annuity business and include the impact of equity index implied volatility, which was a modest benefit during the quarter. Changes in implied volatility do not impact our Brooke Re MRB measurement since its modified GAAP methodology uses a fixed volatility assumption designed to promote balance sheet stability. The reserve and embedded derivative loss of $1.2 billion during the third quarter reflects increases in RILA reserves resulting from higher equity markets, which was largely offset by a gain on our RILA hedges. Net hedging results for variable annuities also reflect the highly diversified nature of our separate accounts, which can lead to differing performance relative to the market in periods where the returns of an index are driven by a subset of companies. This dynamic was at play in the current quarter with the underperformance of our separate accounts relative to certain hedging indices, leading to a modest net hedging loss. It is important to note that this dynamic plays out in both directions. And as a result, these impacts have tended to smooth out over time. In fact, this dynamic produced a modest benefit over the first half of this year. We believe these results underscore the effectiveness of our hedging program in supporting capital stability and proactively managing the economic risks of our business. Slide 10 provides a summary of Jackson's high-quality variable annuity business, which is differentiated in the marketplace, enabling us to outperform peers. In large part, our success can be attributed to our focusing on withdrawal benefits and avoiding more challenging guarantee features. Jackson also has long been a proponent of providing customers with investment freedom without forcing allocations or managed volatility funds. This approach is supported by a rigorous fund manager due diligence and oversight process to ensure a high correlation between separate account assets and the related benchmarks over time. The strong underlying fund performance benefits both our policyholders and Jackson. Prudent pricing and disciplined product design further mitigate risk and enable agile product launches and repricing actions as market conditions evolve. We believe our variable annuity products are highly valued in the marketplace, and we remain a consistent product provider for our distribution partners and their clients. The substantial cash flows generated by our large in-force block, combined with extensive policyholder experience data, enhance our risk management capabilities. By utilizing Brooke Re, we are able to further protect our book from market volatility and hedge more closely to the economics of our business. We believe our hedging performance has been proven through recent periods of financial market stress. Slide 11 provides context on how our high-quality variable annuity book and differentiated structure support our economic hedging approach. Brooke Re creates a structure for us to manage our profitable variable annuity block without the constraint of the cash surrender value floor, allowing us to align our hedging with the underlying economics of the guarantees. Specifically, we are focused on mitigating the impact of lower equity markets and interest rates on these liabilities. The result is well-protected variable annuity guarantees at Brooke Re and stable regulatory capital and distributable earnings at Jackson National Life, which has been evident in our strong free capital generation, free cash flow and capital return over the last seven quarters. This structure is beneficial for our management of the RILA business as well. Under this framework, RILA remains at JNL, separate from the variable annuity guarantees. The RILA business is managed and priced on a stand-alone basis with capital generation included in JNL's results. RILA and variable annuity guarantees have a natural equity offset with RILA exposed to upside equity risk and variable annuity guarantees exposed to downside equity risks. Variable annuity guarantees are reserved and capitalized on a stand-alone basis under our modified GAAP framework at Brooke Re and RILA is reserved and capitalized under the statutory regime at JNL without consideration of a diversification benefit. While there is no reserving or capital benefit of the offsetting equity risks, we are able to realize a hedging efficiency by netting them off through fully settled internal trades, leaving a reduced need for external equity hedging. Importantly, this benefit would continue even if RILA grew to the point of overtaking variable annuities from an equity risk perspective, simply shifting the external equity need from downside protection to upside protection. We believe this structure is a differentiator that highlights our consistent economic approach and the strong underlying performance of our book. We remain confident in the quality of our annuity business and our risk management capabilities. Slide 12 highlights our growing capital generation and free cash flow. Jackson adheres to an earn it, then pay it philosophy for capital return. This philosophy is built upon three pillars: the generation of free capital where we earn it, the creation of free cash flow where we pay it and ultimately, the return of capital to our common shareholders. After-tax statutory capital generation was $579 million in the third quarter. We believe this metric offers helpful insight into the underlying strength of our business and provides the foundation for making capital allocation decisions that balance future growth with the return of capital to shareholders. Free capital generation was $459 million in the quarter, reflecting the estimated change in required capital or CAL, resulting from our strong and diversified new business results during the quarter. Free capital generation totaled $1.1 billion in the first nine months of the year and $1.6 billion on a trailing 12-month basis. This pace is well above our $1 billion-plus expectation for the full year. Free cash flow was strong in the current quarter, once again illustrating the stability of our capital generation. In the third quarter, $250 million were distributed to the holding company. After covering expenses and other cash flow items, the resulting free cash flow at the holding company was $216 million in the quarter. Over the last 12 months, we've distributed nearly $1.1 billion to the holding company and generated free cash flow of nearly $1 billion. Based on Jackson's market capitalization at quarter end, we have produced a free cash flow yield of about 14% for the trailing 12 months. Although there are many factors that impact valuation, we believe this metric is a strong indicator of Jackson's value, and we will continue to pursue share repurchases while investing in the growth of our business. The outcome of our strong free capital generation and growing free cash flow allowed us to return $210 million to common shareholders in the quarter, up 37% from last year's third quarter on a per diluted share basis. On a trailing 12-month basis, we have returned $805 million, and we are on pace to exceed the top end of our full year capital return range. Jackson has now returned nearly $2.5 billion to common shareholders, exceeding our initial market capitalization as an independent public company. These results reinforce Jackson's robust capital generation profile and stable growing cash distributions, delivering enhanced value to our shareholders. Slide 13 summarizes our growing capital and liquidity position. The profitability of our in-force business, driven by fee income from our variable annuity base contract and growing spread-based earnings provided strong capital generation during the quarter. Our capital position and RBC ratio at Jackson National Life continues to be less sensitive to equity market movements with the Brooke Re structure. The main impact of equity market changes is on AUM and future capital generation rather than immediate changes in capital or RBC. This results in the earnings stream at Jackson National Life being like an asset management business. Consistent with our approach of taking smaller periodic distributions, we distributed $250 million to the holding company during the third quarter. After considering the impact of this distribution on our deferred tax assets, Jackson's total adjusted capital, or TAC, increased and ended the quarter at $5.6 billion. Our estimated RBC ratio ended the quarter at 579% and remains well above our minimum target of 425%. We believe Jackson is operating from a position of strength as we head into the end of the year. During the third quarter, Brooke Re continued to operate as expected. While equity was down modestly from the second quarter, Brooke Re's capitalization remains well above our internal risk management target that reflects a variety of detailed scenarios and our regulatory minimum operating capital level. During the quarter, there were no capital contributions to or distributions of capital from Brooke Re. Going forward, we will continue to manage Brooke Re on a self-sustaining basis given the long-term nature of its liabilities. Our holding company cash and highly liquid asset position at the end of the quarter was $751 million, which continues to be above our minimum buffer and provides substantial financial flexibility. This was up from $713 million in the second quarter of this year, reflecting operating company dividends and capital return to shareholders. Our third quarter results demonstrate strong positive momentum, bolstered by a robust balance sheet and rising capital and liquidity levels that firmly position us for continued success. I'll now turn the call back to Laura. Laura Prieskorn: Thanks, Don. In September, we hit our four-year milestone as an independent company. During this time frame, we've worked hard to capture opportunities to grow profitably while diversifying our sales mix and earnings. Our third quarter results represent another period of excellent operational and financial accomplishments. As the end of the year approaches, we'll take time to reflect on our valued relationships with our distribution partners and their clients and continue our shared mission to help hard-working Americans protect and grow their retirement savings and income. Most importantly, we believe our accomplishments and ability to consistently deliver on our promises are only possible through the dedication and hard work of our associates. We are truly grateful for all they do at Jackson and in the communities we call home. At this time, I'll turn it over to the operator for your questions. Operator: [Operator Instructions] Our first question comes from Ryan Krueger of KBW. Ryan Krueger: My first question is on the actual to expected policyholder behavior. It has improved year-over-year, but it got more -- I guess, it increased in the third quarter from the recent run rate. Can you give some perspective on what's causing this? I assume it's still just higher lapses. And to what extent you may consider changing your dynamic lapse assumption given that this has been occurring for a few years consistently now? Laura Prieskorn: Ryan, thanks for the question. I'll turn it to Don to respond. Don Cummings: Ryan, yes. So just to give you a little bit of context on policyholder behavior and kind of the level of net outflows that we've been seeing on our variable annuity book. First of all, I think it's important to remember that our surrender rate is sort of an all-in surrender rate as we've talked about on prior calls. So if you decompose that 12% that we've seen on a year-to-date basis, it breaks down like about 7% of that is full surrenders. And then there's 4%, which are withdrawals, and that's just simply customers using the benefit that they purchase those products for and being able to generate income and retirement. And then the remaining 1% is related to death benefits. And I would highlight that just for the quarter, we did see a bit more a bit of an uptick in the surrender rate, primarily driven by the fact that equity markets were up, and that does tend to influence surrender activity because of the moneyness of the contracts. Just overall, the VA performance that we saw in the quarter, which was also driven by the higher equity markets was about $25 billion, and that well offset the level of net outflows that we're seeing. So in terms of how we think about that from our assumption setting process, first of all, we do take a very comprehensive look at our assumptions every year. We complete that work in the fourth quarter. And we're setting assumptions with the long-term nature of our liabilities in mind. So we do look at our recent experience, but we wouldn't take one or two quarters of experience and use that -- simply use that to set our long-term assumption, we would look at our experience over time. Having said that, we'll certainly look at the experience we've been seeing over the last couple of years as we update our assumptions in the fourth quarter. And we'll publish those results along with our overall fourth quarter results as well as our financial targets for 2026, and we look forward to being able to discuss that in February. Ryan Krueger: One follow-up on that. I've heard some suggest that there has been some targeted efforts by distributors to roll older variable annuity contracts into other products when they've been out of the money and that may be contributing to the higher lapse rates beyond just the pure markets, but also may eventually dissipate once they kind of contacted all of their clients. Is that something -- do you agree with that? Is that something that you've seen at all impact the lapse rate? Don Cummings: I would say, Ryan, it's primarily more driven by the market environment than specific activities that might take place. Operator: Our next question comes from Suneet Kamath of Jefferies. Suneet Kamath: Just wanted to ask a couple on capital. So first on the RBC target of $425 million. You've been traveling well north of that for a while. My math suggests that if you were to bring that to $425 million, it would be maybe $1.5 billion of excess could be released. I guess if $425 million is really the target, what needs to happen in order to bring your RBC back down to that level? Don Cummings: Yes. Thanks for that question, Suneet. So yes, you're right. At the 425% target, we do have a substantial amount of excess capital at JNL. As we've talked about in the past, we expect that will come down over time rather than some sort of onetime outsized upstreaming of capital to the holding company. We believe that we are in a unique position to continue our efforts to diversify our book of business through focusing on more spread product sales, as I mentioned in the prepared remarks. And that obviously will assume a bit more capital than what we've historically been writing over the years, which is variable annuity business. And we've seen some of that over the course of this year. So we believe that we can both continue to grow our business through diversifying into more spread-type products as well as continuing to return significant levels of capital, but you'll see that ratio come down over time as opposed to one sizable transaction. Suneet Kamath: Okay. And then I guess my second one is on the Closed Block segment that you have. I mean it doesn't get a lot of attention. We never get asked about it. I'm just curious what's the strategic value of having that? I know it's small, but also curious about how much capital is supporting those liabilities that are in that segment. Don Cummings: Yes, good question. We obviously look at the Closed Block very frequently, and we're comfortable with the liabilities that are there. As you mentioned, it's not a huge portion of our balance sheet. However, we believe it does provide some balance to our overall general account structure and because there are some life liabilities in there, along with some annuities and other blocks of business that came about through some acquisitions that Jackson completed a number of years ago. So we do monitor the performance of that block closely. And to the extent we find opportunities to better leverage our capital, we would be prepared to take advantage of those. Suneet Kamath: And how much capital is in that segment? Is it an amount? Don Cummings: We don't break out the allocation of -- yes. We don't break out, Suneet, the allocation of our capital across the segments, but the liabilities are roughly about $20 billion. Operator: Our next question comes from Tom Gallagher of Evercore. Thomas Gallagher: Just a follow-up question on hedging. I heard the comment about how your RILA naturally hedges part of your VA guarantees, which lowers your need to buy the quantity of derivatives and hedges you need to buy. You have a peer out there, Brighthouse, that used to make the similar point. They eventually hit a limit and the company has struggled since they hit the limit. Now I'm sure there are differences between your book and their book. Your guarantees look far less risky quite candidly from my perspective. So that might be one of the reasons. But curious why you won't hit a limit and if you've spent any time thinking about what you're doing versus what Brighthouse is doing, just so you can at least clear up any confusion about why your program is fine. Don Cummings: Yes. Tom, thanks for that question. Well, we have spent a lot of time thinking about this issue, and we're very comfortable with the structure that we have in place. The new slide that we shared in the materials this quarter is intended to kind of help explain why we're different. And it really comes down to the fact that we have -- the VA guarantees are housed within Brooke. The RILA business is at J&L, and we're able to get this efficiency from a hedging perspective as we sort of offset the internal trades and then go out to the -- our derivative counterparties to purchase external hedges. The reason we're very comfortable that we won't have the issue that others have run into is because we don't have the guarantees and the RILA business being reserved for and hedged under a statutory framework, which I think was primarily the problem that you're referring to, which is the VM-21 construct. So we're very comfortable that even if the equity risk on RILA were to surpass the equity risk that we have on the VAs, then all that does is just shift the nature of our external hedging. It doesn't mean that we would have to suddenly put up some additional level of reserves. Thomas Gallagher: Got you. That's super helpful and clear. Yes, that is. The -- just from a follow-up perspective, if there was any impact to the actuarial review to Ryan's question, would that likely show up in JNL or Brooke Re in terms of the -- any changes that we would see there? Don Cummings: Yes. Well, as I mentioned, we're still working through our actuarial assumption review. But my expectation would be that we would see very minimal impacts at JNL. Any impact related to our VA business would be sort of below the line and a component of our MRB. Operator: Our final question of today comes from Alex Scott of Barclays. Taylor Scott: I just had a follow-up on the same kind of questioning that you just had from Tom and Ryan. So on the potential for an impact in Brooke Re, if there is an impact, do I take the comments that you made earlier in your script around the self-sustaining nature of the capital in Brooke Re to mean that based on what you're seeing at least as of today, regardless of how that actuarial review pans out, you don't feel like there's a risk that you would have to fund any capital into there. Is that a correct way of reading those comments earlier? Don Cummings: Alex, yes, so my comments earlier were more long-term focus in that we do believe with -- given the nature of the guarantees in Brooke Re that over the long term that Brooke Re will actually generate capital and be self-sustaining. I don't want to get ahead of our -- the completion of our actuarial review work at this point. We'll certainly look at it. And as I said, when we report fourth quarter earnings and our 2026 financial targets, including our capital return targets for next year, we'll update you on the status of our -- or the impact of our actuarial review. Taylor Scott: Understood. Okay. And then I also wanted to ask about potential reinsurance opportunities out there. I mean, I think on one hand, we're questioning you all about actuarial studies and so forth. I know on the other hand, you guys have expressed a lot of confidence about your ability to manage VAs. I mean are there opportunities out there that you're still considering and looking at around reinsurance of other blocks of business to take advantage of what you've built there? Don Cummings: Yes. So we talked a little bit about this on last quarter's call, Alex. And we certainly believe that we have very good expertise in the VA space and with risk management and hedging. And so to the extent that there were high-quality variable annuity blocks that were available that we believe would be complementary to what we already have at Brooke Re, that would be something that we would consider. We do believe that some of the recent VA transactions that you've seen indicate there are some buyers that see value in high-quality VA blocks, and we would look to participate in that. That probably wouldn't be the highest priority on our list. I think if we were looking at some sort of transaction, we might want to look at opportunities to further accelerate all of the work that we've done since becoming an independent public company to diversify our book. And that could include reinsurance of potentially some life business or something along that line that would be complementary to the businesses that we already have. But we're certainly aware of what's going on in the marketplace and are monitoring those kinds of things closely. Laura Prieskorn: I would just add that any growth opportunities that we were to explore or evaluate would be done in comparison to the value that we received from buying back our own shares. Operator: We have no further questions registered on today's call. So I'll hand back over to Laura Prieskorn for any closing remarks. Laura Prieskorn: Thank you all for your continued interest in Jackson. As you've heard this morning, our latest results represent another period of excellent operational accomplishments. We look forward to continuing the discussions and sharing our continued progress on our 2025 targets after the end of the fourth quarter. Thank you, and take care. Operator: Ladies and gentlemen, this concludes today's call. Thank you so much for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. I'd like to welcome you to Banco Santander-Chile's Third Quarter 2025 Earnings Conference Call on the 5th of November 2025. [Operator Instructions] So with this, I would now like to pass the line to Patricia Perez, the Chief Financial Officer. Please go ahead. Patricia Pallacan: Good morning, everyone. Welcome to Banco Santander-Chile's Third Quarter 2025 Results Webcast and Conference Call. This is Patricia Perez, CFO, and I'm joined today by Cristian Vicuña, Head of Strategy and IR; and Lorena Palomeque, our Economist. Thank you, everyone, for joining us today for the review of our performance and results in the third quarter. Today, Lorena will start with an overview of the economic environment, and then Cristian will go through the key strategy points and the results of the bank in the third quarter of the year. After that, we will have a Q&A session where we will be happy to answer your questions. So let me hand over to Lorena. Lorena Palomeque: Thanks, Patricia. During the third quarter of 2025, we observed positive economic indicators in the Chilean economy. Preliminary market figures suggest GDP grew around 2% year-on-year in Q2 or almost 3% when excluding mining. While we await the full national accounts report on November 18, which will also include Q1 and Q2 revisions, we estimate GDP growth of 2.4% by the end of this year and close to 2% for next year. We are now just a few days away from the presidential and congressional elections in Chile. Also, the outcome is still uncertain, polls suggest that a change in the government administration with an opposition candidate is the most likely scenario, which could generate stronger tailwinds for the economy next year. In terms of inflation, also moderation is already evident, it remains above the 3 target -- the 3% target with core inflation now below 4%. Limited second round effects, anchor expectations and a narrow output gap will allow inflation to converge to below 4% by the end of this year. We expect this inflation process to continue given the softer demand environment, both globally and domestically. In this context, we maintain our forecast for the U.S. of 3.6% for the end of this year, converging to 3% next year. Regarding the monetary policy rate, during the third quarter, the Central Bank of Chile maintaining the policy rate at 4.75%, responding to an inflation environment that continues to ease. Nevertheless, the bank will emphasize that it will closely monitor the evolution of core inflation, which remains higher than expected as well as domestic demand before considering a new rate cut. We expect another reduction in the last quarter of the year, bringing the rate to 4.5% by year-end and followed by an additional cut during the course of next year. On Slide 5, we present recent developments in the regulatory framework. Regarding the mortgage subsidy law, which was approved in May of this year, its implementation has continued within the framework of the allocation of the funds awarded in the first auction held in June. Under the law, 50,000 subsidies will be provided with almost 18,000 already authorized by banks. This has provided some momentum to the housing sector, whose growth is expected to become increasingly evident in the coming months. With respect to the interchange fee, the second rate cap reduction remains on hold and under review by the commission, and we are awaiting further updates on this matter. Open Finance system of FinTech law established an implementation schedule that begins with a collateral submission of information that banks and payment card issuers must share in July 2026. However, the system's technical definition remains under consultation, while costs and other operation details are still pending. This has prompted calls to review the implementation time lines, a request the [ FMC ] is currently analyzing. During September, the framework law on sectoral authorization for permits related to productive, energy and mining initiatives was approved. This will enable the development of tools for the simultaneous processing of permits streamlining the approval of low-risk projects, which should in turn accelerate investment in these sectors. As we mentioned before, there are only a few days left until the presidential and congressional elections in Chile, which will be held on November 16 with a potential runoff on December 14. According to the latest current polls, left wing candidate, Jeannette Jara leads the presidential race with 27% support, followed by right candidate, Jose Antonio Kast with 20%. While the presidential race has gained visibility, we must not overlook the parliamentary elections where the entire Lower House and nearly half of the senate, 23 out of 50 seats will be renewed. Polls show that Chileans remain highly concerned with crime, security and the economic growth. Simulation suggests that right wing candidates may gain ground in Congress, driven by local campaigns emphasizing security. This implies that even if the left wing candidate wins the presidency, Congress could lean right, potentially moderating more vital policy initiatives. As such, while some [ electoral ] related volatility is likely in the near term, we believe the longer-term market impact will be limited. And with that, I will now pass over to Cristian. Cristian Vicuna: Thanks, Lorena. On Slide 7, we show our value creation strategy for our stakeholders through our vision to become a digital bank with Work/Café. Our focus is on attracting and activating new clients, understanding their needs and deepening engagement. We aim to surpass 5 million clients by 2026 while continuing to grow our base of active customers. Next, we are building a global platform that leverages artificial intelligence and process automation to scale efficiently. It's about reducing the cost per active client and driving operational excellence. Our target is to maintain an efficiency ratio in the mid-30s or better, a reflection of a bank that is both digital and disciplined. We are focusing on broadening transactional and noncredit fee-generating services. Through this, we aim to grow our fee generation in double digits and ensuring best-in-class in recurrence, our income fees divided by our structural operating expenses. Our growing client base means more activity, and we are seeing increasing transactional volumes, especially in payments. Our digital ecosystem encourages clients to transact more frequently and seamlessly, driving engagement and loyalty. Finally, this is underpinned by strong CET1 levels, ensuring that our expansions remain sound, responsible and aligned with regulatory expectations. All of this leads to a strategy where we are capable of attracting value creation with ROEs above 20% and a dividend payout of 60% to 70%. On Slide 8, we can already see how our strategy over the last few years has succeeded in changing our income mix and creating a more efficient and profitable bank. Our key measure of value creation has been the strong growth in ROE achieved while maintaining solid capital ratios during the implementation of Basel III. Our ROE has increased more than 6 percentage points, more than double the increase in the rest of the industry. This has been supported by a 5 percentage point improvement in our efficiency versus a 2% improvement in the industry, demonstrating our consistent cost control and the success in the implementation of our digital transformation. We are particularly proud of successfully migrating our legacy mainframe systems to the cloud earlier this year under Project Gravity. On the other hand, we have been transforming the composition of our income revenue streams with fee generation increasing from 15% of our revenues to 20%, reflecting the success of the expansion of our client base and noncredit-related services through our digital accounts and card payments as well as other services such as asset management, brokerage and our acquiring business. Meanwhile, the composition of the industry revenues has remained stable. This mix is driving our revenues ratio to the best-in-class in the industry. This ratio, which shows how much of our costs are paid by our fee generation now stands at above 60%, far above for the rest of the industry. We are very proud of the success of our strategy has had so far. And as you will see later on, we are enthusiastic about the evolution of our results in the coming year. Now in Slide 10, we will take a closer look at the results this year. As of September, the bank generated a net income of CLP 798 billion, a 37% year-over-year increase resulting in a return on average equity of 24% and an efficiency of 35.9%. Growth was supported by an 8% rise in fee income and a 19% increase in financial transactions. Mutual funds grew 15%, and our recurrence ratio reached 62% year-to-date. Our net interest income, which includes our readjustment income increased 17% year-over-year, and our net interest margin remained at 4%. Furthermore, currently, we are provisioning a dividend payout of 60% of this year's income to be paid in April next year. This year, we have also been highly recognized on several fronts. We are proud to have been recognized by several institutions. Euromoney named us Best Bank in Chile, Latin Finance recognized us as Best Bank and Global Finance awarded as the Best Bank for SMEs. This year, we have improved our sustainability rankings with our MSCI ESG rating improving from A to AA and our Sustainalytics grade improving to 15.4 points. On Slide 11, we can see the evolution of our quarterly return over equity, where we can see that we have maintained our ROEs above 21% even in quarters with lower inflation such as this recent quarter, where the UF Variation was 0.56%, and we reached an ROE of 21.8%. On a yearly basis, our NII has improved 16.6% with a strong increase from net interest income as a result of a lower cost of funding, which improved some 100 basis points year-over-year. With this, our year-to-date NIM reached 4%. And given our current macro expectations, we expect our NIMs to stay around the 4% area for what is left of 2025. On Slide 12, we can see how our rapidly expanding client base is leading to a higher fee generation. We currently have 4.6 million clients, of which around 59% actively engaged with us and some 2.3 million are digital accessing the online platforms on a monthly basis. The number of current accounts is increasing 10% year-on-year, driving the 5% and 4% growth of our active clients and digital clients, respectively. The growing client base has led to a 12% annual increase in credit card transactions and a 15% rise in mutual fund volumes that we brokered. Overall, our clients maintain high satisfaction levels with the bank and our product offering. Furthermore, we continue to expand our footprint among companies, where we have increased the number of business current accounts by 23% in the last 12 months. This is explained by the simple business accounts we offer to smaller companies and the integrated payments offered through Getnet. As we can see in the table on the right, the increase in our client base and product usage is translating into high fees and results from financial transactions, growing 11.5% year-over-year. Our main products such as cards, Getnet, account fees and mutual fund fees continue to show strong trends, with cards and account fees registering a higher expense in the quarter related to certain campaigns in our loyalty programs during the quarter. On Slide 13, we can see how our recovery of income generation and tight cost control has improved our key performance metrics. Our efficiency ratio reached 35.9%, the best in the Chilean industry in 2025 so far, and our recurrence ratio reached 62%, meaning that over 60% of our expenses were financed by our fee generation. In early 2025, operating expenses rose temporarily due to the cloud migration costs, mainly reflected in higher administrative expenses during the first quarter. However, overall, our operating costs grew below inflation in the year so far. In the quarter, our total core expenses decreased 3.4%, mainly due to lower personnel expenses related to the seasonality caused by the winter holidays and national holidays in September. Overall, we have maintained our best-in-class levels of efficiency and recurrence compared to our peers. Furthermore, we continue to innovate in our branch network to align with our Work/Café format, improving both efficiency and customer experience. It is thanks to these adjustments to our contact points with clients along with the evolution of our digital platforms that we have been able to achieve these impressive levels of operating performance. On Slide 14, we show an overview of our cost of risk and asset quality. As in prior quarters, cost of credit has remained above historical average, reflecting elevated nonperforming loans earlier in the year. From the graphs, you can see that our NPL and impaired portfolio have shown some improvement in recent quarters with a slight pickup in September due to some seasonality related to collections in the month caused by the national holidays. However, our initial data for October is showing better performance. And over the last few months, we have seen tangible improvements in our asset quality that we expect these trends to continue in the coming quarters. On Slide 15, we can see that the CET1 ratio reached 10.8% in September '25, far above our minimum requirement of 9.08% for December 2025 and demonstrating some 45 basis points of capital creation since December 2024. This was driven by our income generation in 2025 and considers a 60% dividend provision for our 2025 profits accumulated so far and a 4% increase in risk-weighted assets. As noted in our previous call, we have a 25 basis point Pillar 2 capital charge, of which 50% was made by June 2025, in line with regulatory requirements. So on Slide 16, we show our guidance for what's left of 2025 and our initial guidance for 2026. Regarding our 2025 forecast, we are well on track to meeting our guidance with NIMs around 4% and efficiency in the mid-30s. Overall, we expect ROE to finish the year slightly above 23%. For next year, we're expecting GDP growth of 2% with a UF variation just below 2.9% and an average monetary policy rate of around 4.4%. With the upcoming elections in just 2 weeks, we expect a more favorable business environment next year, supporting mid-single-digit loan growth. Despite the slightly lower inflation, the loan growth and slightly lower rates should help to sustain our NIMs around 4%, while our fees on financial transactions should grow mid- to high single digits. This does not include any impact for a further interchange fee reduction, which is yet to be defined by the interchange fee commission. Our efficiencies should remain around the mid-30s, while our cost of credit should continue to improve gradually to reach around 1.3% for the year. With all of this, our initial expectations for 2026 are for an ROE within the range of 22% to 24%, underscoring the high ROE potential of Santander-Chile. With this, I finish my presentation, and we can start the Q&A session. Operator: [Operator Instructions] Our first question is from Lindsey Shema from Goldman Sachs. Lindsey Marie Shema: Congrats on the results. Looking ahead to 2026, it seems like ROE might be a little better, a little worse, but somewhat the same. Just wondering here on our end, what are the main upside and downside risks for your ROE estimate? And then on that note, does it factor in an unfavorable election result? Or could there be further downside there? Cristian Vicuna: Well, so thank you for the question, Lindsey. I'm going to hand over the first part because we assess that some of the most beneficial potential scenarios of next year are related to the change in political cycle. And we are not actually considering most of those effects into our guidance -- our current guidance. Patricia Pallacan: [indiscernible] Cristian Vicuna: Well, to provide some perspective, we are not considering in the potential scenario of growth for next year, the benefits of a political change that could trigger further growth in the commercial part of the loan portfolio. So we are thinking of mid-single digits, but a more benign scenario will probably make the commercial portfolio of the middle market companies grow stronger than this, maybe even going to figures of 7% to 8%, probably very skewed to the second part of next year and more into 2027 because of the delay of some projects to get approved and passed through to the practical part of the investment. So that's one of the things that's not actually considered on our guidance. The main risks that we have seen so far this year and next year are coming from the external part of the macro scenario. You have seen the volatility in terms of assets and commodity prices and all the effects that have come from all the discussions from international trade effects of the U.S. policies and the consequences of this. So that's a source of uncertainty that's also not considered in the central part of our scenario. But all in all, I think that we are favorable of the upcoming quarters in 2026 and that in general terms the more adverse scenarios are considered within our guidance. Patricia Pallacan: Yes. And maybe to complement the answer, our base case scenario considers a lower inflation, but partially offset by a lower monetary policy rate on average for next year. And also offset by better growth dynamics in terms of loans. So that could be better -- even better depending on the political landscape for next year. And we think for both scenarios, we are well prepared in our targets and guidance. Operator: Our next question is from Daniel Mora Ardila from CrediCorp. Daniel Mora: I have 2 questions. The first one is regarding loan growth. Can you provide further color of what do you expect about loan growth in 2026 by segment? If we can have the guidance by segment would be great. And I would like also to know if you can comment about the competitive pressures in loan growth, especially considering that there is one key competitor that is showing very high figures of loan growth in Chile. I would like to know if you feel the pressures, especially in the commercial segment. That will be my first question. And the second one is regarding NPLs and cost of risk. I would like to know, considering the slight deterioration of NPL in the consumer segment and mortgage segment, what will be the path or the evolution of asset quality indicators in 2026, given that you are guiding for a reduction of the cost of risk next year? Patricia Pallacan: Thanks, Daniel, for your questions. I will take the first one and Cristian will take the second one. So regarding the composition of loan growth for next year, we are seeing like a quite homogenic growth composition [ in segments ]. So regarding consumer loans, we continue to see growing at a healthy pace in that product. Regarding the mortgage portfolio, we also -- during this last quarter, we are seeing better dynamics leveraged by the government support or stimulus coming from the subsidies. So we are seeing good dynamics for next year as well. And regarding the commercial loans, that will be like the question mark, but we are also seeing better dynamics for next year, especially leveraged by the political landscape, right? And if we have the right changes in the regulation that we have already seen as part of the transition we will have growth in our guidance for next year. Cristian Vicuna: So within the commercial portfolio, to give you a little more flavor, we are expecting for the retail part, SMEs to grow mid-single digits as within our general guidance. But as I mentioned earlier, the question mark is what will happen with the large corporates and the investment decisions that they might trigger because of the political landscape. This is what we are not seeing yet in terms of market dynamics. And it's probably related to the part of your question about the competitive pressure, right? So I think that in terms of the commercial part of the portfolio, we are seeing some players growing, but we don't assess it on the local part of the portfolio. And we believe that this is set to improve by the second half of next year. And turning to your credit cost of risk and risk in general performance. So, so far this year, we are showing closer to 1.4% cost of risk year-to-date. We have some seasonal effects on September in terms of the absolute movements of the portfolio, especially in the NPL part, we are seeing it's pretty stable. Most of the increase in cost of risk is coming from the improvement that we have been displaying in the commercial NPLs. So these commercial NPLs are coming down from levels of 4.1% 12 months ago to levels of 3.4%. So we've been doing some write-offs of some nonperforming loans there, and that's explaining most of the pickup that we are seeing in terms of cost of risk. We know that's not going to continue for the upcoming quarters. So that's what makes us believe that the total cost of risk is set to improve in the next periods. Operator: Our next question is from Neha Agarwala from HSBC. Neha Agarwala: My first question is on the interchange fee. Could you remind us what are the current levels for the interchange fee? And what is the risk that the second caps actually go through next year? What is your expectation in that regard? Cristian Vicuna: So just a reminder, like we had a committee that was in charge of assessing the rate fees for the card business in general. So they implemented the first part of their reduction from levels of around 1.4% in credit to levels of 1.14%, which is the current rate and from levels of 0.6% in debit to levels of 0.5%, which is the current rate. So the second rate cut, which was suspended, it was set to decrease credit fees to levels of around 0.8% and debit to levels of around 0.35% and prepaid also to levels of around -- similar to credit of 0.8%. So that's the part of the decision that's being reviewed. The committee is expected to come to a decision by the final months of this year or early next year. Our initial assessment was that the total reform will mean an impact in our credit card fees of around $50 million, half and half in both impacts. So the second part is expected to come next year. We don't know. But the impact will be in the neighborhood of the $20 million in fees in the card impact if the committee comes to the decision to implement the second cut. Neha Agarwala: Very clear. So if the second cut actually happens, which is not in your guidance, the impact would be between $20 million to $25 million for 2026. Cristian Vicuna: Yes. Neha Agarwala: Super. And my second question is, again, going back to the cost of risk. I know you talked about it. But this year was -- we saw the NPLs coming down. You had to do some write-offs, there were one-off cases. But 2026, the asset quality should perform better than what we had this year. So why isn't cost of risk coming down, even more in the initial targets? Cristian Vicuna: I think 10 basis points, it's a good range to start because we are still not seeing the full effects of the projects that we've been implementing to improve the collection cycle. So we are still -- and I agree with you, which might sound a little conservative, but we are comfortable guiding some conservative improvements and leaving some room there. Operator: [Operator Instructions] Okay. It looks like we have no further questions. I will now hand it back to the Santander-Chile team for the closing remarks. Cristian Vicuna: Thank you all very much for taking the time to participate in today's call, and we look forward to speaking with you again very soon. Operator: That concludes the call for today. Thank you, and have a nice day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Royalty Pharma Third Quarter Earnings Conference Call. I would like now to turn the conference over to George Grofik, Senior Vice President, Head of Investor Relations and Communications. Please go ahead, sir. George Grofik: Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's Third Quarter 2025 results. You can find the press release with our earnings results and slides of this call on the Investors page of our website at royaltypharma.com. On Slide 2, I'd like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from these statements. We refer you to our most recent 10-K on file with the SEC for a description of these risks. All forward-looking statements are based on information, currently available to Royalty Pharma, and we assume no obligation to update any such forward-looking statements. Non-GAAP liquidity measures will be used to help you understand our financial results and the reconciliations of these measures to our GAAP financials is provided in the earnings press release available on our website. And with that, please advance to Slide 3, our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board; Marshall Urist, EVP, Head of Research and Investments; Chris Hite, EVP, Vice Chairman; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Marshall will provide a portfolio update. Chris will then discuss our development-stage pipeline, and Terry will review the financials. Following concluding remarks from Pablo, we will hold the Q&A session. And with that, I'd like to turn the call over to Pablo. Pablo Legorreta: Thank you, George, and welcome to everyone on the call. I am delighted to report another successful quarter of execution on our goal to be the premier capital allocator in life sciences with consistent compounding growth. Slide 5 summarizes our strong business momentum in the third quarter. Starting with the financials, we delivered 11% growth in both portfolio receipts, our top line and royalty receipts, which are recurring cash flow. The sustained momentum was driven by the strength of our diversified portfolio. We're also now starting to report on a quarterly basis, our return on invested capital and return on invested equity. In the third quarter, we maintained strong returns in our business with return on invested capital of 15.7%, and return on invested equity of 22.9% for the last 12 months. Turning to capital allocation. We deployed capital of $1 billion in the quarter on value-creating loyalty transactions. Taking our total to $1.7 billion in the first 9 months, and we repurchased 4 million shares in the quarter, taking the total value of share repurchases to $1.15 billion in the first 9 months. Looking at our portfolio, we remain very active in the growing market for Royalty. We acquired our Royalty interest on Amgen's lung cancer drug, Imdelltra, for up to $950 million. We entered into a funding agreement for up to $300 million with Zenas Biopharma for its development-stage autoimmune drug obexelimab. And since the quarter ended, we acquired a royalty on Alnylam's Amvuttra, a blockbuster therapy for ATTR amyloidosis for $310 million. We're excited by each of these three transactions, and Marshall will take you through the details momentarily. On the back of this busy year, our development-stage pipeline has expanded to 17 therapies. And as Chris will highlight, we're looking forward to multiple pivotal readouts in the relatively near future. Lastly, we're pleased to raise our full year 2025 top line guidance. This is the third time we have raised guidance this year and the 14th since our IPO in 2020. We now expect portfolio receipts to be between $3.2 billion and $3.25 billion, which represents impressive growth of around 14% to 16%, driven by our diversified portfolio. Consistent with our standard practice, our guidance is based on our current portfolio and does not include the benefit of any future transactions. Slide 6 is one I keep coming back to, as it demonstrates our consistent double-digit growth on average since our IPO. As you heard at our Investor Day in September, we have delivered this impressive record year in and year out, regardless of the market backdrop. This reflects our ability to execute successfully and consistently against our strategy. With that, I will hand it over to Marshall. Marshall Urist: Thanks, Pablo. We've had a busy last few months, and I want to provide more color on our recent deal activity. The breadth of these transactions totaling approximately $1.6 billion in announced value across three very different disease areas really highlights the power of Royalty Pharma's therapeutic area agnostic investment approach that focuses on innovative important new medicines to drive our diversified, sustainable and attractive growth profile. Slide 8 takes you through our Imdelltra transaction. This is a great example of a large investment in the kind of transformational medicines that are the foundation of our market-leading portfolio. Amgen's Imdelltra was approved in 2024 as a first-in-class targeted immunotherapy for small-cell lung cancer, where median survival is only 1 year after initial therapy. We acquired an existing royalty of about 7% of sales from B1 for up to $950 million, including an upfront of $885 million. B1 has the option to sell an additional portion of the royalty to us for up to $65 million. Imdelltra has strong clinical data in the second-line setting. And looking ahead, we have high conviction for expansion into newly diagnosed patients with the ongoing Phase III trials beginning to read out in 2027. Imdelltra has had a strong launch, currently annualizing at over $700 million with consensus sales reaching $2.7 billion by 2035. Based on this outlook, we expect the transaction to deliver an unlevered return in the low double-digit range, consistent with our target for transactions on approved products. On Slide 9, I want to turn to our most recent transaction in which we acquired Blackstone's 1% royalty on Alnylam's Amvuttra for $310 million. Amvuttra is approved for TTR amyloidosis, a progressive, debilitating and fatal rare disease and is already a blockbuster medicine. The clinical data shows a compelling patient benefit with dosing once a quarter and an approximately 35% reduction in all-cause mortality for patients with the most common form of the disease, TTR cardiomyopathy. Alnylam recently reported very strong third quarter sales with TTR franchise guidance rising to between $2.475 billion and $2.525 billion for 2025, with Amvuttra adjusting its third year on the market. Consensus sales are expected to reach over $8 billion in 2030. We expect an unlevered IRR in the low double digits or better that factors in significant potential competition from Alnylam's follow-on therapy, nucresiran. The third transaction is our agreement with Zenas Biopharma for obexelimab, an exciting Phase III product for autoimmune disease. Slide 10 sets out the key elements. Obexelimab is potentially the first nondepleting B-cell modulating therapy for a rare autoimmune disorder called IgG4-related disease, with Phase III results expected around the end of this year. We will provide up to $300 million to acquire a 5.5% synthetic royalty on worldwide obexelimab sales. Importantly, consistent with our careful approach to risk management, this investment is staged with an upfront of $75 million and the remainder to be paid on the achievement of certain clinical and regulatory milestones. The Phase II proof-of-concept data in IgG4-RD are strong, and Zenas' recent Phase II results in relapsing multiple sclerosis, which showed an impressive near complete suppression of active inflammatory disease, further increases our conviction in obexelimab's mechanism of action. Commercially, we see blockbuster potential in IgG4-RD given a patient population of more than 20,000 and still low uptake of advanced therapies. As a result, we expect to deliver an unlevered IRR in the teens, consistent with our target for development-stage therapies. So to close three very different transactions, but all consistent with our commitment to creating value for shareholders by investing in innovative therapies with high patient impact. With that, let me hand it over to Chris. Christopher Hite: Thanks, Marshall. It's my pleasure to provide an update on our development-stage pipeline. As a reminder, at our Investor Day, we highlighted that our pipeline is expected to generate over $36 billion in cumulative peak sales, which translates to over $2 billion in peak royalties to Royalty Pharma. So there's really significant potential in this pipeline. Slide 12 illustrates that 3 of our 5 Royalty transactions this year have been on development-stage therapies, namely litifilimab, daraxonrasib and obexelimab. This expands our total pipeline to 17 therapies, most of which have become -- most of which have multi-blockbuster potential. Without going into the details of each deal, there are a few key takeaways. First, all three transactions include a synthetic royalty component. This speaks to the growing recognition of this attractive nondilutive funding paradigm, which we pioneered and allows us to tailor solutions for our partners. At our Investor Day, we presented findings from the Deloitte survey, which highlighted that the biopharma industry is evolving towards a more diversified funding model, in which royalties, and particularly synthetic royalties are becoming a growing part of the capital structure. Our deal activity in 2025 underscores this point. We have, so far, this year, announced synthetic royalty transactions of up to $1.8 billion, which have already far exceeded 2024 as our best year ever. The second point here is about risk mitigation. Each of these three therapies is in Phase III development, which carries a lower risk profile. We only consider development-stage investments if there is a compelling proof-of-concept data in an area of unmet patient need, and if the range of commercial scenarios we model supports returns in the teens or better. Third, the broad spread of indications highlights our therapy area agnostic approach. In fact, since 2020, we have invested in 60 different disease areas. Without the therapy area constraints of most biopharma companies, we view the entire biopharma market as our pipeline of opportunities. Slide 13 shows the balance of our capital deployment between approved and development-stage investments. The mix varies significantly on a year-to-year basis given the timing of opportunities, but has typically been a roughly 65-35 split over time between approved products and development-stage therapies. We see this as generally a good rule of thumb for our capital deployment mix. However, this split does not tell the whole story. In fact, as a result of our success rate in development-stage investment, our portfolio risk is low overall. For example, 86% of our current capital at work is related to approved products, and this ratio has been very stable, averaging around 90% since 2012. Only 11% of our capital -- current capital at work is related to development-stage products, of which around 2% have already received positive pivotal readouts. Slide 14 expands on my earlier comments on risk mitigation. Here you see the industry probability of approval at each phase of development. Importantly, and in contrast with biopharma, we don't invest in Phase I or Phase II. Instead, we focus our investments where industry success rates are highest. By following this disciplined risk-reward approach, and by layering on top additional risk mitigation through deal structuring, we've built a strong track record of success. This explains why we continue to beat industry benchmarks with around 90% of our development-stage investments going on to receive approval. On Slide 15, I want to close by highlighting the multiple pivotal readouts that we expect for our development-stage investments over the next couple of years. In the fourth quarter of 2025 and 2026, we expect six Phase III readouts with deucrictibant first up in hereditary angioedema, followed by obexelimab in IgG4-related disease. Additionally, 2026 readouts include the first outcomes trial for our investment in the LP(a) class of drugs with Novartis' pelacarsen as well as Phase III results for litifilimab in lupus and aficamten and nonobstructive hypotrophic cardiomyopathy. Among these six therapies, three have the potential to generate peak annual royalties of up to $200 million, while daraxonrasib for pancreas cancer could be well above $200 million. For 2027, we expect pivotal readouts from a host of potential blockbusters, including our second LP(a) investment olpasiran as well as frexalimab in MS and daraxonrasib in lung cancer, to name just three. To conclude, the next few years will see multiple events that have the potential to unlock substantial value from our development-stage pipeline. And with that, I'd like to hand it over to Terry. Terrance Coyne: Thanks, Chris. Let's move to Slide 17. This slide shows how our efficient business model generates substantial cash flow to be reinvested. As you heard from Pablo, royalty receipts grew by 11% in the third quarter, reflecting the excellent momentum of our diversified portfolio. Key drivers were the strong growth of Voranigo, Tremfya and the cystic fibrosis franchise. Milestones and other contractual receipts were modest, both in this quarter and the prior year quarter. As a result, we also delivered 11% growth in portfolio receipts, our top line to $814 million. As we move down the column, operating and professional costs equated to 4.2% of portfolio receipts. This reflected cash savings from the internalization transaction and compares with over 12% in the first 6 months of the year. Net interest paid was $123 million in the quarter, reflecting the semiannual timing of our interest payment schedule with payments primarily in the first and third quarters and the interest we received for our -- the cash on our balance sheet. Moving further down the column. We have consistently stated that when we think of the cash generated by the business to then be redeployed into value-enhancing royalties, we look to portfolio cash flow, which is adjusted EBITDA less net interest paid. This amounted to $657 million in the quarter, equivalent to a margin of around 81%, and reflects a high underlying level of cash conversion and efficiency. Capital deployment in the quarter was just over $1 billion. This primarily included the $885 million upfront for Imdelltra, $75 million upfront for obexelimab and R&D funding for litifilimab. Lastly, our weighted average share count declined by 33 million shares versus the third quarter of 2024, reflecting the impact of our share buyback program. On Slide 18, I am pleased to share our first quarterly update on portfolio returns. We introduced these new metrics at our Investor Day, and I hope the message came across loud and clear. We are in the returns business, and every capital allocation decision we make is in an effort to create economic value for shareholders. Return on invested capital has been remarkably stable at around 15% on average from 2019 to 2024, and in the third quarter, was 15.7% for the last 12-month period ending September 30. Return on invested equity, which shows the impact of conservative leverage on our equity returns, has been consistently in the low 20% range, and was 22.9% for the last 12-month period ending September 30. We believe these new metrics facilitate a deeper understanding of the cash yield for our business and demonstrate that we are continuing to invest at attractive returns that will drive long-term value for our shareholders. Slide 19 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of the third quarter, we had cash and equivalents of $939 million. In terms of borrowings, we have investment-grade debt outstanding of $9.2 billion, including the $2 billion of notes we issued in the third quarter and a weighted average duration of around 13 years. Our leverage now stands at around 3.2x total debt to adjusted EBITDA or 2.9x on a net basis. We also have access to our $1.8 billion revolver, which is undrawn. Taken together, we have access to approximately $2.9 billion of financial capacity through cash on our balance sheet, the cash our business generates and access to the debt markets. Turning to our capital allocation framework. We have deployed $1.7 billion of capital on attractive royalty deals in the first 9 months of 2025. We have also returned a record $1.5 billion to our shareholders in the first 9 months of this year, including share repurchases of $1.15 billion and our growing dividend. On Slide 20, we are raising our full year 2025 financial guidance by approximately 4% at the midpoint. We now expect portfolio receipts to be in the range of $3.2 billion to $3.25 billion, an increase from $3.05 billion to $3.15 billion previously, representing growth of around 14% to 16%. The increase from our previous guidance primarily reflects the strong momentum of our diversified portfolio. Milestones and other contractual receipts are now expected to be around $125 million compared with $110 million previously. Importantly, and consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions. Turning to operating costs. Payments for operating and professional costs are still expected to be 9% to 9.5% of portfolio receipts in 2025. As a reminder, costs in the first half of the year were greater than 12% of portfolio received, driven by approximately $70 million of onetime expenses related to the internalization and other onetime items. Collectively, these items are expected to impact full year cost by a little more than 2% of portfolio receipts. Lastly, interest paid in 2025 is expected to be around $275 million, with around $7 million to be paid in Q4. This guidance does not take into account interest received on our cash balance, which was $28 million in the first 9 months. In summary, we delivered a strong third quarter and 9 months, which puts us on track to achieve another year of strong financial performance in 2025, reflected in our raised guidance. To close, I want to highlight a few factors for the 2026 to help with your modeling. First, we expect minimal royalties from Promacta next year, which is facing the launch of generics in the United States and Europe in 2025. And second, we currently anticipate interest paid to be between $350 million to $360 million in 2026, which includes interest payments on the $2 billion of senior secured notes issued in September 2025. We plan to provide full year 2026 guidance when we report fourth quarter 2025 earnings earlier -- early next year. Consistent with our standard practice, this guidance will exclude contributions from any future investments. With that, I would like to hand the call back to Pablo. Pablo Legorreta: Thanks, Terry. To conclude, I'm delighted with our performance in the quarter. We maintained our double-digit momentum, we expanded our portfolio, and we again raised our guidance. We also hosted a successful Investor Day, where we were thrilled to share our plans for shareholder value creation. On that note, I want to close by reiterating some of the key messages from the day. We're the clear leader in an expanding market with strong fundamental tailwinds, reflecting huge demand for funding life sciences innovation in even more creative ways. We have a best-in-class platform for investing in the most exciting and innovative products marketed by premier biopharma companies and expect to remain the undisputed leader. We have announced an outstanding track record of delivering consistent and attractive returns, including an IRR and return on invested capital in the mid-teens and return on invested equity of over 20%. Lastly, we're on track to deliver strong global volatility growth through 2030 and beyond. Together, we think this adds up to a very attractive investment proposition with a potential for annualized total shareholder returns, at least in the mid-teens over the next 5 years. With that, we would be happy to take your questions. George Grofik: We will now open up the call to your questions. Operator, please take the first question. Operator: [Operator Instructions] The first question comes from Asad Haider with Goldman Sachs. Asad Haider: Congrats on all the progress. Just maybe a couple on the external environment. Recently, we are seeing a bit of an uptick in biotech M&A, and we're also moving into a lower interest rate environment. So could you perhaps speak to the pushes and pulls that these changing -- that this changing backdrop across these external factors presents for Royalty-driven deal activity and how you're thinking about the opportunity set and your target returns? And then just second, just any updated thoughts on how you're thinking about the China opportunity that you discussed at your Investor Day back in September? Any updates or insights around your China strategy as it relates to the types of investments that you're considering there would be helpful, and how, if at all, if the external environment impacts that? Pablo Legorreta: Thank you for the question. Chris, why don't you take this question, both of them? Christopher Hite: Thanks for the question. You're right, there has been an uptick in the M&A marketplace. And that really has very little impact on anything that we're doing. What you've seen is, obviously, large pharma is looking to fill some of their pipelines and LOE exposure. And we actually see that as beneficial to what we're doing. I think in the sense of it's just the companies out there need a lot of capital. There's a variety of ways in which they can get capital. We're clearly providing a key source of capital in the sector, which we're super excited about. So increased M&A uptick really doesn't impact the royalty market. In the sense of China, you're right. We're super excited. That's going to be -- and we've seen a lot of growth in the out-licensing out of China to multinationals. We see that as another leg of growth on the existing royalty marketplace. As you know, we spend a lot of time looking at companies and investing companies post proof of concept. I marked -- made some remarks in the prepared remarks about what stage of development. We invest in a lot of those deals out of China have been early-stage development deals. We're going to track those transactions and those molecules as they progress with the companies that in-license them, and there certainly will be opportunities to acquire those royalties as there's more known about the compounds that were out-licensed in multinationals. So we're super excited. We've had multiple teams go to China this year, multiple times, building relationships for that opportunity set. So we're excited about the opportunity. We see it just as another leg of growth on the existing royalty marketplace. Operator: And our next question will come from Chris Parikh (sic) [ Chris Schott ] with JPMorgan. Hardik Parikh: This is Hardik Parikh in for Chris Schott. Just wondering, I know Merck had recently announced a royalty deal with one of your peers. And you guys have also done a couple of R&D collaborations with Biogen and Merck in the past. Do you think the frequency of these types of collaborations with large pharma will increase as those names head towards their patent cycles? What type of factors drive these deals from pharma's perspective? Pablo Legorreta: Yes. Thank you for the question. And I think, I'll start by just saying that as the largest royalty buyer in the market, you can sort of assume that we look at every deal. This product is also a competitor to Trodelvy, where we have a Royalty, we funded the Phase III. So we're very familiar with the space. And regarding the deal specifically, what I would say is that it's just great to see how this idea of using royalties to fund trials, not only with biotech companies, but also with big pharma, is really becoming mainstream, which speaks to the big opportunity that we have in front of us. And I think this is going to just continue to grow, and it's a really big opportunity if you think of the scale of capital needed required by these companies. So we're very optimistic about these transactions continuing to happen. And I think with respect to the transaction specifically, as I said, we actually looked at it, but decided at the end that it was not for us, and continue to be very active with many big pharmas to talk about this kind of funding. Operator: And the next question will come from Geoff Meacham with Citi. Geoffrey Meacham: I guess, Terry or maybe Pablo, on the IRR, I'm assuming that that's likely to tick up. And by the way, thanks for presenting that data. It's likely to tick up as you hit a tipping point of new launches. I guess the bigger picture is, does that change royalty's willingness to look to maybe moderately earlier programs, or maybe just take bigger risks? I know you're not obviously going to materially change the model, but the question is more of a tilt going forward on the risk side. Pablo Legorreta: Sure. Why don't you take that question, Terry? But I think just one very top-level comment about it. You can imagine that we've been actually tracking this for three decades. And it really doesn't change much our behavior. If we see an attractive transaction in an approved product or an attractive transaction in a product that is in development, we will do it. And the fact that this calculation, these returns are going to move up and down a little bit, will not really impact our behavior in terms of us looking at transactions and deploying capital. But go ahead, Terry. Terrance Coyne: Yes. Pablo, that's exactly the point. And I would say on the specifics on the return on invested capital and return on invested equity metrics that we started to highlight, I think the thing that we're most proud of really is the stability and the consistency. And so as we've continued to scale our investments, it's remained remarkably stable. And we think that it's going to bounce around a little bit, quarter in and quarter out, but it should remain for return on invested capital in that mid-teens range for the foreseeable future, which we think really speaks to the value creation of our business model. Operator: And our next question will come from Umer Raffat with Evercore. Michael DiFiore: This is Mike DiFiore in for Umer. Two for me. I want to drill down on the Amvuttra deal. You mentioned significant competition from nucresiran potentially, but could you provide any color on the range of scenarios that factor in significant -- this significant competition from this asset. And in the scenario where it does get approved and launches in 2030, how quickly might you see Amvuttra eroding? And quickly, separately, any updates on the market for synthetic royalties in the obesity space? Pablo Legorreta: Marshall, why don't you take both questions? Marshall Urist: Sure. Mike, thanks for the question. So specifically, on how we thought about Amvuttra over its whole product life cycle. As we highlighted at the beginning of the call, we are really excited about this product. It's completely consistent with the kind of products that we've invested in, in the past. And I think the strong launch in Alnylam's strong execution behind it are all examples of that. Specifically to your question, as we always do, we looked at a pretty broad range of scenarios for both timing and the slope of how nucresiran might enter the market. We obviously have a case study, a very recent case study of the Onpattro to Amvuttra transition to sort of to help us and guide us as one scenario. But we certainly looked at a lot of sensitivities around that as well, with the message being and why we talked about that, that we're confident in an IRR of low double digits or better when we look across that range of scenarios, even baking in that range of nucresiran scenarios. Second, on the obesity market. So it continues to be, I think, message very consistently with what we said in the past, certainly on our radar looking for the right opportunities there. We don't just want to have a royalty on an obesity product for the sake of it, we want it to be an important product that differentiates itself in this space, and we'll be disciplined in waiting to find the right thing that creates value for our shareholders. Operator: And the next question will come from Terence Flynn with Morgan Stanley. Terence Flynn: Two for me. First, congrats on the Amvuttra deal. I think Blackstone originally signed a deal with Alnylam back in 2020. And Pablo, given your comments that you guys look at everything, I'm assuming you had a look at it back then. So I'm just wondering what's different now versus that 2020 deal? And then on the LP(a) front, probably a question for Marshall. Amgen, as I'm sure you guys heard last night talked about the olpasiran Phase III event rate tracking slower than expected. Just any thoughts there on your views on implications for probability of success here for this study? Pablo Legorreta: Sure. Marshall will take the second part of the question, but maybe to provide some color on the first one regarding Amvuttra? Yes, it is part of a larger deal that was done in 2020, which was about $1 billion. That actually related much more to nucresiran. And this small royalty 1% on Amvuttra was sort of an add-on to the transaction. It was sort of a $70 million part of the overall transaction. And we did look at that -- the whole deal at the time, but again, we decided it was not for us. And I think, one thing I will comment on because obviously, I think this provides some color regarding this question that we've had for -- since we went public 5 years ago about competition. And obviously, regarding the motivations of why Blackstone sold, you should ask them, but they've been in this investment for 5 years, and it's an attractive return given the investment they made specifically on this. But I think one thing to comment on, as we highlighted in our Investor Day is that we do have a very unique structure as a company now, ongoing business. Perpetual versus many of our competitors that are structured as close-in funds where they have investment horizons that are much shorter than ours. And as you know, royalties are very, very long. It can be 10, 15 years. So what's very unique about Royalty Pharma is that were structured to actually invest in assets that are very long and hold them to maturity. And I think this really speaks to the differences in the business models, where we are really set up to own royalties that are going to cash flow for 10, 15 or longer than that. And so we have sort of different investment horizons. And I think the last thing I would say is that this transaction also highlights something unique about Royalty Pharma, which is that given our diligence process that has been honed over decades, we were able to develop a differentiated view about the sales trajectory and importantly, the persistence and duration of the Amvuttra royalties that maybe differs from other people's perspectives. And that's why we think this is a very attractive investment that will deliver attractive returns for us. But the other question for you, Marshall. Marshall Urist: Sure. Thanks for the question on LP(a). So specifically, Amgen did talk about a slower event rate in that study last night. I think that probably shouldn't come necessarily as a surprise, given our other -- given Novartis where we also have an investment in their LP(a) product, had a similar observation from their trial. I think when we did the initial diligence, when you're running a first-in-class outcome study for a target in a population where there's not a lot of precedent, I think we were eyes open about the fact that there ultimately would be some uncertainty around timing and the exact event rate. So what that means to us, to your question is it doesn't change our view of the probability of success. And we continue to be really excited about having two royalties in the two leading therapies in this class that we think could be a very large, many multibillion-dollar class in the future, and we're really excited to be a part of it. Operator: And our next question will come from Mike Nedelcovych with TD Cowen. Michael Nedelcovych: I have two. My first is also on the LP(a) space. And specifically, I'm wondering if the Horizon trial fails in 2026, to what extent do you think differences in trial design could ride to the rescue as it relates to olpasiran's prospects in 2027? And my second question is on obexelimab. This agent posted some very interesting Phase II MS data right after Royalty Pharma announced this deal, so I'm just curious if that has changed your thinking at all around peak potential? Or was MS upside already taken into account? Pablo Legorreta: Sure. Thanks for the question. Again, this is for you, Marshall. Marshall Urist: Sure. Mike, thank you for the question. So specifically, your question on LP(a), just for everyone very quickly who might not be familiar with all the details here. So Mike, your question is if the first outcomes trial that will read out Horizon from Novartis were not to be positive, what would the implications be for the second one coming, which is Amgen's trial for olpasiran. And I think, there are certainly some differences in trial design. There are some differences in depth of LP(a) lowering. So we are optimistic about both trials. But certainly, there are differences in the trial design, which could differentiate the olpasiran outcome from the -- from Horizon and pelacarsen. Hard to comment really specifically on that right now until we see -- until we see the details in what happens. So are certainly optimistic and excited to see the first one next year. Your second question on obexelimab. So yes, we were the MS data that Zenas is reported looked great. And I think as we highlighted in the prepared remarks, it really kind of validates the underlying kind of scientific and clinical question here, which is if you have a non B-cell depleting but B cell activity modulating antibody, what would be -- what would that mean for activity in various autoimmune diseases. And I think the MS data and really showing very strong suppression of disease activity is very validating of the view that this is a new and different way of treating autoimmune disease, which is exciting. The near-term launch, and I think what we were really working with Zenas on funding, is certainly focused on IgG4-related disease. And so that was really the -- that was the focus of the deal because I think in a lot of ways, from a commercial perspective, that drives the near-term capital need, but they have a great team over there at Zenas and excited to see what they do, with obexelimab in addition to IgG4-related disease. Operator: I show no further questions in the queue at this time. I would now like to turn the call back over to Pablo for closing remarks. Pablo Legorreta: Thank you, operator, and thanks to everyone on the call for your continued interest in Royalty Pharma. If you have any follow-up questions, please feel free to reach out to George Grofik. Thanks. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Chatham Lodging Trust Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, November 5, 2025. I would now like to turn the call over to Mr. Chris Daly. Please go ahead. Chris Daly: Thank you, Kelsey. Happy Wednesday, everybody, and welcome to the Chatham Lodging Trust Third Quarter 2025 Results Conference Call. Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties, both known and unknown, as described in our most recent Form 10-K and other SEC filings. All information in this call is as of November 5, 2025, unless otherwise noted, and the company undertakes no obligation to update any forward-looking statements to conform the statement to actual results or changes in the company's expectations. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call on our website at chathamlodgingtrust.com. Now to provide you with some insight into Chatham's 2025 third quarter results, allow me to introduce Jeff Fisher, Chairman, President and Chief Executive Officer; Dennis Craven, Executive Vice President and Chief Operating Officer; and Jeremy Wegner, Senior Vice President and Chief Financial Officer. Let me turn the session over to Jeff Fisher. Jeff? Jeffrey Fisher: Thanks, Chris. Good morning, everyone. I certainly appreciate everybody being on our call today. Before I comment on our third quarter operating results, I'd like to update some of our key corporate initiatives. Earlier this year, we completed the sale of 5 hotels with an average age of 25 years at an approximate 6% capitalization rate, and each of these 5 hotels were among the 6 lowest RevPAR hotels in our portfolio. In the fourth quarter, we are under contract to close on the sale of another hotel for $17 million with similar characteristics and at similar returns to the previously sold 5 hotels. These opportunistic sales add liquidity to execute on other value-enhancing opportunities for the company. On that note, we've now repurchased approximately 500,000 or 1% of our outstanding shares of our stock at an average price of $6.85. Included in that amount is approximately 230,000 shares that we have repurchased since the end of the third quarter. We intend to remain active repurchasers of shares moving forward since we believe we are trading at a meaningful discount. Lastly, we completed an upsized and recast syndication of our credit facility and term loan, further enhancing our financial condition and lowering overall borrowing costs. We are one of the lowest leveraged lodging REITs and have great flexibility to create value by using that capacity to repurchase shares, acquire hotels and fund our upcoming Home2 Portland, Maine development. With respect to acquiring hotels, we are somewhat more bullish on our ability to grow externally than we've been in the last 18 months. Deal flow underwriting has been steady here, and it seems like seller pricing expectations in some cases, are becoming more reasonable. We have been and will continue to exercise great patience and discipline as operating fundamentals are quite volatile. But of course, it is that volatility that I think is partially the catalyst for some movement in cap rates upward. The markets will have to make sense for us. And of course, yields have to approximate the implied yield on buying our own stock. We want to invest in markets that are going to benefit from continued population migration and business investment. The U.S. is poised to benefit from this potential capital expenditure as they're calling it super cycle based on the announced investments from companies based here and abroad. And more specifically, it's expected that the Central and Southeastern U.S. will be the biggest beneficiaries in some of these investments and additions of employment. Operationally, despite RevPAR growing -- excuse me, we'd like it to be growing 2.5% -- declining 2.5%, we were able to minimize our margin decline to less than 100 basis points, and we're able to deliver hotel EBITDA and FFO per share towards the upper end of our guidance range and beating consensus estimates. Looking at RevPAR performance in our largest markets, I want to address our Silicon Valley performance because on the surface, the decline appears weak. RevPAR at our hotels in Mountain View and San Mateo produced RevPAR growth of 2.5% in the quarter, while RevPAR growth at the 2 Sunnyvale hotels fell 9%. The underlying fundamentals in Sunnyvale are healthy with the third quarter submarket and competitive set RevPAR up as opposed to our 2 hotels, RevPAR was up 3% and 6%, respectively, in the market. Given the underlying health of the market, when one of our larger corporate accounts asked us to substantially discount our room rates, we declined to participate. We believe the better long-term option for us is to maintain our rate integrity, and that will benefit us in the future as the market outlook, as we've discussed, continues to remain strong and the market is growing and recovering. Our coastal Northeast and Greater New York markets experienced RevPAR growth of 2% and 8% in the quarter, and the coastal Northeastern portfolio remains fantastic, benefiting from long-term supply growth restrictions in those markets, combined with a balance of leisure, business and government demand. In fact, third quarter RevPAR at our Hampton Inn Portland, Maine set an all-time record high for quarterly RevPAR at any of our hotels. Just fantastic and another reason why we are excited about our upcoming development in Downtown Portland on the waterfront. All 3 hotels of Greater New York grew RevPAR in the quarter, led by our Residence Inn Holtsville, Long Island, which had growth of 28% due in part to having the Ryder Cup on Long Island in September; however, that hotel was still having a great year through August with year-to-date RevPAR up 17% as corporate demand has greatly improved really for the first time in that market post COVID. And 3 of our top markets, San Diego, Austin and Dallas were adversely impacted by convention-related demand losses. The Austin and Dallas convention centers are basically closed for renovation, as we've discussed and expansions while San Diego is coming off a record year in convention business in 2024, and our '24 third quarter RevPAR was the second highest quarter ever at that hotel. So the comp is difficult and the softening relative to 2024 in San Diego is really no surprise to us. Our 6 predominantly leisure hotels, which account for approximately 20% of our EBITDA produced RevPAR growth of 3% in the quarter. Within that group, our SpringHill Suites Savannah had a great quarter with RevPAR up over 30% as it has really surged after completing a fantastic renovation that was very well received by our guests and customers. Our fourth quarter RevPAR guidance assumes that our current RevPAR trend of a decline of approximately 3% continues for the rest of the year, unfortunately. It's really been a crazy year, a volatile year, hotel room demand and thus revenue has certainly seen its share of ups and downs this year. Encouraging business demand growth across the portfolio in the first quarter has been adversely impacted since then by DOGE travel spending halts, tariff threats, liberation day impacts and, of course, inbound international travel and especially from Canada being down substantially and now with the government shutdown certainly doesn't help matters. Many of these challenges should be short term, however, and the impact primarily on 2025 performance. But looking forward, Lodging dynamics are very favorable. Forecast for super cycle capital investments, limited supply growth and moderating wage increases all tilt in favor of RevPAR and margin expansion as we look forward to next year. Add to this, what is projected to be a favorable interest rate curve and thus lower borrowing costs should enable us to accretively grow as we move forward. Good years are ahead. With that, I'd like to turn it over to Dennis. Dennis Craven: Thanks, Jeff. Good morning, everyone. Continuing on with some color related to Silicon Valley. Excluding our 2 Sunnyvale hotels, portfolio RevPAR would have been down 1.7% in the quarter. Occupancy at the 4 Silicon Valley hotels was still a solid 75% with a range of 73% to 83% occupancy in the quarter between the 4 hotels. Importantly, October RevPAR at our 4 Silicon Valley hotels was flat to last year compared to the down -- down 4% trend for the quarter. RevPAR was down approximately 5% at the 2 Sunnyvale hotels and up 7% at the other 2 hotels. So just adding on to what Jeff talked about earlier in the call, our Silicon Valley hotels were essentially able to, over the last few months, replace approximately half of the business that we chose to pass on related to one of our larger corporate clients. So good trend developing as we move into the fourth quarter with respect to Silicon Valley and those 2 hotels. Obviously, our 3 Washington, D.C. hotels have been for quite a ride this year as evidenced by the following trends, which was First quarter RevPAR was up 6%. Second quarter RevPAR was down 2%, feeling the effects of DOGE when April RevPAR was down 9%. Our third quarter RevPAR really shows the impact of just the threat of a shutdown as we typically see just the threat of shutdown start to impact government travel into those markets. Our RevPAR for those 3 hotels was flat in July, then down approximately 9% in August and September. The government shutdown impacted the third quarter portfolio RevPAR by approximately 40 basis points. In October, the effect of those 3 hotels which were down 19% actually impacted RevPAR by 170 basis points. And when you just take out those 3 hotels, our RevPAR was down only about 1% for October. Outside of our top markets, our other tech-heavy hotel, our Bellevue Residence Inn produced RevPAR growth of 1% in the quarter. As we've talked about for the last really 2 quarters, vehicle border crossings and inbound travel from Canada has been an impact specifically in that region. If you look at vehicle border crossings from British Columbia into Washington State, they were down approximately 35% in the third quarter compared to last year. Having said that, that's better than the 47% that vehicle crossings were down in the second quarter. So at least from a trend perspective, that crossing decline is moderating. At our Home2 in Phoenix, as a reminder, it opened in early 2024, and we acquired the hotel in late May of 2024. RevPAR was up approximately 6% in the quarter. The fourth quarter looked quite strong in Phoenix, and our October RevPAR at that hotel was up another 8% year-over-year. Hotels in the Sunbelt continue to perform well for us. In addition to the previously mentioned Savannah Hotel, our 2 Charleston hotels had another solid quarter with RevPAR up 4%. Our 2 Florida hotels in Destin, Florida -- excuse me, Destin and Fort Lauderdale had flat RevPAR growth in the quarter. Our top 5 RevPAR hotels in the quarter were our Hampton Inn Portland, Maine, as Jeff mentioned, with an all-time high of $354, followed by our Residence Inn Washington, D.C. with RevPAR of $247 and our Hilton Garden Inn Portsmouth with RevPAR of $239, followed by our Hilton Garden Inns Marina Del Rey, Residence Inn White Plains and Holtsville, New York with RevPARs of approximately $204. Just to clarify, the second hotel was our Hilton Garden Inn Portsmouth, not our Residence Inn Washington, D.C. On the operations front, our gross operating profit margins declined 70 points in the quarter to a still strong 44%. As we all know, labor and benefits are by far our largest expense on a per occupied room basis, those costs were up only 2% in the quarter. Headcount is down approximately 3% from year-end at our comparable 34 hotels. With so much top line volatility, it is imperative that we closely monitor our staffing levels and productivity. Outside of labor and benefits, our other operating profit was up slightly year-over-year and improved margins by 30 basis points. Most other operating line items were basically stable year-over-year, though guest acquisition-related commission costs were up approximately 15% or $0.5 million. Our expenses there have increased really just due to the different booking channels year-over-year in the quarter. We had 16 hotels produced over $1 million of GOP in the third quarter compared to 17 in the second quarter, with the only difference related to a D.C. area hotel. What is quite incredible is that for the first time ever following an all-time RevPAR high, the Hampton Inn Portland led all hotels with GOP of $2.5 million in the quarter, unseating our Gaslamp Residence Inn that had led the way for the past 14 quarters. What's even more incredible is that the Hampton Inn Portland only has 125 rooms, while the Gaslamp Residence Inn has 240 rooms. Gaslamp Residence Inn did finish second in the quarter and rounding out the top 5 were 2 of our tech-driven hotels, our Bellevue and Sunnyvale 2 Residence Inns and our Hilton Garden Inn in Portsmouth, New Hampshire. On the CapEx front, we spent approximately $4 million in the quarter. Our last 2 renovations planned for 2025 are commencing in the fourth quarter and that being the Residence Inn Austin, Texas, which starts this week and our Residence Inn Mountain View, California, which starts next month. Our common dividend, which was increased almost 30% earlier this year, is currently $0.09 per share per quarter, and we will continue and we will reevaluate our common dividend in early 2026. With that, I'll turn it over to Jeremy. Jeremy Wegner: Thanks, Dennis. Good morning, everyone. Our Q3 2025 hotel EBITDA was $28.8 million. Adjusted EBITDA was $26.2 million and adjusted FFO was $0.32 per share. Our GOP margin for the quarter of 43.6% was only down 90 basis points from Q3 2024 despite the challenging RevPAR environment due to continued strong expense control and moderating inflationary cost pressures. In Q3, we were able to hold year-over-year increase in labor and benefits cost per occupied room to 1.7%. In Q3, we continue to strengthen our balance sheet by refinancing our revolving credit facility and term loan, which were our only near-term debt maturities. With this transaction, we upsized our revolving credit facility from $260 million to $300 million and upsized our term loan from $140 million to $200 million. Our low leverage of 3.5x net debt to EBITDA and the liquidity provided by our $300 million undrawn revolving credit facility provide us with significant capacity to pursue investment opportunities. In Q3, we ramped up utilization of our share repurchase program and repurchased 255,000 shares for $1.8 million. And subsequent to the end of Q3 in early October, we repurchased an additional 230,000 of shares for $1.5 million. At current price levels, we believe acquiring Chatham stock is a very attractive investment, and we continue to expect to actively repurchase our shares in the future. Turning to our Q4 and full year 2025 guidance. We expect RevPAR of minus 3.5% to minus 2.5%, adjusted EBITDA of $16.7 million to $18.3 million and adjusted FFO per share of $0.14 to $0.17 in Q4 and RevPAR growth of minus 0.7% to minus 0.3%, adjusted EBITDA of $89.2 million to $90.8 million and adjusted FFO per share of $0.96 to $0.99 for the full year. This guidance assumes no further asset sales, capital markets activity or changes in floating interest rates. This concludes my portion of the call. Operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from Gaurav Mehta from Alliance Global Partners. Gaurav Mehta: I wanted to ask you on investment opportunities. Can you maybe provide some more color on what you guys are seeing in the acquisition market as you're selling hotels? Are there any opportunities to redeploy that capital into acquisitions in the future? Jeffrey Fisher: Yes, I think I'll take that. Gaurav, it feels certainly, and we've been consistently like a lot of companies, looking at deals, talking to owners. But with RevPAR turning in a negative direction, I think that there does present and usually has in the past some opportunities. I feel like the overall ask is certainly now north even on the asking side, north of 8% on a cap rate basis, whereas everybody was hanging on to a lower number, notwithstanding what the hotel REITs trade at as an implied cap rate or otherwise. And I think what we're seeing in a few cases is perhaps the opportunity, as I said, and the goal is to try to create long-term shareholder value here with great hotels that will grow at least as good, if not better than the existing portfolio that are newer that are in the brands that we all know we specialize in. And I think we might be able to do that with some yields that will approximate what we can do by buying our own stock, as Jeremy was talking about. Dennis Craven: And Gaurav, I think I'll just add one thing to add on to Jeff's is when you combine all that with some of these newer assets are coming up on their next wave or really in a lot of cases, first waves of renovations. And as an owner who might have been relatively new to the industry now has to look at an environment that's a bit choppy and has to come up with $2 million to $3 million to renovate a hotel, that decision might spur a little bit more activity as well. So we're in a great financial position to be able to take on some of these opportunities in a market that might make others a little bit nervous. Gaurav Mehta: Great. Second question on the development. Can you remind us on the timing of the Portland, Maine development? Dennis Craven: Yes. I mean, Gaurav, I think we'll -- we're kind of proceeding as we'll start site work on that in 2026, probably be a 21- to 24-month construction time line. So kind of an early 2028 opening. Jeffrey Fisher: I think the seasonality and the results that Dennis was talking about in the existing asset really dictate we have to be very careful about when we start digging up the parking lot because it's the same land parcel. And as Portland has continued, it seems beyond, obviously, summer months well into the month of October to achieve ADRs, particularly on weekends that are over $300 a night. So we're going to look at that carefully and skirt those time frames as well. Dennis Craven: Yes. I mean I think October RevPAR at our Hampton Inn Portland was, I believe, around $380. So just to add on to Jeff's comment, that hotel does really well in almost every month, except for the late December and January and early February when just weather is a little tricky. Operator: And your next question comes from Tyler Batory from Oppenheimer. Tyler Batory: So I wanted to really dive into the RevPAR performance for a little bit, if I could. You missed the midpoint of the guide. Just isolate for us what really drove the variance? Just trying to understand what surprised you in the quarter and what caused that shortfall? Dennis Craven: Yes, Tyler, it really comes down to 2 things. It's our decision on the 2 hotels in Sunnyvale and basically the government shutdown impact on August and September. So you had -- the 2 Sunnyvale hotels are basically 10% of our room count. And for those 2 hotels to be down 9% in the quarter following a first and second quarter with growth in the mid-single digits was a very significant impact that I think, as Jeff talked about, is really, for us, we decided yes, it ultimately was a short-term hit to us, but maintaining that rate integrity. And I think as I spoke about, we were able to, in essence, replace half of that business in October already, I think, ultimately is going to prove to be a pretty good decision long term. And then obviously, in Washington, D.C., it was flat RevPAR growth in July. And then what we historically see, and by the way, we saw this back in -- late in the first and early in the second quarter with the DOGE cuts and the threat of a government shutdown is that as soon as the threat of a government shutdown starts or is kind of out there, generally speaking, that government travel pulls back. And we saw that leading into the actual shutdown with RevPAR at our 3 D.C. hotels down 9% in August and September. That's it. Tyler Batory: Okay. Awesome. So thinking about the outlook and the guide for Q4, RevPAR down 2.5% in Q3. You're guiding down 2.5% to down 3.5% in Q4. So the declines is getting worse. Last time that we spoke and last time you reported and just looking at kind of some of the industry forecast, there was an expectation that Q4 is going to be a little bit better compared with Q3, just from a year-over-year perspective. So just kind of unpack what's implied in that Q4 and kind of why things on a sequential basis are getting -- are deteriorating and getting a little bit worse. Dennis Craven: Yes, absolutely. That really has all to do with essentially the same answer. But just to really put a nail in it is the 3 D.C. hotels reduced our October RevPAR by approximately almost 200 basis points, 170 basis points. So just those 3 alone, in essence, if you excluded those, our RevPAR was off 1% for the month of October. So we obviously have -- we improved Silicon Valley in fourth quarter to flat RevPAR -- I mean, in October to flat RevPAR, but the moderating and lessening range of RevPAR is strictly due to the shutdown in D.C. Tyler Batory: Okay. And then taking a step back and also trying to think about 2026, the convention calendar and some of the disruption in Austin and Dallas and San Diego coming off of a record year in 2024. How are -- or how is the convention business shaping up for next year in some of those markets? And then the supply picture, I think, has been pretty favorable for lodging. So not sure if you can comment on just supply growth in your markets, whether it's next year or the next couple of years. Dennis Craven: Yes. I mean, with respect to the convention calendars, I mean, listen, I think Austin and Dallas are essentially going to maintain kind of where they are until '27. And with respect to San Diego, you had an all-time year last year. It came down this year. It will be something similar next year. So I think what you also have in San Diego is one thing that did happen that had a little bit more of an impact as well this year is you had the new Ryman property that opened up just outside of San Diego, and that obviously had an impact on smaller conventions that might have chosen to go there instead of the primary San Diego convention center. So I think as you move forward on that respect for '26, you probably have no incremental adverse impact from those 3 hotels. And then I think if you look at the supply outlook for our market, supply is less than 1% and is projected to remain that way for next year as well. So I think as just adding on to Jeff's concluding comment, which was when you look out into '26 and '27 and the overall macro looks really good, not only to the industry, but specifically to us with respect to some of these key markets. And I think just adding to what Jeff said, 2025 has just been a nut job of a year in terms of just all these things that have impacted the industry and us. And I think when we can get past a lot of these short-term things, which I think are primarily focused here in 2025, I think the outlook for not only the industry, but for us, and I think just with our upside to some of these markets should be pretty rosy at this point. So it's a little choppy. Tyler Batory: Yes. So switching gears to the margin side of things. I think the performance in the quarter was really quite strong, all things considered. Just talk a little bit more about how you're able to do that. Anything you want to call out that was just kind of driving the performance there? Dennis Craven: Yes. I mean it's -- listen, we're putting a lot of focus and energy on day-to-day and week-to-week management of headcount and productivity, specifically with respect to anything related to housekeeping. And obviously, that's very -- that fluctuates based on occupancy levels. So the key is to really keep a laser eye on those items and really just managing incoming and current wage levels. As you look at where we project moving forward, generally speaking, our hospitality staff, their annual wages are generally up for review every July 1. As you look at the wages we put in place across the portfolio, the average wage increase for us post July 1 year-over-year is about 2% as well. So I think kind of as wages have kind of stabilized, we've been able to maximize efficiencies in our housekeeping department. And I think the availability to hire labor for our hotels has really been fairly stable for the past 12 to 18 months. So we're able to, I think, have a 2% wage increase across the board is, again, pretty favorable when you look forward for us. Tyler Batory: So last question for me, just capital allocation. Balance sheet is in great shape, plenty of liquidity. Just given the backdrop, given where the stock trades, just rank order for us your priorities for your capital here. Dennis Craven: Yes. I mean, listen, I think the first is -- I think it's what Jeff had in his comment in order, which was we're active repurchasing shares and we will be and will continue to be active purchasing shares. We have a $25 million plan in place, which is about -- it's just a little bit less than 10% of our current equity market cap. So we'll continue to be really active there. And then I think the next priority is obviously acquiring hotels if we can do it. And we obviously have our Home2 Portland development. So I'd say #2 and #3 are kind of about the same. But in the meantime, we're going to be active purchasing shares. Operator: [Operator Instructions] And your next question comes from [ John San Gandi from Britney Holdings. ] Unknown Analyst: My question is primarily related to capital deployment as well. From my kind of calculations here, it looks like the stock is trading around $140,000 a key. Any kind of development right now, what we've been seeing is $300,000 a key. Can you walk me through the decision-making process on why to pursue the Portland development when the stock is trading probably around half of what that cost per key would be? Dennis Craven: Sure. This is Dennis. Nice to talk to you. I mean, listen, where our equity price is trading at, whether it's $140,000 or $150,000 or $160,000 a key, that's made up of -- that's comprised of a valuation based on the entirety of our 34 hotels. This specific hotel, you have to look at that deal individually and look and see what the returns project out to be for that specific asset and whether that's going to add value to the overall portfolio. And if you look at -- we're only going to do the deal if we believe it's going to make long-term sense and based on a lot of factors, which is the market is very restrictive on new hotel development. The market is very popular. The RevPARs and margins we're able to obtain and able to achieve on our existing Hampton, but also what we project for this particular hotel will -- based on where we are at the moment and where we believe we'll be after developing that asset, will derive and earn returns well above where the portfolio is returning. So would certainly add value to not only the company, but obviously then ultimately to our shares and be accretive to that value. So you have to look at each opportunity individually, whether it's buying a hotel, developing a hotel or selling a hotel. And if those add value ultimately to what you want to do with that -- with your capital dollars, that's how we assess it. Unknown Analyst: Got it. And then I think just on the acquisition side, you mentioned potentially looking for acquisitions. How would you allocate that -- discuss that and then review that against the share price because that's more of an immediate hit one way or the other with respect to buying shares or acquiring an existing property? Dennis Craven: Yes. I mean I think for us, it's -- you look at what we're trading at on an equity share price. You look at the acquisition, are the yields similar? Does the acquisition provide growth either consistent with or higher than your portfolio? And does it ultimately drive incremental distributable cash flow that ultimately you'd bring back and deliver to your shareholders via dividend. So yes. Operator: And there are no further questions at this time. You can proceed with the conference. Jeffrey Fisher: Well, thank you all for the questions. Thank you all for being here today with us, and we will talk to you as time goes by for better times, I think, as we move into next year. Operator: Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation and ask that you please disconnect. Have a great day.
Operator: Good morning. Welcome to Voya Financial's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the call over to Mei Ni Chu, Head of Investor Relations. Please go ahead. Mei Ni Chu: Good morning, and thank you for joining us this morning for Voya Financial's Third Quarter 2025 Earnings Conference Call. As a reminder, materials for today's call are available on our website at investors.voya.com. We will begin with prepared remarks by Heather Lavallee, our Chief Executive Officer; and Mike Katz, our Chief Financial Officer. Following their remarks, we will take your questions. I am also joined on this call by the heads of our businesses, specifically Jay Kaduson, CEO of Workplace Solutions; and Matt Toms, CEO of Investment Management. Turning to our earnings presentation materials that are available on our website. On Slide 2, some of the comments during today's discussion may contain forward-looking statements and refer to certain non-GAAP financial measures within the meaning of federal securities law. GAAP reconciliations are available in our press release and financial supplement found on our Investor Relations website. And now I will turn the call over to Heather. Heather Lavallee: Thank you, Mei Ni. Good morning, and thank you for joining us today. Let's turn to Slide 4. We're pleased to report strong third quarter results that reflect meaningful progress in delivering on our investor value proposition. Our results build on the success we've seen year-to-date, with adjusted operating EPS in the quarter, up nearly 30%. This performance is a clear reflection of our focus on profitable growth across our diverse and complementary businesses. Equally important, we generated robust free cash flow in the quarter and remain on track to exceed our $700 million full year target. We've continued to take a balanced approach to capital deployment across the enterprise, and Mike will share more on that in a few moments. I'll also talk about how we're deploying capital in support of our enterprise strategy, growing our core markets, expanding into adjacencies such as wealth management and strengthening the connections across our businesses. While we continue to invest in our businesses, we remain committed to returning excess capital to shareholders. As planned, we resumed our share repurchases during the quarter. Turning to Page 5. Let's look at how we executed on our near-term priorities this quarter. In Retirement, we delivered strong earnings and revenue growth with full year results trending above expectations. This performance was driven by $30 billion in year-to-date organic defined contribution net flows, putting us on track for our strongest DC net flow year since 2020 and further strengthening our market-leading retirement franchise. Investment Management continues to show strong commercial momentum. The business delivered strong earnings in the third quarter with positive net flows and continued organic growth, putting us on track to exceed our organic long-term growth target of 2%. Voya's performance remains a key differentiator with 74% of our public assets outperforming peers and benchmarks over 5 years and 84% over 10 years. Later this year, we'll launch our first actively managed ETFs, further expanding our product lineup and building on our multi-sector fixed income expertise. This launch supports modernizing our intermediary platform with high-growth vehicles and expanding distribution, creating new opportunities that connect Wealth Management and Investment Management. Within Employee Benefits, we continue to execute our disciplined pricing strategy in Stop Loss with a focus on margin over growth as we head into 2026. In October, we launched our integrated claims system to support leave management, a key milestone as we prepare for a full rollout of our end-to-end solution on January 1. This will strengthen our bundled offering across group and voluntary, allowing us to deliver greater flexibility and value to our clients. Taken together, these results reflect strong execution across the enterprise and position us to carry meaningful momentum into 2026. Turning to Slide 6. I'd like to spend a moment discussing our strategic approach to growing wealth management, where we're making key investments that strengthen our core offerings and create value across the Voya enterprise. Today's customers are looking for support with a wide range of financial decisions and employers increasingly see financial guidance as a way to strengthen employees' financial readiness. Voya is uniquely positioned to meet those needs, building on an already solid foundation with solutions that address the growing demand for advice and planning. This is already a significant business for us with 20% year-over-year sales growth in 2025 and total client assets reaching approximately $35 billion through the third quarter. We believe now is the time to scale this business and accelerate growth. For example, our field and phone-based adviser network includes nearly 500 advisers, and we're on track to add more than 100 by year-end at our new Boston Wealth Management hub. We launched WealthPath, our integrated technology platform that will enable advisers to deliver comprehensive guidance and solutions at scale. And we're investing in enhanced digital self-service capabilities, which will give clients more flexibility and control. As we expand our adviser base, we will continue to partner with independent advisers to complement our in-house distribution team. In summary, we're well positioned to serve our nearly 20 million workplace customers, both to and through retirement in a fast-growing market that plays to our enterprise strengths. Our performance and momentum this quarter and throughout the year reinforce our confidence in delivering on our full year targets and advancing our long-term strategy. With that, I'll turn it over to Mike to walk through the financials in more detail. Mike? Michael Katz: Thank you, Heather. We delivered another quarter of strong results, building on our successes throughout this year. We generated adjusted operating earnings of $2.45 per share, a nearly 30% increase year-over-year. This was driven by earnings growth across all business segments and highlights the continued progress we are making on our near-term strategic priorities. Earnings growth also drove excess capital generation of over $200 million in the quarter. Items reducing net income were primarily noncash and largely related to business exited. Turning to Retirement. We generated $261 million in adjusted operating earnings. This is a 24% increase year-over-year and a 20% increase on a trailing 12-month basis. Notably, we are ahead of the expected revenue and earnings contribution from OneAmerica. Margins remain above our long-term targets given continued commercial momentum driving higher fee income, strong spread income supported by active management of our general account and prudent management of our spend. Turning to net flows. In addition to the $60 billion of assets acquired from OneAmerica, we have generated approximately $30 billion of organic defined contribution net inflows year-to-date. Third quarter outflows primarily reflected one large recordkeeping plan, which we signaled last quarter. Full Service outflows were impacted by the anticipated lapses from OneAmerica and the effect of strong equity markets. Importantly, surrender rates were in line with our expectations and are consistent with prior year. Looking ahead to 2026, we expect margins to return to the midpoint of our 35% to 39% target range. This is intentional as we increase our strategic investments in Wealth Management, which we expect will power long-term profitable growth. As Heather mentioned, our targeted investments in Wealth Management have supported a 20% increase in sales year-over-year. Investments next year will help further scale the business by adding talented advisers, expanding our product line and enhancing our technology capabilities. Turning to Investment Management. We continue to deliver strong investment performance and drive robust flows across an increasingly diversified platform. We generated $62 million in adjusted operating earnings in the quarter. This is a 13% increase year-over-year and 15% increase on a trailing 12-month basis. Organic growth at attractive margins and a disciplined expense management drove the result. We generated nearly $4 billion in net flows, bringing year-to-date net flows to over $13 billion. This represents organic growth of over 4%, well above our long-term target of 2%. Our successes are broad-based with positive retail and institutional flows, both in the U.S. and internationally. Within institutional, several large insurance mandates drove positive flows in the quarter. We now serve over 80 insurance clients and manage approximately $100 billion in assets in the insurance channel. And our capabilities in core fixed income, multi-sector and investment-grade credit remain in high demand. Within retail, we generated $300 million of positive flows, resulting in year-to-date net inflows of over $3 billion. Looking ahead, we remain laser-focused on delivering long-term value for our clients through excellent investment performance. Turning to Employee Benefits. We generated $47 million in adjusted operating earnings in the quarter. This was primarily driven by favorable group life claims and prudent management of spend. In Stop Loss, a reinsurance recoverable drove the favorable result as we maintain reserve levels across all cohorts. As a reminder, the fourth quarter will bring significant credibility to our claims experience. We expect the credibility of our January 2025 cohort to double in fourth quarter from approximately 1/3 complete to 2/3 complete. That experience will better inform ultimate loss ratios. In addition to our prudent approach to setting reserves, we are actively pricing and underwriting January 2026 business. Our strategy for that business is unchanged. We are prioritizing margin improvement over in-force premium growth. In Group Life, experience was favorable, driven by better-than-expected frequency of claims. In voluntary, paid claims experience was as expected. The loss ratio includes IBNR in anticipation of higher seasonal claims in the fourth quarter as planned. Finally, we are on plan and ready to deliver our end-to-end lead management capability on January 1. Looking ahead, we will continue to achieve margin improvement while delivering strong value to our customers. Turning to Slide 12. Third quarter marked another quarter of consistent cash flow generation, where we generated over $200 million of excess capital and our return on equity improved to 18%. Year-to-date capital generation is now approximately $600 million, and we are well positioned to exceed our $700 million goal. We returned approximately $150 million of capital in the third quarter across share repurchases and dividends. This includes $100 million of share repurchases, and we expect to repurchase another $100 million in the fourth quarter. We ended the third quarter with a healthy balance sheet and approximately $350 million of excess capital. Notably, the fourth quarter will also include higher dividends as we raise dividends per share by over 4%. This builds on our track record of growing our dividend each year as we remain confident in the sustainability of our excess capital generation. Turning to Slide 13. Year-to-date, our approach to capital allocation has been well balanced between investments in the business, returning capital to shareholders and building up our excess capital position. Our healthy balance sheet positions us well for capital deployment in 2026, where we will continue to prioritize as follows: first, we will continue investing in our business in order to drive long-term profitable growth. Wealth Management stands out as another area where we see a clear strategic advantage to expand our capabilities; second, we will be opportunistic with strategic M&A, such as retirement roll-ups. The bar is higher given how attractive share repurchases are at our current valuation; finally, we are committed to measured and consistent capital return. We expect to return between $100 million and $150 million in quarterly dividends and share repurchases throughout 2026, subject to market conditions. Importantly, use of capital will be disciplined and evaluated relative to our weighted average cost of capital. Opportunities with longer breakeven or more execution risk will be assessed with a higher bar. Our 2025 results established a disciplined framework for how we deploy capital. We'll carry that same approach into 2026, focused on driving long-term value for our stakeholders. I'll now turn it back to Heather before taking your questions. Heather Lavallee: Thanks, Mike. Turning to Slide 14. This quarter, we continued to make progress, delivering solid results across all of our business segments. Our near-term priorities remain consistent, driving strong profitable growth in Retirement and Investment Management, successfully integrating OneAmerica to drive higher earnings and continuing to improve margins and employee benefits. Looking ahead, we have commercial momentum, financial strength and strategic focus to drive long-term profitable growth. Thank you to the Voya team for your dedication and hard work in supporting our strategy and delivering for our customers. With that, I'll turn it over to the operator so we can take your questions. Operator: [Operator Instructions] Our first question comes from Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question, I was hoping just to get some color on the size of the wealth management investment that you're pegging for 2026? Michael Katz: Elyse, it's Mike. So as we look into next year, what we're expecting to use is up to $75 million of our excess capital on Wealth Management, I would think roughly 2/3 of that from a GAAP perspective. We are making some investments in technology. So we'll be capitalizing some of those investments and those will amortize in over time. Now I would expect this to be a little more back half weighted because a large part of those investments is in adding advisers who we expect over time to drive additional revenue. And what's important about that is that it really shortens up the breakeven of these investments. We really like the return profile of Wealth Management and not only from a return perspective, but also what it does for our customers. Finally, what I'd say, Elyse, is we do this from a position of strength. We're ahead of plan this year. We've been disciplined with our spend, and this really gives us an opportunity to lean in to an area of strategic advantage for Voya. Heather Lavallee: And Elyse, it's Heather. Maybe 2 other points I would add to it is to be very specific our wealth management strategy is organic. We're not looking to do any type of roll-ups in the Wealth Management space, just given the high cost of inorganic options. And we think, as Mike mentioned, we've got a really clear path to be able to execute against that strategy. Elyse Greenspan: And then my second question is just on Stop Loss. Going in right to, I guess, 2026, would you expect -- just given pricing, et cetera, for -- would you expect that cohort to get -- be back at target margins? Michael Katz: So Elyse, let me just step back on Stop Loss, and I'll answer your question around just how we see 2026. So first, I'll mention that the reserve levels are firming up for the 2024 cohorts. That's especially true for January 2024, which we view as very close to complete. For the January 2025 cohort, we are now beginning to leverage claims experience to help inform reserve levels. Now this is different than the first and second quarter when we were really fully relying on the pricing, the risk selection to inform that 87% pick. With respect to what we're seeing in the claims experience, very consistent themes to last year. With respect to higher frequency related to cancer in younger ages, we continue to see that, higher severity with cell and gene therapy drugs. We continue to see those elements as key drivers of claims. Now I would note, and this affects kind of your question that we are actively leveraging the experience this year to inform underwriting in 2026. It's still very early in the claims cycle. I mentioned that in my remarks. Claims experience is consistent with our reserve levels. And again, the fourth quarter is really important as our credibility doubles heading into next year. And like the industry is seeing, we are continuing to see health care costs change at a rapid pace. Now we also give you sensitivities to current reserve levels for the January 2025 cohort, 1% change in loss ratio is approximately $12 million. So at least as we get deeper into the year, fourth quarter, we'll have a better sense of where we think things are for Jan '26. But importantly, while the health care backdrop is not different this year, perhaps even more challenged, what is different is the actions we have taken on pricing, the actions we've taken on risk selection and how we are reserving for this product line throughout 2025, and you should expect the same in the foreseeable future. Operator: Our next question is from Joel Hurwitz with Dowling & Partners. Joel Hurwitz: I wanted to follow up on Stop Loss there, Mike. Any way you could quantify how much reserves are left on the 2024 block? And then in terms of the January '25 block, any way you could actually quantify the incurred claims experience through the first 9 months relative to where the January '24 block was running at the same period of time? Michael Katz: Joel, yes, and just like I was saying, we're pretty close to complete in January 2024. Possible, obviously, the claims can be reported late in the cycle. So we'll be patient around that. With respect to just how we're seeing experience in 2025 relative to 2024, we are seeing modestly better claims experience in January '25 versus where we were in January '24 through October. But I would just be incredibly clear that we really need to see the fourth quarter. We've only got about 1/3 of the experience coming in at this point. And so while we are encouraged by that, we really want to see the next 1/3 of that experience come in. And frankly, we'll want to see the first quarter as well to get a sense of where this is ultimately going to land. Joel Hurwitz: All right. Got you. That's helpful. And then back to Wealth Management. I appreciate the color on the expected investment spend in the '26 retirement margin outlook. But I guess any more color you can provide on the expected revenue contributions from that business and how you're projecting that to emerge over time? Heather Lavallee: Joel, it's Heather. Let me start and then I'll toss it to Jay. We think that '26 is going to be a bit more of a build as we're hiring the advisers and investing in technology. And I would expect -- think about the revenue emerging, growing in '27 and beyond. Again, we're going to come back and give more specifics as we look into '26. But let me turn it to Jay to talk a little bit more -- give you a little more color about exactly what we're doing in Wealth Management. Jay Kaduson: It's great. Joel, thanks for the question. Just as a step back, if you think about our Wealth Management business today, it's focused on the workplace, very much aligned to our workplace strategy, where we're serving close to 20 million customers today. But we're scaling from a strong foundation, as you heard in some of the earlier comments, we currently have 500 advisers. Most of those advisers, Joel, are focused on the strong tax-exempt business we have, but we see an additional opportunity to serve our growing large corporate customers. The demand right now that we're seeing in the -- with financial planning advice in the workplace is outpacing supply. So we see that our approach is very much complementary to the advice that our intermediaries are providing today. There is a gap in between the supply and the demand. And so the focus for us remains on hiring additional field and phone-based advisers. We're currently enhancing our technology capabilities, specifically to support our adviser platform. We are working on a customer digital self-service platform and the needs to support our growing segment of customers that are looking to self-direct. And we're partnering with Matt's Investment Management business to deliver a comprehensive suite of retail products. But over the last 9 months, you've seen I've recruited a really highly experienced leadership team. And right now, they're modernizing the operating environment to ensure that we're built for scale. Heather mentioned the wealth management hub in Boston. We're finding a lot of count rich wealth management resources in that area, and we're recruiting advisers, specifically given our leading position as a workplace provider of retirement and employee benefit solutions. But Heather mentioned in the opening remarks, we're already seeing 20% growth year-over-year in sales. Our retail AUM numbers at $35 billion are up from $31 billion last year. But we're going to remain focused on accelerating growth in this Wealth Management business. There is tight alignment with Amy's Retirement business, Andrew's Employee Benefits business and working with Matt and Voya Investment Management. More to come on where we're seeing growth in terms of specific numbers for next year, but really happy with the development so far. Operator: Our next question is from Ryan Krueger with KBW. Ryan Krueger: Can you give some more color on the higher corporate expenses in both the third quarter and the fourth quarter? I know you cited performance-related compensation for the fourth quarter, but I guess I was a bit surprised by the magnitude of that for the size of your company. So -- and I guess just related to that, is the prior run rate corporate loss that you had talked about still a good expectation beyond this year? And is this really more of a onetime impact? Michael Katz: Ryan, it's Mike. So maybe first, I would say that we are having a strong year. You can see that in the results in the first, second and third quarter. And frankly, that is the key driver when you look at third to fourth quarter. We are expecting that incentive compensation accruals will be higher in the fourth quarter due to that strong performance. The only other pieces I would call out is that in the second half of this year, you're seeing a little bit more interest expense related to the PCAPs. And I think, Ryan, you're pretty familiar with preferred stock dividends that go up and down each quarter. So beyond that, nothing different to call out from corporate. Obviously, next year, we'll reset targets, and we'll get back to a normal run rate on corporate, and we'll see how the performance plays out. Ryan Krueger: Okay. And then on inorganic, are you mostly interested in things that would be similar in nature to the OneAmerica deal? Or is -- I guess, is your interest broader and would span across all of your businesses potentially? Heather Lavallee: Yes. Ryan, it's Heather. Thanks. I'll take your question. Yes, for inorganic, we're really targeting additional roll-up retirement opportunities. So we think that OneAmerica has turned out very, very well, highly accretive for us. And as you heard us talk about in our comments, exceeding the revenue and earnings expectations for the year. So we are most attracted to additional retirement rollouts that we can integrate. It also links very nicely to the Wealth Management opportunity that Jay talked about is, as we continue to grow our participant base in AUM and retirement, it creates a larger base of customers from which we can expand Wealth Management. And we are also looking for retirement books that potentially have a general account or more full-service profile that also allow us to leverage the complementary nature of our business, where if we can grow with general account assets, it allows us to leverage Matt's investment management capabilities. And so just really takes advantage of the complementary nature of our businesses. Operator: Our next question is from Tom Gallagher with Evercore ISI. Thomas Gallagher: A couple of questions on the wealth business. So for the additional spend in '26, is the hiring there? I heard the comment about hiring advisers. Is that advisers to support your DC plans more like customer service orientation? Or are we talking about hiring advisers to capture rollovers? So is this like a servicing question? Or is it capturing of rollovers? How should we think about that? That's my first question. Michael Katz: Sure, Tom. Thanks for the question. I think the way you should think about this is both our Retirement and our Employee Benefits business, the plan sponsors and employers today, they see a gap in terms of the financial advice that their employees and participants are getting to be able to save for retirement, whether it be their financial or health-related needs. And so there's a gap right now. And we have been in active conversations with those plan sponsors and those employers. And so you should think about this in 2 ways. One, we're going to bring field-based advisers to the workplace. We're going to provide financial advice, seminars. Those seminars are going to produce interest from our active participants and employees. And from there, our segmentation strategy continues. There's going to be a portion of our customer base, who doesn't have a sophisticated financial plan that's going to result in a need to talk to a face-to-face adviser, our sales desk is going to be there to support them, credentialed, licensed, team-based advisers. We're also building a digital self-service engine, where our -- there's a segment of our customer base that wants to self-direct, self-direct brokerage, move cash. So you should think about this in terms of proactively covering our customer base and reactively covering the calls that are going to be generated from our continued advancement in our product suite and our distribution breadth. Again, very complementary to the intermediary relationships that are in market today, providing that support. There's just a big gap. More to come as we build, but you should think about this very much in heavy recruiting. We're not going out and buying teams of advisers. We're having and finding a lot of success organically recruiting advisers in the field, and we're finding a tremendous amount of success in Boston in recruiting a sales desk. Heather Lavallee: Yes. And Tom, maybe just to explicitly answer your questions, we do see rollovers as an important opportunity for this strategy. We've talked about today within our tax-exempt business, where we have close to 500 advisers. We have a very successful rollover recapture rate in that business of between 15% and 20%. So really this build-out is to be able to serve the broader clients across both retirement and employee benefits. But we do see improvements in rollovers as a key metric. Thomas Gallagher: And then just a follow-up. The -- so the shock lapses from OneAmerica, I saw the guide for Q4. How do you think about that heading into '26? Are we going to see some continued spill over, maybe somewhat higher surrender activity? Or how do you see that trending? Michael Katz: Yes, sure. Again, I appreciate the question. OneAmerica right now, it's delivering a higher revenue and earnings and it's contributing overall our cash generation. The integration you think about for OneAmerica will be complete in the first half of '26. So to answer your direct question, OneAmerica, today, our flows reflect anticipated lapses from the OneAmerica book as well as we're seeing strong equity markets, and that tends to lead to an increase in account values, which then leads to elevated surrenders. Importantly, if you think about the total DC book, full service and overall retention really sits into the 90s, high 90s for full service and in the 90s for the overall book. So the activity remains constructive for the remainder of the year and just getting back to OneAmerica really reflecting in line what our anticipated lapses would be through the integration. Operator: Our next question is from Suneet Kamath with Jefferies. Suneet Kamath: I want to start on the capital return and the $100 million to $150 million guide per quarter for '26. Should we view that as sort of '26 stand-alone and then we kind of bump up in '27 as you don't have the Wealth Management investment anymore, and then you don't have the OneAmerica $160 million payment? Or are you signaling that this is more of a run rate that we should expect going forward? Michael Katz: Suneet, it's Mike. No, we're not trying to signal that, that's a run rate beyond 2026. This is really how we're thinking about 2026. And it's considering a handful of things. We come out of the third quarter with $350 million of excess capital. As a reminder, we do have an earnout on OneAmerica, and we enter the fourth quarter well positioned to handle that in the middle of next year. As Heather talked about, we have an opportunity now where we are with the integration with OneAmerica to kind of lift our heads up and say, hey, are there other roll-ups out there that meet our return thresholds? But we have flexibility. We're guiding to consistent and measured share repurchases this year. We think that's the right outcome. And when we look at 2025, we see that as a great example of when we're using excess capital in a balanced way. It enhances shareholder returns. We see the same opportunity in '26. We just talked about Wealth Management. You should expect us to be very disciplined in how we approach that. Investments must meet our return thresholds. And frankly, we have a higher bar based on where we're trading right now. Heather Lavallee: Yes. And Suneet, maybe 2 points I would add to Mike's comments is we think we've got a very clear enterprise growth strategy that's going to allow us to drive profitable long-term growth across our businesses in the coming years as well as ongoing growth in cash generation, which gives us flexibility in terms of how we think about deploying it. But we do believe it's important to be able to provide consistency to shareholders in terms of what to expect for '26. Suneet Kamath: Okay. Got it. And my second question, I guess, is maybe more of an observation than a question. But when I hear you talk about a wealth management strategy that's built around seminars at companies, it takes me back to one of your competitors a couple of years ago that talked about this from a financial wellness perspective and spent like half an Investor Day on it. And it -- they don't really talk about it anymore. It didn't really turn into much of anything. So I guess it's important that we get metrics at some point, and I'm sure you'll give them to us, but just wanted to highlight this that kind of show the progress that you're making against this, especially if the spend is $75 million a year and potentially higher going forward. So I just wanted to put that out there. Heather Lavallee: Yes. Suneet, thank you. We appreciate the feedback. And that certainly is our intention is we want to be able to provide clear progress on how we're measuring success. That's why we wanted to point to some of the revenue growth we're seeing year-over-year just in terms of the sales, but we hear you loud and clear. And I think maybe what's different for us is this is from an established base. When we talk about the $35 billion of assets under management today, it's contributing roughly 10% of our retirement revenues and growing. And so again, hear you loud and clear, and you can certainly expect to see some proof points from us. Operator: Our next question is from Alex Scott with Barclays. Taylor Scott: I wanted to follow up on some of the investments. I know you're talking about some of the wealth advisers you're bringing on, but I think you also mentioned that there's some investment in technology. I just wanted to understand how we should think about the impact of those things on the operating margin in retirement business or elsewhere if it goes in other segments? Heather Lavallee: Yes. Let me let -- Alex, I'll let Mike take the impact on operating margin, and Jay can talk a little more explicitly about the investments. Michael Katz: Yes, Alex, we're giving a sense right now. And I just would emphasize that we see this as an opportunity where we're doing that from a position of strength given the results, not only just in retirement, but across the board at Voya. We did mention that we expect this to be approximately a 200 basis point implication on margins next year. However, we're right in the middle of our budget season. And so we'll be more precise with that as we get into next year. But that's high-level thinking and very consistent with what I shared earlier in the Q&A with respect to how much we expect to deploy both from a capital perspective, but also from a GAAP perspective. Jay Kaduson: Sure, Alex. Maybe just as a follow-up on the strategic nature of where those investments are going. We've upgraded our adviser platform, our WealthPath, which we've rolled out in October. And that's really to help our advisers really help them from the perspective of account openings, all the way through the financial planning tools that they're using. It's really helping to modernize that environment to connect to more customers and do it in a more automated basis. Secondly, in reference to digital self-service, we've got a growing portion of our customer base that wants to self-direct. And so we're going to meet that growing need, particularly with where wealth transfer is going. There's a segment of our population, our customer base that's going to inherit a tremendous amount of wealth over the next decade, and we want to be positioned to ensure that they can direct and have a financial planning environment that works for them. So these tools are going to be helpful as we grow into that customer base as well, but very targeted. Taylor Scott: Got it. And then maybe if I could pivot over to Employee Benefits, could you talk about top line implications from just the leave management rollout. And maybe anything on Benefitfocus, I think just around open enrollment period, would be interested if that's going to have any influence on top line. Michael Katz: Sure. Maybe I'll start on leave for your first question. So appreciate the question. We're on plan right now to deliver the leave technology as well as a fit-for-purpose operating model supporting a Jan '26 launch. What we're developing right now is a full-service leave product suite. It's going to help build a moat around our other employee benefits business. As you think about this today, this is a critically important capability in the market, and it's leading to a ton of growth. In last quarter Q3, over 50% of all of our RFPs that came in were requiring a leave management bundled solution. So we're really encouraged with the commercial momentum. In fact, one of the key metrics that we look is getting on the panels of our brokers, and we've been successful in getting on most of our broker panels, and it's led to sales that have already occurred for 1/1/26. So today, if you think in terms of where we are in leave, happy with where the build is on the technology side. Our operating model is in place, and we're getting commercial momentum in terms of our sales. Maybe on Benefitfocus, we like the strategic capability of Benefitfocus. I mean, it fits really well into the broader Employee Benefits business. Specifically, as we deliver on our capability road map, Andrew and team are driving efficiencies and are focusing on margin expansion while they do that. Two areas of growth you should think about for Benefitfocus. One is in ICRA. The health plan business side of our Benefitfocus is going to benefit from some of the health care legislative environment that's changing, particularly around ICRA. We've got a plan to go after that market. We're set up well. And in '26, we should be executing against that. But we also see direct synergies with our Benefits Administration business. So if you think about that tied to Wealth Management, we've got a growing customer demand for retail financial advice, and this is going to be another area of synergy for our Wealth Management business. So ICRA and Wealth Management on the top line with the efficiencies that we've been building over the course of the last couple of years in Benefitfocus. Operator: Our next question is from Wes Carmichael with Autonomous Research. Wesley Carmichael: First question on Investment Management. And just looking at institutional, I think flows pretty strong in the quarter and maybe a little bit of elevation on the outflow side, but just hoping you could unpack what you saw in the quarter? And maybe any help on the outlook for flows going forward would be helpful. Matthew Toms: Yes. Wes, this is Matt. Thanks for the question. Overarching, we like the breadth of flows we've seen across channels and products for the year. The year-to-date flows, as Mike referenced, $13.4 billion, roughly 4% organic growth rate. Within institutional, $9.7 billion of that on the year, and that's driven by the Insurance business, CLOs, public and private fixed income doing well, also private equity secondaries. So we like the breadth within institutional. Year-to-date, $3.7 billion in retail. And again, income and growth franchise and multi-asset in the U.S. So we like the breadth. Within the quarter specifically and more to your direct question, the $3.9 billion number in the third quarter, very happy with it, another strong quarter. In institutional, the majority of that $3.6 billion driven by a few large insurance wins. So it's a bit more concentrated in the quarter, but I think important to hear that within the construct of the broader year flows. You're right, it's a good call out the higher level of activity in institutional, you see in the supplement. We're very happy with the $3.6 billion net. You've got more wins, and you've had some more outflows. Some of those outflows are tied to natural maturities in our CLO business, bank loan mandates as well as end of life in private funds. And there's also some rotation in international equities out of one style into another. So you do see that higher amount of in and out. But again, the net very happy with the $3.6 billion on the quarter. And then looking forward, in the fourth quarter, we expect flows to be more muted than the strong third quarter after some strong realizations in the third quarter. Longer term, we see no reason to pivot away from that 2-plus percent longer-term organic growth rate assumption and, we like the commercial momentum we have in the business. And I view it as a testament to the strong investment performance that we've called out, 74% outperformance for public strategies over 5% and a really strong 84% over 10%. We're delivering for our clients and growth is the outcome of that. Operator: Our next question is from Wilma Burdis with Raymond James. Wilma Jackson Burdis: Could you quantify Voya's floating rate exposure? I know that, that's something that could impact earnings a little bit in 4Q with the rate cuts. So if you could just help us with that. Michael Katz: Wilma, it's Mike. So just when we think about floaters, a little less than $1.5 billion of floaters. That's embedded in the overall sensitivity that we share in the investor presentation. So maybe a modest impact we would expect from the effect of the short end coming down. We do -- when we do think about our sensitivities, I would call out that the net effect for Voya is smaller to a [ shock ] down in the yield curve as we have offsets in the investment management business related to fixed income asset levels. And I'd also say, like the sensitivities went up a little bit this year. We talked about that in Q1 with the acquisition of OneAmerica, but the team is doing a nice job of actively managing the general account. And I think that's helped us to kind of stabilize what is kind of the raw effect of what's happening with rates. Wilma Jackson Burdis: Okay. And then do you expect any additional reinsurance recoverables on Stop Loss to flow through over the coming quarters? And maybe just talk about the likelihood and timing of that. Michael Katz: Wilma, it's Mike again. Yes. So this is a bit of a idiosyncratic quarter with respect to us calling that out. It's a natural part of the Stop Loss business. We've talked about the fact that from a deductible perspective, we usually kick in, in the $200,000 to $300,000 range. We'll cover our clients. And then we have excess loss reinsurance above $5 million. And that -- and that's where we saw a kick in from our reinsurer that really was the only effect in the quarter. And so I wouldn't expect that if you're looking at necessarily forward-looking expectations on loss ratios, if there's something significant in a quarter, we're going to call it out, but I wouldn't use that as anything that would be sustainable per se in the outlook for Stop Loss. Operator: Our next question is from Kenneth Lee with RBC Capital Markets. Kenneth Lee: Just one for me. Within the general account portfolio, I wonder if you could just remind us again what's within the private credit allocation sleeve there? Matthew Toms: Ken, yes, it's Matt. Let me unpack that a little bit for you. So overall, the portfolio continues to be very high quality. And we continue to include a slide in the deck, it's Page 27, breaking down the quality of the portfolio. Importantly, 96% of the general account is investment grade. And private credit has 23% of that, of course, has a heavy bias towards investment grade as well, that's 94%. We provided a footnote on that page to give you some further detail there. So NAIC-1s and 2s, 94% of the portfolio. Think about those as driving that 50 to 100 basis point yield advantage versus public over a long period of time with roughly double recoveries and driven by stronger covenants, should there be any credit issues. I mean overall, I think the credit markets are performing quite well. As you can see, credit markets are near all-time tights. The term private credit has gotten a lot of attention, as you referenced, but that covers a broad array. And our portfolio is heavily focused on the investment-grade lending area. And this area is, of course, not new to the insurance industry, not new to us and one that has generated very attractive yields with less downside risk over multiple decades. And so very different than some of the headline news you'll see around bank lending, syndicated loans or middle market lending. It's a different market segment, and we feel very well positioned with how the portfolio is performing. Operator: Our final question is from John Barnidge with Piper Sandler. John Barnidge: And my first question, could you talk about the Edward Jones partnership that was mentioned earlier this year, success so far in plans for ahead? Heather Lavallee: Yes, we'll have Jay take that, and it continues to be one of the other important attributes of OneAmerica, which as we've talked about, John, has been just a great integration and opportunity for us to generate value. But Jay? Jay Kaduson: Great. Appreciate the question, John. If you think about that OneAmerica acquisition, as Heather said, it's not only producing strong earnings and revenue, but the distribution relationships that came along with that business, it really is a key value-creating lever for our team. And so Edward Jones is an example of that. Right now, we remain on track for the Edward Jones relationship as we head into '26. So specifically, we're working with Edward Jones right now on the migration of the OneAmerica book of business. Our distribution agreement was executed earlier this year, and we're finalizing key technology connections in order to support the full integration. Our teams from a distribution perspective are actively engaging with each other on market opportunities. Edward Jones sent a press release out on the partnership a few weeks ago. And their advisers are going to be able to offer our full suite of retirement plan tools and services to their clients starting in early fiscal year '26. So if you think about where we are, we're on plan with that. Again, one of the positives we see in these opportunities in retirement roll-ups isn't just the earnings and revenue associated to the existing book, but it's the new distribution opportunities that we acquire as part of that relationship, and this is a great example of that. John Barnidge: My next question, can you talk about the Blue Owl partnership, plans for product launch and if there are additional alternative asset managers with which you could partner? Heather Lavallee: Yes, John, maybe just a quick frame before I toss it to both Jay and Matt. But we think this Blue Owl partnership is just one of the many examples of where we can really unlock the synergistic opportunities that exist across our businesses, specifically when we think about Retirement, Wealth Management and Investment Management. But Jay? Jay Kaduson: Sure. Again, thanks for the question, John. Maybe just to continue with what Heather was saying. Matt and I, we're going to be leveraging partnerships going forward as we think about our growth strategy. This Blue Owl partnership is going to be a key contributor to that growth. Specifically, our teams are trying to access private investments and innovative solutions to drive retirement outcomes. That's going to be in the DC space. So that's the focus right now on the private investments and innovative solutions. Specifically, we're going to be in market with private credit, alternative credit and nontraded REIT CITs by the end of this year. We're going to start with our AMA business, and we're seeing a ton of interest right now from RIA firms in different pockets. Specifically, many of them are waiting for where the DOL rulemaking has happened. And if you know, John, the 2 areas, the 2 gates we've got to get through right now. One is on the DOL side on their rulemaking. And the second is the safe harbor protections that are going to help accelerate the adoption by plan sponsors as the fiduciary. I'm going to turn it over to Matt to give a little bit more color on how his Investment Management business is partnering with Blue Owl. But right now, the partnership is on plan for end-of-year rollout. Matthew Toms: Yes, John, thanks for the question. Just to build on that a bit, we continue within Investment Management to work on target date products built from our leading multi-asset team with long and strong track records that have been driving our model portfolio growth that we've seen over recent years. And we believe our capabilities pair very nicely with Blue Owl's capabilities and their broad array of complementary private strategies. Importantly, as we build these target date products, the focus is on risk-adjusted returns for our clients as well as attractive returns net of fees. And so we build that product out in partnership with Blue Owl. Look for the second quarter of 2026 time frame for those to come to market, still looking for some clarity on the regulatory side. We do think this is an attractive path forward. And just to expand a bit, you mentioned other private components. We're working with Blue Owl. There will be other providers within the structure as well to round out the complete need. We're very excited about Voya and Blue Owl's capabilities. We'll supplement that as needed, as we always do in multi-manager products with other partners. And then beyond the DC space, we're very excited about how this ties to our insurance business, where we bring our own capabilities as well as those partners like Blue Owl to our broad institutional customer base. So that's a way to think about the growth as well. Operator: Thank you. We have reached the end of our question-and-answer session. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Greetings, and welcome to the 3D Systems Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to your host, [ Monica Gould ], Investor Relations for 3D Systems. Please go ahead, Monica. Unknown Attendee: Thank you. Hello, and welcome to the 3D Systems third quarter 2025 earnings conference call. With me on today's call are Dr. Jeffrey Graves, President and CEO; and Phyllis Nordstrom, Interim CFO. The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone who wish to access the slide portion of the presentation may do so on the Investor Relations section of our website. The following discussion and responses to your questions reflect management's views as of today only and will include forward-looking statements as described on this slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in our latest press release and our filings with the SEC, including the most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During this call, we will discuss certain non-GAAP financial measures. In our press release and slides accompanying this webcast, you will find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable periods of 2024. And with that, I'll turn the call over to our CEO, Jeff Graves, for opening remarks. Jeffrey Graves: Thank you, Monica, and good morning, everyone. I'll start today with a brief recap of our third quarter results. I'll provide some commentary on the overall market and then focus the remainder of my comments on our strategy and growth initiatives. I'll then turn things over to our Interim CFO, Phyllis Nordstrom, to provide details on the quarter's financials. And we'll then open the call for Q&A. So let's turn to Slide 5. I'll start by reviewing our third quarter results at a high level. The macro environment for our company and 3D printing OEMs broadly remains challenging. This can be seen in our third quarter revenue of $91.2 million, which was down 13.8% year-over-year, soft but consistent with our normal seasonality trends. As has been the case over the last several quarters, this overall softness continues to be driven by our customers' muted CapEx spending for new production capacity stemming from uncertainty around tariffs. As such, we've taken aggressive actions to adjust our cost structure while maintaining core R&D investments to position the company for long-term growth when market conditions improve. As part of this effort, we've been rationalizing noncore assets, including the recently announced sale of Oqton and 3DXpert, which closed at the end of October. As you may know, these software platforms are not proprietary, but were designed to serve the entire industry. And while we will continue to remain very involved with the software, we believe that transitioning these solutions to an independent software developer will help drive them as the industry standard, which will help accelerate OEM adoption of additive manufacturing broadly. We expect the financial impact of this disposition on our fourth quarter results to be approximately $1.2 million in revenue and $1 million on gross margin. This impact is reflected in our guidance for Q4. Turning to Slide 6. We remain very focused on our core assets and continue our strategic investments in metal and polymer printing technology with emphasis on R&D activities that will drive our future growth and profitability. During the quarter, we launched some very important new printer platforms derived in this case, from our expertise in photopolymer jetting technology. Jetting is a very special 3D printing technology that involves a simultaneous deposition of thousands of fine droplets of photopolymer. These droplets are cured by ultraviolet light as they're deposited onto the build platform. The process can be -- can simultaneously deposit multiple materials in a fast but precise pattern to create a monolithic structure, having distinct regions of coloration, geometry and mechanical performance. It's a preferred approach where speed, precision, surface finish and multi-materials are required for an application. In the Industrial segment, we introduced the MJP 300W Plus at the Istanbul Jewelry Show in early October. This new generation of jetting technology prints extremely intricate wax patterns used for casting precious metal jewelry, improving productivity by 30% and reducing gold, silver or platinum waste by 20%. While the global jewelry market is competitive, it's transforming rapidly into a digital manufacturing ecosystem where a designer can embrace custom creativity without sacrificing cost competitiveness in the market. Our advantage in this growing market is our recognized expertise in jetting technology, including both the printer itself and the custom wax materials that are essential for the post-print casting process as well as our expert channel partners that serve the thousands of local jewelry manufacturers around the world. Customer feedback on our new printing systems has been very positive, and we've already begun to accept orders for this new printer platform, which, given the size of this global market, we expect to accelerate rapidly in the quarters ahead. While fine jewelry is viewed broadly as a consumer business, it's embedded deeply in the culture of many countries around the world, which drives continuing demand growth and the uniqueness of our wax materials, combined with the high rate of their consumption and the casting process, continue to make it an attractive market for our company. On to Slide 7. In applying jetting technology to the dental market, in the third quarter, we announced the full commercial release of our NextDent Jetted Denture Solution for the U.S. market. Our consistent investment in this revolutionary dental technology has culminated in a truly outstanding denture product with associated excellent economics for dental labs across the Americas, Europe and even in Asia. This first-to-market solution for jetted monolithic dentures utilizes multiple materials in a single printing process to deliver a durable, long-wear, aesthetically beautiful prosthetic to patients. This results in a faster, more cost-effective and highly scalable alternative to traditional denture manufacturing, enabling both an outstanding patient experience and a strong return on investment for dental labs that provide these products to local dentist -- dental professionals each day. We've already placed these printers with a dozen of the leading U.S. dental labs that serve the American market and feedback has been excellent. We're building backlog for the fourth quarter and are very excited about this market opportunity, which we believe will reach $1 billion in industry revenue across the U.S. and Europe alone over the next several years as the market transitions to 3D printing and away from machining and hand assembly. Given the success that we've seen with our U.S. product launch in parallel with the European regulatory approval, which we're targeting for mid-2026, we continue to work aggressively through the regulatory process in other markets throughout Central and South America and in Asia, which we expect to follow rapidly. With the addition of our denture solution to our industry-leading positions in both aligner technology and our NextDent dental materials portfolio, we expect dentistry to be one of our single largest revenue streams in the years ahead, given the custom nature of the applications and the strict regulatory standards. Turning to Slide 8. Another core area focus -- core area of focus for us is the MedTech half of our health care business. For 3D Systems, MedTech comprises our historical personalized health services business, our small but important point-of-care business, medical implants and traditional printer and consumable sales to medical OEMs. While we are most often prohibited from discussing details of our point-of-care efforts for long periods of time, these groups live within leading research and specialty hospitals around the world, focusing on new and highly [ innovated ] applications of our medical 3D printing technology, which are extraordinary in terms of patient impact and provide the best indicators of where 3D printing can bring the most value to patients and hospital systems in the future. As these applications are successful, we're well positioned to gain any required regulatory approvals and then bring them to the market broadly. While there are quarter-to-quarter fluctuations in growth rates for MedTech, particularly driven by seasonality of preplanned orthopedic procedures, this business remains on track to grow at a double-digit rate once again this year. To drive this consistent strong growth, we continue to build on our market-leading position with new applications, materials and printing technologies, the vast majority of which ultimately require regulatory approvals. This not only provides a strong pipeline of new patient indications that we can address, but also opens new markets for medical 3D printing, such as trauma, which is now the fastest-growing element of our PHS business. A key area for focus for us in MedTech is accelerating the use of our printed medical-grade PEEK materials. That's Polyetheretherketone for short. These materials are biocompatible with properties very similar to native human bones and can be custom printed very quickly and economically. Importantly, they can complement titanium implants, which have similar strength and compatibility, but instead of blocking radiation used for imaging or the treatment of cancer, PEEK materials are transparent to it, allowing doctors to observe and treat the underlying tissue when required. These printed PEEK materials are now being used in real-life patient applications such as reconstruction of the face and skull from defects or injuries and even addressing post-cancer-related surgical procedures and even trauma cases. An example of printed PEEK for a spinal application is shown on the right side of Slide 8. In this case, we printed a porous PEEK implant tailored for enhanced bone growth, the results of which can easily be seen in the x-rays. In addition to the patient benefits, our technology investments have brought the cost and response time down to the point where bones can be repaired in hours or days instead of weeks, further opening the range of cases that can be addressed from preplanned complex surgeries to rapid responses needed for trauma cases. We expect this trend to continue in the years ahead. Now let's turn to Slide 9. In addition to new printer and materials technologies, we also recently announced several important milestones in our Saudi Arabian Growth Initiative. In 2022, we established the National Additive Manufacturing Innovation Company or NAMI for short through a partnership with the Saudi Arabian Industrial Investments Company. The goal of this venture was to enable Saudi Arabia's Vision 2030 program, which aims to create a strong local manufacturing base and enable the Kingdom to industrialize more rapidly through the adoption of industrial scale 3D printing. 3D Systems is the exclusive provider of printers and materials, both polymers and metals to the joint venture with NAMI providing local application expertise, service and support for customers. Recently, we were proud to announce that the Saudi Electric Company or SEC for short, the Middle East's largest electricity producer, signed an agreement to make a strategic investment in NAMI, acquiring a 30% stake in the venture with the goal of reducing costs and lead times for high-demand spare parts through the creation of local manufacturing capability combined with advanced digital warehousing. This partnership strengthens NAMI while deepening collaboration with SEC to establish new workflows that accelerate the adoption of 3D printing for critical energy infrastructure applications and to develop a skilled national workforce. Additionally, the Modern Isotopes Factory or MIF for short, a Saudi electric company -- a Saudi company established to support the expanding need for radioactive sources for industrial applications has signed a framework agreement of $26 million with NAMI for the manufacture of up to 2,000 tungsten core components used in nondestructive testing devices for pipelines and weldment inspection. And in the key market of defense and aerospace, Lockheed Martin recently announced a collaboration with NAMI to qualify and use additive manufacturing to develop critical military and aerospace components in Saudi Arabia, utilizing 3D Systems' Direct Metal Printing Technology. While it has taken time to establish the local capabilities needed to support these customers, we're very excited to see our efforts begin to bear fruit in what we believe will be an increasingly important element of our global growth strategy in high-reliability industrial markets in future years. Turning to Slide 10, I'll briefly touch on additional critical market opportunities before turning the call over to Phyllis. AI infrastructure as shown on the left-hand side of Slide 10 and aerospace and defense highlighted on the right are 2 of the emerging growth opportunities that I'm most excited about, given the exceptional level of investments now being made in these areas. Starting with AI infrastructure, there are 3 key areas where we participate. These include semiconductor chip manufacturing, where our 3D metal printing capability provides critical componentry for chip fabrication equipment, data centers where our ability to print 3D -- 3D print copper-based heat transfer components to help keep these high-intensity computational units cool are increasingly valuable and for components used in gas turbine engines that are used to create the electricity that powers the data center. These markets are beginning to receive enormous investments around the world, and we've been developing key applications for them for several years in anticipation of increasing demand. From an aerospace and defense standpoint, as printing technology has scaled and key materials for high-temperature and aggressive environment applications have come online, the applications for 3D printing have rapidly expanded. Our latest efforts, which range from rocketry to naval applications and from human systems to drones have shown great promise. These customers are not only working on a wide range of new applications of our technology, but encouraging us on a selective basis to support them from the developmental phase through initial component fabrication, particularly for low-volume challenging part types. We select this work very carefully such that we can ultimately bridge the customer from limited part supply to full-scale production, either within their factories or the supplier of their choice. This business model is unique, and we believe will be a highly -- will be highly effective as we work hard to grow this portion of our business, both in the U.S. and in Europe from our regional locations in Colorado and in Leuven, Belgium. So with that, I'd like to introduce Phyllis Nordstrom, our Interim CFO. I've had the pleasure of working with Phyllis in several capacities for many years, and I'm very pleased that she stepped into this important role at such a challenging time for our industry. Phyllis? Phyllis Nordstrom: Thank you, Jeff. I appreciate everyone joining us today. I began at 3D Systems in 2021, serving as the Chief People Officer and then Chief Administrative Officer. In early September, I stepped into the role of Interim Chief Financial Officer. My background is in finance and accounting and throughout my career I've held a variety of roles within these areas. Most recently, I led audit and risk management teams at MTS Systems and PricewaterhouseCoopers, where I focused on advancing strategic priorities, driving operational excellence and strengthening discipline around risk and controls. Before I begin a review of the third quarter results, I would like to remind you, we completed the divestiture of our Geomagic software business on April 1 of this year. As a result, throughout today's call, we will reference both reported results and adjusted comparisons that exclude our Geomagic business, allowing for an apples-to-apples comparison of our performance across periods. With that, let's begin with a summary of our revenue, which you'll find on Slide 12. Third quarter consolidated revenue was $91.2 million, down 19% year-over-year or 14% when excluding Geomagic. Sequentially, revenue declined modestly, primarily reflecting typical third quarter seasonality and the absence of a Regenerative Medicine milestone that was recognized in the prior quarter. Within our segments, Industrial Solutions revenue of $48 million declined 16% year-over-year or 4.5% excluding Geomagic. These declines were primarily driven by softness in our printers and materials sales in consumer-facing end markets. This was partially offset by continued momentum in aerospace and defense, which grew nearly 50% over the prior year. Healthcare Solutions revenue of $43 million decreased 22% from prior year, predominantly driven by lower sales within dental, with 2024 representing higher purchase volumes from a specific customer. Outside of our Dental business, MedTech delivered solid growth, up 8% from the prior year and slightly ahead of last quarter. Additionally, we continue to see momentum in our PHS business with year-to-date growth of 10% through Q3. Now to Slide 13. For the third quarter, we reported a non-GAAP margin of 33% compared to 38% in the prior year and 34% when adjusted to exclude Geomagic. The year-over-year gross margin decline was modest, primarily driven by lower sales volume and reduced material sales. These impacts were partially offset by reduced inventory reserves compared to the prior year. Gross margin declined sequentially, reflecting the absence of the prior quarter's Regenerative Medicine milestone as previously discussed, as well as higher manufacturing variances in the period. Turning to Slide 14 and 15. We continue to demonstrate strong cost management in the quarter with non-GAAP operating expenses of $44.7 million, down 24% year-over-year when adjusted to exclude Geomagic and down 4.5% sequentially. This improvement reflects the impact of our cost reduction initiatives, which run through the first half of 2026. Our cost actions are well underway and continue to focus on optimizing our organizational capacity, streamlining our facilities footprint and reducing expenses across the business. Looking ahead, we expect continued reductions in expenses through the end of the year and are targeting fourth quarter operating expenses to be marginally below the current quarter. To date, we are on track to deliver over $50 million in annualized savings by year-end. As we look ahead to the fourth quarter and the first half of next year, our cost savings initiatives will be closely aligned to the company's strategic priorities for 2026, focusing our investments on the products and markets that offer the greatest opportunity, both for growth and profitability. Turning now to Slide 16 to finalize the P&L. Adjusted EBITDA for the third quarter was negative $10.8 million, an improvement of $3.5 million compared to the prior year. We reported a GAAP net loss of $18 million for the quarter or a GAAP loss per share of $0.14, a meaningful improvement compared to the $1.35 loss per share in the prior year period. The improvement was primarily related to the absence of prior year asset impairment charges as well as lower amortization expense and lower operating expenses in the current quarter. On a non-GAAP basis, loss per share was $0.08, an improvement from $0.12 in the prior year period. This progress reflects our focus on cost reductions across the business. Turning now to Slide 17 for a review of the balance sheet. We closed the quarter with $114 million in total cash, consisting of $95 million in cash and cash equivalents and $19 million in restricted cash. Total debt net of deferred financing costs was $123 million as of the end of the quarter. Of that total, $35 million is due in the fourth quarter of 2026, with the remaining balance due in 2030. We have successfully reduced cash usage over the past 2 quarters and expect continued improvement as we execute on our remaining cost savings actions through the first half of next year. As we enter the fourth quarter, my priorities remain focused on completing our cost reduction initiatives while working closely with the business to prioritize key markets, products, services and investments. These efforts are aimed at delivering meaningful impact, both in the near term and throughout 2026. So with that, we thank you for your time and support of 3D Systems. We'll now open the line for questions. Operator? Operator: [Operator Instructions] Our first question today is coming from Troy Jensen from Lake Street Capital Markets. Troy Jensen: So a quick -- either one of you guys. Just gross margins kind of dropped a lot sequentially here. It looks like it was mainly in products, but maybe in both products and services. Can you just touch a little bit on the decline in gross margin? Phyllis Nordstrom: Thanks, Troy. I think looking at gross margins quarter-over-quarter, there's really 2 main components as I highlighted. RegMed, we recognized a milestone under our lung program in the prior quarter. That was about $2 million of that total revenue that dropped down to the bottom line. We also had some manufacturing variances recognized in the quarter, which also had an impact to our margin. I don't think those will repeat going forward, but there was some scrap and some inventory reserves or some slower-moving inventory that we had that we cleaned up this quarter. So looking ahead, you can see that we said gross margin would be flat quarter-over-quarter. Again, Jeff will touch on some of that printer revenue that we're seeing with the new products that will come in next quarter as well. Jeffrey Graves: So Troy, that explains Q3. If you look at going forward, there's offset -- there's offsetting factors. So on the positive side, volume is going up, the launch of our new products, we're selling more product, but it is concentrated in printers right now. Printers faster than materials. So it will be a mix effect going forward, offsetting the volume benefit through the factory. So that's largely it. We have a slight drag continuing on tariffs, but it's relatively constant. It's there. It's relatively constant quarter-by-quarter. That's it. It's pretty simple, pretty simple puts and takes. Troy Jensen: All right. Understood. And then, Phyllis, this is for you, too, on -- just on the OpEx, I think I heard you say down slightly sequentially. But is there more to do on the cost cut efforts? I know you guys had some facility consolidations that were depending on timing. I guess what I'd ultimately like to get to is, is there a revenue level you think you guys need to hit once all these cost cuts are in place that will get us to a breakeven? Phyllis Nordstrom: Troy, I'll start with the first part of your question, and I'll let Jeff handle the second part of your question. The first part of the question, there is still more to go get. We've taken a lot of the organizational capacity actions already. There's still a little bit left to do, but the vast majority of that is behind us. The facilities take a little longer. There's work to do. We've made, I think, significant strides in getting ourselves into a place where the facilities will be ready to be exited that we've identified. It's a timing issue just with the market and ensuring we can get those things closed out. So that will happen, I think, in the first part of next year. In terms of OpEx, you're going to see a continued decline through the first half of 2026. It will be a little bit of puts and takes in terms of timing to achieve our total cost savings objectives here. As far as revenue, I'll let Jeff sort of cover where our OpEx would need to be in terms of revenue outlook. It's something that we're doing right now as part of our 2026 budgeting. Jeffrey Graves: And the frustrating part of what Phyllis just said, Troy, is the timing around facilities. We've exited 5 or 6 facilities, and they're on the market now. It's just a matter of timing to get them subleased or have the leases expire. So that will flow through over the next few quarters, we're estimating, but they're all in the market right now. Just look, the other question is, to me, very important is where does OpEx need to be in order to really drive profitability and positive cash flow for the business. It's highly dependent, obviously, on the gross margin that we derive from sales. So it will be sales volume dependent, gross margin dependent. The good thing right now is we are selling a lot of high materials used printers. Our new products are largely focused on those. It's these jetting solutions consume a lot of materials in the markets they serve. The new SLA printers, we have the large SLA printers, the large SLS printer that we go to market with, those consume a lot of materials. So you'll continue to see us innovating on SLA and impacting all those product lines. They pull through a lot of materials. So there's a lag when you first sell the printer on gross margin, but we should see some nice continuous gross margin lift as they pull through materials. So the OpEx, you could argue it to a couple of different levels depending on sales volume for factory efficiencies and the gross margin we derive from those sales. So I'm not giving you a crisp answer. Our original target of $70 million for these rounds of cost takeout we believe in a little bit more normalized environment, but not great environment, but in a little bit more normalized environment through our gross margin estimates, we believe that would get us to positive cash flow and profitability. I still believe that. It's all-in-all is dependent on the volume and mix that comes with increased sales. Good news is sales are picking up in Q4, as we've guided to, and we all fingers crossed for 2026 if the world continues to improve. Troy Jensen: Good luck going forward. Jeffrey Graves: Thanks, Troy. Operator: Your next question is coming from Greg Palm from Craig-Hallum. Jackson Schroeder: Perfect. This is Jackson Schroeder on for Greg Palm. Just kind of wanted to talk a little bit more about the -- what was press released last week with some of the new partnerships talking about with Lockheed Martin, some of the stuff out in the Middle East. Can you talk a little bit more about that, give some detail and maybe -- I mean, obviously, the end market in A&D, but also kind of the products and what you're working on with them? Jeffrey Graves: Sure. Yes, absolutely. So we work with Lockheed Martin around the world. And obviously, in the U.S., they're a very big defense contractor. So very excited about business in the U.S. The unique thing about our Saudi initiative is when -- Saudi is a big consumer of American defense products, obviously, and with that consumption goes a commitment from OEMs generally to spend money in the Kingdom. And so it drives them to look for innovation and local manufacturing of products. So that is very consistent with why we set up our joint venture there in the first place. A lot of the JV is directed at the local Saudi infrastructure like oil and gas and electricity, but defense does benefit it substantially because of the requirement of the global defense OEMs to spend money in the Kingdom. So it's very good for us. It helps build things. The part types that they're interested in are very specific to what they sell in that part of the world. And I can't comment on those. So -- but it's all the normal systems you would associate Lockheed with both aircraft and missile systems that you'd associate them with. Their activity is very focused and aggressive because they have these local sourcing requirements. So it's a great end with a terrific customer, and we're uniquely positioned to serve that. Obviously, in the U.S., there's other folks that can serve them as well. But these relationships take a while to develop and the technology takes a while to prove. So whether we prove it in the U.S., we prove it in Europe or we prove it in Saudi Arabia, it all goes to the same endpoint. And in terms of the systems and applications, again, I shouldn't talk about that for any customer. But in that case, it's all the normal kind of flight systems you would expect and the things that propel those flight systems, engines and rocket motors, things like that are all fair game. Jackson Schroeder: And then as an off-topic follow-up, maybe I missed this, talking about cash generation for next year. Can you touch more on CapEx expectations for that? Jeffrey Graves: Yes. Our CapEx, we have -- we are now able to throttle back on CapEx pretty nicely because we've made some significant investments in past years. And our infrastructure needs don't evolve that quickly. We generally assemble products, we mix materials. They're not highly CapEx-intensive manufacturing processes. So that works in our favor. We have traditionally, if you draw a line through the past, said 4% of sales on CapEx is a good long-term average. But I would tell you over the next couple of years, the number can be meaningfully below that because we've spent pretty heavily in the last several years on building out what we needed in terms of building infrastructure, stuff like that. So 4% is a historic benchmark in a perfect world and everything is growing, that's probably the level to model us at. But for the next couple of years, I would tell you we can get by with substantially less than that, probably less than half of that. We're still putting things together for 2026. But we can get by with substantially less than that because, again, the nature of our manufacturing operations, not very capital intensive. Operator: [Operator Instructions] Our next question today is coming from Alek Valero from Loop Capital Markets. Alek Valero: So my first question is, I saw in the press release that you mentioned that the Dental business is seeing more stability. I wanted to ask what is driving the Dental business to stabilize? And I also wanted to ask on monolithic dentures. I want to see if you could speak to the opportunity there and when we can possibly see it become a meaningful part of revenue. Jeffrey Graves: Yes. Two good questions. So on the first one, in terms of stabilization, obviously, there are several -- we have several revenue streams today in dentistry. One is our historic stream in materials to repair teeth, if you will, which is NextDent and Vertex. That market is consistent, okay? It runs pretty consistently, and we've got approvals in the U.S. and Europe for a long time. So that's a pretty consistent performer. The volatility revenue stream, which is great. We love it, but it's more volatile is the aligner revenue stream. So that really -- you can follow that through public statements by the customers that we serve. That market fluctuates because in tougher economic times, some people -- consumers view those as luxury items and they don't spend as much money on them. There's also a number of different age groups that those OEMs try to serve from younger folks to middle-aged and older folks with the growth in video conferencing and stuff, straight teeth have become very popular. And it also varies by geography. So U.S., Europe, Asia. So we serve -- we're a big provider in that market. I think we're the leader in providing printing technology and materials in that market by far. And we kind of go -- we kind of live with the volatility that, that encounters. So if you want to understand the driver of that, you can easily -- they're public companies, you can easily tie into their earnings calls. And I think what you would hear right now is that market has declined in the last couple of quarters, but is now stabilizing for them in terms of end product sales. So if you work back through the supply chain, you would -- it's consistent with our commentary on we see revenue stabilizing in that market. And it continues to be a great business. It's stable now. Love to see it return to faster growth, but we're -- we kind of live with that volatility in consumer spending. The denture part of your question is very interesting. Dentures today are largely handmade products. I'm sure that patients -- the consumers of those products don't appreciate the labor content that goes into a denture historically. So you -- whether you make teeth by machining, which is the common way to do it or you print -- or you try to print them, the assembly of the product has historically up until now been very much a hand operation. If you walk through a dental lab, which is where these products are made, they're made regionally in the U.S. and Europe, and they serve all the dentists around the city. If you walked into that lab, you would see a lot of people that are involved in some way in making and finishing dentures, okay? Because it's labor-intensive, some labs have chosen to ship the assembly operation to Asia to access lower-cost labor, but that's the way it's gone. That is all going to change now. But with the digital dentistry, the scanners that dentists employ now are excellent. So you can get a good scan of someone's teeth or their needs from their jaw construction. You can send that image to a lab. But now instead of being made by hand, you can 3D print a denture. And you can print it in minutes and hours, not days, okay, and finish it. It is beautiful. It is durable. It in many cases matches or exceeds current product standards. And within a year or 2, it will be the full spectrum of colors, performance, everything that people expect today will be embodied in these dentures. So I'm thrilled with the product. I love the process because it takes enormous time and cost out of manufacturing. And what the patient experience is at the end when they buy the denture is excellent. So it wins on every front and the economics are absolutely compelling. So what is paced by -- and this is where the rubber hits the road for investors is, okay, you talk about a $1 billion market, what has to happen to make that happen? We need to -- we've got full regulatory approval in the United States. We need now to mimic that in Europe, and we're working our way through. That will happen in '26. We need then to have these dental labs try the manufacturing process and accept it and phase it in. And that's -- I wish that process were faster, but it is becoming a very sticky product. They like the product. They're going to ring it out and try it and make sure their economics work. I'm very confident they do. And then we'll be selling a lot more machines. So our production rates are ramping. We brought in inventory to make the product and the materials are fantastic. So I expect revenues to continue to grow in that market. We want to access as much of that $1 billion market as we can because I think this beats any manufacturing process out there. We are also because of requests now seeking regulatory approval in Central and South America. Several countries there would like to adopt the technology as well. Some of them use U.S. standards, some use European, some use a blend. Every country is different. It takes some time to get through those. But I have yet to see us ship a product to a lab and then say, wow, this does not work for me, okay? Everybody that tries it loves the output of it right now, right? And if there's any hesitations, it gets down to the details of the market they serve in terms of coloration, gums and teeth that varies by demographics, region of the world, all of that. So there's a little more work to do on some areas of the market, but fantastic acceptance. We're excited about the growth, and now it's just working through there. So all in all, dentistry for us, I think, is going to be a great business. It already is. The repair materials will always be needed for caps and crowns and all of that. The aligner product is very well accepted. It may become a little bit more of a volatile market with consumer spending in some parts of the world, but it's great. It will continue to consume a lot of material and printer investment. It is the most -- it's the largest application for 3D printing today. Well over [ 1 million ] of those are made per day through 3D printing because they're all unique to each person's teeth. So materials will be strong. Aligners will be strong for us. We're doing some really good work on night guards as well. And obviously, the -- and I would say, direct printing of aligners to change both the markets they serve and the way the product is manufactured. We're doing some good work there. And then, of course, dentures is our biggest new growth initiative. So thank you for the question. I'm super excited about the product and the process, the acceptance. Look forward to updating you more in the future. Alek Valero: I have a quick follow-up if that's okay. Jeffrey Graves: Sure. I'll give you a short answer [indiscernible]. Alek Valero: Now I was just going to ask on the denture opportunity, just digging a little deeper. So denture seems to be kind of like a more nondiscretionary product [ for that ], but if and when that initiative turns into revenue, would that become kind of like a more stable part of the dental revenue? Jeffrey Graves: Yes, absolutely. And that's a very good question, absolutely. If you look at aligners, they truly -- for many people that buy them, they are discretionary. I mean a lot of people have very good teeth. They're discretionary objects. Although I would tell you, the applications are expanding for aligners into folks that need more manipulation of teeth and beyond cosmetics, so for actual functionality of chewing stuff. So that's -- so that market is continuing to expand. Dentures are exactly what you said. They are, in my mind, an essential item to people, particularly in the developed countries and even in the nondeveloped countries, it's one of the first things people want. And life expectancies continue to expand. So you have an aging population. There's more demand, if you will, for teeth replacement. And this product wins both aesthetically and economically in addressing that need. So it should be a more stable revenue stream, a growing revenue stream as the manufacturing is converted and because of the aging population and growing demand profile. So we're thrilled by it. It's a great -- I think it will be a great business for us. And I think you'll see dentistry for us be neck and neck with our -- the balance of our health care business in orthopedics be 2 of our largest and most valuable revenue streams in the future. Operator: We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Jeff for any further or closing comments. Jeffrey Graves: So thank you all for calling this morning. We look forward to updating you again as we wrap up the year and report Q4 and full year results in the springtime. Thanks very much for the call. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Elanco Animal Health's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Tiffany Kanaga, Vice President of Investor Relations and ESG. You may begin the conference. Tiffany Kanaga: Good morning. Thank you for joining us for Elanco Animal Health's Third Quarter 2025 Earnings Call. I'm Tiffany Kanaga, Vice President of Investor Relations and ESG. Joining me on today's call are Jeff Simmons, our President and Chief Executive Officer; Bob VanHimbergen, our Chief Financial Officer; and Beth Haney from Investor Relations. The slides referenced during this call are available on the Investor Relations section of elanco.com. Today's discussion will include forward-looking statements. These statements are based on our current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from our forecast. For more information, see the risk factors discussed in today's earnings press release as well as in our latest Form 10-K and 10-Q filed with the SEC. We do not undertake any duty to update any forward-looking statements. Our remarks today will focus on our non-GAAP financial measures. Reconciliations of these non-GAAP measures are included in the appendix of today's slides and in the earnings press release. References to organic performance exclude the estimated impact of the aqua business which was divested July 9, 2024, and certain royalty and milestone rights that were sold to a third party in May [Technical Difficulty]. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Jeff. Jeffrey Simmons: Thanks, Tiffany. Good morning, everyone. Elanco's strong third quarter results build on our consistent priorities of growth, innovation and cash. As highlighted on Slide 4, Elanco continues to deliver, growing 9% organic constant currency in the quarter and outperforming the high end of our guidance for revenue, adjusted EBITDA and adjusted EPS. Growth was led by U.S. Farm up 20% and U.S. pet health up 9%. This marks 9 consecutive quarters of underlying total growth and our highest quality of growth in the 9 quarters. Innovation continues to exceed expectations, achieving $655 million in year-to-date revenue. We are further raising our full year expectations by an additional $100 million at the midpoint to $840 million to $880 million. The consistent outperformance reflects broad-based momentum from our diverse basket of innovation across geographies, species, and products large and small. The portfolio benefits of our newer products are also driving more stability in our base business. Our strong focus on cash and operational execution improved our net leverage ratio faster than planned to 3.7x at quarter-end. We now expect to end the year at 3.7x to 3.8x. Additionally, we refinanced our $2.1 billion Term Loan B facility, extending the maturities through 2032. We expect our balance sheet to be in a strong position as we exit 2025. On tariffs, our intervention actions, FX tailwinds and year-to-date execution are mitigating potential impacts and risks. We continue to expect a 2025 net impact of $10 million to $14 million and believe any likely tariff risk scenarios are covered in our 2025 guidance. With our consistent outperformance, we are well positioned to raise our top and bottom-line outlook. For the full year, we now expect organic constant currency growth of 6% to 6.5%, adjusted EBITDA of $880 million to $900 million and adjusted EPS of $0.91 to $0.94. This guidance raise considers the dynamic macro environment and our confidence in the underlying momentum, agility and strength of our business. We are turning strategy into results providing a long runway for shareholder value creation. Looking at the third quarter revenue performance on Slide 5, we break down the 9% underlying organic constant currency revenue growth. This chart demonstrates strength across our global business with all 4 quadrants growing nicely. U.S. pet health had another solid quarter, up 9%. We saw growth in the vet clinic driven by Credelio Quattro and Zenrelia and also at retail through our OTC parasiticides. It is clear that our innovation insulates us from vet visit volume declines and benefits the broader portfolio with Galliprant and vaccines also showing growth in the quarter. Moving to international pet health. We achieved 8% organic constant currency revenue growth, driven by Zenrelia, Credelio and AdTab. We are very pleased with the early results for the Zenrelia's launch in the EU and Great Britain, following our success in Brazil, Japan and Canada. We expect geographic expansion to be a tailwind for our basket of innovation in the coming quarters and years. U.S. Farm Animal delivered an outstanding quarter, up 20% on top of 11% in Q3 of 2024, bolstering our market leadership. Cattle led the way with strong growth for Experior and Pradalex, poultry vaccines also contributed to the quarter. Finally, international farm animal was up 5% in organic constant currency with growth coming from poultry and ruminants. As expected, the quarter was modestly impacted by some pretariff buying shifting to Q2 from Q3 to satisfy customer demand, primarily in China. Overall, we're encouraged by the performance of the business, supported by strong animal protein markets. Looking at Slide 6. We delivered $655 million of innovation revenue year-to-date with outperformance across a diverse basket, led by Credelio Quattro, Experior, AdTab and Zenrelia. We are again raising our innovation guidance for 2025 by $100 million at the midpoint of the range to $840 million to $880 million. This target reflects several large margin-accretive products, and they are gaining traction in the marketplace with our no-regrets launch approach. Let's further discuss the progress of our major innovation products on Slide 7, starting with Credelio Quattro. In early September, Quattro became Elanco's fastest pet health blockbuster in history and one of the industry's fastest ever, reaching blockbuster status of $100 million in net sales in less than 8 months. This is especially notable with a single geographic approval. We're seeing incredibly strong demand for the all-in-one products from both pet owners and veterinarians pushing the U.S. broad spectrum endecto market to $1.4 billion today with growth at almost 40%. We believe Quattro is best medicine and its fastest-growing animal health market, and our product is not only expanding the market even further, but we're also gaining share ahead of expectations. These gains grew from the second quarter, both into and out of the clinic. Our strategic DTC investments, our expanded sales team and distribution partners are all driving the success of this launch, as veterinarians and pet owners clearly appreciate Quattro's 3 dimensions of differentiation. First, Quattro has broad coverage. This includes multiple species of tapeworms. And following a recent label update also includes protection against the black-legged and longhorn ticks for prevention of Lyme disease. Second, Quattro kills ticks twice as fast as the competition as detailed in a published head-to-head study. And third, Quattro has heartworm coverage from month 1. We've also received positive feedback from vets and pet owners praising its great palatability. Introduction of Quattro has bolstered our broader Elanco portfolio in clinics as we now offer veterinarians a complete ecto, endo, and endecto portfolio with a variety of parasiticide coverage at a variety of price points to meet veterinarian and pet owner needs. This more complete portfolio is especially enhancing our offering for corporates where we've historically under-indexed. Cannibalization has been limited as approximately 70% of Quattro share capture has come from the competitive product switches, new starts or repeat patients. Our product ranks highest on Kynetec Puppy Index versus other broad spectrum endectos. This is supported by our puppy program and DTC investments, but mostly by the differentiated product profile and performance. Looking ahead, we are excited about Quattro's international rollout with launches expected to start in 2026. Next, on Zenrelia. We are seeing strong momentum and positive developments on several fronts as we make further inroads into the $2 billion global dermatology market that is consistently growing at a double-digit rate. We estimate our market share at approximately 5% in the countries where we have launched. Zenrelia posted its best quarter since launch. As we move through peak allergy season sales accelerated nicely, nearly doubling globally compared to the second quarter. Over 12,000 U.S. clinics are buying the product, up from 10,000 in August, and the reorder rate also continues to climb now over 80%. We have continued to achieve growth ahead of our expectations with more first-line treatment use and willingness to use, a reflection of Zenrelia's efficacy, convenience and value. We are also expanding the market with approximately 18% of Zenrelia patients being new to therapy. Zenrelia's momentum in the U.S. was particularly strong at the end of the quarter with a label update in September. Upon evaluation of submitted data, the FDA concluded that the totality of evidence supports removal of vaccine-induced disease language, which has been subsequently removed from the Zenrelia label in the U.S. This development has sparked new interest among veterinarians and increased pet owner acceptance. Also, Elanco has recently submitted additional new data to the FDA Center for Veterinary Medicine seeking to further update the Zenrelia label in the U.S. This data, peer-reviewed and published, evaluated Zenrelia's impact on dogs' immune response to common booster vaccinations. Our aim is to amend the vaccine warning to make the U.S. label more consistent with the other major geographies where it's already approved. Overall, we believe this data combined with 13 months of positive use in the U.S., along with 35 country approvals, all with nonrestrictive labels support further positive change to the U.S. Zenrelia label. In the $700 million derm market outside the U.S. Zenrelia continues its good progress, launching in the European Union, Great Britain and now Australia. You remember, we completed a head-to-head study in Europe versus the marketplace incumbent as part of the EU approval process. We are encouraged by the early results in these geographies, reflecting the head-to-head data and overall strong efficacy of Zenrelia. The newest launches follow success in Brazil, Canada and Japan. Notably, Zenrelia has double-digit percent market share in these markets, supporting our long-term belief in the product with a clean label. We believe the consistent key driver to Zenrelia's increased momentum is product testimonials on its differentiated efficacy profile. Now our OTC parasiticide product AdTab. In Europe, it continues to achieve good growth with sales up more than 25%. AdTab's robust trajectory is fueled by the April approval and launch in the U.K. and supported by data-driven strategic DTC investments. AdTab is now the market leader in the European ISOC OTC market and the only product in the space that can be used in both dogs and cats. Finally, on CPMA, our treatment for the deadly canine parvovirus we do expect growth to remain tempered in the near term. We are working to expand access to shelter promotions. Moving to farm animal. Experior continues to grow rapidly, up 70% in Q3 on top of more than 100% growth in Q3 of 2024. We continue to benefit from the historically small U.S. cattle herd size, which reached the lowest midyear count in more than 50 years of record keeping. This dynamic is driving stronger producer economics and sticky demand with Experior's customer retention rate remaining over 90%. Looking ahead, Experior does face stronger comparisons as it laps the combination clearance for heifers. However, there are early positive signs of herd rebuilding, representing a multiyear tailwind. We see significant runway for this blockbuster and the benefits of its portfolio synergies and an estimated potential market of over $350 million in the U.S. and Canada, with also geo expansion as another expected tailwind over the longer term. Lastly, regarding Bovaer, the product continues to grow, but at a more measured pace than initially projected. We see consistent demand from CPG brands, which supports sustained interest and consistent cow numbers. As we've seen with other innovative farm animal products, the adoption curve can take time. However, our experience shows that once these products are integrated and their value realized, they become sticky, providing significant and lasting benefits to farmers. Overall, we continue to see substantial value in Bovaer for both our CPG partners and the producers we serve. Moving to Slide 8. We offer some recent highlights across the 3 parts of our IPP strategy, Innovation, Portfolio and Productivity. First, on Innovation. Ellen and her team have refilled the pipeline and are progressing our next wave of blockbuster products. She's created an organizational capability to generate a consistent flow of high-impact innovation. More near term, IL-31 remains on track for commercialization in the first half of 2026. We are in the final stages of the USDA dossier review. Given our data submissions and constructive conversations with the USDA, we're cautiously optimistic that the product will be approved in the fourth quarter. However, the lack of ADUFA time lines and the government shutdown introduced some potential for variability beyond our control. Our commercialization time line can absorb a modest potential delay from the shutdown and perhaps, most importantly, this year's progress and growth innovation and cash has clearly demonstrated that our results are driven by our total portfolio. As our diverse portfolio of innovation scales, it also stabilizes our base business, driving overall industry-leading growth. Our U.S. Farm Animal business is consolidating its leadership, having achieved 11% growth on a trailing 12-month basis, led by beef cattle. At the same time, our life cycle management efforts continue to strengthen our portfolio. For example, Credelio recently became the first ever FDA product to receive emergency use exemption for treatment of New World screwworm in dogs. Price is also an important portfolio growth enabler. We have achieved 2% price growth year-to-date, and we continue to expect the full year to also be up 2%. While pricing was flat in the third quarter, this performance aligned with our expectations, representing fluctuation in customer and product mix. Remember that our newest launches like Quattro are not reflected in price. Our strategy continues to align price with customer value. Finally, on productivity, we continue to rapidly pay down debt and strengthen our balance sheet. We now expect to improve our net leverage ratio by 2 turns in just 2 years with the under 3x milestone in sight in 2027, especially as our company-wide margin enhancing initiative, Elanco Ascend, drives meaningful efficiencies beginning next year. Our recent debt refinancing further strengthens our balance sheet with an improved capital structure that both extends our maturities and lowers our cost of debt. We expect our net leverage ratio to benefit on multiple fronts ahead growing EBITDA and debt paydown. And on the manufacturing front, we remain on track for a strategic expansion of our facilities in Fort Dodge, Iowa and Elwood, Kansas with the latter supporting our MAB platform for IL-31 and beyond. With that, I'll pass it to Bob to review our third quarter results and financial guidance. Robert VanHimbergen: Thank you, Jeff, and good morning, everyone. I will focus my comments on adjusted measures, so please refer to today's earnings press release for a detailed description of the year-over-year changes in reported results. Starting on Slide 10, we delivered $1.137 billion of revenue, representing an increase of 10% on a reported basis. Organic constant currency growth was 9%, primarily driven by an increase in volume. As anticipated and as Jeff noted, price was flat in the quarter. On Slide 11, you'll see revenue by the 4 quadrants of our business. Globally, pet health revenue increased 8% in constant currency in the third quarter. In the U.S., pet health delivered 9% growth, driven by demand for our key innovation products, Credelio Quattro and Zenrelia. Outside the U.S, our pet health business grew 8% in constant currency, with growth led by Zenrelia. Moving to farm animal. Our global business achieved 10% organic constant currency growth. The U.S. farm animal business grew 20%, driven by the strength of Experior and poultry vaccines. Outside the U.S., the farm animal business contributed 5% growth in organic constant currency, driven by cattle in Europe and poultry in both the LatAm and APAC regions. Continuing down the income statement on Slide 12, gross margin increased 90 basis points to 53.1% primarily driven by productivity from increased volume. Our operating expenses grew by 7% year-over-year, largely driven by strategic investments in the global pet health product launches. The increase was slightly below our 8% target as some expenses will shift to the fourth quarter. Interest expense totaled $34 million representing a $12 million reduction from the same period last year. This decrease reflects our continued progress in deleveraging. On Slide 13, we provide walks to illustrate our year-over-year performance and adjusted EBITDA and adjusted EPS. Adjusted EBITDA was $198 million, an increase of $35 million. Adjusted EPS was $0.19 in the quarter, an increase of $0.06 year-over-year. On Slide 14, we provide an update on our cash, debt and working capital. Cash generated from operations was $219 million in the quarter compared to $162 million in the same quarter last year. We ended the quarter with net debt of approximately $3.3 billion and a net leverage ratio of 3.7x, better than expectations. Now moving to Slide 15. We have communicated a consistent capital allocation strategy with debt paydown as a primary use of free cash flow. We are pleased with the progress we have made on deleveraging this year, having already exceeded our 2025 debt paydown target with gross debt paydown of $562 million. We expect to end the year with net leverage between 3.7x and 3.8x. Longer term, we aim to be under 3x levered and anticipate capital allocation flexibility below that level. On Slide 16, we provide an update on our debt capital structure. On October 31, we successfully refinanced our $2.1 billion Term Loan B facility into 3 new debt facilities. Importantly, this refinancing activity improves our debt portfolio's maturity risk profile by extending the 2027 maturity to 2029 and 2032 and reduces our cost of debt. Looking ahead to 2026, we forecast interest expense to increase by approximately $15 million year-over-year. The projected increase is due to the expiration of a favorable interest rate swap amortization benefit in the third quarter of 2025, which originated from a 2022 interest rate swap restructuring. The increase is inclusive of the interest savings secured through our recent debt refinancing transaction. Now let's move to our guidance, starting on Slide 18. We have consistently delivered on our commitments this year. And this momentum gives us confidence to once again raise our full year expectations. We now expect to deliver organic constant currency revenue growth of between 6% and 6.5% versus our previous outlook of 5% to 6%. We are increasing our expected reported revenue range to be between $4.645 billion and $4.67 billion inclusive of an expected $30 million tailwind from foreign exchange rates since our August earnings call. Slide 19 provides year-over-year bridges for 2025 adjusted EBITDA and adjusted EPS. And Slide 28 in the appendix provides a number of additional assumptions to help support your modeling efforts. We are also raising adjusted EBITDA guidance by $20 million at the midpoint of the range. The increase reflects our $28 million outperformance in Q3, partly offset by $10 million of increased investments in our recent launches and $5 million in shifted timing. We're also passing through the $15 million in FX tailwinds for adjusted EBITDA that was previously held back with macroeconomic uncertainty, half of which benefited the third quarter results, with the remaining expected to benefit the fourth quarter. For adjusted EPS, we are raising our guidance by $0.05 at the midpoint, bringing the new range to $0.91 to $0.94. On Slide 20, we continue to expect net impact of $10 million to $14 million on adjusted EBITDA in 2025 due to previously announced tariffs. This estimate is included in our guidance and considers our multiple mitigation strategies. For 2026, we will continue with our prudent and balanced approach to guidance and proactive interventions as we navigate potential changes in tariff exposure. Our fourth quarter guidance presented on Slide 21 includes organic constant currency revenue growth of 4% to 6%. On a reported basis, we expect $1.085 billion to $1.11 billion in revenue. The year-over-year increase in operating expenses is expected to be approximately 10% in constant currency, including the incremental DTC investment and a shift in timing of some expenses. As a result, we anticipate adjusted EBITDA of $168 million to $188 million and adjusted EPS of $0.09 to $0.12. Finally, as usual for this time of the year, we provide some preliminary context on our expectations for 2026 on Slide 22. We see a clear path for sustainable competitive revenue growth through our diverse portfolio of innovation, continuing to scale globally on top of a stabilizing base. This innovation helps to insulate us from macro headwinds like declines in U.S. vet visit volumes. Price should also contribute to our revenue growth. In pet health, while we recognize pressures for competitive launches, we believe we are well positioned to gain incremental share, both in the U.S., where our corporate offering benefits from our more complete portfolio and globally as we launch our innovation in new markets. We also expect to build on our OTC pet health retail leadership. On the farm animal side, while we are facing difficult comparisons, especially in the U.S., there remains a runway for continued solid growth, driven by our new products in cattle and favorable producer economics. We expect to bolster our leadership in cattle and poultry. We continue to expect EBITDA margin expansion beginning in 2026, led by general and administrative cost savings and manufacturing efficiencies under the Elanco Ascend program. This is a company-wide initiative that we anticipate will drive additional productivity and capabilities in key areas, as we're looking beyond the margin benefits, we can actually capture through better mix, consistent growth and moving past heavier launch investments in 2025. There's more we can do in digital, automation and AI to leverage those capabilities across the organization. Procurement is working to identify opportunities with suppliers to help offset inflation. Tariffs remain a headwind and a risk but have been manageable to date with our strong execution and proactive mitigation plans. Lastly, as I shared earlier, we expect a step up in interest expense in 2026 of approximately $15 million. From a cash perspective, we expect accelerating free cash flow to fuel additional debt paydown with net leverage improving towards our goal of under 3x. Now I'll hand it back to Jeff for closing comments. Jeffrey Simmons: Thanks, Bob. Elanco knows our charge, consistent, reliable delivery to our customers and shareholders. and I'd like to thank our teams for the disciplined execution and the delivery this quarter. Employee engagement is at a high in Elanco, which I believe is a strong leading indicator, demonstrating confidence in our future. We know the hard work continues in this competitive fast-growing animal health industry and we are committed to continue to deliver for our customers. I see a durable path forward. our IPP strategy is driving results, positioning us well to raise our 2025 guidance even in a dynamic global backdrop. Elanco is clearly in a new era of growth and innovation, with significant opportunity for continued shareholder value creation. We look forward to sharing more on our strategy, our financial outlook and our innovation pipeline at our December 9 Investor Day. With that, I'll turn it over to Tiffany to moderate the Q&A. Tiffany Kanaga: Thanks, Jeff. We'd like to take questions from as many callers as possible. [Operator Instructions] Operator, please provide the instructions for the Q&A session, and then we'll take the first caller. Operator: [Operator Instructions] Our first question comes from the line of Umer Raffat from Evercore. Umer Raffat: Congrats on the quarter. I wanted to clarify something, Jeff, you mentioned, unless I heard it wrong, did you say Quattro did $100 million in 3Q? And if so, what does that mean for innovation basket ex Quattro on a year-over-year basis? And then secondly, to the extent Quattro is annualizing in that $300 million to $400 million range right now, what do you see as a realistic peak sales potential? I guess, thinking out loud, why can or can't it be $1 billion at peak? Jeffrey Simmons: Thanks, Umer. I appreciate the question. Yes, let me clarify. We announced in September that it had reached $100 million in the year up till September. So it wasn't in the third quarter. Let me clarify that. But let me put a little color though, to the question. There's no question, we believe that this is our fastest blockbuster to date. It's only in one country and to reach that in 8 months. I think it shows a lot about the value of the differentiation of the product. A little bit more color just on the product itself. I think the differentiation is playing out in the field as well as we're not only taking share, but the broad spectrum endecto market continues to grow. It's a $1.4 billion market Umer. It's growing at 40%. So we've got the rise of the market combined with the share that we're taking. And we're only in 1/3 of the clinics at this point in time. So we're adding business inside the clinics we have with a return rate of over 80% of reorder rate. And at the same time, we're seeing really positive indicators. And the one I'd point to is actually the Kynetec data on the puppy index. I mean, today, we've got the highest puppy share overall. And when you look at that, that means that puppies are a higher percentage of our total Quattro patients compared to any competition. And this is a lead indicator of the vets confidence in this product and that this product, I've said, has been best medicine. I now believe it has the potential. And in my eyes, it is the best-in-class product and the fastest-growing animal health market. So it's set up well. There's a lot more room to grow. We'll be globalizing this product with international approvals next year. And we see really, really nice upward opportunity. Operator: Our next question comes from the line of Jon Block from Stifel. Jonathan Block: Jeff, I'm going to start with maybe just asking for a little bit more color on the U.S. Zenrelia, call it, like cleaner label aspirations and maybe the timing behind that initiative? I know you took a step forward. You mentioned the share gains accelerating exiting 3Q. But I mean, obviously, removing the box warning would be a big step forward. And I'm asking because you also referenced, I believe, the higher share gains in the international markets for Zenrelia despite being there for a shorter period of time. So I would love any color on what needs to get done and then maybe the timing behind that? And then I'll ask a follow-up. Jeffrey Simmons: Yes, Jon. I'll point to the 3 markets that we introduced this product into first outside of the U.S., Japan, Canada and Brazil, I highlight kind of new data here showing that we're a double-digit market share in those markets. In my 36 years in animal health, I've never seen a product with the efficacy profile and the testimonials that we've seen over the last year with Zenrelia. We have something here that you know this market is growing double digit. It is an unsatisfied market, and we've got a product that we think is clearly differentiated. So with -- and it's off to a good start in Europe as well. So yes, we have a multipronged approach on the label. The first one was the PCR data, that allowed us to remove the fatally induced disease off the label. And then this last quarter, we have submitted another package of data, peer-reviewed published data all around the booster side, and we do believe that combining that data will hopefully satisfy the FDA's need to be able to see this as well as 13 months of use in the U.S., over 0.5 million dogs. All of this, I believe, will further support a label that could be updated to look more like the international markets. I will say, though, that label change did in September and October, you can see we're adding close to 2,000 clinics a quarter but the actual use monthly sales per clinic has grown here in the U.S., nearly 50% since Q1. So our base is becoming more loyal. We're moving to more first-line treatment. And I think that's all coming back from the testimonies on efficacy. So more to come, the regulatory strategy is working, big milestone with this other data submission that we made here in this last quarter. Your follow-up, Jon? Jonathan Block: Yes. No, that was great color. And then maybe for the follow-up, and Bob, this might be for you. But the 2025 EBITDA guidance, the midpoint is now $890 million, it's up from the initial. I think I got this right, of $850 million. But importantly, that's with a good amount of incremental OpEx investments all throughout 2025 along the way. So I'm curious where you guys are with those incremental OpEx investments. How do we think about that going into '26? In other words, does that continue to occur? Because maybe this is just a moving target. In other words, as you continue to see favorable returns do you just sort of keep your foot on the gas. So just maybe asking for some context in that regard. Robert VanHimbergen: Sure. Yes, Jon, thanks for the question. Yes. So you're absolutely right. Our previous guidance had a range on EBITDA of $850 million to $890 million. And so we did range -- or did provide an updated range of $880 million to $900 million. So we did raise the guide at the midpoint, fueled by the $28 million beat in Q3. And again, I want to highlight it was in my prepared remarks, but that did include $8 million of foreign exchange with the other $7 million of FX coming in Q4. But then the 2 offsets, one is $10 million of incremental OpEx. And it's continuing down this no-regrets approach to launches. We've been extremely pleased with the innovation basket, raising that bar by another $100 million. And we're going to continue to use a data-driven approach with DTC and continue to drive that top line. And I have the opportunity to meet with the team again here recently and the data suggesting our marketing is working, and we're seeing that top line growth. So as I think about 2026, Jon, listen, we're still going to use data to drive the right behaviors and again, continue that no regrets approach. But with that being said, I do -- we do see 2026 to show top line growth, EBITDA growth and EPS growing and it's because of the strong market fundamentals we have, and our products are performing extremely well. Operator: Our next question comes from the line of Andrea Alfonso from UBS. Andrea Zayco Narvaez Alfonso: Congrats on a nice quarter. Just a quick question on the slide outlining the early considerations for '26. We did notice that there was a call out on consumer macro pressure and U.S. debt visit declines. It seems to be a bit of a newer call out versus when you outlined considerations for 2025 a year ago. So just curious if anything has changed structurally in 3Q versus 2Q, thoughts on the makeup of the non-wellness visits and whether there's been some consumer reticence around the use of therapies. And it also does seem that third-party data is showing some improvement, at least on the non-wellness side. So curious if that mirrors exactly what you're seeing thus far. Robert VanHimbergen: Yes. Maybe I can answer a few of those questions. Andrea, and I'll let Jeff pipe in. But really, nothing's changed quarter-over-quarter with our considerations. We are taking a grounded and disciplined approach to guidance, and so we'll be consistent in how we guide. And so just being consistent with prior years, we're showing early considerations. And obviously, competition is something that we have our eyes on and feel very good about where we are for 2025, but we're taking a balanced approach. And obviously reflecting on not only competition, but the macro environment as we think about next year. Jeffrey Simmons: And let me pick up, Andrea, I think it's important to just give our lens on vet visits. They're important. They are stabilizing. But I want to let you -- let me explain a little bit of, we believe, through our lens, vet visits are maybe a little bit over-indexed. And so -- and we are, we believe, insulated from them even more so going forward. And let me just explain. I think it's the strength of the markets that we play in and the strength of our strategy. First, we're in strong growing markets. I think these are very important points. We're in strong growing markets, endecto is up 40%, derm is up 13%. Second, we've got differentiated innovation, best medicine in these. So we're taking share with Zenrelia, Credelio Quattro and IL-31 is coming. I think the third is just this whole 4 dimensions of our portfolio. We're one of only 2 companies that can bring that. And we're seeing proof points this quarter with both pain and vaccines actually growing. And lastly, as we rolled in Bovaer, we've been talking about omnichannel, the omnichannel strategy is working. We've got the largest vet sales team we've ever had. We've got significant media with good data, as Bob just mentioned. We've got very unique distribution agreements today that I think give us competitive advantage. And lastly, we are the #1 pet retail company. So Elanco is meeting more pet owners where they want to shop at more price points than any other animal health company. And I think that sets us up very nicely to say we don't really see vet visits and even some of the consumer trend. We're entering this time as durable and as competitive as any animal health company. And again, I see that in a really balanced positive way, not just in '25, but definitely going into 2026. Operator: Our next question comes from the line of Michael Ryskin from Bank of America. Michael Ryskin: Great. Congrats on the quarter and the update. I want to go back to something I think that Jon touched on in an earlier question on the margins and just sort of the investments needed to sustain it, especially around the innovation component. I think you've seen really good traction with Credelio Quattro, obviously, so far, Zenrelia seems like it's accelerating very, very nicely. As we think about going into year 2 and year 3 of these, very competitive markets, you're going to see more competitive entrants from Merck [indiscernible]. You're going to see possibly Bravecto have something coming up. So competition is only going to ramp up. Can you talk about how you think about that no regrets approach to supporting them going forward? How should we think about incremental margins as these ramp and become over $100 million, over several hundred-million-dollar products? What should that ramp look like in year 2, year 3, year 4 launch? Because this should become meaningfully margin accretive. I'm just trying to think through the timing of that relative to the investment needed to support them. Jeffrey Simmons: Yes, Michael, let me just share a few comments here relative to this and then I'll maybe have Bob share a little bit from an investment perspective. But yes, the no regrets approach, we've been working on this for multiple years and preparing the capability, hiring the expertise from around the industry, making sure we've got good lead indicator data for the legs in the industry, and now we're globalizing faster than we ever have. So I start with the differentiation is significant. And even as we start to enter a derm market in Europe that's very competitive, the early signs are that we've got a differentiated product. We've got launch capabilities that are, we think, close to best in industry and all of that's going to allow us to say, "Hey, we globalize the innovation. We really, really doubled down on showing the differentiation. We are in growing markets." I think that's the other thing. As you look at derm continues to expand, as we pointed to, just we've got 18% of Zenrelia use coming from first-time users. So we are making these markets bigger, and we will continue to lean in. Today, we are seeing every dollar of investment give us significant returns. So -- and we are expanding, and we'll continue to structure our organizations to have as much share of voice as possible, first with our team, second with distribution, third with omnichannel. So all of that put together, I think we're in as strong of a competitive position, as I've seen as a company and our portfolio were not a company dependent on one product. We've got a portfolio of products. And our para, I'll point out portfolio is probably as strong as any in and outside of the vet clinic as well. So maybe, Bob, just from an investment philosophy perspective and the data we're looking at. Robert VanHimbergen: Yes. So thanks, Jeff. So listen, I would highlight that this basket of innovation already has margins above our corporate gross margins, all right? So that's the reason we continue to lean in. And again, using data to support the effectiveness of our DTC. But as I think maybe just holistically about margins, we're going to continue to see growth. And so by leveraging our existing cost base, we're going to see natural margins come through just the volume as well as the natural mix. And then I want to again rehighlight what we talked about last quarter is launching Elanco Ascend. And that's going to help us go beyond just the natural mix benefits of the innovation as well as the volumes. But really helping us be proactive in accelerating efficiencies across the organization, and that's going to be not only within our 4 walls and manufacturing facilities. It's going to include G&A, but also our procurement team is doing a fantastic job already leaning in and finding cost savings across the organization. So with that being said, like listen on Investor Day here in a month, really looking forward to sharing more about the direction of the company and sharing a lot more on Elanco Ascend. Michael Ryskin: All right. And can I squeeze in a quick follow-up. Really strong growth in livestock, not just this quarter in farm animal, but a couple of quarters in a row. You've also seen really strong results from Zoetis, from Phibro, Merck on this. Like longer term, we think of livestock as a low to mid-single-digit market. It seems like '25 is a particularly good year for everybody. Could you just give us an update on sort of what's driving that? How sustainable that is? Is this a 1-year cyclical event? Or is this a multiyear event? Just how do broad start I think about livestock in '26 and '27, maybe? Jeffrey Simmons: Yes, Michael, I think as you and I've talked in the past, it's probably one of the more underappreciated things about Elanco and even our industry, farm animal is still bigger than pet health. It is a very global industry. I would just point to a few things on the industry and then on Elanco. We continue to see the demand for protein growing. I mean it has rebounded. I say lead indicators, the U.S. dairy industry is now well over $10 billion of investment just because of this trend of where things are, and we're looking for a new dietary guideline coming out here in the U.S. that I think is going to increase saturated fats, dairy and animal protein. So there is a resurgence. I was on the phone yesterday with one of the largest CEOs and he -- and they're seeing it globally, and they're expanding globally. So I think overall, that is part of it. And look, when it comes to whether it's [ biles ] and prevention of disease to food safety, to productivity, to a small cattle herd of 50 years in history, producers are making money, but producers are willing to spend because every pound of protein matters more today than ever it has. So I think that's important. And we point to ruminates, dairy and beef, and we point to poultry is where we think we can take competitive advantage. And our strategy has been clear, and we will have José Manuel de Simas and Ramiro, 2 of the best, I think, in the industry highlight this 4-pronged strategy. It's innovation, it's winning portfolios. It is value beyond product and that it is competitive kind of customer interface, that farm gate access and that strategy is playing out well. It isn't just about Experior. That's been a key driver. It's been about building winning portfolios, especially in ruminants and in poultry, and we'll share more about that on -- in December. Operator: Our next question comes from the line of Erin Wright from Morgan Stanley. Linda Bolduc: This is Linda Bolduc on for Erin Wright. So given some recent competitive launches in [indiscernible] and parasiticides, any thoughts on how it has evolved for the company in third quarter and into fourth quarter to date? Also, any thoughts on how much competition has been embedded in the latest guide? And will that amount ramp significantly in 2026? Jeffrey Simmons: Yes. We have the competition in our guidance ranges for 2025, and we've got a good view on it for 2026. And specific to the para market, as I've highlighted, we've not seen any impact on competitive entries and especially the broad-spectrum endecto market that's grown 40%. We've really observed also no real material impact on new para competitors, even in the international markets. So I think in the lane that we are competing in, we see a very strong marketplace. And then again, our differentiated portfolio is allowing us to take share. Linda Bolduc: That's great. And any additional color for the topics covered in the upcoming Investor Day in addition to Elanco Ascend? Jeffrey Simmons: Yes. We have -- thank you for the question. We've actually reached out to our investors when -- and really, what we're planning to do is really the content will reflect the investor feedback. So we heard your desire to get more clarity, as Bob just highlighted on our growth trajectory. Also on the margin improvement and Elanco Ascend opportunity, you'll see aspects of our pipeline and also our leverage reduction plan. So we'll really double down on our IPP strategy. And most importantly to me is you'll be able to have a chance to meet and hear that directly from the executive team. So again, December 9 in New York City and looking forward to a real efficient high-value 3 hours between 9 and 12. Operator: Our next question comes from the line of Daniel Clark from Leerink Partners. Daniel Christopher Clark: I wanted to ask on the innovation sales, obviously, target up a fair amount once again here. Can you just help break out maybe what the drivers or main products of that guide increase were? And how should we think about growth of the innovation basket as we look ahead to next year? Robert VanHimbergen: Yes. So thanks for the question. So again, we're really pleased with what we've seen already on the basket of innovation. We did raise the guide as $100 million, as Jeff has highlighted. I do want to highlight a bit on timing, right? So as you think about the first half of the year. We are more weighted just due to the seasonality of the business with parasiticides more weighted in the first half. And AdTab specifically in Europe is a first half-weighted product we have. But we think about this as a basket. Now, that being said, I'd tell you, in the year, we're seeing great progress with Experior, AdTab, Credelio and Zenrelia and more specifically in Q3. But as we think about moving forward, listen, we've got a lot of momentum going into 2026. We're in growing markets, and we're seeing share improve as well. Operator: Our next question comes from the line of Chris Schott from JPMorgan. Ekaterina Knyazkova: This is Ekaterina on for Chris. Congrats on the quarter. So first question is just on Zenrelia and any initial thoughts on the launch in Europe. Just how that's trending relative to your expectations? And any surprises as you kind of think about the competitive landscape and just level of promotional activity you're seeing? And then second question is just on Credelio Quattro. Do you have a sense of what percent of your volume is coming kind of from the vet clinic versus online? And how do you see that changing over the next several quarters? And any interesting trends you're seeing as you kind of look at both channels. Jeffrey Simmons: Yes. Thank you. Yes, we have launched in Europe and Great Britain, and its still early days. But what I would say is we are ahead of our launch expectations. We're off to a very fast start. And I think the headline is the head-to-head non-inferiority study that we actually did compared to the incumbent is playing out in the marketplace. I mean, we're using that data with customers, and we're seeing that in the testimonials early on that this is a product that we believe, has really strong efficacy profile as well as the convenience and value overall. But that's the early days playing out. And as I said, the earlier markets, I would point to Japan, Brazil and Canada, we've seen us move now into double-digit market share. So -- and again, those trends are continuing. We'll keep you updated. Relative to Quattro, as I highlighted earlier, on Quattro, you've got a really growing market in the U.S. We've seen, as I just highlighted, a move to get to $100 million in less than 8 months in one country is the fastest blockbuster we've seen with a whole lot more runway. We're adding close to 2,000 clinics per quarter. And I would just say that when we look at the -- where it's coming from, we're getting about 75% of our growth from switches from competition, new starts and repeat patients, and I'll point again to that puppy index to really highlight that is a great lead indicator for us to say we've got a nice runway of growth. And then we will see this profile, we think, play very nicely in the international markets. Yes, we have Credelio Plus. But now when we put Quattro into these markets, we believe that international will be a nice move also for 2026 growth in para with Quattro as well. Operator: Our next question comes from the line of Brandon Vazquez from William Blair. Brandon Vazquez: I'll ask 2 upfront, a little bit related in terms of run rates into next year into 2026. So you were talking earlier about OpEx growth and no regrets kind of investment, which clearly has been coming to fruition within the sales growth. and even, frankly, within profitability growth. The question being, I think you said expectations are now for 10% OpEx growth for the year. As we go into 2026. Is there a tail on some of these investments? Or should we be basing around kind of a double-digit OpEx growth into next year as well? Basically asking, can you modulate those back? And then similarly, for '26 on the top line, the follow-up that I'll just ask now is you give a helpful slide on the tailwinds and the headwinds going into next year. I think encouragingly, this is the first year in a while that there's a lot more tailwinds than there are headwinds. So is it safe to assume that we should be modeling, I think like the Street has an acceleration of the business into 2026. Jeffrey Simmons: Yes. So maybe I'll give you just a couple of points for consideration there. So the 10% is really for the quarter, not for the year. But again, we'll be focusing on data to drive decisions on investments. But -- the thing I would highlight again is the Elanco Ascend. We are going to be operationally excellent in G&A. And you could actually look at our 10-Q, you can see the effectiveness we've had on G&A, it's actually down year-over-year, but we've been leaning into R&D and DTC and marketing spend. And so I would expect that trend to continue and us continue to be operationally excellent with Ascend coming in. But again, on your point on 2026 tailwinds and headwinds, listen, we have a strong -- we're operating in a strong market. Our products are performing extremely well. We have momentum going into 2026. And so again, as we sit here today, we believe we're going to have top line growth, EBITDA growth and EPS growing. Operator: Our next question comes from the line of Navann Ty from BNP Paribas. Navann Ty Dietschi: Can you discuss the pricing and promotional strategy of Zenrelia and Quattro including the extent and the length of promotional activity? And then I have one on Bovaer. Is that status quo on governmental incentives? And can you discuss the progress on pivoting to productivity focus. Jeffrey Simmons: Yes. Thank you, Navann. Yes, our -- in the U.S. with Zenrelia. We've highlighted that we've been -- we priced initially in the market. Things have changed a little bit, but at a 20% discount because of the label. What I would say is the value profile is growing, and we're excited about that. And over time, we will price to value. In Europe, we've not highlighted our detail there, but the label is different. The value profiles being seen very strongly, more details overall. And then really on both Zenrelia and Quattro, this increased investment, Bob was talking about -- it's a combination of multimedia. It's also including an increase in our sales force and sales force incentives as well as distribution. So it is a multipronged approach to have as competitive share of voice and really next-gen commercial in the field. So that will be -- continue to be our lean-in strategy even going forward. On Bovaer, yes, we highlighted coming into 2025 that we did not have the incentives. But what I would highlight is we've seen really good demand from the CPG companies, and we've really repositioned Bovaer to where Bovaer is helping the CPG brands, the major dairy brands that buy milk, they're utilizing Bovaer to really and paying for through our inset market and dairy producers are actually getting the benefit from that. We noted even back a few quarters ago, we had $10 million in the quarter really that was going from CPG companies into the dairy producers, and that will continue to be our strategy going forward. Operator: Our last question comes from the line of Andrew Dusing from Cleveland Research. Andrew Dusing: Just want to ask 2 quick, I'll ask them upfront. On pricing, I thought that was called out for a driver for '26, and I don't want to get too far ahead of the guide. But maybe I wanted to dig in specifically on your thoughts on the pet side of things. I think the industry the last couple of years has seen pet pricing up in the 3% to 4% range. I think you look at this year with Elanco, it's probably closer to 1.5%, if my math is right, strategically. I guess as we think about Elanco for FY '26. Can you guys get into that like normal range? Or should we even think there's potential to be above it when you throw in the innovation, lapping some of the launch promos. Any commentary on pushes and pulls or directionally, what we should think about pet health pricing would be helpful. And then on Zenrelia, great to see the progress here. I wanted to ask on go-to-market. You've mentioned the strong distribution agreement earlier today. You did have a competitor come out and give their largest derm product to distribution kind of at the end of September. I'm curious just feedback on how October has gone, if there's been any changes due to the distribution changes at a competitor. Robert VanHimbergen: Yes. So I'll take that first one here. Just a couple of tidbits on price. And so our strategy is to continue to align price with customer value. But what's an important factor to remember, Andrew, is that our launches are excluded from our pricing calculation. So Quattro and Zenrelia, for instance, those are excluded from pricing calculation today, and you'll see that lap in 2026. So our 2026 price will include those current year launches. Jeffrey Simmons: Yes. And Andrew, on Zenrelia and the change, we've been very consistent. I think it's what's put us in a really nice position with distribution. We've got great relationships. They're adding a lot of value to us. And our agreements have been very consistent. And most importantly, we offer the total portfolio. And the highlights that you just had with competitors, we've seen them be more selective to one SKU, maybe not the other SKU, year-to-year a lot of change. And we've really prided ourselves in being very consistent partners with distribution, and we believe that's paid off, and that's differentiated. Operator: Thank you. I will now turn the call over back to our CEO, Jeff Simmons for closing remarks. Jeffrey Simmons: Yes. Thank you, everybody, for your time. As you see, we've entered Elanco into a new era of growth and innovation, built on 9 quarters, more than 2 years of consistent reliable delivery. Our basket of innovation is performing and beginning to globalize driving renewed opportunity in the full portfolio, while our R&D team is laser focused on delivering a consistent flow of high-impact innovation, so this will continue. Most importantly, our Elanco team is highly engaged and driven by creating value for our customers, and our vision to make life better. And I would just say we're turning strategy into results, and I want you to be assured that we're staying very disciplined and balanced as a company. We welcome being an execution and show me story and it is our intent to create long-term value for you as investors, not just this quarter but going forward into the rest of the decade. We look forward to seeing you all at our Investor Day on December 9. Thanks for your time today. Operator: Thank you for joining the call today. You may now disconnect.
Operator: Good morning, and welcome to Sila Realty Trust Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] I will now turn the conference over to your host, Drew Miles, Senior Associate of Capital Markets and Investor Relations for Sila. You may begin. Drew Miles: Good morning, and welcome to Sila Realty Trust's Third Quarter 2025 Earnings Conference Call. Yesterday evening, we issued our earnings release and supplement, which are available on the Investor Relations section of our website at investors.silarealtytrust.com. With me today are Michael Seton, President and Chief Executive Officer; and Kay Neely, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that today's comments will include forward-looking statements under federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts, such as statements about expected financial performance are also forward-looking statements. Actual results may differ materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in our results compared to these forward-looking statements is contained in our SEC filings. Please note that on today's call, we will be referring to non-GAAP measures. You can find the reconciliation of these historical non-GAAP measures to the most directly comparable GAAP measures in our third quarter earnings release and our earnings supplement, both of which can be found on the Investor Relations section of our website and in the Form 8-K we filed with the SEC. With that, I will turn the call over to Michael Seton, our President and Chief Executive Officer. Michael Seton: Thank you, Drew, and good morning to everyone joining us today. As we reflect on the third quarter, I am pleased to report positive results that continue to exemplify the resilience and strength of Sila Realty Trust's investing platform. Our steadfast commitment to pursuing prudent, accretive growth has consistently yielded meaningful results for our shareholders, reinforcing the value of our strategic long-term approach to building our company. During the quarter, we made significant strides to further expand our net lease health care real estate portfolio by making several key investments in lower cost patient settings. Our $16.3 million acquisition of the Southlake portfolio comprised of a medical outpatient building and an adjacent ambulatory surgery center operate symbiotically and demonstrate the type of necessity-driven health care real estate that is central to our investment thesis. These buildings are anchored by investment-grade affiliated tenancy and benefit from strong operational synergies and are strategically located in Southlake, Texas, an affluent suburb of Dallas. The overlapping physicians who are uniquely aligned in their ownership of the ASC tenant seamlessly transition from providing patient consultations in the MOB to surgical procedures in the ASC. Furthermore, the ownership affiliation with and proximity to Baylor Scott & White Medical Center enhanced the overall tenancy, acting as a referral network for strong patient volumes. In addition to the Southlake acquisitions, during the quarter, we closed on the $70.5 million Reunion Nobis portfolio, which is comprised of 2 newly constructed state-of-the-art inpatient rehabilitation facilities located in Plano, Texas; and Peoria, Arizona. These purpose-built facilities operated by an experienced and well-regarded partner and Nobis Rehabilitation Partners serve 2 of the fastest-growing markets in the United States. Both the Southlake and Reunion Nobis transactions, which total approximately $87 million, demonstrate our laser focus on acquiring best-in-class net lease health care assets in markets with strong and growing demographics. In addition to the achievements on the acquisition front during the quarter, we have had success at sourcing opportunities to deploy capital at attractive yields to serve our existing tenancy. In the first example, PAM Health entered into an amended lease in May for a facility, which we own in San Antonio, Texas, whereby Sila is providing approximately $5 million of capital at an attractive yield for the property's redevelopment as a 34-bed inpatient rehabilitation facility. The commencement of operations at this location is anticipated for December 2025. Please note that PAM Health has been paying full rent to Sila as it has anticipated repositioning the facility to better serve the San Antonio marketplace. Base rent will increase to reflect Sila's additional capital deployment upon commencement of operations, and Sila will also enjoy the benefit from a new 20-year triple net lease term. As another example, we have made significant strides at our Dover Healthcare facility located in Dover, Delaware, which is tenanted by a joint venture between Bayhealth and PAM Health. Sila purchased the facility in April 2025 for $24.1 million. During the third quarter, we acquired adjacent land to the facility to support an approximately $12.5 million expansion of the building, which we expect to be completed by the end of 2026. Sila expects to generate a highly attractive yield on the deployment of its capital to expand the facility and benefit from a new 20-year triple net lease term, which commences upon completion of the expansion. This development will add nearly 13,000 square feet and up to 12 new beds to the facility, a much needed increase to serve the high demand of the patient population in Dover, Delaware. As a final example, we expect to have a similar expansion in capital deployment opportunity at our PAM Health and University of Kansas IRF in Overland Park, Kansas, which is anticipated to cost approximately $16 million. This expansion will add 2 additional floors and 17 new beds, which we expect to commence and be completed in 2026. Collectively, the opportunities, which I just mentioned, along with others that we have in the pipeline, are our concerted response to the ongoing demand for high-quality health care services in the markets in which we operate. These expansion opportunities underscore our consistent ability to enhance value for Sila's shareholders, generating cash yields on our incremental capital deployment of typically 150 basis points or better, beyond our acquisition cash cap rates. Real estate ownership often presents opportunities to provide capital to a captive audience, our existing tenants. Utilizing our existing portfolio, these opportunities that I mentioned, along with more to come, lend support to our thesis of continuing to externally grow the company through acquisitions of highly utilized health care real estate. Our pipeline for acquisitions remains strong with an approximately $43 million opportunity that has been awarded to Sila and is anticipated to close in early 2026, subject to our customary due diligence process. We have a strong acquisition opportunity set as we head into 2026 and expect a similar level of acquisition volume next year, as we have accomplished so far this year. We do expect our targeted cap rate to tighten somewhat due to anticipated looser Central Bank monetary policy. As I have stated repeatedly, we are committed to growing thoughtfully, strategically and accretively. Turning to leasing activity. We have successfully renewed 90% of our 2025 lease expirations. In the third quarter, we executed 3 lease renewals, which accounted for approximately 58,000 square feet or 1% of portfolio ABR. Following the close of the quarter, we experienced an unanticipated tenant departure at our Alexandria healthcare facility located in Alexandria, Louisiana, whereby a tenant with whom we had a lease-out for signature to renew decided to vacate. This tenant represents 15,600 square feet or approximately 0.3% of total portfolio square feet in ABR. The tenant paid full rent and holdover rent between its stated lease expiration of July 31, 2025, and through, and including October. In addition to leasing news, we are pleased to report that despite having approximately 3 years left on a lease with Community Health Systems, or CHS, at our Fayetteville Healthcare Facility in Fayetteville, Arkansas, we are agreeing to terminate our lease early with CHS, receiving a termination payment and anticipate simultaneously executing a new lease with Washington Regional Medical Center, best-in-class regional hospital system. Washington Regional will assume the entire facility under a new lease agreement for 17.5 years, and we expect this transition to take place in December 2025. This strategic transition from CHS to Washington Regional will move CHS from being our third largest tenant to our sixth largest tenant. I would like to take a moment to remind everyone what Sila's differentiated proposition brings to its shareholders. Sila distinguishes itself from many peers through its integrated focus on health care assets and a long-term net lease structure, which we believe yields better long-term outcomes for shareholders. The nondiscretionary nature of health care spending has been demonstrated to show durability and resilience across market cycles. Our thesis around triple net lease structures is critical to achieving the best outcomes for our shareholders over time as property operating expenses are passed through to tenants, mitigating the high cost of day-to-day ownership of real estate. Our longer duration lease terms should result in reduced re-tenanting capital expenses, namely tenant improvement allowances and lease commissions, relative to peers with shorter term lease agreements. We are confident that our distinctive and disciplined approach, supported by our robust balance sheet and available liquidity, position us to be able to sustain positive momentum and deliver value to our shareholders. At this time, I will turn the call over to Kay to provide further insight into our financial performance. Kay Neely: Thank you, Michael, and good morning, everyone. I am pleased to share that our disciplined capital allocation and accretive transactions continue to result in strong financial performance in the third quarter. For the third quarter of 2025, cash NOI was $42.8 million, an increase of 4.9% from $40.8 million in the third quarter of 2024. This increase was largely driven by acquisition activity over the last year and same-store cash NOI growth of 1.2%, partially offset by reduced cash NOI from our Stoughton Healthcare Facility. Compared to the second quarter of 2025, cash NOI increased 2.2%, primarily due to the acquisition of the Southlake and Reunion Nobis portfolios as well as reduced carrying costs at Stoughton as demolition of the building is underway. Our third quarter AFFO per share decreased by 0.8% compared to the third quarter of last year, primarily due to the increased interest expense related to the new swaps we entered into at year-end 2024. This was partially offset by the acquisitions and other cash NOI items mentioned previously and increased notes receivable interest income related to our fully funded mezzanine loans. Compared to the second quarter of this year, AFFO per share increased 4.2%, primarily driven by the acquisitions mentioned previously, increased interest income from our mezzanine loans and a decrease in G&A. Beyond earnings, Sila's in-place tenancy remains strong. Our percentage of reporting obligors increased by 2.4% to 75.8% and collectively reported an EBITDARM rent coverage ratio of 6.19x, up from 5.31x from the second quarter of 2025. This increase in coverage was largely driven by one tenant, which possesses a high EBITDARM rent coverage ratio that was recently added into the reporting population due to a lease assignment. Without this one tenant, our average EBITDARM rent coverage ratio would have remained at 5.31x quarter-over-quarter. These strong coverage ratios of our tenants and guarantors help further solidify our portfolio's resilience and demonstrate the durability of the income stream that we have built in our pursuit of providing long-term value to our shareholders. Though political headlines and the macroeconomic landscape continue to be top of mind, we believe our strong tenancy, balance sheet position and available liquidity continue to distinguish us in terms of both security and growth potential. At the conclusion of the third quarter, our revolver provided nearly $450 million of available funds, resulting in total liquidity exceeding $476 million, while our net debt-to-EBITDAre ratio of 3.9x remains below our targeted range. The combination of a robust balance sheet, low to moderate leverage and a prudent AFFO payout ratio of 71% for the quarter, reinforces our confidence in our ability to maintain a sustainable dividend and our ability to grow our portfolio thoughtfully and accretively. During the third quarter, the Board authorized a share repurchase program of up to $75 million in gross proceeds for a 3-year period from August 4, 2025, limited to $25 million in gross proceeds in any 12-month period. We did not purchase any shares under the program during the quarter. Additionally, on August 12, 2025, we entered into an at-the-market equity offering sales agreement or our ATM program, through which from time to time, we may offer and sell shares when we believe it is in the best interest of our shareholders. We established the ATM program, as many REITs have done, to add another tool in our toolbox to be readily available when we are able to accretively raise equity capital with an immediate vision into how those funds will be deployed. To date, no shares have been issued under the ATM program. We are particularly proud of the results from this quarter, building on to many successes throughout 2025. Although we still possess considerable dry powder, we will continue to remain prudent in the allocation of our capital, ensuring that leverage levels are maintained within sustainable limits. We have now put in place various tools, including the share repurchase program and the ATM, which give us full flexibility to take thoughtful and accretive actions when we believe the time is right. We remain fully committed to our capital allocation philosophy, focusing on the acquisition of high-performing triple net lease health care assets leased to quality tenants that operate in growing markets close to the patient. With that, we look forward to taking your questions. Operator: [Operator Instructions] Your first question comes from Rob Stevenson from Janney. Robert Stevenson: The CHS termination payment, was that in third quarter? Or is that going to be in fourth quarter? And how much was that? Michael Seton: Rob, thank you for joining. That CHS termination payment that we anticipate would come in the fourth quarter. The expectation is that Washington Regional will take over that facility. So essentially, we'll have an effective lease starting December 1. And so, my expectation is simultaneous with that, we would terminate the CHS lease, and we would receive that termination payment, which is, roughly speaking, a couple of hundred thousand dollars. Robert Stevenson: Okay. That's helpful. And then, Kay, you're going to get -- in the fourth quarter, you're going to get the full quarter benefit of the August and September acquisitions and the -- you're going to -- that's going to net out against some of the Louisiana departure. Anything else of note positively or negatively likely to impact the income statement in the fourth quarter versus the third quarter? Kay Neely: Yes. The main things I would factor in would be continued decreased carry costs for Stoughton. So as that -- more and more of that building comes down, the carry is reduced. We're, I think, roughly about $75,000 a month as we get to the end of the year. And we expect that to be roughly about $35,000 a month into 2026. However, our intention is also to appeal real estate taxes and to drive that down even further once that occurs. In terms of -- we [indiscernible] a clarification on deferred rent. We have deferred rent we're receiving, Michael spoke to in his prepared remarks, on one of our PAM properties. That will just be reflected in rental revenues going forward. So you won't see that line item. So the amount will still factor in. It will just be up at the top as opposed to added in for AFFO. We do think G&A for the year will come in below previous communicated range. Previously, we had indicated a range of $22.5 million to $23.5 million for G&A. We do believe we will be at the low end, if not slightly below that range for 2025. We do have demolition costs. Of course, those, if you see in our supplemental, are added back for core and AFFO, but separately distinguished on our income statement and in that reconciliation table, so you can see those amounts. Those amounts will continue to be incurred through the end of the year and into the very early parts of 2026. And the only other item that's a little bit seasonal in nature is just any accruals related to any bonuses. Robert Stevenson: Okay. That's extremely helpful. Thank you very much for that detail. And then I guess the other thing for me is, so you've got -- it seems like with the third quarter, I don't know what the fourth quarter is looking like for you, but it seems like the deal volume has been kicking up as the stock price has sort of moved below $24. If you do that $40 million transaction in early '26, how much more capacity do you have and stay within your targeted leverage ranges to do additional deals without needing to issue equity at these type of levels? Kay Neely: We estimate something around $200 million, $220 million to hit the midpoint of our communicated leverage target, which we had previously stated would be 4.5 to 5.5x net debt-to-EBITDA. So to around 5x is $200 million roughly. Robert Stevenson: Okay. That's extremely helpful. And then last one, Michael, as you're looking at the -- whatever you guys refer to it internally, but essentially a tenant credit watch list, and you look back a couple of quarters, is that list getting shorter? Is it staying the same? Is it increasing as operators have difficulty? How do you sort of characterize the sort of evolution of your credit watch list these days? And where is that likely to be going as we enter the beginning of '26? Michael Seton: I would say that we're cautiously optimistic. We had a very good rent collection year this year. I would tell you, we're more focused on lease maturities and obviously, renewal rates for those leases as we look forward. We have a long lease duration in the portfolio, as you well know. I don't -- I wouldn't tell you the watch list has per se increased. We have things move up, we have things move down. I think we had a very solid year in 2025. We're obviously not done yet, but I'm optimistic. As we go into next year, we do see our operators performing well. I mean, as you know, Big Beautiful Bill Act has been out there. We've talked about our assets being a mitigating factor in that space. I would say, overall, we're -- I'm cautiously optimistic about what the future holds. I mean that from a tenant credit perspective, because I don't think anybody knows what the future holds in the context of federal government reimbursement and so forth. But what -- you can see our coverage ratios are strong and they remain -- and they continue to be strong and they continue to go up. So we feel good about who we're aligned with on the tenant side. Operator: Your next question comes from John Kilichowski from Wells Fargo. John Kilichowski: My first one is just on capital deployment and where you find opportunities that are most attractive. I mean, given where your stock is trading today, does -- maybe rotating out of some noncore assets, surgical specialty and buying back stock here get more attractive relative to growing the asset base. I'm curious what that spread needs to be for you to say that's where incremental dollars should go? Michael Seton: John, thank you for joining. We found opportunities, I'll speak first to really 2025 thus far -- The opportunities that we found have been more in the IRF space than the other spaces that we target. Of course, MOB is a key area of that. We've seen a lot of MOB sales. I mean, volumes are down admittedly from years ago, but we've seen a number of MOB sales out there, particularly large portfolios as you monitor as well in the marketplace. But the quality of that hasn't been the quality that we seek to have within our portfolio, hence, our targeting of particularly IRFs, where we can get long WALT, we can get high-quality operators, we can get demonstrated performance in the portfolio. So that's what we've clearly found in the Nobis transactions. That's clearly what we found in the transaction that I'm referring to, that we may close on in January subject to our due diligence. From the capital recycling perspective, we're long-term owners of real estate. Sure, there are things that we have on the radar, and we do have a list of properties that could be potential dispositions. I would say those tend to be a little bit more event-driven, whether they're tenant-driven, could be an issue with the tenant, or as it relates to a tenant simply wanting to own their real estate, which we have a number of those occurring as well. So I don't know that they'll come to fruition. Nothing is per se penned in. There are some discussions taking place. But as we look at those opportunities, I think the -- we are, I would say, slanted and prejudiced towards deploying capital in new investments at this point. Obviously, we are very aware of our share price in terms of cost of capital, ability to raise future equity capital. Kay gave some numbers as it relates to ranges where we can expect to lever up to, and the runway that we have. That being said, the Board did approve a share repurchase program. So we've got really, I would tell you, all the tools in the toolbox, capital ready to deploy, certainly properties that we could sell where we could invest those or buy back shares, of course, and then the share repurchase program. So we're remaining nimble in terms of our approach to capital deployment. John Kilichowski: Well, that was very helpful. And I guess as you think about -- obviously, you're still tilted towards the acquisition side. I guess when you talk about the development opportunities that you're seeing that are a little bit higher yielding and you look at your leverage capacity, I think the number was $200 million. What percentage of that do you think could be deployed into maybe some of those opportunities relative to just the few simple acquisitions that you noted cap rates are getting a little bit tighter here? Michael Seton: We like the -- we, as you know, had done late last year now those Lynchburg mezzanine loans, and we like those kinds of opportunities because they're double-digit, mid-teens type returns. We recognize it as interest income for purposes of -- income purposes. So it's current development deals. If we're funding the development as equity owner, really the income gets recognized when that property goes into service. That being said, when we talk about expansion opportunities within our portfolio, those are relatively short-term constructions, 12 months or less. And those yields, as I mentioned, are 150 basis points or greater. So we'd like to find more of those opportunities. We're conscious of tenant exposure. We want to make sure there's opportunity for that -- expansion of that property in that particular marketplace. But we love those opportunities because the tenants also captive to us because we own the underlying land, for instance, and they're adding on to their building and attaching it to existing building, which we already own. And by the way, I would mention some of those yields are 300 basis points wide of our acquisition cap rate. So it can really vary, but we -- I tried to be, I would say, relatively conservative in saying minimum kind of 150 basis points or greater. So we're looking for those development opportunities. I don't think there's a ton of medical development in the marketplace today. I think banks out there are willing and able to do, for instance, MOB transactions. But in the rehab space, there's probably more limited folks willing to do those kinds of transactions on the lending side. So we want to be a partner to those developers and to those tenants that want to expand. John Kilichowski: Okay. Last one for me, if you wouldn't mind. Just on the opening remarks, you made the comment about the Alexandria tenant, and I apologize if I missed this, but that move-out that's happened in October, is there like -- do we have any expectations on what's going to happen to rent in 4Q? Michael Seton: Yes. So they were scheduled to expire already in late July. And as mentioned in the remarks, I mean, we had a lease out for signature with them. They paid holdover rent through the months of August through October. So full rent plus the 25% additional holdover rent. And we do have an expectation that they may need another month of staying there. So we may very well get November rents with holdover. We're obviously very early in the month of December. Most tenants kind of pay in the first, I'll call it, 10 days or so. So -- but that's the indication to us at this time. Operator: [Operator Instructions] Your next question comes from Michael Lewis from Truist Securities. Michael Lewis: As far as these development or expansion projects, how do you know when one is a [ candidate ]? How do you know it works and that the risk reward is balanced? Does the tenant come to you with it and you kind of evaluate it? How do you get comfortable with those and you know you've got the right one? Michael Seton: Michael, thank you for joining. I would tell you, it's -- the vast majority of the time, it's really an inbound from the tenant. So we're monitoring, as you know, the financials of these operations. The operations in a particular case may be doing very well and that property may be busting as it seems essentially. And that tenant is saying, "Hey, there's a market." So we'll often review those pro formas of the tenant saying, "Hey, this is what it looks like if we add this number of beds." We've already got, of course, the benefit of the credit of the existing operations because the operations in those facilities are not shut down or stopped, they actually continue and the construction goes on. So I would tell you, it's really communication from the tenant. Of course, we monitor, so we know which properties are good candidates for those. And we do market our tenants and say, "We're here to be your partner and provide capital." Michael Lewis: Okay. Great. And then, this is an old question, I guess, but still relevant. As the shutdown goes on and the battle seems mostly focused on these ACA subsidies, you've got good coverage across the portfolio. Is there any risk anywhere you see if the, I guess, call it, the Republicans prevail and those subsidies go away? Michael Seton: Yes. I mean that's a great question. I mean, as you know, we're not acute care hospital owners per se -- short-term acute care hospital owners per se. We're focused on outpatient procedure settings, lower-cost patient settings. So even when we have a situation where there may be a hospital partner, which we have a number of LifePoint transactions like that. In fact, all of our LifePoint transactions are really like that. We're not looking really to the hospital credit in that case. We're looking to the site performance in those transactions. We like the benefit of the branding of hospitals related to marketing and patient recognition. But from an operational standpoint, we're not looking to those. I do think that it's -- we're going to see -- even if there is some ACA subsidy continuation or there's something more done than is currently passed by the Big Beautiful Bill, we might see more influx to emergency rooms. Naturally, we'll see less insured. I mean, even if someone's premium goes up $100 a month, they may elect to not have insurance. So I think that we'll see that. And I think that's a stress on the whole system overall. The facilities that we focus on, as you know, looking at our portfolio is really the MOB and the lower-cost patient setting, post-acute spaces. So the rehab and of course, we own some LTACs as well, kind of a limited amount of behavioral. So we think we're much more insulated than a lot of folks out there. But I would tell you, it's not good for the whole health care marketplace, just generally speaking. But again, with our focus, we think we're pretty well insulated. Michael Lewis: Okay. And then lastly from me. So you've got the ATM program. You've got the buyback program. Is there -- are you closer to one or the other? Or does neither one of those look attractive here? Does it depend if an opportunity pops up? How do you think about that? Michael Seton: Well, we've read your reports, Michael, and I think you have a good -- when you think about NAV, for instance, for us not necessarily price target, as well as with your peers, that's what we're thinking about when we're thinking about kind of ATM type levels. So we feel we need to be higher. Issuing equity now, we think, is very dilutive and not reflective of the value of the company. So we don't think this is the right level to do it. So we do feel we're trading at a pretty substantial discount. So that leads into, of course, your -- the alternative, which we could be doing. And I think that, that's always a topic of conversation in the company and with the Board. We want to be thoughtful about how we're spending money. If we only have $1, we only have that $1 to spend. So we want to put it in the right place. I mentioned from an acquisition standpoint that we had done -- we've done about $145 million of acquisitions so far this year. And sort of the indication I gave for next year was, hey, it's going to be a base case scenario kind of relatively consistent with that. And I think that's a fair statement. It could be more if we find the right opportunities. But at the end of the day, we want to be thoughtful and we want to be also -- what's critical in our minds is also the quality of our balance sheet as well. Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the call over to Michael Seton, CEO, for closing remarks. Please go ahead. Michael Seton: I would like to once again extend my sincere thanks to the entire Sila team. Their hard work and dedication continue to drive successful outcomes. On behalf of our leadership team and Board of Directors, we deeply appreciate the support and confidence of our shareholders. Thank you, and have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Welcome to the Adient's Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Linda Conrad. Thank you. You may begin. Linda Conrad: Thank you, Denise. Good morning, everyone, and thank you for joining us. The press release and presentation slides for our call today have been posted to the Investors section of our website at adient.com. This morning, I am joined by Jerome Dorlack, Adient's President and Chief Executive Officer; and Mark Oswald, our Executive Vice President and Chief Financial Officer. On today's call, Jerome will provide an update on the business. Mark will then review our Q4 and full-year financial results as well as our guidance for fiscal year '26. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today and therefore, involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to Slide 2 of the presentation for our complete safe harbor statement. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. And with that, it is my pleasure to turn the call over to Jerome. Jerome Dorlack: Thanks, Linda. Good morning, everyone, and thank you for joining us to review our fourth quarter and full year fiscal '25 results. We will also discuss our fiscal '26 outlook and share additional information on how we are positioning ourselves for long-term success. Turning now to Slide 4, which summarizes our fourth quarter and full year results. With business execution remaining strong, we delivered an adjusted EBITDA margin of 6.1% and free cash flow of $134 million in the quarter. It's worth noting that full-year free cash flow ended at $204 million versus the previous high end of our guidance range of $170 million, leaving us with ample liquidity when it comes to '26 capital allocation, which Mark will cover in his section. This performance comes amidst challenging business conditions, not just in the fourth quarter, but throughout the year, including customer volume reductions and dynamic tariff policies. The Adient management team would like to recognize all of our employees for stepping up and meeting these challenges. By working together with both our customers through commercial negotiations and remapping value chains and our suppliers through supply chain management, we have successfully mitigated the lion's share of our tariff exposure this year. On a full-year basis, we generated $881 million of adjusted EBITDA and $14.5 billion in sales with an adjusted EBITDA margin of 6.1%. Customer volume reductions continue to be offset with strong business performance. From a cash perspective, we were able to generate an additional $204 million of free cash flow this year, net of funding our European restructuring program. Given our solid cash generation, we're able to return capital to our shareholders through $125 million of share buybacks, which represented a 7% reduction of our beginning year share count and 18% since the start of the program. Mark will provide additional details in his section, but we also want to highlight the amendment and extension of our ABL revolver. The team has worked diligently to optimize our debt structure and day-to-day cash needs over the last few years. We have taken the opportunity to better align our liquidity needs and reduce interest expense. Moving now to Slide 5. Let's take a moment to emphasize some of our accomplishments this year. Our operational performance and focused execution have continued, whether it's launching new business, managing the uncontrollables such as tariffs, or driving continuous improvement, the Adient team has delivered over $100 million of business performance this year, excluding the net impact of tariffs. We have actively pursued and won onshoring opportunities, and we'll continue to do so as customer footprint strategies evolve. We have pursued and won important conquest and replacement business, including replacement business on one of our largest platforms, the F-150, which we will talk about on the next slide. We have won $1.2 billion of new business in China, with nearly 70% of those wins with domestic China OEMs, as we aggressively work to confirm ourselves as the premier seating supplier in China. We are winning new profitable business in Europe, putting us on track to drive revenue and margin growth in the region in the out years. Adient is committed to driving long-term shareholder value by investing in innovation across every facet of our business. We are strategically integrating artificial intelligence into our operations for manufacturing and engineering to support functions, to enhance safety, efficiency, quality, and scalability. To ensure we maximize the benefits of these technologies, we are proactively equipping our workforce with the skills needed to leverage AI and adapt to a rapidly evolving digital environment. These initiatives position Adient to capitalize on emerging opportunities, strengthen our competitive advantage, and deliver sustainable growth for our investors. Turning now to Page 6. We continue to prioritize winning new and conquest business while also successfully launching several new programs. As previously mentioned, we have secured the replacement of the JIT and foam business on the Ford F-150. In addition, we were able to conquest incremental content and secure the trim business as well, which we will talk more about on the next slide. In addition to the F-150, in the Americas, we have won conquest JIT foam and trim business with an Asian OEM on a full-size SUV and another conquest win on metals content on the Mercedes GLE and GLS in the Americas and replacement on the S-Class in EMEA. In Asia, we continue to grow with leading domestic China OEMs, including BYD. We have also continued to penetrate new domestic OEMs such as Cherry with our recent complete seat win on their upcoming pickup truck. We could not continue to win the new businesses like those just mentioned without delivering on our customers' expectations through successful launches. These programs continue to showcase our high level of execution and our ability to meet the rigorous safety, quality, and on-time delivery standards of our customers, reinforcing our supplier of choice status. We have just been talking about what we are doing to win new business, but it's not just about our execution excellence and which programs we are winning. It's about how we are driving sustainable value for our customers, which is the cornerstone of our future growth. Turning to Slide 7. Winning the F-150 business was not just about winning the JIT and foam replacement business. It was also about working with our customer to drive enhanced craftsmanship through design collaboration. By collaborating on design to optimize foam, trim, and JIT manufacturing, we have been able to improve overall quality, appearance, and the customer experience. It is this kind of partnership that reinforces the value we bring to our customers every day and why we remain a supplier of choice. On the innovation front, we have continued to see more demand from our customers on enhanced safety features as consumer seating trends for comfort and autonomy drive additional requirements for occupant on position protection. Through our joint development agreement with Autoliv, as announced earlier this month, we are providing our customers with enhanced safety solutions built around the principle of multidimensional collaborative protection. Adient's Z-Guard is a dynamic safety system designed to protect occupants in the event of a collision when in deeply reclined positions. As electrification and smart technologies continue to evolve the passenger experiences, this will position Adient and Autoliv at the forefront of seating and safety solutions. Each of these items just mentioned are meaningful by themselves, but it's the combination of them together with the execution excellence, customer collaboration, and investments in innovation that will collectively drive our future growth. When we look forward to 2027, Adient has line of sight to double-digit growth over market in China, mid-single-digit growth over market in North America, and growth at market in Europe. As we turn to Slide 8, we would like to highlight our commitment to that growth through a new strategic partnership. We are pleased to announce that we have secured a partnership in China that builds on Adient's long-standing local business model and strong customer relationships. This agreement expands our operational footprint, which accelerates and deepens our engagement with China's leading OEMs to further strengthen our competitive position and support sustainable growth in this key market. The new unconsolidated JV is targeted to close in Q1 fiscal year '26. Moving to Slide 9. It is clear that Adient's end-to-end innovation strategy is creating sustainable value for shareholders. Across every area of our business, we are focused on initiatives that strengthen our competitive position and drive long-term growth. Here are just a few examples that demonstrate this. First, automation by design. We're working closely with our customers on product design, optimizing plant layouts for more efficient automation, and enabling long-distance jet and modularity. We have recently launched our first long-distance jet operation in North America and are looking to expand this with other programs and customers in the region in the future. This approach reduces cost, improves efficiency, and offers greater flexibility for our customers in the dynamic North American market, where an ever-shifting tariff landscape and geopolitical landscape requires greater flexibility. When it comes to process automation, we have introduced smart manufacturing technologies such as AI-driven relaxed ovens in partnership with the University of Michigan, which improve quality, enhance energy efficiency, and optimize labor. On product innovation, we recently launched our deep recline mechanical massage seat, which sets a new standard for occupant comfort and fatigue relief while maintaining industry-leading safety and durability. We already have 2 programs in production, with more actively being quoted across multiple customers. Through design innovation, we are launching sculpt the trim in Q2 fiscal year '26, which is the next generation of seat trim that delivers complex shapes that were previously unachievable with current cut-and-sew processes. This product offers greater design flexibility, superior craftsmanship, and continued labor optimization. Not only that, it leapfrogs automated sewing by replacing the sewing process. With this end-to-end innovation mindset, we will be able to capitalize on enhanced in-cabin customer experiences, mobility trends, and evolving customer requirements to drive value for all of our stakeholders. As we move to Slide 10, let's take a look at the key initiatives that each of our regions will focus on in fiscal year '26. In the Americas, the key driver will be what happens with production volumes. Right now, the forecast is based on October's S&P, and that shows a decline. In 2025, we also expected volumes in the region to decline, and they did not. If that repeats again in North America in 2026, our outlook would improve significantly. In the meantime, we will continue to drive business performance, capture onshoring opportunities, and invest in new and conquest business. For EMEA, the key drivers are successful launches, business performance, and continuing to make progress on our multiyear restructuring plan. Balance in, balance out will begin, but it is being impacted by changes in customer programming timing where program and the productions are being delayed. Despite that, we expect margins to begin improving toward the mid-single digits beyond fiscal year '26. In Asia, we are driving for growth, especially with local China OEMs. We know that there will be some margin compression as we pursue this business, but expect incremental growth to help offset this and sustain double-digit regional margins and strong cash flow generation. As we focus on fiscal year '26, what Adient must deliver is clear, but it's also clear that the world will continue to be dynamic with many uncertainties. Tariff policies, the geopolitical landscape, and ever-changing supply chains, just to name a few. With that said, the management team wants to assure you that Adient will continue to execute on what we can control and aggressively mitigate what we cannot control to maximize the results for our shareholders. Moving now to Slide 11. So what do we want to leave you with today? Adient is clearly focused on flawless execution and planting the seeds for our future growth, both of which are needed to drive long-term sustainable value. We are investing in innovation and our people. We have created a team fully dedicated to automation to expand innovation across all of our plants globally. We will continue to leverage our world-class footprint and are laser-focused on our strategic objectives and delivering value to all of our stakeholders. We will deliver on our European restructuring plan. And if needed, we will pursue additional restructuring as customer requirements evolve. We will continue to be good stewards of capital and execute our balanced capital allocation strategy. We are committed to being a supplier of choice for our customers. We are driving profitable new business, including onshoring opportunities as they arise, and replacing legacy contracts that have weighed on our bottom line for too long. These are the key drivers that make Adient well-positioned for future growth, cash flow generation, and sustainable shareholder value. With that, I'd like to hand it over to Mark to take you through our financials and our outlook. Mark Oswald: Thanks, Jerome. Let's jump into the financials. Adhering to our typical format, Slides 13 and 14 detail our reported results on the left side and our adjusted results on the right side. We will focus our commentary on the adjusted results, which exclude special items, which we view as either one-time in nature or otherwise skew important trends in underlying performance. Details of all adjustments are in the appendix of the presentation. High level for the quarter, sales of $3.7 billion were 4% better than fiscal year '24 with adjusted EBITDA of $226 million and adjusted EBITDA margin of 6.1%. Adjusted EBITDA and adjusted EBITDA margin were both down year-on-year, primarily due to the timing of commercial settlements and equity income, reflecting the impact of modifications to our KEIPER joint venture agreement, which were partially offset by favorable cost impacts and business performance for both the Americas and EMEA. In addition, equity income was also impacted by a few one-time nonrecurring items within the JVs, such as an income tax adjustment and timing of engineering expense and recovery. Adient reported adjusted net income of $42 million or $0.52 per share. For the full year, as shown on Slide 14, sales came in at approximately $14.5 billion, down 1% year-over-year due to lower customer volumes and unfavorable mix, which was partially offset by FX tailwinds. Adjusted EBITDA landed at $881 million, essentially flat with 2024 despite the increase -- decrease in volume, positive business performance offset the unfavorable volume mix headwinds as well as lower equity income year-on-year. For the year, we reported adjusted net income of $161 million or $1.93 per share, which represents a 5% improvement on adjusted EPS versus the prior year. I'll go through the next few slides briefly, as details of the results are included on the slides. This should ensure we have sufficient time for Q&A. Digging deeper into the quarter and beginning with revenue on Slide 15. We reported consolidated sales of approximately $3.7 billion in Q4, which was $126 million increase compared to Q4 fiscal year '24, primarily driven by FX tailwinds and favorable volume and pricing in the quarter. Shifting gears to the right side of the slide, Adient's consolidated sales were favorable to the broader markets in the Americas, while sales in EMEA underperformed due to customer mix and intentional portfolio actions. Sales in China trailed the market due to production declines from our traditional premium OEM customers, while the rest of Asia outperformed due to customer launches in prior years ramping to full production this year. In Adient's unconsolidated revenue, year-on-year results declined approximately 4% adjusted for FX. Results were primarily affected by JV portfolio rationalization items in the Americas that were finalized in Q1 of fiscal year '25. We saw growth in both EMEA and China on consolidated businesses. Turning to Slide 16. We provided a bridge of adjusted EBITDA to show the segment performance between periods. Adjusted EBITDA was $226 million during the quarter, down $9 million year-on-year. The primary drivers of the year-on-year performance include, as mentioned earlier, the timing of commercial settlements, which tends to be lumpy from quarter to quarter and was particularly impacted by certain actions pulled into our third quarter of this year. The year-over-year decline in equity income mentioned previously, which was partially offset by positive business performance in the Americas and to a lesser extent, in EMEA. FX and net commodities provided modest tailwinds in the quarter, and overall business performance was favorable year-on-year despite a net $4 million tariff impact during the quarter. Moving to Slide 17 and our full-year results. Adient's adjusted EBITDA was $881 million, essentially flat with the prior year. Adient drove nearly $100 million in favorable business performance year-on-year, which included $17 million of net tariff expense. Our commitment to operational excellence drove additional efficiencies and lower launch expenses during the year, which offset the $50 million of unfavorable volume and mix headwinds due to lower volumes in Europe and other customer mix headwinds in Asia. In addition, net commodities were a $28 million headwind year-on-year, primarily resulting from the timing of recoveries. Despite the challenges presented in fiscal year '25, the Adient team was able to expand margins by 10 basis points year-on-year. As in past quarters, we provided our detailed segment performance slides in the appendix of the presentation. High level, for the Americas, we expanded margins by 40 basis points for the full year and drove $41 million of incremental favorable business performance through lower launch costs, commercial actions, and input costs year-on-year despite a $17 million net tariff impact during the year. Volume and mix was a $19 million tailwind for the year in prior year slowing ramp launches reaching full production volumes in 2025. Net commodities were a $28 million headwind for the year, driven by the timing of contractual pass-throughs. In EMEA, fiscal year '25 results were influenced by volume mix, which was a $36 million headwind during the year due to lower customer production volumes. Positive business performance of $17 million during the year due to improved net material margin and improved operating performance, partially offset by $12 million in unfavorable FX due to the transactional exposure to the zloty. And finally, in Asia, business performance was a $34 million tailwind during the year due to improved net material margin, lower launch costs, and improved engineering and administrative expenses, which offset the $33 million volume mix headwind during the year due to lower sales in China and adverse customer mix in the region. FX was a $17 million tailwind in '25 due to the transactional impacts of Asian currencies and translational effects versus the USD. To sum up the regional performance in 2025, the team has done an outstanding job of demonstrating continued resiliency, driving positive business performance in the face of macro challenges. I would just reinforce what Jerome has already highlighted, the Adient team is doing what it needs to be done to control what's in our power and to control focusing on operational execution. Turning to Adient's cash flow now on Slide 18. For the full year fiscal year '25, the company generated $204 million of free cash flow, which is defined as operating cash flow less CapEx. On the right side of the slide, we have highlighted the key drivers impacting the full-year free cash flow. During the year, we benefited from certain fiscal year '24 dividends that were delayed and paid in fiscal year '25 from certain of our China joint ventures. This favorable timing of dividends was more than offset by elevated cash restructuring in EMEA and the timing of customer tooling recoveries. In addition, cash flow was favorably impacted by approximately $30 million of items pulled ahead from '26. Excluding these actions, Adient would have been at the high end of its guidance range, how about $170 million. These actions resulted from a combination of timing for customer payments and actions taken by the company to proactively mitigate the potential impact of timing from JLR-related receivables due to their cyber event. One last item to highlight on the slide, at September 30, 2025, we had approximately $185 million of factor receivables versus $170 million at the end of '24. Adient continues to utilize various factoring programs as a low-cost source of liquidity. Moving to Slide 19 for our liquidity and capital structure. On the right side of the slide, you'll note that Adient ended the fiscal year with strong liquidity, totaling $1.8 billion, comprised of $958 million of cash on hand and $814 million of undrawn capacity under our revolving line of credit. During the fiscal year, the company returned a total of $125 million to its shareholders for full year '25, retiring approximately 7% of its shares outstanding at the beginning of the fiscal year. In addition, Adient continues to proactively manage our capital structure. In September, before the close of the fiscal year, we launched an amend and extend initiative on our ABL, which closed in mid-October. This action extended the maturity from 2027 to 2030. As Jerome pointed out earlier, the team has optimized our cash needs over the past 2 years, so we were able to reduce the revolver by $250 million and opportunistically reduce our annual interest expense on both drawn and undrawn capacity by approximately $2 million per year. Focusing now on our balance sheet, Adient's total debt and net debt position totaled $2.4 billion and $1.4 billion, respectively, at September 30, 2025. The company's net leverage ratio at September 30 was 1.6x, near the lower end of our target range of 1.5 to 2x. As you could see, Adient does not have any near-term debt maturities. Moving now to Slide 21. We'll review some of the key underlying assumptions to our fiscal year 2026 outlook. As we typically do, we have based our outlook on a combination of the October S&P vehicle production forecast, near-term EDI releases, and any customer production announcements. In addition to volumes, FX rates have also changed year-on-year, with the euro moving most significantly. Tailwinds from the euro will essentially mask the volume pressure as we look at revenue. As you can see, Adient is expected to grow significantly above market in China, however, face stiff headwinds in Europe and North America. As we will discuss further on the next slide, it should be noted that we have put in a Q1 adjustment for Ford not yet reflected in the October S&P production estimates, which slightly skews the growth over market comparison negatively for North America. With that as a backdrop, let's turn to Slide 22 to see the expected impact to Adient's fiscal year '26 results. First, I would like to specifically address our assumptions around F-150 volumes, which is Adient's second-largest platform in the Americas. When it comes to the F-Series and reflecting on the impact to their customer fire, we have reflected the downtime that has been announced to date, which is currently through the week of November 10. Because Ford has not indicated the mix of F-Series vehicles that will be down, specifically the mix between F-150 and the Super Duty vehicles, including cadence for recoveries, we do not think it prudent for Adient to come up with our own forecast, especially with regard to make plans. Of course, we are actively monitoring the situation, and we'll provide additional insights once we have more clarity from Ford. In addition to the F-150 volumes, we are also proactively monitoring other current events such as the potential chip supply challenges from Nexperia. We view these events as more as production disruption issues versus fundamental demand challenges. Given the underlying macro factors remain stable, especially in North America, we remain hopeful that volume stability will continue into 2026. As we look beyond specific events, basing our outlook on the current S&P assumptions, North America and Europe revenue are projected to be down by approximately $650 million year-on-year, but this will be partially offset by growth over market in China for a net decline year-on-year of approximately $480 million. Typically, you would expect the adjusted EBITDA impact of this to be roughly $75 million, but you could see we have a higher decremental mix impacted by continued mix headwinds in Europe and margin compression in China. While we expect to maintain double-digit margins in China, the combination of growth with domestic China OEMs and volume headwinds from the luxury global OEMs in China is expected to compress overall margins, as we are forecasting headwinds of roughly 100 basis points. While margins in China are forecast to compress with an offset of positive EBITDA from growth, we do not expect the adverse impact to overall Adient margins. As we executed approximately $100 million of business performance in '25, we are targeting a similar amount for fiscal year '26. However, as we are also focused on growth, about $35 million of that performance is expected to be invested in growth through launch costs and engineering for future programs, resulting in a net impact of business performance at $75 million. For illustrative purposes, if we were to hold volumes constant year-on-year, you can see that our financial outlook would show approximately $14.8 billion in sales and $925 million of adjusted EBITDA, resulting in adjusted EBITDA margin of about 6.3%. Turning to free cash flow on Slide 23. The year-on-year decline that is forecasted free cash flow is driven by 3 factors: the offsetting impact of the favorable $30 million pull-ahead actions previously mentioned in 2025; elevated cash taxes in fiscal year '26, driven by approximately $20 million for a potential settlement associated with an ongoing tax audit within a specific jurisdiction as well as lower adjusted EBITDA and higher CapEx, reflecting our investment in future growth and innovation. The cumulative impact of these items results in free cash flow of approximately $90 million based on current volume assumptions. However, we would expect that to be closer to $170 million at constant volume. I do want to remind everyone that below free cash flow, Adient expects to have an additional dividend of approximately $85 million to our nonconsolidated interest or NCI. As Jerome mentioned in his section, we are committed to investing in future growth. The investments we are making today are expected to drive double-digit growth overall market in China and single-digit growth overall market in North America. These investments are expected to drive volume, profitability, and incremental cash flow in the out years. The combination of our execution excellence and our investment in future growth and innovation is why Adient expects to maintain strong, sustained cash flow generation for 2027 and beyond as we ensure our investments today drive shareholder value in the future. Turning now to our guidance on Slide 24. I've already walked through several key items on the slide, so I won't read through those. In addition to what we have discussed, I would add our guidance on equity income remains approximately $70 million. Based on our current debt levels, our interest expense is expected to be approximately $185 million to $190 million. As we have said throughout the presentation, our guidance reflects Adient's commitment to controlling what it can. Our business execution and commitment to continuous improvement will continue to drive strong business performance. We will manage through the volume challenges and continue to invest in the future as Adient is committed to driving long-term shareholder value. Turning to Slide 25 before going into Q&A. In closing, I would like to reiterate that Adient is firmly committed to executing our balanced plan for capital allocation. Driven by our business performance, we enter fiscal year '26 from a position of strength with strong balance sheet and solid liquidity. We ended fiscal year '25 with $958 million of cash on the balance sheet, well ahead of the roughly $800 million we need for ongoing operations. This provides Adient the opportunity to proactively manage its capital allocation, whether it's through investment for future growth, debt paydown, or continued share repurchases. As a reminder, Adient has $135 million of authorization remaining on its share repurchase program, leaving room for additional purchases as appropriate in fiscal year 2026. By utilizing the levers I just mentioned, the Adient team is committed to prudent capital allocation and maximizing shareholder value. And with that, we can move to the question-and-answer portion of the call. Operator, can we have our first question, please? Operator: [Operator Instructions] That is going to come from Colin Langan with Wells Fargo. Colin Langan: Maybe if we could start with the 1% forecast underperformance versus S&P. Any color on the major puts and takes there? I think you mentioned the F-150. Did you say that you factored in the downtime that's expected, but not the recovery that Ford has actually kind of indicated this recovery? And then any color maybe in particular on the wind-down of unprofitable business in Europe? Is that another big driver there that we should be considering in sort of the 1% drag? Yes. Jerome Dorlack: So thanks, Colin, for the question. I'll take it. So on the F-150 in particular, we -- out of respect for our partner for the customer, we don't want to get ahead of them. And so what they've indicated on their call was F-Series. And F-Series is a mixture of F-150, F-250, and the entire Super Duty lineup. And they haven't officially made any announcements of where that recovery is going to come from and how all of the downtime will mix into that. So what we have forecast in our guidance is the downtime that we know today, what we actually have in our EDI releases, which takes us through the week of November 10, with a restart on November 17 with no recovery. So no makeup of any volume. In addition to that, what we don't know is what that recovery in makeup volume will look like. Will it come with significant overtime? Will it come with additional crews, additional makeup? Will it be kind of low-calorie makeup type revenue? And what will that mix look like? So that's part of that 1%. When S&P comes out with an updated at a November number, I think we'll tie out closer to that because they will capture some of the F-150 downtime. So that's part of it. The other piece of it is the European picture. So the -- we now have the full Star Louis, our plant in Star Louis, the exit of that business as that winds off, as well as a plant in Novamesto in Slovakia, the exit of that business as well, winding down, which would be below kind of S&P performance. So hopefully, that answers your questions on that. Colin Langan: I mean are those major contributors to the 1% overall? Or are those combined still? Jerome Dorlack: Yes. I mean would be -- those would really capture the 1% overall, yes. Colin Langan: And then if I just look at the walk on Slide 22, the volume mix drag is, I think, something like a 26% decremental, which seems pretty high. Any color on why such a high decremental for the lost volume? Jerome Dorlack: Yes, I'll start, and then Mark can add any color if he needs to. There's a couple of factors that go into that. First of all, we have things like F-150 factored into that. And you have to remember, that's not coming out at a normal decremental because of the nature of how that F-150 downtime is coming in. It's coming in first at a very short notice. It's coming in. Initially, it was basically half shifts. So we were having to staff 2 full plants fully, but only getting half volume on it. It ran like that for several weeks, and now we're having to run it at full down weeks, but still having to pay subpay. And given that is 6% of our total sales, that's a pretty severe decremental for us for a very large portion of our Q1. In addition to that, in our Q1, we also have Nexperia downtime. And that Nexperia downtime is coming -- it's been public announcements at one of our very large Japanese customers, significantly impacting our North America operations. So when you think about Q1, it's going to have a very significant decremental in it because of those 2 factors, Nexperia and F-150, very short notice, partial shifts that are running either half or sub-pay impacted with very high decrementals associated with them that we're not really able to manage just given the short notice of them. Those are 2 factors. The third factor in there is one that I would say we will monitor closely throughout the year, which goes a bit to why we've given our official guide, and then if it were flat volumes, the mix of what S&P is calling off. They have called off in their October release some of our platforms, which are maybe higher contribution margin, being down year-over-year, and we'll see how that plays out throughout the year. And then the fourth factor, which is what Mark talked to, we're rolling on in our China business, significant new business this year. As that business rolls on, it isn't rolling on in its first year of production at full kind of incremental margins, right? We have significant launch costs going into it. We're rolling on with some of the China local OEs. As those roll on, they're not rolling on at kind of the regional contribution margin level. It takes us some time to bring those up to the standard margin level. And I'd say that's the fourth factor associated with some of that volume mix. But the first 2 are very significant, just how some of those downtime -- that downtime is coming at us in Q1. Operator: The next question comes from Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: First question is on the growth investments, $85 million investment for the future. Can you just comment a little bit more around how much of that is discretionary, how far out in terms of the future we're looking at for this payback versus things that are nearer term and just needed because you have new launches coming up? Jerome Dorlack: Yes. I'll start, and I can turn it over to Mark for additional comments. Yes, I'd say it's an investment that's needed to really drive the growth. In my prepared comments, we kind of commented on what we see '27 shaping up to be where we see North America being able to grow in the mid-single digits over kind of vehicle volume, especially when we take kind of the metals out of that, which we've said we want to wind down metals. And we see China and Asia growing at kind of double digits over market. And we have that line of sight. And so we see that investment as needed. That's what I would call kind of the program growth and some of the engineering associated with it. The other thing that I would point you to, Emmanuel, where we're really driving business performance aggressively is on the automation and AI side. If I look at '25 versus '26, in '25, we spent 20 -- just round numbers, $25 million on automation and AI in our plants, and that yielded about $20 million in savings. As we begin to ramp up these efforts, we have a facility in Moore, Hungary that's dedicated to capital improvement, AI, and automation. We have a MIRO facility in Plymouth, Michigan that's dedicated to the same activities. We will spend upwards of about $60 million in AI and automation. And on a run rate basis, that will yield almost $40 million in savings. So the capital is roughly doubled, but the savings is more than doubled on a run rate basis. And that's factored into that total expense improvement or increase year-over-year. So I wouldn't necessarily label it as discretionary as much as it is driving business performance. an improvement into the business year-over-year. Mark Oswald: Yes. And Emmanuel, the payback on that CapEx that Jerome was talking about, innovation is typically about 2 years. It could be anywhere from 1.5 to 2 years. That's what we try and focus on there. And as Jerome indicated, the other, call it, $35 million is really engineering and launch support for programs that are being launching with our customers. So think of it in 2 buckets. Jerome Dorlack: Yes. And we'll see those launches, Emmanuel, really start coming on in the end of '26 fiscal year and then accelerating through '27. Okay. Emmanuel Rosner: And then I was also hoping for a potential update on onshoring. There wasn't as much discussion on this in this quarter than in the past. I think that you had obviously mentioned already previous wins, but it sounded like you were getting close to some potential additional wins there. So just curious where that's tracking. I guess, what will be the timeline of it starting to help the revenue? Jerome Dorlack: Yes. So in terms of helping the revenue, the one product that we announced is a Japanese customer. It's now -- initially, it's with Nissan on the road, that's now in production. So that is in our kind of '26 figures, that incremental volume as they have onshored back into the U.S. It's unfortunately being offset by some other production challenges that we see just in terms of volume. The other Japanese customer, we expect that to launch at the end of our fiscal year '26. It will be running up to full volume. And then as far as other onshoring wins, we are, I'd say, in the final kind of last rounds of negotiation with a significantly large program, around between 200,000 to 250,000 units that will move from Mexico into the U.S. It would be incremental volume for us, utilizing existing footprint for us. And I would anticipate we'll have more news on that in the next call it, 3 to 4 months or so. Operator: The next question is from Dan Levy with Barclays. Dan Levy: You gave some impressive growth over market targets for '27. And I know that there's some mix issues here in '26. Basically, can you just walk us through what the line of sight? And I know that there's obviously the macro environment can move. But what is the line of sight of sort of secure business? It's a function just of launches coming out? And how do you factor in -- there is still some uncertainty on how automakers might be moving their plans, powertrain stuff moving around. What is the line of sight on that growth of market? Jerome Dorlack: Yes, I'll start, and then Mark can add comments. I'd say the line of sight, Dan, if I just kind of go region by region. In China, as we spoke kind of on the last earnings call, it really comes down to customers' ability to launch and execute. We were, I'd say, impacted last year. And if you look at kind of half-over-half, we saw almost a -- I think it's, call it, what, 50 basis point -- sorry, 500 basis point improvement, half 1 to half 2 in terms of mix improvement or growth over market improvement in China because our launch has finally started to accelerate there. And that's what really gives us confidence in our '26 and then moving into '27 is, one, our mix shift to the China OEMs, but then their ability to now launch and their launch cadence is finally picking up. So I think in China, we have a reasonable kind of line of sight. Within the Americas, which is our other region now that we're starting to gain some significant traction, it's really dependent on the Japanese OEMs and their ability to, I think, rotate some of their powertrain and rotate some of their plants. What gives us confidence is they generally do what they say they're going to do. Their level of execution, their level of commitment, their ability to plan, do, and execute is at a high level. So I think we have generally a high level of confidence when we look at what happens in the last quarter of '26, that's when a lot of these launches kind of time in and cadence in, thus the high level of engineering and elevated CapEx spend this year, and as that rolls into '27. So I think generally, we feel pretty good about what we see moving into '27 for the business. And then the other key piece of that, especially in the Americas, is when we think about growth over market, and we'll have more of this as we roll through '26 and really into '27 is it's also the portfolio. We've talked about this is rolling off some of that third-party metals business, and then really looking at growing the JIT, trim, and foam. And so it's that portfolio rotation that will also help to accelerate growth over market in those markets we really want to play in. And that's why the F-150 business not just winning what we had on the JIT and the foam, but also conquesting that trim business, getting more down the vertical integration stream, and providing that value proposition with Ford, codeveloping with them a better end product for the end customer was really crucial. Dan Levy: As a follow-up, same vein, I know that '26 on the margin side has some unique volume mix issues. But you've talked about this midterm 8% EBITDA margin target. There's a few different work streams in terms of balance in, balance out Europe. Should we understand '26 just as a transition year, but the broader positive margin trajectory is still on track with each of these work streams, and that 8% is still something that you're shooting for and is a realistic target over time? Mark Oswald: Yes, Dan. I would say that nothing has fundamentally changed. Obviously, '26 significantly impacted by volume. That said, we continue to drive the positive business performance. We're investing in the growth. As Jerome just mentioned, we have a good line of sight in terms of where that growth is coming from in '27 and '28. That balance in, balance out story still holds, right, albeit certain of those programs have been extended in terms of their end of production life, right? So it's sort of muted the impact in '26. But I think when you get into '27, right, you've got your growth, you've got your balance in balance out, right? You've got your portfolio mix starting to change. Those are all the elements that will continue to walk us up from the current level of margin up to, call it, that 7%, 7.5% approaching that target. Operator: And the next question comes from Nathan Jones with Stifel. Nathan Jones: I guess I'll just start with a question bluntly on the first quarter, given the disruption of the F-150 and your expectations there. So just if you could provide any more color on what you're expecting specifically for revenue margins in the first quarter of '26. Mark Oswald: Naty, we don't provide quarterly guidance, but I think as you're adjusting your model and you're fine-tuning based on your production assumptions, we did, call it, $195 million of EBITDA last year in the first quarter. There was no production declines at that point last year. As Jerome indicated, this year, we're facing not only F-150, but the on-off shifts related to the Nexperia chip shortages there. So is it possible that you're going to see a $15 million, $20 million decline in overall EBITDA quarter year-on-year for the first quarter? Absolutely, right? And then you throw in there JLR, right? They just started to produce their units, right, at the capacity. So again, it's those macro factors that I think probably puts Q1 at the trough for the year, and then we start building on that as we get into Q2, 3, and 4 as F-150 comes back as you have the supply chain shortages worked out with Nexperia, right? You have JLR. So that's sort of the way I see the calendarization as I go through the year. Nathan Jones: And I guess my other one is on capital allocation. Lower free cash flow in '26. But as you noted, you have more cash than you need to run the business. Any expectations for what share repurchases in 2026 is likely to be relative to 2025? Mark Oswald: Yes. So again, we'll opportunistically look to balance that between the share repurchases, debt paydown. As I indicated, we have $135 million left of repurchases on the current authorization. So we'll time the repurchases and the magnitude of the repurchases in line with how we see clarity with production playing out this year, as we see the cadence of our cash flow coming in this year, right? And so, without giving you a specific number, I'd just say that we'll balance taking the cash off the balance sheet between debt paydown as well as the repurchases. Operator: The next question comes from Joe Spak with UBS. Joseph Spak: Super helpful detail on the decrementals in your '26 guidance. I just want to maybe talk through one other element because I know you said you're not counting on some of that F-150 volume coming back. But if it does, is it fair to assume that the incrementals on that volume actually don't come close to the decremental margins because of all the trap labor and costs and some of the inefficiencies you mentioned? So it will help dollars, but the overall decrementals will still look a little bit worse than we would normally expect. Is that fair? Mark Oswald: Yes. I think that's right, Joe. I mean if you just think about how that volume comes back on, as Jerome indicated, are they going to be running over running weekends, right? So that goes into that equation. Joseph Spak: Any help, any guidance on sort of what we could expect the incrementals on that volume to be if it does come back? Jerome Dorlack: I think it's too early to say still. A lot of it's going to depend on how does it come back? What are some of the discussions we have with Ford around the total recovery mechanism of it. I think it's too premature to engage in those types of forecasts. And that's one of the reasons why, again, out of respect for our partner, Ford, we didn't want to put anything in here because we just -- we don't know the timing cadence. If it's going to be run over, let's say, the Easter break, I mean, that's going to be a lot of premium costs. It's just going to be run over Saturday and Sunday, that's a different model. So it just -- it's too early to say at this time what that even looks like. Joseph Spak: The second question, I guess, is just on free cash flow, and apologies if I missed this. I know you spoke about elevated restructuring in '26. I think it was about $130 million in '25. Did you give an actual number for '26? And then you talked about more normal levels beyond that, but I just want to get your sense of sort of what gives you confidence that continued restructuring, particularly in Europe won't be needed that you're going to be more rightsized after '26. Mark Oswald: Yes, Joe, so good question. So we did about $130 million of cash restructuring last year. I think that drops down to about $120 million this year, right? Normalized run rate for us, right, is probably going to be somewhere in that $50 million, right, plus or minus, once we get through, I'd say, the elevated restructuring in Europe. Part of it, and we've been very transparent, and you and I have talked about this before, right? We do see that trending down. But in terms of the overall timing, some of that's going to be dependent on customer just program runoffs, right, and what they decide to do with their facilities and where they're going to source certain of their programs. So again, for modeling purposes, I'd assume a $50 million run rate. So again, when you think about this year for '26, right, a couple of the elements, the calls for cash that are elevated, right? I'd say my cash taxes at $120 million are elevated; those typically would be in that $100 million, $105 million mark on a run rate basis. My restructuring dollars, rather than $120 million, should be falling back to that $50 million run rate. And then it's just a function of EBITDA, right? So if you were going to ask what's the normalized level of free cash flow, start with your EBITDA. Let's just say we do $900 million CapEx. We've always said that, that will be running somewhere in that $280 million to $300 million, especially with the growth investments and the automation that Jerome talked about, cash interest, call that $185 million, $190 million, cash taxes, $100 million and restructuring $50 million. So you get to a normalized level, call it, somewhere around that $250 million, $260 million mark at a $900 million EBITDA, right? So that's the way I think about free cash flow, what's normalized levels for us. That's the bottom of the hour. So if you can move to wrap the call up, that would be great. Linda Conrad: So in closing, I want to thank everyone once again for your interest in Adient. If you have any follow-up questions, please feel free to reach out to me. Also, I'd like to acknowledge we will be in New York City later this month, participating in the--
Operator: Good morning, and welcome to the Smith Douglas Homes Third Quarter 2025 Earnings Call and Webcast. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Joe Thomas, Senior Vice President, Accounting and Finance. Thank you. Please go ahead, sir. Joe Thomas: Good morning, and welcome to the earnings conference call for Smith Douglas Homes. We issued a press release this morning outlining our results for the third quarter of 2025, which we will discuss on today's call, and which can be found on our website at investors.smithdouglas.com or by selecting the Investor Relations link at the bottom of our home page. Please note, this call will be simultaneously webcast on the Investor Relations section of our website. Before this call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating goals and performance are forward-looking statements. Actual results could differ materially from such statements due to known and unknown risks, uncertainties and other important factors as detailed in the company's SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be found in our press release located on our website and our SEC filings. Hosting the call this morning are Greg Bennett, the company's CEO and Vice Chairman; and Russ Devendorf, our Executive Vice President and CFO. I'd now like to turn the call over to Greg. Greg Bennett: Thanks, Joe, and good morning to everyone on the call today. In the third quarter of 2025, Smith Douglas Homes continued to execute on its long-term strategic plan of being the builder of choice for homebuyers in key markets throughout the South. Our operating philosophy is straightforward, but hard to replicate, thanks to our operating discipline and culture. We focus on providing our customers with quality homes at affordable price while maintaining tight cost controls and leading cycle times. We also avoid much of the risk associated with homebuilding by controlling most of our lots and land through option agreements and by sustaining a strong balance sheet. These are key elements of Smith Douglas strategy, and we believe they lead to superior shareholder returns over the long term. For the third quarter of 2025, we generated pretax income of $17.2 million and earnings of $0.24 per share. Home sales revenue came in at $262 million on home closings of 788 and an average selling price of $333,000. Gross margins on homes closed averaged 21% for the quarter. These results were largely in line with our previous guidance and demonstrates our ability to accurately forecast and execute on our stated objectives. Net orders for the quarter increased 15% year-over-year to 690 homes on a sales pace of 2.4 homes per community per month. Despite some tailwinds with mortgage rates trending down in the quarter, overall, demand stayed soft, which we believe is an indication that the buyer psyche and consumer confidence are the main headwinds facing our industry. Financing incentives remain an important sales tool in getting buyers to move forward and purchase. And we expect this to continue into the fourth quarter. We continue to emphasize our approach of pace over price as we believe our operations run more efficiently at or near full capacity. We made further progress establishing a foothold in our new markets in the third quarter. We began vertical construction on homes in Greenville market, started generating interest list for our communities in Dallas market and expect Gulf Coast market to be up and running in the middle of next year. These markets fit nicely into our business model and will be key contributors to our volume goals in the coming years. Cycle times in the third quarter were consistent with the second quarter at 54 days, excluding our Houston division. The efficiency of our operations is a key differentiator for our company, and it is a discipline we practice every day. It is a system senior management has developed and refined over decades in the homebuilding business and one that requires the coordination of our employees, suppliers and trade partners. Overall, I'm pleased with how our company has performed in the third quarter and believe we made further progress towards becoming a large-scale builder in the Southeast and Southern United States. Our balance sheet is in great shape, and we have several new communities slated to open in the coming months that should give our sales efforts a boost as we head into our spring selling season. Finally, I would like to thank our team members for their continued hard work. Homebuilding is a very competitive business, particularly in uncertain times like the ones we're in today, and you've shown a willingness to go the extra mile for our homebuyers and our company's success. I truly appreciate all that you've done to make Smith Douglas a leading builder. With that, I'd like to turn the call over to Russ, who will provide more detail on our results for this quarter and give an update on our outlook for fourth quarter. Russ Devendorf: Thanks, Greg. I'll now walk through our financial results for the third quarter and then provide an update on our outlook for the balance of the year. We closed 788 homes during the third quarter, down 3% from 812 closings in the same quarter last year. Home closing revenue was $262 million, a 6% decrease from $277.8 million in the prior year. Our average sales price was approximately $333,000, down 2.6% year-over-year due to slightly higher discounts and shifts in geographic mix. Gross margin came in at 21%, which was at the midpoint of our guidance range and compares to 26.5% in the prior year. Our lower year-over-year margin reflects the impact of higher average lot costs, which were 27.8% of revenue in the current quarter versus 24.8% in the year ago period. Additionally, rising incentives and promotional activity further compressed margins. Closing cost incentives, which are included in cost of sales totaled approximately $9,500 per closing, up from $6,600 in the year ago period and pricing discounts were 1.8% of revenue, up from 1.2% last year. We utilized forward commitment programs to buy down interest rates, which we believe help boost conversion rates. During the quarter, we recognized $3.9 million in costs on forward commitments, which is recorded as an offset to revenue versus $185,000 in the year ago period and $0.9 million in the second quarter this year. We expect to continue to utilize these rate buydowns through the end of this year to drive sales velocity as we remain committed to our pace over price philosophy. SG&A was up approximately $2 million versus prior year and was 13.8% of revenue compared to 12.3% last year, driven primarily by lower revenue this quarter and increased payroll and associated expenses with a sizable portion of the increase coming from the opening of our new divisions. Net income for the quarter was $16.2 million compared to $37.8 million in the prior year, and pretax income was $17.2 million versus $39.6 million. Our pretax income this period includes a $1.6 million charge related to the abandonment of a lot option deal with a land seller, which is included in other income and expense. Adjusted net income was $13 million compared to $29.9 million in the prior year. As a reminder, given the nature of our Up-C organizational structure, our reported net income reflects an effective tax rate of 5.9% this quarter, which is attributable to the approximate 17.5% economic ownership held by public shareholders through Smith Douglas Homes Corp and Smith Douglas Holdings LLC. Because the majority of our earnings are allocated to our Class B members, which is shown as income attributable to noncontrolling interest on our income statement, we provide adjusted net income, which assumes 100% public ownership and a 24.6% blended federal and state effective tax rate. We believe this measure is helpful in evaluating our results relative to peers with more traditional C corporation structures. Additional details on our structure and related income tax treatment can be found in the footnotes to our financial statements. Turning to the balance sheet. We ended the quarter with $14.8 million in cash and had $49 million outstanding on our unsecured revolver with $201 million available to draw. Our debt-to-book capitalization was 11.2%, and our net debt to book capitalization was 8.4%, down 370 basis points sequentially from the second quarter. This improvement reflects our continued discipline in managing leverage and our commitment to maintaining a strong and flexible balance sheet. In a period marked by persistent macroeconomic uncertainty, we remain focused on fortifying our financial position to ensure we can navigate market volatility and capitalize on strategic opportunities as they arise. Backlog at the end of the quarter was 760 homes with an average sales price of approximately $340,000 and an expected gross margin of approximately 20%. Monthly sales per community went from 2.5 in July to 2.8 in August and 2.0 per community in September. In October, we saw that average stay constant at 2.0 sales per community. Turning to our fourth quarter outlook. We expect to close between 725 and 775 homes with an average sales price between $330,000 and $335,000. Gross margin is projected to be in the range of 18.5% to 19.5%. While incentives will continue to pressure margins, we are maintaining discipline in how and where we deploy them. We ended the third quarter with 98 active communities and expect to see that number remain approximately in line during the fourth quarter. We're actively opening new communities across multiple divisions and remain focused on supporting a stable and scalable growth platform. Before I conclude, I want to reiterate that while we're pleased with our results through the first 3 quarters of the year, our outlook does include several risks. As always, our ability to achieve these results will depend on maintaining an adequate pace of sales, bringing new lots and communities online as scheduled and managing cost pressures, particularly in labor and materials. Additionally, broader macroeconomic factors such as inflation, employment trends, interest rates and consumer confidence could create headwinds to demand and impact the timing or volume of sales and closings. We remain focused on executing what we can control and believe our land-light model, steady operations and financial strength position us well to navigate these challenges over the long term. With that, I'll turn the call over to the operator for questions. Operator: [Operator instructions] Our first question comes from Sam Reid from Wells Fargo. Richard Reid: And also, thanks so much for all the color on the discounts and forward commitment impacts to the top line and margin line. It's very helpful color. In terms of my question, I was just hoping if you could bridge the Q3 to Q4 gross margin and talk through the composition of perhaps incremental price discounting versus forward commitments. It does obviously look like you're planning to close houses below what's in your backlog. So, I would also just be curious in terms of mix of homes you plan to close outside of your backlog during the fourth quarter, too? Russ Devendorf: Yes. Good question. We continue to push on incentives into year-end really in an effort to keep that pace over price philosophy. I mean, obviously, we're really deliberate about keeping that pace. It's really important for our operating philosophy. We make more, we lose less at full capacity. And so, the assumption is that they continue to drive pace because it's -- as I'm sure you would agree, it's the macro environment is pretty uncertain. As Greg mentioned, it's really a confidence issue with our buyers. We've been able to solve the rate issue for some time now, but it does seem like it's just becoming a little more difficult to get buyers across the finish line. So, we're going to continue to push on rates. We introduced a really attractive 3.5% fixed rate on some older specs. And so, that's really kind of the assumption. We have seen costs of those forward commitments come down a bit in recent months as rates -- overall rates have come down. But -- so we're just making an assumption that we'll continue to push incentives, and we plan for the worst and hope for the best. Richard Reid: And then -- maybe just switching gears a little bit on 2026. I know you're not providing guidance, but would just love any high-level commentary on directionally where we should be thinking about community count, especially in the context of some -- all the new divisional openings? And then also just some perspective on lot costs, especially as the composition of your geographic mix changes. Russ Devendorf: Yes, sure. Yes, we -- as I'm sure most other builders -- most companies, it's real difficult to provide any sort of guidance into 2026. I think if we did, it wouldn't be right of us just -- it's so uncertain right now. But that said, given where we've driven our controlled lot count from the time we went public just over 18 months ago, we've nearly tripled our controlled lots. And you've obviously seen the growth in our community count this year. We ended the quarter with 98, which is up substantially. So, we have the community count next year to kind of drive a pretty good amount of growth. Again, is somewhere in the 10% to 20% growth range in community count? Absolutely, I think we've got the communities. But a lot of that is really just dependent on where the market is, right, and just making sure that those developers and we get those lots delivered on time. But yes, it's not out of the question to see something in a 10% or 20% community count growth. And then -- but the wildcard is really going to be what's the absorption pace on those communities and ultimately translating into sales and closings. So, I hope that helps. Operator: Our next question comes from Andrew Azzi from JPMorgan. Andrew Azzi: Backlog conversion is pretty elevated here compared to your own history and likely to remain pretty high next quarter or go higher. I would love to kind of just get some color on how you see that metric trending longer term and any structural factors there that are going on? Russ Devendorf: Yes. I mean, it's all a function of the current environment where the competition, everybody is -- there's a lot of specs on the ground. That's where a lot of the discounting is taking place. And so, that's part of the reason why we've been leaning into forward commitments from a competitive standpoint and specifically on our spec homes to continue to keep that velocity, or moving through our assembly line process. So, presales have just been -- it's been a little more difficult to come by from a presale standpoint because when you think those forward commitments -- the most cost-effective forward is, let's say, a 60-day or less rate lock. And so, that's part of the -- part of what's driving just kind of the industry to a more spec-heavy environment. And we are trying to -- we've offered some presale incentives. So, I think we are offering something though that's pretty unique and trying to move back to more of our presale approach. I mean we are focused -- let's put it this way, we are focused on preselling. It's really the environment that's pushing us more to a little spec heavy. And so, that's why the resulting backlog conversions are higher. But over the last quarter, we've really had a heavy focus on getting that incentive into presales with the way we're doing lot reservations and such. So, we expect to go back to more presale heavy, certainly as the environment changes. And I think specs become less and less as an industry, I think that's -- our approach has not changed. We are presale focused. It's just the current environment has kind of pushed us a little more to specs from a competitive standpoint. Andrew Azzi: That makes sense. And then obviously, you've seen a lot of growth in your active communities and controlled lots. Could you provide any detail on kind of the geographic distribution of those and how you're prioritizing market expansion? Russ Devendorf: Yes. Look, we -- as we stated from the time we went public, I mean, when we enter a market, we want to make sure that we have -- that we enter markets where we can gain scale. And for us, scale is -- we operate in an R-team philosophy, geographic pods. And so each pod or our team has 200 closings. And so, for us, we'd like to, at a minimum, have 400 closings per division. And certainly, in some divisions, we're going to have in excess of that, some of the larger markets like in Atlanta, Houston, Dallas. But at a minimum, we're looking to do at least 2 full R-teams. So, we are -- we've been prioritizing or really trying to scale up in those markets where we have not yet hit that escape velocity, I'll call it, or that scale. And so, you can look at Charlotte, the Carolinas, Nashville, we're -- those are some of the areas that we've started to focus. And then clearly, we've -- as you know, we've opened a few new divisions. We've divisionalized Central Georgia, so getting Central Georgia, which is really south of I-20 in Atlanta and down to Perry Making that area, really focusing on gaining more scale out of Georgia in those areas. Chattanooga is we've added quite a few positions in Chattanooga. And then as we announced last quarter, Dallas, is a market that we just entered and Gulf Coast, which right now is Gulf Coast of Alabama. So, those are areas we focus. But clearly, where we can take advantage in markets where we already have that 2 full R-teams, we will continue to try and take some additional market share if the opportunity arises. Operator: Our next question comes from Mike Dahl from RBC. Stephen Mea: You've actually got Stephen Mea on for Mike Dahl today. The granular monthly and quarter-to-date demand trend discussion was all super helpful. Looking ahead, I wanted to ask what you all have built into your assumptions for the fourth quarter, more so the extent of how November, December may compare to what you've been seeing in October and how you see the balance of the quarter sort of shaking out against your historical seasonal patterns. Russ Devendorf: Yes. We haven't really made any different assumptions for the balance of the year. I think it's just that -- it continues to be a difficult environment, but we see a couple of green shoots here and there. So, it's not -- look, it's good, right? It's -- we are -- we've got traffic. Traffic has been decent. Folks are showing up. People still need and want homes. So -- but the conversions, it's just a little bit tougher. That's why we're leaning into the incentives. But we're not making any more -- any additional assumption for an increase in velocity. Maybe we'll get it, maybe we won't. We'll continue to push on incentives and -- but we're getting our fair share. It's just too hard to predict right now. It's kind of on a week-to-week basis. Stephen Mea: No, for sure, that's logical. Thanks for the insight there. And I guess, my second question more broadly, I wanted to ask on permit -- some permitting. You've stalked previously about at times seeing pockets of delays at certain municipal levels kind of depending on where it is. I just wanted to see you check in how that's been going for you all today in general across your markets, if there's been any kind of change in that trend, especially given some of the broader enthusiasm around potential relief for housing lately. Greg Bennett: Yes. Thanks for the question. I'll take that up. We continue to see challenges and delays in permitting, both on getting final plan approval to start projects and then getting final sign-off on completing projects. And it's pretty widespread. It's across all our markets. I wouldn't say it's in any market more so than another, but we do see it less prevalent in the areas that may be truly outside of the metros that are a little hunger for having some stimulation from housing, but in more of the central metro markets, we're still seeing a lot of delays. Operator: Our next question comes from Rafe Jadrosich from Bank of America. Rafe Jadrosich: Could you give us the spec versus build-to-order mix that was in your deliveries? And then maybe what -- like what's in the backlog? And then any color about -- is there a difference in the margin between spec and BTO right now? Russ Devendorf: Yes. I have to go -- we might have to get back to you on the exact percentage. I don't want to quote you something that's wrong. But I would tell you the -- there was a higher spec count than presale in Q4 from a closings perspective would be my guess. And maybe it's 50-50, but it's probably a little leaning more towards spec. And again, that's -- like I mentioned before, that's just kind of the environment we're in. As far as backlog, again, I'd have to go back and go and look at exactly what it is. But again, given the size of the backlog, I mean, there's probably heavier presale just sitting in backlog, but maybe not by a wide margin, I think, because most of the specs, if it's sitting in backlog and it was a spec, it's probably only 60 days old at most. So right, and we try to sell just as a matter of process, when we're focused on specs, clearly, if it's a finished spec, we've got a high focus on anything that gets finished without a contract. But even if we start something in our process, we're very focused on getting a contract on that before what we call line in the sand, it's basically drywall. So, historically, even -- while we're presale focused and historically, we're like 70% presale and 30% spec, when you take into account getting a contract before we hit that line in the sand, we were 90% plus of our homes had a contract on it before that line in the sand. So, it was really heavy, heavy but kind of presale prior to line in the sand. It's just the environment shifted that a bit. But ultimately, the market will change. You're starting to see spec levels come down from other builders, which also is a factor in impacting us as well. But I think that will continue to shift back in our favor over time. Rafe Jadrosich: And then with just the community count growth that you're talking about for next year, how do we just think about the SG&A run rate going forward? Should we think about sort of like on a dollar basis, SG&A will grow in line with like community count -- just trying to understand -- like I know there's a new market that you're expanding to. I'm just trying to understand like maybe the puts and takes of that. Russ Devendorf: Yes. We're in the process of budgeting right now. So, I can't give you an exact answer. All I would say is, clearly, the fixed overhead, we're going to continue to leverage fixed overhead because we have -- everything here is in place, the corporate support team, HR, legal, finance, all those -- that's in place, and we can do a good amount of volume above where we're at. So, that will continue to leverage. And then obviously, the variable piece of our SG&A, so commissions and community level marketing, things like that, that will move in line more or less with community count and sales starts closings. But I would expect some leverage going into next year. Operator: [Operator instructions] Our next question comes from Paul Przybylski from Wolfe Research. Paul Przybylski: Thanks for the monthly order cadence. I was wondering if you could add some further color. How did incentives flow monthly through the quarter? And then regarding your forward commitment, how is the spread? Have you maintained that spread to market or widened it or tried to contract it? And then again, with absorptions at 2 in September and October, do you have a minimum absorption pace you're targeting? Russ Devendorf: Yes. We're -- so I'll take the last one because that's easy. More is that's more absorptions. We're in -- this spring selling season, obviously, is the -- is where we'll get higher absorption pace. But if we could hit 2.5 to 3 in the quarter, that's generally 2.5 to 3.5 would be more reasonable for Q4. So, we are trying to push, as we've mentioned, pace. So, we are looking at trying to push that absorption pace and -- but it's going to come at the expense of margin. And we leaned into the forwards in Q3. So, it's -- the cost did come down for sure. As rates started to move down, we were a benefactor of cheaper forward commitments. But we also -- at the same time, while the pro rata costs came down, we also pushed higher incentives to try and spur some of that absorption pace. So, anything that we gained, we kind of -- we gave back a little bit because we were really just pushing a stronger incentive, specifically on some of our older specs. We really have a focus on turning and not keeping any aged specs there. We did have a good week last week in terms, I think absorption pace was up last week, which we didn't -- I don't think I mentioned that in my prepared remarks. So, we saw a little bit of a nice bump. But yes, incentives trended up through the quarter for sure. And we'll see what the balance of the year holds. But like we said, pace over price. That's our philosophy, and we'll continue to use incentives to continue to push that pace. Paul Przybylski: Okay. And then I guess, as you look at your consumer mix, you got entry-level some downsizers, active adult, however you want to define it. Are you seeing any shifts there? I mean what I'm really asking, I guess, are you seeing any type of hesitation or cancellations with the downsizers or active adults because they just can't sell their home for what they're looking to get out of it? Greg Bennett: Yes. We are, for sure, seeing a lot of buyers that -- and we have a resulting number of specs that happen from contingencies that they just don't get over the line. So, there's -- yes, for sure. I've heard the other day for the first time in a long time, new homes were cheaper than resales, and that's making that difficult. So yes, the move-up buyer for us, which is not a big cohort, but that move down buyer is pretty significant. They're still struggling with that challenge. Operator: We have no further questions. I would like to turn the call back over to Greg Bennett for closing remarks. Greg Bennett: Thank you, everyone, for joining us today and your interest in Smith Douglas. Hope you have a great day and look forward to visiting after Q4. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Louisiana-Pacific Corporation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Aaron Howald. Please go ahead. Aaron Howald: Thank you, operator, and good morning, everyone. Thank you for joining us to discuss LP's results for the third quarter of 2025 as well as our updated outlook for the full year. On the call this morning are Brad Southern, Alan Haughie and Jason Ringblom, who are LP's Chief Executive Officer, Chief Financial Officer and President, respectively. As always, after prepared remarks, we will take a round of questions. During this morning's call, we will refer to a presentation that has been posted to LP's IR web page, which is investor.lpcorp.com. Our 8-K filing, earnings press release and other materials are also available there. Finally, I will caution you that today's discussion contains forward-looking statements and non-GAAP financial metrics as described on Slides 2 and 3 of LP's earnings presentation. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. Rather than reading those materials, I will incorporate them herein by reference. And with that, I will turn the call over to Brad. William Southern: Thanks, Aaron. Good morning, everyone. Thank you for joining us. As usual, I'll discuss some highlights from the quarter before Alan shares more detail about our results and updated guidance. After that, Jason, Alan and I will be happy to take your questions. As expected, Siding volume in the third quarter was flat. This result in a softening market, especially compared to the difficult comp from last year reinforces our confidence in our ongoing share gains. 5% growth in Siding sales revenue, driven primarily by price and a strong mix, exceeded our expectations and guidance. While we anticipated the normalization of demand in the shared component of our Siding business, our ExpertFinish, prefinished siding product primarily designed for R&R applications saw sales volumes increased by 17% year-over-year. The April launch of our ExpertFinish naturals collection, which is a new line of nature inspired 2-tone colors has contributed materially to a beneficial price mix effect. ExpertFinish accounted for 10% of overall Siding volume and 17% of overall Siding revenue in the quarter showing once again the power of SmartSide innovation to drive price, volume growth and share gains. Inventory levels and sell-through rates held steady through the quarter, consistent with servicing seasonally normal demand levels. The only exception is ExpertFinish, which remains in such high demand that we have implemented a managed order file until new capacity comes online early next year. Total sales in the quarter were down 8% compared to prior year and EBITDA of $82 million was also down significantly. The extended trough in OSB prices was the main drag on both metrics. While we obviously cannot control OSB prices, we can manage the OSB business effectively, and our teams did that exceptionally well in the face of what remains a difficult market. The OSB business achieved 80% overall equipment effectiveness or OEE in the quarter, up 2 points from last year. Increasing OEE is never easy, and it can be particularly challenging when we are also managing our capacity with discipline to balance supply and demand. I want to congratulate and thank everyone on the OSB operations team who contributed to this impressive achievement. Our results are only possible because of our teams and the strong culture we have built. In the third quarter, LP was named one of the 50 Best Manufacturers in the United States by IndustryWeek, debuting on the list at #24, and one of very few specialty building products manufacturers to be recognized. We were also named by Newsweek as one of America's Most Admired Workplaces. Finally, as you saw, I informed LP's Board of Directors of my intention to retire this coming February after more than 25 years of service. It has been the honor of my career to lead LP's 4,300-person team. Ultimately, the job of a CEO is to build an engaged culture focused on safety, growth, innovation and execution to deliver value long after her or she has gone. When we launched LP's transformation strategy, I was daunted by the challenges we faced and the aggressive goals we've set for value creation. I am proud to say that we exceeded those goals. As LP's team and strategy have evolved, the magnitude of the opportunity before us has only grown and our confidence that we can continue to execute our strategy and achieve our ambitious goals has never been stronger. Jason Ringblom and I have been friends and colleagues for over 20 years. He was instrumental in the development and execution of LP's strategic transformation. He led LP's OSB and EWP businesses for 5 years and for the last 3 led LP Siding business before being named President. This perspective makes him uniquely suited to serve as LP's next CEO. I have total confidence that with Jason, LP's future has never been brighter. And with that, I will turn the call over to Alan. Alan J. Haughie: Thanks, Brad. Before discussing the results, I do want to take a moment to say that working for Brad has been a personal and professional highlight for me. And while they may be tough shoes to fill, I can think of no one better suited for this task than Jason. And with that, Slide 7 of the presentation shows Sidings results for the quarter. As expected, the bulk of growth came from price. Average selling prices were up 5% with prime products of 3% and ExpertFinish prices up 12%. And there were 2 mix phenomena helping this along. First, as Brad mentioned, shed segment volumes normalized after a very strong first half. And as I'm sure you'll recall, strong shed volumes have been a drag on prices earlier in the year. So part of the 5% year-over-year price performance this quarter is simply the lower mix of shed relative to prime and ExpertFinish products. The other mix factor was within ExpertFinish itself, where demand for LP's 2-tone naturals and other higher-priced prefinished products drove outsized year-over-year price gains. This mix shift is also evident in the year-over-year volume column which shows relatively flat volumes in total, but within which prime volumes were down 1% and ExpertFinish volumes were up 17%. Selling and marketing investments, raw material inflation and other factors were fairly typical but there are some moving pieces in the other column that they're mentioning. You may recall that the third quarter of last year saw an unusually high EBITDA margin, in part because of delays in maintenance projects and the resulting inventory build. Impacts, which then reversed in the following quarter. So much of what you see in the $20 million of other costs in this waterfall is the nonrecurrence of those events from last year. Among them, inventory absorption is actually a double hit, i.e., we built inventory in the third quarter of last year, which boosted EBITDA, whereas this year, we've reduced inventory, which temporarily hurts EBITDA. But in the long run, it's all just timing, viewing the second half of the year in total simplifies the year-over-year comparisons considerably. The $2 million tariff impact is the retaliatory tariffs LP had been paying to import ExpertFinish into Canada. Those tariffs were ascended in late August, so we are not currently incurring that expense. Also, as I'm sure you're aware, the Section 232 tariff announcements did not impact LP's OSB or siding manufactured in Canada and imported into the U.S. So other than minor tariff impacts on some of our raw materials, LP is currently bearing minimal tariff costs. The OSB chart on Slide 8 tells a simplest bleak story of soft OSB prices in a challenging demand environment. OSB prices spent most of the quarter barely above variable cost driven by sluggish demand, particularly in the Southeast. Price realization fared somewhat better than expected due to a combination of the lag in contractual prices and structural solutions mix. And while the small nonprice variance is masked rather well, the OSB operations team played the hand they were dealt exceptionally well. Overall efficiency hit 80%, up 2 points from last year, and aggressive cost control helped the OSB segment outperform our algorithmic guidance. Now superficially, this waterfall suggests that price is the only thing that matters in OSB. Perhaps a more accurate reading is that it prices this low, everything matters. So I tip my hat to the OSB team for making the best of a very difficult market. Slide 9 shows cash flow for the quarter of which, while straightforward, very much continues to reinforce the value of LP's transformation. $82 million of EBITDA translated to $89 million of operating cash flow after minor puts and takes for working capital, taxes and interest. We invested $84 million in CapEx to support growth of ExpertFinish and Structural Solutions as well as to ensure that our plants continue to operate safely and efficiency. And after $19 million in dividends, we ended the quarter with $316 million in cash and over $1 billion of liquidity, including our undrawn credit facility. Which brings us to guidance on Slide 10. Regrettably, OSB prices have scarcely moved since the last call, so our fourth quarter OSB guidance has only slightly improved. The beneficial lag factors that helped the third quarter have dissipated given how long prices have remained in the doldrums. So all else equal, price realization in the fourth quarter will likely provide less of a tailwind than it did in the third. The resulting $45 million of EBITDA loss in the fourth quarter and breakeven for the year are, as always, algorithmic projections of current prices and utilization. For Siding, we reaffirm our full year EBITDA guidance of $430 million. However, for the fourth quarter, the market has continued to weaken, so we anticipate slightly softer growth. We still expect a year-over-year revenue increase in the coming quarter, but of about 3% and this mostly from price. And much like the third quarter, we expect an outsized contribution from ExpertFinish to both volume and price. We are, therefore, guiding to fourth quarter revenue of about $370 million and to EBITDA of about $82 million. Now this slightly reduces our full year revenue growth rate from 9% to 8% for revenue of roughly $1.68 billion, while increasing our full year EBITDA margin guide to about 26%. Now our South American business is also struggling with a sluggish economy and its results are not fully offsetting our corporate overhead at the moment. Therefore, total company EBITDA for the fourth quarter and full year are both expected to be about $5 million lower than the sum of the Siding in OSB. Nonetheless, our expectation for full year total company EBITDA has actually risen by $20 million from $405 million 3 months ago, to $425 million today. But we're also cutting our CapEx guidance, and there are 2 factors in play here. First, given the current emphasis on capacity management and cost discipline in OSB, we are deferring even more projects in OSB. In Siding, we're balancing steadily improving OEE and initiatives to optimize LP's entire manufacturing portfolio against the backdrop of persistent market softness. As a result, the sense of urgency that motivated Houlton's expansion as the fastest route to additional capacity is now somewhat diminished. And this makes our OSB mill in Maniwaki, Quebec a viable candidate for conversion to Siding an option we are now exploring. So should we ultimately proceed down that path, it would most likely still provide additional Siding capacity in advance of market demand and would likely do so at a larger scale and with greater capital efficiency. So while we weigh these options, we have paused any further mill-specific spending while continuing the longer lead time mill-agnostic investments. And with that, we'll be happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of George Staphos with Bank of America Securities. George Staphos: I appreciate all the details everyone. And I know everyone will say it, congratulations, Brad and Jason on the news, and we wish you continued progress and success in the next chapters. I guess the first question I had, Alan, if you could just give us a bit more detail in terms of the potential shift from Houlton to Maniwaki, what's behind it? How will we ultimately see it, one, manifest itself versus the other in terms of operations and performance? And the second question I had maybe more for Jason and Brad, there have obviously been some headlines in the last couple of days about -- in the last couple of weeks about marketing battles, some of your peers extending relationships with some of the building products distributors to push product. That maybe is a more competitive backdrop. Would you agree with that? Does that change the way you market? Or does that actually help you because your peers might have some other things that they're focused on relative to the Siding business? Alan J. Haughie: George, thanks for the questions. Before I will address your 2 questions. But before we get to that, I just realized that I did misspeak slightly in my prepared remarks a moment ago when I was describing the impact of LPSA on the full year EBITDA guide. In the fourth quarter, the difference between LPSA and corporate unallocated expenses is indeed $5 million. For the full year, as you'll note from the published materials that went out this morning, the difference isn't $5 million, but it's $10 million. So just to be clear, the full year EBITDA is expected to be $420 million about $10 million lower than the sum of Siding and OSBs breakeven, but still an increase on the previous guidance. So I've got a fog in my thought, hold on. And now I'm going to turn over the question on Maniwaki to my friend and colleague, Jason. Jason Ringblom: Yes. Thanks for the question, George. I'll touch a little bit on mill conversion options. I guess when you think about it holistically, the beauty of our position here at LP is that we have multiple options. I'll go through those just quickly. We've mentioned them on previous calls, but we have the opportunity to expand existing Siding plants. So imagine a line parallel to an existing line at a current Siding plant also had the opportunity to convert additional OSB facilities and Aspen wood baskets. So Maniwaki, as Alan mentioned, is an option along with Peace Valley and then also the potential for a greenfield that would leverage sites that we own today in Wawa, Ontario or Cook, Minnesota. With that said, what I would say is the decision on the next mill will really come down to timing and capital efficiency, really coupled with the network optimization benefits that any given option has the potential to add. So we're still assessing all of those options that I mentioned. But as Alan stated, Maniwaki has surfaced to the top here more recently, just given the OSB market. And then the second part of your question just around the competitive dynamics. What I would say is, generally, we have not seen a whole lot of disruption within the channel. I mean, this is the time of year where new programs are being put in place. We're navigating RFPs with different customers. But right now, we're just -- we're focused on our strategy and really trying to minimize the noise and continue to focus on gaining share. George Staphos: Jason, just a quick one, and I'll turn it over. Aside from the fiber basket for Maniwaki, what else makes it potentially rise to the surface more quickly? Jason Ringblom: Yes. So Maniwaki is a large OSB facility. So it's got the ability to produce 600 million to 650 million feet of OSB, which translates to, call it, $400 million-ish of Siding. So just the scale and relative cost position of that facility, coupled with just the network optimization opportunities that it presents will all be factored into the analysis. Operator: The next call comes from the line of Susan Maklari with Goldman Sachs. Susan Maklari: And let me have my congrats to both Brad and Jason as well, looking forward to working with you. My first question is talking about the pricing environment in Siding. You've traditionally announced an increase late in -- or sometime in the fourth quarter for effective in early the following year. Just given the world that we're in and the varying dynamics around housing and the consumer, how are you thinking about pricing as we look to 2026? Jason Ringblom: Thanks for your question, Susan. I'll take that one. So as of -- I guess, within the last 7 to 10 days, we did announce a price increase, very consistent with what you've seen us do in prior years. Along with that, we are managing our order intake to really minimize any sort of inventory build in the channel in advance of our price increase. So really, those orders that are placed throughout December and in our January order file will come at the new price list. So nothing unusual here. What I would say is increases vary by product category and geography, but we are really targeting the net somewhere between 3% and 4% in '26. Susan Maklari: Okay. And then turning to OSB. When you think about the environment that the builders are facing and the commentary we're hearing, especially from the big publics around pulling back on start to end this year and then even into early 2026. How are you thinking about balancing that capacity? The near-term pressures that are there relative to the longer-term outlook for housing and just adjusting the cost structure on a relative basis given those factors? Jason Ringblom: Yes. So demand for OSB has certainly been soft for the better part of the year. And as a result, our focus has really been on matching capacity to demand. No different than what we've done in prior years where we've experienced soft markets. What I would say today is our utilization rate for OSB is in the high 60s, which is essentially -- which essentially matches our committed volumes for the business. So what we felt is if we sell open market wood or bring cash wood to the market. Largely, it ends up in lower prices. So right now, we're focused on really managing costs and optimizing our network relative to the demand we see today. Operator: The next question comes from the line of Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Brad, I wanted to extend my congratulations as well. I mean it's been a remarkable transformation. This is a much different company today than what it used to be even 10 or 15 years back. So congratulations. William Southern: Thank you, Ketan. Ketan Mamtora: And Jason looks forward to working with you. Maybe to start with, can you talk a little bit about you mentioned shed volumes are normalizing in Q3. Can you talk about sort of what you saw there in Q3? And what's contemplated by way of volume as you think about Q4? Jason Ringblom: So I would say, Ketan, and I'll take that one. I mean, throughout Q3, our order intake and sell-through rates were pretty consistent. In fact, I would say they held up better than maybe we anticipated given the broader softening in the housing and repair/remodel markets. And I think that's a testament really to our commercial team and our focus on innovating around the needs of our end user customers, specifically ExpertFinish, smooth Siding, naturals, as Brad mentioned, being great product additions that have helped offset the weakness in some of the market segments we play in. Specific to shed, what I would say is, yes, business has normalized in that segment, but we were up year-over-year. So we're very pleased with the progress we continue to make in that particular segment. And we see that continuing going into Q4 as well. Really where the softness resides is more in the new construction segment, particularly in the southern markets. And we see a little bit more resilience in repair remodel especially in the northern markets where we have a more dominant share position. William Southern: Jason, I'll just add to that. Sorry, Ketan. I'll just add, that historically, we've kind of seen a bit of seasonality in the shed business where our distributor partners and the shed builders tend to build some inventory in anticipation of spring and summer sales. And that kind of backing off as we get through the summer. And I think what we saw seasonally in shed is pretty consistent with the historic trends that have driven our order file in the past. Ketan Mamtora: Got it. That's helpful. And then just one more question. It seems like you are also sort of -- in the way you are selling sort of your Siding products and your OSB product, it seems like there is some transition happening where you're trying to align both these products and sell it kind of more as a bundle. Can you talk to sort of what is driving that move? And what kind of reception you're getting with your customers? Jason Ringblom: Yes. I'll take that one, Ketan, and I appreciate the question. So back in April, we announced the integration of our OSB and Siding businesses. And really, the main reason for that was to better leverage our resources and better leverage the breadth of our product portfolio in the marketplace. So you're right, we are working on some bundling of programs to help us execute our segment strategies in all areas that we play in. But I would say we're still very much in the infancy stage of that process. We've made some good progress in the big builder segment, but it's still an area we're exploring largely. Operator: The next question comes from the line of Sean Steuart with TD Cowen. Sean Steuart: I'll extend my congratulations to both Brad and Jason as well. I want to follow up on the Maniwaki pivot. Can you give us a sense of the time line to at least start this project and when you think it might be producing Siding product? And attached to that question, does the Section 232 determination, which exempts OSB and Siding from Canada. Does that factor into the decision at all? And I guess, broader perspective, the determination on Section 232 sort of left it open-ended, that the administration can consider changes to the assessment as time unfolds. I guess the short question is, are you comfortable that this will be an extended -- a permanent exemption for OSB in Siding from Canada. I'll leave it there. Aaron Howald: Yes, Sean, this is Aaron. I'll take the 232 component of that question. I don't think anybody is comfortable that policies are current in the current administration. But I will say that the decision to shift to Maniwaki should we make it, will be a long-term decision based on our long-term expectations about the evolving OSB and Siding markets. The current situation for the 232 tariffs is that neither of those products is subject to a tariff importing it from Canada into the United States. And perhaps a less understood component of the 232 discussion is that the importation of some heavy equipment categories into the United States is less favorable than it is into Canada currently. So for example, if we were to acquire a press or other large equipment for a conversion of an OSB plant in Canada, we would be able to import that equipment at a lower cost into Canada than into the U.S. because of those tariffs. Alan J. Haughie: I would like to stress, though, that, that would be a potential benefit, but it's not a reason... Aaron Howald: Exactly. Yes. The 232 issue is not the decision maker. It is noise that currently is a net benefit. But the long-term reasons for Maniwaki should we make that decision would be the fundamental market dynamics and the efficiencies that, that mill would bring. William Southern: Sean, the process is, as you can tell, as we've gone, we try to be transparent on these calls and talk about the different options. And some rise to the top and in some fade from the top. And so it is certainly dynamic. But the valuation that we do is financially driven, long-term financial driven, as Aaron said, and there are components specifically to tariffs or -- but when you look at wood cost, you look at particularly network optimization, Maniwaki is in a really interesting place for us when you align it with our existing infrastructure, including what we're doing around ExpertFinish growth. And so -- but as we continue to do the evaluation over the next several quarters, we'll continue to evaluate all options in the face of a good strong financial analysis. And then when we get ready to present to our Board, that's when the rubber hits the road around crystallizing around 1 facility and being able to explain from a return standpoint while that was chosen. So more to come on that, but we did think it was worth mentioning Maniwaki as a prime candidate or might perhaps the prime candidate right now, given that we haven't talked about that much in the past. Sean Steuart: Understood. And then maybe just one follow-up there, Brad. Part of this reordering of the options is the extent to which OSB markets unraveled here the last several months. I mean you've positioned this as it's a long-term decision based on optimization of the fiber basket, the portfolio you have. Is there any read-through on you view this OSB downturn as potentially extended beyond what we would normally see? And you're considering Maniwaki in that context as well. This could be a longer trough than we're accustomed to seeing for OSB? William Southern: No, we were not intending to signal that at all. Certainly, the near-term outlook for OSB is pretty abysmal, but we believe in the business in the long term. Really what put this one up was, as Jason mentioned or I mentioned in the prepared remarks, the timing -- we were leaning on Houlton because we felt that we could get there faster with a conversion. And so when really it's the overall softening in the housing outlook overall gave us, say, another year of capacity in our existing network, which allowed us to take a step back and say, if we're not in much of a hurry as we thought we were in 6 months ago, what are other options. And that's really when we started focusing in on Mani. It's not OSB-related that drove... Operator: I believe your mic just went out for a minute. [Technical Difficulty] And Sean, you're still there? Sean Steuart: I am. I'm all good guys, you can go onto the next. William Southern: Did you hear? I mean it was such a great -- it's probably the best answer in my CEO career and I got cut off in the middle. Sean Steuart: You're leaving on a high note. I think I got the gist of it. Operator: The next question comes from the line of Mark Weintraub with Seaport Research Partners. Mark Weintraub: I don't know, Brad, I don't know if I should ask any more questions after that. That high note. But congrats to all, of course. So maybe just a little bit more on the thinking on the Maniwaki Houlton. So I mean your volumes this year aren't that different from what you were expecting. So I mean, it seems to suggest that you're taking a little bit more of a cautious perspective on next year. And obviously, it's pretty early. Maybe help us think that through a little bit. And when you say several quarters, does that mean you're kind of thinking it's like -- you don't need it for close to a year later than what you would have initially anticipated wanting the volume up? William Southern: Mark, it's really the key driver is we were forecasting internally, improving housing starts at a pace higher than the current forecast is. And so when we were looking at, I don't know the industry adding 75,000 to 100,000 new starts each year, year over year over year. That was got us on a path of sooner rather than later on this conversion. But as we've looked at the most recent starts forecast that we follow, it seems pretty flat or low single-digit growth year-over-year. And so that difference in outlook for housing has given us some degrees of freedom on timing for it. I will say it's been really nice to see Sagola operating at the level that it's operating at now, which has provided a good bit of near-term headroom on that. And so -- but I do feel like the -- I mean, I know that the reason we were able to take a breath on expediting a mill conversion is Houlton as we just looked at the housing forecast that folks are putting out there. And as we aligned with that, we felt like we had another year of time to make a conversion versus being very rushed. And rush caused us to go to Houlton because it would be the quickest, but it also rush would have significantly increased the capital expense, too. So I think we're in a good place to where we still got headroom that we need if housing was to get stronger than forecasted, which we certainly hope happens, but we feel really good about having options other than Houlton, which will be a little more capital efficient for us. Mark Weintraub: Super. And maybe could you expand a little bit on that in terms of capital efficiency, recognizing you're still in the evaluation stage, but order of magnitude, how much capital might be required for a Maniwaki conversion? And also, does this mean that your cap spend in 2026 is actually going to be more reduced than maybe what some of us would have been thinking previously? Alan J. Haughie: Great questions, Mark. None of which we're really in a position to answer with sufficient reliability or confidence yet. We'll deliver more on this topic on our full year earnings call in February. Great question. Sorry, we're just not in the position to answer. Mark Weintraub: Understood. And then just last, if I could. So with the sheds business, obviously, it had been quite weak last year, much stronger this year. Can you give us any sense as to like where the sheds business, and I recon even you guys don't have perfect visibility on this, but your best estimate is where that business is now relative to kind of trend line? Or I mean, did we have some catch up this year so that there is downside risk to next year in a normal environment? Or is it more that it was just so bad last year, this really strong growth just got us back up to what you'd consider to be kind of a typical year? Jason Ringblom: Yes, I'll take that one. So what I'd say there is a fair amount of pull-forward demand in shed during COVID. So our business was very strong in those years. And to some extent, we supported that segment to a higher degree than others while we were on a managed order file. That pullback that we felt in late '23, '24, I think, was a result of that. We've seen the shed business return back to normal levels. If not, maybe a hair better. A lot of the fabricators that we talk to are saying their business is up a couple of points relative to kind of a normal rate. So we feel good about that business, and it's been very consistent for us through the years and feel good about opportunities we have to improve our share position there as well. Operator: Next question comes from the line of Kurt Yinger with D.A. Davidson. Kurt Yinger: Congrats, Jason and Brad. I just wanted to go back to some of the comments, just around the fourth quarter Siding volumes. Can you just talk about, I mean, what you're hearing from your customers in terms of maybe a little bit of demand degradation? And then how perhaps managing inventory levels and the price increase factored in, if at all? Jason Ringblom: Yes. Thanks, Kurt. What I guess I said this earlier, but I mean the process is very consistent with what we've done in prior years. We look at historical purchases, kind of where demand is trending and then come up with allocations for our distributor partners and then obviously work with them closely through that process. If they're communicating that they're going to short a customer on the other end by no means will we hold them to that allocation specifically. So it is pretty fluid in nature with the end goal being not to increase channel inventories as we go into the new year and work through a price increase. So far, I think that's been well received. And there are customers that are certainly asking for more. but that's something that we closely manage on a week-to-week basis. Kurt Yinger: Okay. That's helpful. And then just looking forward to 2026 a little bit. I mean, what areas of the Siding portfolio do you maybe have the highest conviction or visibility to at this stage in terms of delivering kind of above-market growth and continuing the momentum? And separately from a marketing or channel standpoint, kind of what are you most focused on there in terms of strengthening your position with different channel partners and whatnot? Jason Ringblom: Kurt, I'll take that one as well. What I would say is we've got very focused segment strategies for new construction, repair, remodel and then off-site, which includes shed and manufactured housing segment. And those are 3 segments that we will be relentlessly focused on improving our share position. And we're investing resources in all 3 pretty equally, maybe a little bit heavier in repair/remodel. But we feel like there's an opportunity to continue to take 0.5 point to 1 point of share of the addressable market on an annual basis as we think about the future. Operator: The next question comes from the line of Adam Baumgarten with Vertical Research Partners. Adam Baumgarten: Just on ExpertFinish, can you kind of update us on where margins are there especially with the managed order file currently? Alan J. Haughie: Margins still have -- they're good, but they still have a long way to go under this kind of circumstances. So again, I'd still see both outsized. We've certainly had outsized price increases on ExpertFinish, and we're making progress on the cost side. So I think the future is bright for continued margin increase, but they're still lagging our -- fundamentally, our prime offering. So there's nothing but opportunity there. Operator: Our last call comes from the line of Steven Ramsey with Thompson Research Group. Kathryn Thompson: This is Kathryn Thompson on for Steven today. Answered many good questions, but I wanted to follow up just on a few on ExpertFinish and have been taking some share gains. Like I suppose for the quarter and as you think about the year, can you parse out the drivers between channel versus winning shelf space and end market demand? And then against the second part of this is against a pretty challenging R&R market. How sustainable do you feel these market share gains are on a go-forward basis? Jason Ringblom: I'll take that one, Kathryn. So we're very pleased with the growth that we've seen an ExpertFinish after getting into the prefinished business, I think it was back in 2020. We are on a managed order file right now, but we have incremental capacity coming online at the end of Q1, early Q2 next year in the neighborhood of 50 million to 70 million feet. We believe that we've got a very strong value prop with our ExpertFinish line and we've only added to that with the naturals collection that was launched in April. And that repair remodel contractors really enjoy using that product. So we think the demand is sticky. Obviously, you need to get the contractor to get placement in the channel with our dealer partners. And that's really our focus going forward is getting downstream as much as possible to pull that demand through for our dealer partners. William Southern: Kathryn, I'll just add to Jason's answer that the -- keep in mind that our market share in that segment is tiny relative to the opportunity. And as our product gets accepted, as Jason mentioned, as contractors get to use. And as you mentioned, as we secure shelf space with the one-step distribution network, there's just a ton of upside in our ability to continue to grow that ExpertFinish line. And have a higher -- a much higher market share of a large repair and remodel market. Kathryn Thompson: And do you need to step up marketing expenses next year keep being that share gainer or are there other ways beyond to increase stickiness? William Southern: Marketing is a big component. It's in-home selling to consumers primarily. And so as -- if you parse our sales and marketing budget, particularly the marketing budget, it is skewed toward support of the repair and remodel segment more than any other segment but a pretty large margin. But I think what you'll see next year in our budgeting will be consistent with our guidance to be consistent with the kind of spend we've had historically, especially if you like a percent of revenue or anything like that. Kathryn Thompson: And since you brought up distribution, given the ongoing changes in the distribution landscape in the U.S., are you seeing any type of behavior changes for you as a supplier to the distribution market, given some of the fundamental changes in distribution? Jason Ringblom: Yes. I would say right now, we're very pleased with the partners we have from a 2-step distribution perspective and that those relationships are on very solid footing, and we look forward to continuing to work with our partners. But no real significant disruption, no. Operator: One additional question comes from the line of Mike Roxland with Truist Securities. Michael Roxland: I'll just echo what everybody else has said, Brad, congrats on your upcoming retirement, well deserved. And Jason, congrats on the new role. A lot of my questions have been addressed, but I just wanted to ask if you could give us some more color around volume growth by end market in terms of single-family R&R and sheds in manufactured housing in 3Q? And how should we think about Siding volume growth as you look into 2026? I know it was asked recently, but just trying to get a sense of whether you think volumes will be flat to slightly up next year versus low single digits? Jason Ringblom: So I'll touch on the first part of the question. Just looking at Q3 versus prior year by segment. As I mentioned earlier, even though shed volume came off slightly versus Q2, it was up over year-over-year, more than the other 2 segments. Repair/remodel was second strongest as evidenced by our performance in our ExpertFinish business or line. And then single-family, I think it was a mixed bag. We had decent volume in some of our core markets, but in the southern markets that are dominated a little bit more by the big builder and our stress by some affordability challenges and just consumer confidence in general, we have -- that was our weakest segment in the quarter. Alan J. Haughie: I'm going to address the second question briefly. I think it's too early for us to make a sort of convincing call on 2026. As you know, we have pretty good visibility within a quarter. And when we get to February, what we see within the first quarter behavior will, of course, color our view of 2026 at which point we'll provide some full year guidance. Michael Roxland: Understood. And then just one quick follow-up. If you see housing rebound more quickly next year than you're now expecting, what levers do you have available to meet that increased size in now that you're pushing out some of your capital projects? William Southern: Plenty of capacity. We can add shifts in existing facilities. So yes, we will have no problem responding to almost any imaginable demand scenario over the next couple of years in either of our businesses or South America. Operator: This does conclude the question-and-answer session. I would now like to turn the call back to Aaron for closing remarks. Aaron Howald: Okay. Thank you, everybody, for joining the call. We'll look forward to continuing the conversation and follow-up calls later today and conferences throughout the quarter. Thank you very much. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Sophie Lang: Good morning, everyone, and welcome to Barry Callebaut's Full Year Results Presentation for 2024-2025. I am Sophie Lang, Head of Investor Relations, and today's session will be hosted by our CEO, Peter Feld; and our CFO, Peter Vanneste. Following the presentation, we'll have a Q&A session for analysts and investors. Please do limit yourself to no more than 2 questions. Before we start, please take note of the disclaimer on Slide 2. And I'd also like to inform you that the webcast and conference call today is being recorded. With that, I'll hand you over to our CEO, Peter Feld. Peter Feld: Thank you very much, Sophie. Good morning, everyone, and welcome to our fiscal year results presentation for '24-'25. Today, we will also be sharing a strategic update covering the actions we have taken and are taking to build a more resilient Barry Callebaut, delivering on our Next Level objectives and how we are unlocking future growth and shareholder value. Let me start with a few key messages. As you will hear in more detail from Peter Vanneste shortly, in H2, we returned to cash generation and made strong progress on our deleverage agenda. This was supported by actions we've been taking on our BC Next Level journey and to step up resilience to market volatility. As we look to the year ahead, we have three clear focus areas: deleverage to less than 3.5x net debt to EBITDA and delivering strong cash generation; preparing for a return to growth with a clear focus on customer experience, competitiveness, and unlocking new innovative solutions for our customers; and third, relentlessly addressing optimization opportunities for the new environment. With that, I will hand over to Peter Vanneste to talk to the results. Peter Vanneste: Thank you, Peter, and good morning, everybody. Let me walk you through the full year performance in a bit more detail now. Starting with a short summary. After significant cocoa bean price increase and volatility in half year 1, the market has stabilized in half year 2, and we have been taking decisive actions to reduce working capital, enabling strong cash generation and deleveraging. At the same time, the cocoa market turbulence created a challenging B2B environment, and we took some prioritization decisions within cocoa, both of which impacted our volume development at minus 6.8%. When it comes to profitability, recurring EBIT growth of 6.4% in constant currency was supported by pricing through the increasing cost of financing and mix. After major pressure on net profit in half year 1, half year 2 net profit benefited from the further cost pass-through actions we have taken. Let me go into more details. Starting with leverage. We delivered major progress in the second half of the year, enabled by our working capital actions, which I will talk more about in the next slide. Back in half year 1, we saw a step-up to 6.5x net debt over EBITDA as higher prices during the peak harvest meant that we needed to finance significantly higher inventory value. For the full year, our intentional actions enabled us to land at 4.5x leverage, significantly progressing towards our ambition of being below 3.5x by the end of fiscal '26. Our leverage adjusted for cocoa beans or RMI is actually today at 2.7x. But in fact, if we also adjust it for cocoa inventories as well as beans, so only cocoa, not even excluding chocolate and other stocks, our adjusted leverage is below 1x. But actually, you can see that on the right-hand side of this slide, and it's important to realize that our net debt of CHF 4.3 billion is actually fully backed by high-quality inventory at CHF 4.7 billion value. When it comes to reducing our net debt going forward, we have very intentionally established a balanced debt maturity profile with around CHF 700 million falling due in the next 5 years on average every year, enabling repayments with our strong liquidity position. So going through those working capital actions in more detail. We have been diversifying our sourcing with increased purchases from origins like Brazil and Ecuador, which do have significantly shorter cash cycles and reduce our forward contracting. This goes hand-in-hand with our actions to step up our bean blending capabilities so that we can optimize recipes for our customers. Next to that, we've also been optimizing our purchase timing and inventory levels and reducing forward contracting, for example, when it comes to safety stocks, where we have been somewhat overcautious in the past. At the same time, we also took action to enhance the flexibility of our financing options with the introduction of a letter of credit facility last August. And this allows us to replace futures margin call cash outflows with a letter of credit, benefiting from both liquidity and agility in volatile times. It delivered 200 million operational cash inflow now, but it's especially an important buffer in case of potential future bean spikes and volatility. The next level focus on improved planning and logistics processes with better end-to-end coordination also had an important impact on our inventories. And finally, of course, the increase of EBITDA is also contributing to our good progress on the leverage through the pricing through of the higher cost of capital, delivery of the next level savings and prioritizing higher return segments within Global Cocoa. So what does that mean for free cash flow? Free cash flow declined by CHF 312 million for the fiscal year with a return to a strong cash inflow of CHF 1.8 billion in half year 2. When we look there at the moving parts, let's maybe start with the brown box, which is the cocoa bean price impact. This had a negative CHF 1.1 billion cash impact for the year with CHF 664 million positive inflow in half year 2. The bean price did close at a similar level at year-end versus the start of the year, which was around GBP 5,300, but with much higher prices, of course, and higher volatility during the year. We saw a negative impact from the bean price for the fiscal year still for two reasons: one, liquidity swaps; and two, some phasing. Now as you might remember, in fiscal '23, '24, we had taken significant liquidity swaps to better allocate our cash flows to our business cycle. And this has postponed margin call payments in the range of several hundreds of million Swiss francs into fiscal '24, '25, so this fiscal year. And this has been the main driver of this. Secondly, also our long cycle of business between the bean contracting and the customer sales and given the much higher prices a few months ago, there's also a bit of a phasing impact when the bean price comes down. So we do expect some further benefit to come if the bean price, of course, stays stable at a lower level. Moving to the green boxes, which is the operational free cash flow. We see here a positive contribution of CHF 1.2 billion for the fiscal year, of which CHF 1.4 billion in the second half of the year. Here, we see the major operational benefits from the next level actions on working capital reduction and financing flexibility that I just described in the previous page. Finally, looking at the yellow box, we invested 388 million for the fiscal year behind investment in CapEx and we see next level. Looking ahead with all of this, given the harvest timing and a typical H1, H2 cash trajectory profile, half year 1 of this fiscal year, the coming fiscal year is expected to see negative free cash flow before we see further strong progress in half year 2. Moving to the market disruption now that we have seen over the past years. I will only talk briefly here as Peter will also go into more detail. But we all know, of course, that the bean prices have increased significantly in the first half of the year. In response to that, the strength of our cost-plus business model allowed us to successfully pass these higher prices through to our customers, driving 56% pricing for the fiscal year and even higher at 85% on our cocoa business. We saw our peak pricing in quarter 2, with pricing remaining high though in half year 2, but a bit lower sequentially. At the same time, it does take our customers some time to price through to the end consumer. So we have been impacted by a challenging B2B market as they manage the transition and adjust to the higher prices. And in particular, our customers have been reducing pack sizes and reformulating in some cases, certainly also adjusting their stock levels and their forward cover, calling off orders sometimes later. And finally, a few of our very large customers who also produce chocolate in-house have been prioritizing capacity as they saw temporarily lower demand. Nevertheless, our customers have also taken significant pricing with Nielsen data showing chocolate prices in the market that are around 30% higher than what they were before the bean price increased. Within the next few months then, we know that it will still be challenging, but we do expect market dynamics to improve because of this and also given the recent decline that we've seen in the bean price. We, therefore, expect our customers to take only limited further pricing, and we have seen customers willing again to contract further out in light of these lowering prices. On top of the market dynamics, there's also been a number of BC-specific factors for the decisive actions we took in this environment. In Global Cocoa, we sharpened our return focus to prioritize volumes within cocoa and also towards chocolate, where we see the higher returns in the context of higher bean prices and our deleverage agenda. The impact is expected to continue into half year 1 of fiscal '26. In North America, the intervention in our Toluca, Mexico factory at the start of the fiscal year saw a residual impact as we worked through all of that to get customers back and requalified. And finally, our SKU rationalization efforts, which are now complete, impacted volumes for Gourmet, especially in Western Europe. At the same time, we did focus our strategic direction on the growth platforms, which have shown resilience. Cacao coatings, which we used to call our compound business saw positive growth overall, particularly driven by high single-digit growth in Western Europe and double-digit growth in Latin America, where we have supported our customers with innovation and reformulation. In Specialties, we saw particularly strong growth in our inclusions business. And finally, in EMEA, the region was impacted by the China microclimate, but we saw double-digit growth in key geographies like India, Indonesia and the Middle East, supported by innovations, our actions to delayer our route to market and portfolio segmentation. These market dynamics have led to 5.3% decline in chocolate volumes. And for the group, we saw a decline of 6.8%. So the group decreased more than chocolate as Global Cocoa declined by 12.8% with a strong impact from the negative market demand to the higher prices on the one side, but also due to the prioritization reasons that I outlined before. I will, therefore, focus this slide on Global Chocolate first by region and then by segment. Starting by the regions to the left of the page, Western Europe saw a 6.6% volume drop as the demand there continue to be impacted by higher prices and the knock-on effects of all of that on customer behavior as well as some effect of SKU rationalization. Central Eastern Europe declined by 4.4% with a very challenging customer environment, particularly for food manufacturers that are local. North America saw a decrease of 6.7% as new customer wins were offset by the difficult market environment and the impact of the Toluca intervention I talked about. Latin America saw a strong growth of plus 6%, driven by innovative customer solutions, particularly for cacao coatings, again, compound. And finally, EMEA saw slightly negative growth as the demand pressures in China and the developed markets offset the double-digit growth I just discussed for India, Indonesia and the Middle East. By segment, to the right of the page, Gourmet has been more resilient as growth in EMEA, Latin America and CEE was offset by the challenging environment we saw on that in Western Europe and North America, again, here impacted by the SKU reduction and the Toluca intervention. Meanwhile, the Food Manufacturers segment was impacted by customer behavior shifts in this context of volatility and significantly higher prices as we've seen across the whole market and as I talked about earlier. Moving to profits. And first, recurring EBIT. Later, I'll talk about net profit. Recurring EBIT was CHF 703 million, increasing by 6.4% in constant currencies. Looking at it per tonne, we saw a 14% increase, showing that the impact from the lower volumes was significant. Now EBIT benefited from mix as the higher profit segments like gourmet specialties and cacao coatings saw better growth than the overall group. Importantly also, the cost-plus model enabled us to successfully pass on the higher financing costs of this high bean price environment with a strong improvement in pass-through in half year 2 after some gaps we had seen in half year 1 as it does require time in a forward selling business to pass this through. Third, delivery of the BC Next Level cost savings also benefited EBIT. At the same time, we've also seen a number of offsetting costs, some temporary, some structural. In particularly, unprecedented market disruption costs, especially in half year 1, such as the impact of steep backwardation on rolling costs and high market prices that are raising carry cost of our inventories. These already improved significantly in half year 2. Also, we saw an impact of the lower volumes on the fixed cost base and inflation. And finally, we made some structural investments in customer experience and internal capabilities. For example, digital investments, supply chain investments such as enhancing our bean blending flexibility and capabilities, people investments and some other cost inflations, partly due to the cocoa environment like higher insurance costs on the much higher value of the beans that we are transporting around. Closing this section on recurring net profit. Net profit was at CHF 250 million or CHF 267 million at constant currency, down 36% in local currencies. However, it's very important to distinguish between half year 1 performance of minus 69% and half year 2 performance, which was flat versus last year. Half year 1 net profit was heavily impacted by the speed and the magnitude of the bean price increase and the corresponding working capital impact and the time it takes to fully pass through this higher cost in a forward selling business. Half year 2, however, we did see a strong improvement to being flat versus last year, showing the strength of our actions with around 3% profit generation versus half year 1, driven by further actions to price through higher cost of financing, our cost of financing increased sharply to -- with 170 million year-on-year in sync with the higher working capital needs that we had throughout the year and the additional funding we raised for that. And we took actions to price through those financing costs, which further took effect in half year 2. Second, a bit of market stabilization with significant easing of the backwardation in the cocoa market. And this means that the gap between the near term, the more expensive prices has been narrowing versus the long-term less expensive prices. So that has been helping in half year 2. And third, the impact of our end-to-end value chain projects and planning improvements. With that, I will hand over back to Peter, who will talk more about the actions that we take to enhance the resilience of BC and make us an even stronger leader in this industry. Peter Feld: Thank you very much, Peter. So the last 2 years have been, in many ways, unprecedented. The market environment has radically changed. The entire industry was disrupted. Today's full year results presentation provides an opportunity for us to reflect about what we've done and about the journey ahead of us. So looking back, how we have been delivering BC Next Level while taking decisive actions in a radically changing environment. And looking ahead, how we are pulling all levers to deleverage and decouple from the bean price while enabling growth and returns. So let's dive in. So BC has seen unprecedented time over the past 2 years. We are unlocking our full potential with BC Next Level by progressing relentlessly to weather the new normal. We've launched our strategic investment program, BC Next Level 2 years ago. We are advancing Barry Callebaut to become the trusted adviser of our customers, best value, best service, best sustainability and food safety and quality with the goal of creating a better customer experience, a better scaling Barry Callebaut and a onetime cost improvement of 250 million. As you know, due to the disruption and bean crisis and also the tariff situation in North America, we announced a delay by 12 months. Now let me be clear. BC Next Level is delivering. More than 30 initiatives are hardwired, way more than halfway through. But unfortunately, due to these external shocks, the savings uplift will only be visible in the bottom line later. We have achieved a lot since we have started our journey 2 years ago. We've talked about the BC Next Level transformation during our results presentation about our new operating model, our footprint optimization, the SKU reduction to name a few topics shared so far. But BC Next Level is much more than this. It is a strategic investment program with 36 initiatives that bring tangible benefits to Barry Callebaut and importantly, our customers. Now we won't have time to look at all of the 36 initiatives today. I want to focus on a few to illustrate the benefits that BC Next Level brings to BC and our customers. Before we go there, I want to thank our teams in Barry Callebaut who have worked tirelessly to get us where we are today. Thank you very much. Starting with food safety, a cornerstone of our business. We have elevated food safety to the next level and installed 3 fire lines for safety to provide certainty to our customers at all times. One, full product testing before releases, 100% positive release; two, rigorous supplier compliance; and three, investments into technology and factory design. A great example are the auto samplers we have been installing, precise, repetitive and efficient sampling for best results. All of this is part of our larger food safety agenda. As part of Next Level, we've done many things to improve our supply chain performance. I want to share 2 examples today. The first one that you see on the page right now, we have introduced real-time track and trace for all our road shipments in Europe and North America. We are testing this as we speak and will soon be ready to have everything at our customer fingertips. Customers will know when their order is ready, when it leaves our factory, when it arrives at their factory, if there is any delays. On time, in full, in spec and quality delivery is a critical part of our customer journey. The benefits are obvious. With a similar intent, we've launched Ocean Edge with DHL to give end-to-end visibility on our ocean freight. We've massively improved ocean shipments with efficiency benefits, detailed tracking, centralized document repository. BC Next Level is a key enabler for a more scalable Barry Callebaut. The next example I want to give is our new factory operating system, BCOS, a milestone in Barry Callebaut's history, a global standardized way of working to be established in all our factories. 29 locations are going live by the end of this year. We see remarkable results in a factory where we have already introduced BCOS so far. The training and the mindset shift enabled a 20% more efficient production on a 6-month period across the lines that started first. This is huge and the benefits will be coming in the future. All our new factories like Brantford in Canada and Neemrana in India that we've started up this fiscal year are starting with BCOS from day 1 with all its benefits. BCOS is a backbone to create a better scaling Barry Callebaut for the future. The next example is our global business services that now operates from our 4 hubs: Lódz in Poland, Hyderabad in India, Monterrey in Mexico and Kuala Lumpur, 24/7 capabilities around the globe. All four hubs are fully up and operational. Lódz and Hyderabad drive global processes, Monterrey and Kuala Lumpur support regional operations. GBS brings significant benefits and efficiency benefits for Barry Callebaut. But importantly, it is also the base for better, more consistent service to our customers around the globe. Integrated processes, standardized workflows, end-to-end process ownership, clear benefits for BC and for our customers. And the last example for today, and we're only covering a fraction of the BC Next Level programs. If you haven't realized by now, our annual report and this presentation looks slightly different. We've launched Masters of Taste as our new brand purpose with our global power brand Callebaut. It underscores our deep commitment to be #1 trusted adviser for our customers. As you know, taste is by far the most important purchase driver in the chocolate industry, confirmed by 84% consumers globally. This brand purpose for us brings all of Barry Callebaut employees and our partners together and helps to drive a stronger value perception with our 15,000 customers globally, especially in the Gourmet segment. As earlier and shortly after announcing BC Next Level, the cocoa crisis hit the industry. For decades, cocoa and chocolate prices have been comparatively stable with relatively low volatility. We all know what happened over the past 2 years. The first price spike in '24, making chocolate 3x more expensive within 4 months, a second spike in '25. Today, we're still 2x higher compared to historic levels. This unprecedented situation on bean price, volatility and supply introduced challenges and require decisive action. We needed to tackle a lot of challenges resulting from the high and volatile bean prices and the more difficult supply situation. Increased working capital requirements to fund the inventories, rapidly increasing our leverage as well, changes in customer behavior, more short-term bookings, delayed call off, a lot of conversations with customers not used to such rapid changes in prices. Challenges for the industry to source the beans from the right origins and the right quality. Demand and supply forecasting challenges in uncertain environment with ripple effects throughout the entire value chain, a lot in parallel, and we have been addressing it. We have acted swiftly and decisively, including by deciding to push forward with BC Next Level. To address the bean price volatility, we installed cross-functional task forces to effectively respond to the temporary price spikes, clear action plans in rapidly changing market conditions. I would say it brought all of Barry Callebaut closer together as a team. The level of collaboration across cacao, chocolate and the different departments is probably the highest it has ever been. As a joint team, we've secured the right financing for this environment, including the 2 billion of bond issuance in January and February '25, less cash-consuming solutions for daily market volatility as explained by Peter earlier. But also lots of actions to secure the bean supply. We quickly diversified and expanded our traditionally more Ivory Coast and Ghana-focused origin mix. We drastically reduced our bean and produced stock inventory through various measures to minimize working capital needs. And we have a clear plan what needs to happen in the future to make Barry Callebaut even more resilient. Let's look ahead. The focus forward is clear: deleverage and return to growth. Before we get into it, I want to provide an outlook on the cacao market. Our views differ short term versus long term. Short term, in other words, for the upcoming crop cycle over the next 6 months, we are cautiously optimistic on supply. It is expected to be broadly similar to this past year, likely a slight decrease in West African crops to be offset by growth in the other origins. Cacao prices at 2-year lows, also positive, but the volatility remains structurally higher than before the crisis and customers are all still adjusting to the changing environment. So temporary price spikes are not out of the question yet. Long term, structural challenges remain for the industry to solve, climate change, diseases, farming conditions. We are leading the industry to secure supply, and I will share more details in a minute. The main message I want to leave with you, we are preparing Barry Callebaut to weather higher prices and volatility for longer while working to decouple the business from bean price fluctuations. Let's get into the crop. Prices. We've all observed the recent significant drop in cacao prices. Three topics I want to highlight. One, the cacao terminal market is now below GBP 5,000, a level we believe our customers have largely priced through in retail. That's good. Short term, the market seems to have found a price that works for farmers, processors, our customers and consumers. Too early to tell, but cautiously positive to see. Two, for the first time in 2 years, the forward curve is flat. You pay the same for cacao delivered in December of this year and December of next year. This is very important. It incentivizes our customers to book rather than wait for lower prices in the future. It also reduces rolling costs associated with hedging significantly. The flat curve is good news. Three, volatility has reduced, but it is likely here to stay, which brings us to the next slide. Volatility. Looking at the daily change in cacao prices, let us think in before '24, cacao prices changed around [indiscernible] changes on a daily basis. This is unprecedented in terms of speed of change. Volatility has come down, yes, but we continue to observe strong reactions around selected news and [indiscernible]. To be resilient in this environment and to protect us. Volatility is likely here to stay, and we are prepared for it. Our quarterly pricing, which is tied to cacao prices, of course, has peaked in quarter 2, '24, '25. Nielsen quarterly pricing, the sellout data is only now starting to stabilize, in line with a typical 3 to 6 months B2B to retail delay we see in the industry. We believe customers and consumers are adjusting to the new normal. Consumers' appetite for chocolate remains strong. It is the #1 preferred consumer flavor by distance. Customers, we believe, have largely priced through the current terminal market levels, and we are proactively collaborating with them on recipe optimizations, new product launches and other efforts. Short term, our customers will still continue to navigate consumer readjustments on a case-by-case basis, but we believe we are through the worst as an industry. Let me also say, chocolate has been far too cheap for far too long. We believe actions are required to ensure long-term supply of our beloved cacao. As I said in the beginning, the long-term structural challenges are not resolved. A significant part of today's cacao supply is at risk due to climate change and disease. We are tackling this proactively, and we are leading the industry to ensure a predictable long-term supply across four areas with ingredient innovation. Mid-July '25, we announced our partnership with the Zurich University of Applied Sciences to explore cacao cell culture technology. And today, we are pleased to announce a long-term commercial partnership with Planet A Foods. More on a few slides, 2 examples amongst many taken to deliver new chocolate experiences with less or no cacao content. Through our sustainability program supporting the leading consumer goods companies of the world, the scale of these programs is massive and by far the largest in the industry. I want to use the opportunity to reiterate that we are ready for EUDR. We are supportive of the legislation. It is important to give the entire industry a level playing field. We are ready for -- at Barry Callebaut for our customers, and we believe traceability is the right thing to do. And we are also driving investments into small order farming and large-scale high-tech farming. So how are we progressing with our Future Farming Initiative? Our Future Farming Initiative is designed to modernize sustainable cacao farming at scale, a catalyst to the industry to invest in farming. Under the leadership of Steven Retzlaff, who led over 2 decades our Global Cacao business, we are going forward, and we are having good news on that side. Many elements are in place to scale the future of farming. The team is making strong progress. We've built a team of industry-leading experts working tirelessly. We have the largest nursery established in Brazil, two farms to test and improve farming methods, and we're driving productivity investments such as our AI-based cacao port harvesting robot. We've also identified a funnel of properties that fit our criteria for large-scale cocoa farming. Advanced discussions with partners and landowners to put funding and scaling models are in place. So the ingredients to really unlock the future farming opportunity are here today. The team is now working on executing the plan. So talking about our long-term priorities. We remain focused on our four strategic growth priorities and continue to drive improvements in execution. A few thoughts how we are progressing on each of them. One, deeper partnerships. We are the trusted partner of choice for innovation and reformulation. Customers are looking towards us to provide our solutions or our new commercial centers of excellence are driving capabilities and impact while our new customer segmentation allows us to be more tailored in our service offering. Since the cacao crisis, outsourcing was not the top priority on our customers' agenda. Today, we are making progress nicely on some larger opportunities for the future. We remain bullish on outsourcing as a key enabler to strengthen our strategic partnerships and by more deeply interlinking our supply chain to bring benefits of our scale to our customers. Two, as shared, we've launched Callebaut Masters of Taste. We also successfully launched our pilot direct-to-consumer web shops in Germany and Austria for our Gourmet business and launched our digital Callebaut Academy. Three, we are continuing to improve the scalability of our specialty offering through a more focused portfolio, accelerating innovation in cacao coatings and expecting and expanding into non-cacao solution and experiences. Four, we continue to see a huge opportunity in getting to fair share in EMEA with China completely untapped. The team is progressing nicely in key markets as evidenced in the numbers that Peter has shared with you earlier. We are preparing for a return to growth to innovate, lead and grow. Our Net Promoter Score that our customers have given us has increased significantly compared to last year, a great step towards the ambition of delivering best customer experience. This increase is driven by a few factors. Our customers especially highlight our product quality, the effective solution advisory, our understanding of their business needs and the breadth of our portfolio. This is our ambition, being the trusted adviser to our customers. Great to see the progress on customer experience. We have in Barry Callebaut chocolate solutions for any customer needs from cacao products to decorations and inclusions. Our ambition is clear, leading in chocolate, growing in cacao coatings and launching non-cacao. I spend -- I want to spend a bit more time on 2 of them, cacao coatings previously named compounds and non-cacao solutions, and we will go a little bit more into these exciting news. There are many reasons to accelerate our growth in cacao coatings or as we call them before, compounds. It is very high on any customer's innovation agenda right now, and it makes financially sense. Lower capital intensity than chocolate, you need less beans per ton of product, higher returns than chocolate with attractive profitability, higher growth than chocolate driven by current cacao price dynamics and push into reformulations. You see this reflected in our numbers. Cacao coatings is outperforming chocolate in most regions. I want to call out Western Europe, in particular, the largest chocolate region in the world, where we see promising growth in cacao coatings. While our global chocolate business overall has declined, cacao coatings have grown substantially in many regions, if I may add. More to come. We are continuing to invest in this exciting category, and this brings me to another exciting news to share. Earlier today, we have announced our commercial long-term partnership with Planet A Food, the German food tech innovator behind ChoViva. This partnership marks a key milestone in diversifying our portfolio and capturing the exciting opportunities in chocolate alternatives without cacao. It is also exemplary in how we innovate, lead and grow by embracing technology to open further avenues for growth while enhancing our resilience to today's cacao market volatility. Let me be clear, these non-cacao innovations are not meant to replace traditional chocolate, but to complement them, expanding our portfolio to keep -- to meet growing customer and consumer demand. Together with the team at Planet A Food and its motivating founders, Sarah and Max, we can scale the production of irresistible chocolate-like creations that broaden choice without compromising on taste, quality and our commitment to the planet. So let me zoom out again. We are well on our way with many strategic actions spanning our entire value chain to make Barry Callebaut less bean price dependent and drive growth. The goal is simple: deleverage, decouple from bean price, enable growth. This is guiding our actions throughout the organization. We are increasing our financial agility, solutions that breathe with the bean price and consume less cash. We are reorienting the purpose of cacao with a clear focus on ROIC targets for the third-party sales. We're driving a step change in digitization and analytic capabilities. We have improvements in sourcing, as discussed previously, and conscious decisions on product and geographic portfolio to drive growth. Many new products are requiring less working capital. We've improved our operations already significantly, reducing transport time, improved visibility on stock levels, better end-to-end collaboration across cacao and chocolate, all to capture incremental value across our value chain. Our ambition is clear: deleverage, decouple from the bean price and enable consistent profitable growth. So with that, we're moving to the outlook for the year ahead. While we've seen a stabilization in cacao bean prices, it is clear that we are still operating in a challenging environment. Our customers and the entire industry are still digesting cacao prices 2x above historic levels and the ongoing B2B efforts of that will remain pronounced, particularly in the first half of this fiscal. Our working assumption is for a bean price in and around GBP 5,000 with continued volatility, albeit at lower levels than last year. While we've taken steps to enhance our resilience to temporary cacao bean price spikes, of course, if this were to happen, it would have an impact on our delivery of '25-'26. As you know, the largest impact of our cacao bean prices on cash and leverage with a likely knock-on impact on volumes and profit as our customers are likely delaying orders and adjusting their purchase behavior as we saw last year as well as further prioritization in Global Cocoa. When it comes to guidance, our clear focus is to deleverage below 3.5x and prepare for a return to growth. H1 '25, '26 is expected to remain challenged as customers and consumers continue to manage higher prices, while we aim for improvements in H2. On volume, global chocolate is expected to see mid-single-digit volume decrease. With a focus on ROIC in global cacao, this will result in mid- to high single-digit volume decrease in Global Cocoa. As a consequence, we see group volume is expected to see mid-single-digit decrease related to bean price developments impacting global cacao return prioritization. In particularly, while we don't typically provide guidance by quarter, we wanted to be transparent and proactive share what we expect as a significant volume decrease in Q1. The key reason relates to North America, where we temporarily paused our production site in Saint-Hyacinthe in Canada due to a technical malfunction with one piece of our roasting equipment. The factory is a significant contributor to the overall North America production was closed for around 3 weeks. The site is back up running. And while we are doing everything possible to deliver our customer orders as soon as possible, this will have an impact on H1 performance for North America. We've agreed with the Board to invest in a new facility in the United States as well as taking significant upgrade investments in existing network. This decision earlier this year comes with a delay following more clarity on the tariff situation. On profit, we expect low to mid-single-digit growth in EBIT recurring and double-digit growth in profit before tax recurring, both in local currencies. These are on a recurring base and exclude remaining BC Next Level onetime OpEx investments of around CHF 60 million to be spent on digital and on growth initiatives. So to conclude with three clear focus areas for us this fiscal year. First, deleverage to less than 3.5x net debt to EBITDA and delivering strong cash generation. Second, prepare for a return to growth with a clear focus on customer experience, competitiveness and unlocking new solutions for our customers, leading in chocolate, growing in cacao coatings and launching non-cacao solutions. We will be third, relentlessly addressing optimization opportunities for this new bean price and quality environment. So with that, we are building an even stronger leader, and we are confident that Barry Callebaut can win in the new market reality. Thank you very much for listening. We will now move to the Q&A session, and I will hand over to the moderator to start the Q&A. Thank you. Operator: [Operator Instructions] Our first question is from Jörn Iffert from UBS. Joern Iffert: Two as guided. The first one would be, please, on your volume outlook being down mid-single digit in fiscal year 2026. I mean, don't you expect that as you also highlighted, the GBP 5,000 COGS impact on the beans is worked through. We are maybe even entering a deflationary environment in chocolate going to 2026 or at least incremental price will be quite limited. So why do you expect to underperform the global chocolate market volume growth again in 2026? Is there anything on in-sourcing happening? Is there anything where you see ongoing SKU rationalization on customers? Have you lost the customer? This would be the first question. And the second question on the cost savings, can you please remind us what is the total aggregated net saving run rate we have seen now in fiscal year '25 in the EBIT? And what are the incremental net saving benefits in fiscal year '26 and then also '27? Peter Feld: Yes, first from my side, thank you very much for your questions. Let me just come back to your first question, which was on volume. Look, I think, as you know, we are a forward-looking business. And as we've just shared, we obviously continue to look very closely at what customers are doing. We believe, as per our information that our customers have about price through 30% of the price point that we see today. However, there's still discussions and we see still discussions happening between our customers and the retailers as they -- or the end customers as they bring the products into the market. So that is one of the elements why we're cautiously positive on it, but we have to recognize that we're coming from a low run rate there. The second thing that we have informed you about is the incidents that we had in the Saint-Hyacinthe facility in Canada that obviously had an impact and that we are having behind us, but that obviously will impact the first half year outlook on the business. The second question that you've asked on -- Next Level synergies. Let me tell you that we've had in the end of the fiscal year '25, about 60% in the numbers and about 70% hardwired for synergies going forward. So progress in line with what we had set out on the agenda there. But as we've explained to you earlier, we have other cost elements that we have to address, and there's a whole array of task forces underway to deal with the new bean price and bean quality environment as we speak. Operator: Our next question is from Jon Cox at Kepler Cheuvreux. Jon Cox: A couple of questions for you. One a point of clarity. i.e., I'm trying to ask another two on top. This Saint-Hyacinthe in Quebec facility closure, that is your biggest facility in North America. Am I right thinking it's like 300,000, 400,000 tonnes capacity? You said it's just closed for a few weeks and you lost some customers. Can you just elaborate a little bit on that? I'm just trying to parse out what the impact of this thing will be on the guidance for the year. Second question, just to come back on the cost savings. Your EBIT level recurring is the same as it was last year. And I know there's a load of different things going on, but we're not even 10% above we were in terms of recurring EBIT from when you actually started this program. I'm just trying to get a handle on how much is gone in FX. I'm guessing half of it is gone. So that 187 net EBIT gain we should have expected over 3 years now to 4 years is probably half of that amount. And as part of that, what should we see, because we can see EBIT per tonne is improving. Is it just a matter of seeing that volume growth even when it does improve, we're going to see a big step-up in EBIT growth because you're saying that eventually, it will be shown in the bottom line, but we're just not seeing it at all. So that's a sort of broader cost savings and final impact. And then just lastly, on the financials line, we had a minus CHF 370 million there, you're talking about CHF 700 million of debt falling due, which is maybe 20% of the debt, which you've sort of used as part of this problems with the balance sheet. Why can't we expect that financials line, the net financials to come down by 20% per year over the next couple of years? It just -- it's sort of like -- it's a big balloon on that net financials and probably going to contribute to pretty high EPS cuts on FY '26 because it just doesn't seem to be moving down much, even though your efforts on deleveraging are far better than expected in H2. Peter Feld: Thank you, Jon. Thanks for the questions. Let me take the first one. So the St-Hy impact has been an impact that was driven by an equipment that shut down one of our roasting facilities. You're right, it's one of the big factories, especially also for the cocoa that goes into North America. So there's a triple effect that we actually see from that. For me, the important aspect is that we have concluded with the Board to invest significantly in the North America network to bring it to the same performance level that we expect to have in reliability. And combined with the work on BCOS, we were confident that we actually will make the improvements needed for that facility. This incident has been with us for about 3 weeks. It's a proactive activity that we have done. And obviously, there's a trickle-on effect for our North American customers. Look, we want volume back from any of those incidences that we had from the decision we took in Toluca last year, the same situation here. It's extremely painful. But as I said in my introduction, we have a clear obligation to our customers when it comes to quality, performance, reliability, and that's the rigor that we're putting into Barry Callebaut's new product supply infrastructure to really go forward. So it's a lot of work that actually is impacted there and that we're doing. I'm thrilled to see that we have approval from the Board to build a new facility in the United States as well as to upgrade significantly the network across North America as we speak. Peter Vanneste: Yes. And I'll take your next two questions, Jon, on the -- first of all, you're talking about EBIT and the savings. I wasn't really sure you talk about backward or forward, but let me give the overall picture. EBIT has gone up indeed by 6% over the last year. We talked about the moving parts just now in the presentation. There's a positive about the mix for sure. There's positive about passing on those financing costs, right, throughout the year. There's positive about Next Level savings rolling in, as Peter was talking about. But there is important offsets as well, which are linked to the disruption that we see in the market. Some of them being temporary because we need to price much faster, much more frequently pricing teams in place to do that. Some of them also a bit more structural, which is really about part of the backwardation costs that we're carrying that were very high, carry costs that are higher, some investment in capabilities like digital insurance costs. There's a lot of offsetting costs as well that have been not making it see as much as you would have seen and we would have seen in the EBIT otherwise. You asked about ForEx. We had a 45 million ForEx impact. If you then look at the reported, right? We had a 45 million impact indeed last year canceled out with the ForEx and the strengthening of the Swiss francs. We do expect another CHF 15 million on that next year, especially driven by the Turkish lira and the U.S. dollar. So also next year, we'll have smaller, but also as it looks now, a CHF 15 million impact on the ForEx. So that's what played on that line. And then your last question was about financing costs and the pass on and especially the level, I think you asked. Yes, we landed the year at 377 million finance cost, which is obviously a big increase versus last year, an increase of about 170 million. Very much linked, obviously, to the bean price that spiked and the fact that we then, of course, had to finance this. There's a lot about the value of the inventories, as I explained in the presentation. So we did the two bond issuances in early this calendar year, which obviously played a big role. That's a step-up that we are seeing. Next year, we will have lower levels. Actually, H2 has been lower than H1 last year already despite this funding of the two instruments in the beginning of the year because we already -- we're working on some of those levers that we've explained in the presentation. And I think that's the positive news, right, that we are building on the operational sourcing and financial agility to bring back our working capital, which allows us to bring back our financing costs. So for next year, we do expect to be at least 40 million lower than where we've been reporting finance costs this year. We stay in a very volatile period. We are -- we have the harvest -- the peak harvest coming up, so we need to be a bit prudent. The good news is that we're making this good progress on working capital. The other good news is that we have maturities of 700 million every single year for the next year. So it allows us to pay back debt that we don't think is we need to hold. We are doing that already. We pay -- we are reducing commercial paper. We paid back some bilaterals. So we're certainly going to push on that lever as much as again, the bean price environment and the working capital progress is allowing us. Operator: Our next question is from Alex Sloane at Barclays. Alexander Sloane: Some follow-ups. Just in terms of the volume outlook, I appreciate you haven't sort of quantified the impact of this incident. But I mean, in terms of the phasing of that mid-single-digit decline through the year, would you expect to be in positive growth in the second half of the year? And then secondly, if I can just come back just on -- in terms of -- there's a lot of moving parts on the next level. But in terms of the CHF 187 million kind of net impact that you're targeting to the bottom line, could you maybe spell out sort of how much of that you actually think will have landed and be visible in fiscal '26? And how much of it will have landed and be visible in fiscal '27 at this point just in terms of sort of how much more is to come because I'm a little bit confused on the moving parts there. Peter Feld: Yes. Thanks, Alex, for your question. Let me just start on volume with a different focus. I think we need to be very clear that we're driving volume growth in the chocolate solutions, which is chocolate is our global chocolate, and we are focusing on that. As we've said in the outlook, we will have a tough quarter 1 start, and we are seeing H1 to be down. We hope to recover that quite a bit in H2. And that's, I think, the key message that lands us into the outlook that we've given to you on global chocolate mid-single-digit decrease for the fiscal year. When you look at cacao, then we have guided you that we're focusing the cacao on the core KPI to be ROIC. And for us, that is very important to understand, specifically when it comes to liquor and to butter sales to third party. That obviously correlates with leverage and our objective to decrease our leverage, and that needs to be the #1 priority. So we're focusing Global Cocoa third party on ROIC, which will then result at current bean prices of 5,000 as we have assumed, to a decrease of mid- to single high digits. As I've explained earlier, when we see the bean price change and just looking back 1 year, you will remember that from the 1st of November '24 to the end of November '24, we literally had seen a doubling in bean price just in 30 days. That obviously has a big implication, and that's why we're giving the guidance in a distinct difference between chocolate, where we will clearly focus on regaining market share and volume. And on the other side, on Global Cocoa, where we'll focus on ROIC in order to manage our leverage -- deleverage objectives. Peter Vanneste: Yes. And Alex, on your question on the Next Level savings and then the total EBIT, again, and I'll try to be a bit more specific, right? The individual projects that we're delivering on Next Level, as Peter also mentioned, they are delivering, and we do get those savings on, let's say, GBS. We moved all these people in shared service centers. So there's certainly labor arbitrage element, which is straight into the pocket. There's the factory closures that obviously also help directly. So it's undoubtable that these savings are landing in the P&L as such. But at the same time, we do have significant costs about disruption -- the disruption, the bean quality has worsened, which means that leads to higher cost in our factories. We need to manage higher volatility over the last year that led to our impact on our cost, which means that net, you didn't see the effect. If we look forward specifically, we will do two things, right? We will continue to deliver and some of it will now roll of those savings of the individual projects into the fiscal year. At the same time, we will be focused on building down some of those temporary disruption costs that I've been talking about. Order of magnitude, I think you can talk about, about CHF 100 million that will be contributing to the P&L next year. But again, it's a combination of delivering the project as such and managing the cost of disruption down in parallel. Operator: Our next question is from Edward Hockin at JPMorgan. Edward Hockin: I've got two, please. One quick one is embedded within your volumes guidance for the coming fiscal year, can you tell us what assumption you're making on the end market volumes, so versus that minus 3.5% that the market declined by in FY '25, what you expect for '26? And my second question, please, is on the free cash flow building blocks. So if I'm looking at Slide 8 in the presentation. Can you maybe talk about FY 2026, how some of these moving parts should evolve to the operational free cash flow? Should we think of this 1.1 billion, 1.2 billion as a new steady-state level? To what degree should the bean price free cash flow turn positive? And just remind us of CapEx plans, what kind of level we should be expecting for FY '26? Peter Feld: Thank you, Edward, for your question. On the volume guidance, and specifically, when we look at the end consumer market, we continue to be very positive that chocolate will remain the #1 ingredient in any food product globally. It's the key driver for our business. And as I always say to our employees, we have a great luxury to operate in this business that creates a little happy moment for consumers around the world whenever the sun shines or it's raining. And I think for me, that is the paramount important element here. We have 2.5 billion consumers entering the market in Asia that now have the opportunity to invest in this category. So great trajectory looking forward. It's a great category, and I'm convinced that we will see stabilization as consumers will also adjust to the higher price points. What we've shared earlier in the presentation is that our customers have in the latest Nielsen report, seen in FMCG, so in what Nielsen really tracks, not Gourmet because that is less covered, actually hardly covered by Nielsen. We see on the FMCG side that 30% of consumer price has gone up, driven by the chocolate industry. We had guided for that a while ago that, that is roughly by category a little bit different because you always have more or less chocolate on the product, but that's certain of what we've seen. So we believe that consumer prices have been taken at this point in time to the current bean price level of about EUR 5,000 or less or GBP 5,000 or less. So that's the part there. So we keep on being hopeful that the category, and convinced that the category going forward will be a great category to invest in. However, as our customers are bringing that price further into the market and especially on the gourmet side, where we operate around the world with many distributors who then actually serve the end customers, the smaller bakeries, the patisserie shops, that obviously is a longer cycle that our customers have to work through. And that is why we believe there's a disconnect still that needs to happen as in that specific industry, the prices probably have not yet gone completely through. So this is why we are thinking that the guidance that we've given to you is an appropriate guidance on the chocolate business because we think that we believe on the long term very clearly that there's a fantastic category to invest and operate in. And on the other side, we still believe that there is some digestion that needs to happen as the entire industry moves to a 2x price point on its key ingredient, cocoa bean. Peter Vanneste: And on the second question on the cash flow page in the presentation and looking forward, we are looking at, and obviously, that is needed, because we're deleveraging towards 3.5x at least. We're looking at a positive -- a strong positive free cash next year of about CHF 1 billion in our planning, which is based again on that assumption that we made about 5,000 bean price. Of course, it fluctuates as you -- we all know very well by now, fluctuates a lot around that. Thanks to continuing to work on those big pillars that help us to make the big step in half year 2, the operational agility, the sourcing agility, the financial agility that helps to bring it down. So specifically to your questions on those components, we will have -- if you're looking at the page, the yellow part, the investment CapEx and Next Level CapEx will have a number next year, which is similar as what you've seen in fiscal '24, '25 with about CHF 300 million CapEx and CHF 60 million one-off investments that we plan to do in Next Level. And then the rest will mainly be operational free cash flow progress, which is the green part on the side. There's a little bit still rollover of bean price benefit because we're -- if the bean prices come down and the fact that we're forward selling, there's a bit of the benefit that we still need to come, but that's really the small part of what's remaining. The big part to get to the CHF 1 billion will be operational free cash flow further improvements. Operator: Our next question comes from Tom Sykes at Deutsche Bank. Tom Sykes: Just trying to sort of nail down the bridge on getting to EBIT growth. So are you expecting the gross profit to be up on volumes being down mid-single digit? Then on the volume outlook, are you expecting volumes -- what are you expecting to happen to volumes, excluding North America, please? And then finally on -- just to understand the sort of customer behavior, where do you think inventories are for your largest customers vis-a-vis the, the kind of run rate of demand? Because I guess part of the bull case is that there's potentially a restocking as some of those volumes come back or at least as some demand comes back. But it's difficult to understand where quite the sort of industries or your customers' inventories are relative to the run rate of demand. So if you had any thoughts on that, that would be great, please. Peter Feld: Do you want to take the EBIT? Peter Vanneste: Yes. Your question on EBIT, I think, was specifically on the gross margin and the moving parts on EBIT for next year. Obviously, the biggest impact on EBIT next year will be the impact of the volume, right? The mid-single-digit negative volume is impacting obviously, on the gross margin line. While there will be a mix positive level because we will have as this year, right, over proportionally growing in those areas, specialties, gourmet, that delivered the better margins. There will be a plus on Next Level savings, which is somewhat above, somewhat below gross margin and offsetting some of those structural cost disruption costs that I've talked about, reducing those. So those are the four big moving parts. There is one other part, which is the pass on of the financing costs, which also has a play on EBIT. If we have less financing cost to pass on, that might have a mechanical effect on EBIT, which is why we're guiding also on net profit before tax. But really, those are the 3, 4 components that drive the EBIT for next year. Peter Feld: Yes, Tom. And then to your other two questions on volume, let me start there. So obviously, we are impacted in North America quite a bit because of the size of Saint-Hyacinthe, as we discussed before. We do see Europe a bit more stable in that situation compared to North America very clearly, as our motives for the factories have improved significantly across all of Europe. We are also in significant reformulation activity as I mapped out to go from certain chocolate solutions into the cacao coating side of things. And actually, we're leading with innovation on that, which is -- which we're thrilled by our customers actually coming to Barry Callebaut to ask for those innovations to really make a step change. So that's the positive things that we're seeing on Europe. On EMEA, excluding China, I want to leave China aside for a second. And LatAm, we are a bit more positive, clearly striving to deliver positive growth on these environments. And in China itself, as we've said many times, chocolate hardly exists. It's a long-term growth opportunity for the industry and for Barry Callebaut, and that's what we're trying to unlock, probably not having a huge impact in this fiscal year on China, but we believe that there's a great opportunity going forward in that aspect. On inventory, let me just share that one of our Next Level activities is also to have a better understanding of our inventory levels at our top customers, especially on the gourmet side. You can imagine that we have good discussions with our larger accounts where we will soon talk about the G20, more than the GCAs, as historically we've done that make up about 65% of the volume of Barry Callebaut globally. On that volume, we have good discussions with our customers to understand where they are. They have clearly shortened the inventory cycle significantly as the bean prices spiked last year and going into '25 -- calendar year '25, and they retained at low level. So now the good thing is we see a bit more positive momentum since 3 months ago, the bean price actually came down a bit. So we had a bit of a catch-up in that, and we're excited about it, obviously. And as Peter has shared in his presentation, the forward curve is obviously very attractive to actually book today, right? So that's the aspect there. On the Gourmet side, our new Next Level capabilities is bringing our top customers in Gourmet, the top distributors in Gourmet to actually allow us to see their inventory levels. We're building that database up. The software has been established. We're now in deep discussions with our customers to have far better visibility on that, and that will give us a far better understanding of the flow-through of products as we have that long supply chain from the beans all the way to the end consumer. Operator: At this time, the Q&A session has now concluded. So I will hand the call back to Peter Feld for closing remarks. Peter Feld: Well, thank you very much for attending our annual results conference today. We're very much looking forward to the individual discussions that we will have with many of you later on. Thank you very much for attending, and I'm handing back to the operator. Operator: Thank you. This concludes today's conference. You may now disconnect from the call.
Operator: Good morning, and thank you for holding. My name is Dani, and I will be your conference operator today. Welcome to Alight's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded and a replay of the call will be available on the Investor Relations section of the company's website. And now I would like to turn the call over to Jeremy Cohen, Head of Investor Relations at Alight, to introduce today's speakers. Please go ahead. Jeremy Cohen: Good morning, and thank you for joining us. Earlier today, the company issued a press release with its third quarter 2025 results. A copy of the release can be found in the Investor Relations section of the company's website at investor.alight.com. Before we get started, please note that some of the company's discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in the company's filings with the SEC, including the company's most recent Form 10-K and Form 10-Q as such factors may be updated from time to time in the company's periodic filings. The company does not undertake any obligation to update forward-looking statements, except as required by law. Also, during this conference call, the company will be presenting certain non-GAAP financial measures. Reconciliations of the company's historical non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's earnings press release. Financial comparisons related to prior year free cash flow made on today's call are on a pro forma basis, giving effect to the payroll and professional services transaction completed in July of 2024 and are consistent with the presentation we have published on our Investor Relations website. On the call from management today are Dave Guilmette, CEO; and Jeremy Heaton, CFO. After the prepared remarks, we will open the call up for questions. I will now hand the call over to Dave. David Guilmette: Thank you, Jeremy, and good morning, everyone. We've made significant progress during the quarter to strengthen our position as a technology-enabled employee benefit services company. We've accelerated our technology road map and delivery capabilities while reimagining the client and participant experience with new solutions already in use by some of our largest clients. Through our AI and automation investments and rapidly expanding partner collaborations, we are bringing immediate benefit to clients and ensuring our competitive advantages for the long run. We feel good about the substantial improvements we have made in our product line with more to come. Likewise, our service delivery is unmatched. Clients are impressed with our new AI-centric services and delivery capabilities. The next step is improving our commercial effectiveness, starting with a new leader with deep industry expertise. Our emphasis includes the diversification of our revenue streams, including through our partner network, while continuing our operational progress. With the current macro environment, the continuing and unprecedented rise of health care costs for our clients and the advancement of AI, I'm more confident than ever that our initiatives, coupled with our track record position us best to tackle these dynamics. With that, let's review our quarter. For the third quarter, revenue was $533 million compared to $555 million a year earlier, and adjusted EBITDA was up 17% to $138 million. Free cash flow year-to-date remains strong and is up 45% from the prior year to $151 million. Jeremy will provide additional color on quarterly results in a few minutes. As I mentioned, one way to accelerate our financial performance is by expanding our comprehensive partner ecosystem. Our refreshed strategy in this area is making fast progress to meet the changing needs of clients and participants while sharing in the value creation with our partners. Our relevance with 35 million participants is unmatched and potential partners are looking for ways to work with us to unlock their own value. For example, recently, we welcomed Sword Health to the Alight Partner network, complementing our long-term partner, Hinge. Participants now have access to an additional leading clinical grade resource for managing pain and avoiding surgery as well as access through behavioral health and mental well-being platform. Our Goldman Sachs Asset Management integration into Alight Worklife, which we mentioned last quarter is well underway. We've already signed our first client with several more active client conversations taking place. And just last week, we introduced a new guaranteed income solution through MetLife. This arrangement allows participants to purchase solutions that convert a portion of their savings into predictable monthly income as they prepare for retirement. Over a dozen proposals are outstanding from additional top-tier partners, and you should expect a regular cadence of announcements on this front. At the same time, our investments in the most impactful technology and service capabilities are moving at an aggressive pace. Within the call center, we enhanced our automated voice response system. This technology drives a better user experience and has contributed to a 13% drop in call volumes year-over-year. Our new AI agent assist software is in pilot with nearly a dozen clients. This tool assesses calls in real time to provide customer care agents with next best actions to more effectively service participants. Finally, in September, we brought critical delivery and technology talent back in-house, which allows us to better manage service quality and productivity. These actions, along with previous improvements are strengthening our service quality. Our participant satisfaction scores increased to 90%, which is the highest level achieved since completing our technology transformation. Regarding product, advancements in our AI road map continue to accelerate. The embedded value in our petabytes of data is unmatched, which means we can drive a far more accurate, predictive and differentiated user experience than anyone in our market. And our carefully curated mix of technology and services provides a trusted high-tech human touch experience that is core to our success. I want to share a few highlights from the last 3 months. First, we piloted a conversational AI agent solution with 2 of our largest clients to assist with annual enrollment this season. Broadly available to all clients in 2026, this is a game changer to help participants feel more confident in their benefit selections while requiring less human intervention. Next, we've rolled out Gen AI-enabled search summaries to more than 95% of our clients. AI-enabled searches are growing exponentially, and we delivered over 300,000 summaries in October alone. The breadth and depth of our platform will only get stronger as more users interface with this feature. And finally, we announced our expanded collaboration with IBM, a decades-long business partner to deploy IBM's watsonx Orchestrate agentic framework across . Alight. These advancements in our capabilities are critical to our Renew Everyday program agenda. We have been successful at retaining top clients with a large majority of our largest clients going through the renewal process in the past 2 years. Since our last earnings call, some of our noteworthy renewals include Campbell's, EssilorLuxottica, Ally Bank, Air Canada and MetLife. Our client management team is focused on proactively renewing and expanding relationships with our tremendous client base. Our renewal rate in the large market was up significantly in '24, and we're pleased to maintain that same level in 2025. And we're working hard on expanding Renew Everyday to all of our clients, strengthening the approach to supporting smaller clients and point solutions. We are making great progress with the Renew Everyday program and expect continued improvement to our renewal levels over time. I'm very pleased to share that Steve Rush has joined as our new Chief Commercial Officer. Steve's long history with Alight, along with his deep understanding of our clients' needs, position him to make a meaningful and quick impact. Steve is a highly respected leader in the benefits industry, and he's excited to rejoin a team and business he already knows very well. As I step back on where we are today, our progress has been substantial in moving us forward to our future. I'm proud of how our team members have come together to advance our technology and operations, and I want to thank them for their hard work and dedication. We have more scale, scope and talent than any of our competitors today and the resulting opportunity in front of us is immense to drive higher bookings, retention and new streams of partnership revenue. Operational results of our initiatives will be evident before they play through the financials, and we are confident in our ability to deliver an unmatched benefits experience for clients that are emboldened in new technology. And with that, let me turn it over to Jeremy. Jeremy Heaton: Thanks, and good morning. We continue to make operational progress and competitively, we're well positioned for long-term success, validated by the third-party evaluators and brokers in our space and echoed by the many clients who have renewed or expanded with us. Our primary focus continues to be on adding value for our clients and their people every day. Moving into the quarter. Revenue was $533 million, which includes a $4 million onetime revenue reduction from finalizing the commercial agreement with the divested Strada business. Normalized for this, total revenue would be $537 million. Nonrecurring project revenues were down $7 million or 14% for the quarter. Adjusted gross profit was $206 million, up 3% from the prior year, reflecting 260 basis points of margin expansion. Similar to prior quarters, our adjusted gross profit is impacted by costs to support the divested business, which are reimbursed through the TSA and other income. Normalized for this, adjusted gross profit would have been higher by $7 million. Adjusted EBITDA was $138 million for the quarter, up 17% and adjusted EBITDA margin expanded 460 basis points. Free cash flow for the first 9 months was $151 million, up 45% from the prior year period. Given the business trends this year versus expectations, our profitability and cash flow results include a nonrecurring impact of lower variable and performance-based costs. While we've made tremendous progress, there is more work ahead to improve our top line results. Longer term, we expect improved commercial results with an optimized go-to-market function along with key product enhancements. We feel good about our renewal rates in the large market and expect the 2026 cycle to have over 30% fewer dollars up for renewal. We also have near-term revenue opportunities through in-year bookings, partnerships and engagement services that our team is highly focused on to close out the year. Our operational and technology initiatives continue to drive increased efficiency while delivering a better experience for our clients, and this has benefited our profitability and cash flow metrics. Turning to the balance sheet. Our quarter end cash and cash equivalents balance was $205 million and total debt was $2 billion. Our net leverage ratio improved sequentially to 3x. We continue to actively manage our debt, which is 70% fixed through 2025 and 40% through 2026. While having strong confidence in the long term, with our market valuation change over the past quarter, combined with current business trends, we recognized a noncash goodwill impairment charge of $1.3 billion. With respect to the tax receivable agreement, our payment in the first quarter of 2026 is expected to be lower by $25 million compared to our previous estimate, reflecting the completion of tax filings for 2024. We returned $47 million to shareholders this quarter via our quarterly dividend and through the repurchase of $25 million worth of shares. Year-to-date, we've repurchased close to 14 million shares or approximately 3% of shares outstanding. We ended September with $216 million remaining on our share buyback authorization. Management and the Board of Directors will continue to evaluate our capital allocation policy as it does on an ongoing basis. With today's earnings report, we have updated our 2025 outlook and enter the quarter with $2.25 billion of revenue under contract. For the year, we expect revenue between $2.25 billion and $2.28 billion, adjusted EBITDA of $595 million to $620 million, free cash flow of $225 million to $250 million and EPS of $0.54 to $0.58. We are intensely focused on execution and improving our top line performance and remain confident in our position for the long term. This concludes our prepared remarks, and we will now move into the question-and-answer session. Operator, would you please instruct participants on how to ask questions? Operator: [Operator Instructions] The first question we have comes from Kyle Peterson of Needham & Company. Kyle Peterson: I wanted to start on the update to the guide, see if you guys could walk us through some of the moving pieces on the reduction here. It looks from the slides, it looks like it's from kind of a combination of volumes and new business wins. But I guess any clarity or context as to what you guys are seeing and when -- at least on the new business wins, obviously, you made some announcements during -- in the release today. But I guess like when should some of the fruits from those wins start to pay dividends? Jeremy Heaton: Sure. I'll start, Kyle. So yes, still in the guide, we reduced at the midpoint revenue down $40 million. It's really split between project and recurring. Project is the biggest with, again, a $20 million update there on project. And we just have not seen an inflection in pipeline and activity. I think some continued cautiousness as we're going through the annual enrollment process right now. So even on a low comp, we had expectations to see more build in the pipeline coming into the fourth quarter and just not seeing that. On the recurring side, it's a bit of volumes. You see in the update in the deck that we've got. Some in that is really -- we've seen modest declines so far year-to-date, but just a sentiment overall, just a cautiousness around that. We're not going to certainly expect with the headlines, see any upside there. So really just expecting flat to slightly down on the volume side. The Strada update on the customer care agreement was impacted in the third quarter, and so that's part of the update as well as going through. And as you said, a small amount of just the in-year revenue from the bookings that we've had so far this year. So those are the guide. As you think beyond revenue, the biggest piece is just the project update for us is really the biggest piece that drives the EBITDA and free cash flow aspects in the guide and the update there is we still feel really good in terms of the initiatives underway around the operational side, around delivery, around the AI and technology and the customer care side of the house on the call centers. It's just, again, as you know, that's about a 90% to 100% drop-through. And so seeing project at this levels is just what we see in terms of the roll-through around profitability and free cash flow. There's always going to be elements of retiree health and some other areas within the business that can drive upside into the higher end of the range here, but that's -- those are the dynamics we're seeing as we go into the fourth quarter. Kyle Peterson: Okay. That's helpful. And then maybe just a follow-up. I want to see if you guys are seeing any impact or whether it's client decision-making around open enrollment related to the government shutdown. Obviously, it's been getting kind of long in the tooth here. But I guess, any impact on your business, client decision-making, employee decision-making? Anything you guys are seeing? Or so far, has it been something you guys have been able to work through? David Guilmette: Kyle, it's Dave. Thank you for the question. Let me take that. So as Jeremy mentioned, you've got a few of the headlines that are out there. But in general, whether it's the government shutdown and the impact on federal employees or it's what passes through to clients, we've really not seen anything material come through at this stage. And just keep in mind that even if there is an action, a reduction in force with a big company, there's a pretty big lag factor associated with that. You'll have individuals who will be on COBRA for a period of time. Sometimes they're furloughed, so they're still sort of there. So -- or in the case of the federal government, you've got people working and not being paid in some circumstances. So longer term, the volume that would typically tick up, we're not anticipating, but we haven't really seen a material negative impact, at least through this quarter, and we're not envisioning that through the fourth quarter. Operator: The next question we have comes from Scott Schoenhaus of KeyBanc Capital Markets. Scott Schoenhaus: So if we stripped out the project revenue noise, recurring revenue down low to mid-single digits implied here, and you walked us through some of the assumptions just now and on the slides. But how do we think about returning to flat to low single-digit growth for the business? Is it obviously securing renewals? It sounds like the sales cycle like you talked about last quarter is elongated. You talked about upselling opportunities as well, and we're seeing maybe some slowness on leads. Can you walk us through like how do we get this business back to flat to up in growth on the top line? David Guilmette: Thanks, Scott. It's Dave. I'll take that one. So there's a few elements here that we're sharply focused on, and you've touched on a little of those in some of those in your question. Firstly, just on the renewal activity, we're seeing good results as it relates to our largest client base, and that's coming through the Renew Everyday program initiatives. And we're looking to cascade that through our entire client portfolio. So one, we think improving upon the retention rates for our existing clients, kind of locking the back door to the house, so to speak, is important, bringing more clients through, so new logos or expansion on existing clients. Again, we've got some good activity out there in the leave space. We've got a number of opportunities that were deep in discussions or near to contracting on core ben admin from middle market up to some of the larger opportunities. So that's kind of taking the clients in through the front door as well. So all of that really bodes well for the return to the growth that you're asking about. There's a lag effect involved in that. If this is a big client, large client ben admin, typically, you're looking at implementation cycles that could run 12 to 15 months, right? So some of that revenue on a new business win that could occur now might not make its way through to our financials until 2027 or beyond. Smaller deals have shorter gestation periods, lead deals, depending upon how big they are, could be shorter gestation periods as well. So as we continue to build back the momentum and the strength of our pipeline under Steve's leadership and in collaboration with Rob, I feel good about where that's headed. And our product positioning is as strong as it's ever been. Scott Schoenhaus: Great. And as a follow-up, again, stripping out project business that falls down to the bottom line, what can you guys do as a company to drive secular margin expansion? We've always talked about the call centers. It sounds like that you're moving some things back in-house on the service side, which I imagine would be a little bit more expensive. But just can you help us -- ex the project business, can you help us walk through -- you previously outlined your longer-term margin opportunities or goals or targets. Just help us walk through where you see your ability to drive margin improvements in the near and longer term. David Guilmette: Scott, I'm going to have Jeremy talk through some of the elements of how that drops through. One thing I want to make sure we focus on as part of your first question is the opportunities that exist across our partner network. We highlighted that in the opening remarks. We're feeling really good about the level of activity and the interest that the partners are expressing in being part of our network, just given our size and scale and reach for the customers and the clients that we have. And that represents revenue growth opportunity as well. That will phase its way in. It takes a bit of time before you get a contract established and you get the run rate going as is indicative of what we talked about last quarter with Goldman Sachs. But the more of those that we put in place, the stronger our revenue opportunities for growth are going to be there. As it pertains to your question on margin expansion, we're deploying AI in a variety of different places. We've got to make investments in that. Those aren't trivial. And we expect to see some impact on the way we serve our customers with AI, right, either a reduction in the call volumes that we talked about in the opening remarks or a change in the kind of -- in the way that work gets done. And we've also pulled a number of resources back in-house, and that's a strategy that we'll continue to look at. Jeremy, anything you want to add on the drop-down? Jeremy Heaton: No. I mean I think it is in line with what we've talked about earlier this year, Scott. So you -- I think we feel very good in terms -- and I think we're probably ahead of where we thought we would be around the operating model in which our delivery teams. So if you think about delivery is the bulk of the teams that are sitting with our clients every day. So from a cost standpoint that's where we need to drive a better experience for our clients first, but we've standardized a lot of that work across the different groups and the solutions that we've got. We've got COEs in place now, bringing some of that work back from third parties. It's actually more cost effective, Scott, just given the way that the terms and conditions work and also the flexibility around where the productivity sits and the things that we can drive and the flexibility. So it gives us much more room to kind of drive the expansion in what we do and probably our largest cost base in the business on the delivery side. And then as Dave said, we have seen a big reduction in call center OpEx over the past couple of years and the work that we've been doing, but there are step functions in some of the new technologies that we've rolled out. And so really just want to get through this annual enrollment period to really see the impacts of that, helps us staff then going forward as we think about '26 and '27 of the elements that we can drive there. But we feel really good in terms of everything that we've got around the efficiencies within this business. And I would say we're ahead of what the timing would have been around those expectations. Some of that is to offset some of the top line that we've got. But certainly, as we get some of that operating leverage back, certainly drops through in a more significant way. Operator: The next question we have comes from Kevin McVeigh of UBS. Kevin McVeigh: Great. I guess I want to start with -- I've never seen an initiative on approval for declassification. Can you just help us understand what that is and what drove the decision to do that? Jeremy Heaton: Sure. I think, Kevin, it's Jeremy. I'll start. Just from a Board perspective, what that is, is, today, we have a staggered Board. So 4 directors are up for nomination every year. And Justin, through ongoing discussions with our Board and from a governance perspective and I think in discussions with investors, frankly, is to over time, destagger this Board, which would eventually have all directors up for nomination annually as we go through that process. So it's just a governance update for us as we transition out of going from private to public through the SPAC and just kind of more -- I'd call it more normal course governance of a public company. David Guilmette: And Kevin, I'd just add, as part of the process, we're letting the shareholders know that that's our intent, but this will be up for a vote of shareholders at our annual meeting next year. Kevin McVeigh: Got it. And then I guess, I mean, you had 2 consecutive meaningful impairments. You've guided down 2 consecutive quarters. Just help us understand just the modeling on the guidance relative to where you're coming in, particularly given we're 9 months into the year because it just continues to be an issue in terms of how you're guiding. Jeremy Heaton: Sure. I think the guide, and as I just walked through briefly, I think in the fourth quarter, the biggest piece is the project revenue, which I would say is we've never seen levels this low in terms of project revenue. We did expect and our teams going through with clients every day as we build through kind of the second half of the year in terms of where that pipeline is. It's well below our expectations in terms of project revenue. So absolutely, that's the biggest piece coming through here. There's also the impacts of what we've talked about in terms of the bookings element that we have and just the macro factors around the headlines around employee and participant counts. So those are the biggest pieces for us in the guide. As you can see in the transcript we talked about this morning, we are at $2.25 billion of revenue under contract coming into the quarter, and the range on the guide is $2.25 billion to $2.28 billion. So I think as you think about this, this is what we see today in terms of what's in front of us for execution in the -- at the end of the quarter. On the impairment side of it, that's a factor of, again, noncash impairment -- accounting adjustment, largest piece being just the valuation change of the company through the quarter. And that's -- there's a market valuation test, which is done every quarter. It's normal course controls that we have around the financials and need to go through the valuation process. That takes into account the trends that we do see in the business, but it's a much longer-term view taking in the market cap and market value of the company. So we recognized that charge here this quarter in line with where we closed out the quarter from a valuation of the company. Operator: The next question we have comes from Peter Heckmann of D.A. Davidson. Peter Heckmann: I wanted to see if you could give us an update just on the follow-on payments from the divestiture. I think there's $150 million contingent based on the performance of that business in 2025 and then a $50 million fixed payment. Can you give us an update on the first and then timing on the -- on both potential payments? Jeremy Heaton: Sure. So the timing on the payments themselves are a 7-year term from the close of the deal, $50 million, so there was $200 million of deferred payments, $50 million was, in effect, guaranteed and which will be paid out. There was $150 million, which was contingent on EBITDA performance of the divested business through 2025. So we have that really recognized at 0 value on the balance sheet today, contingent upon the performance of the Strada business and their EBITDA in 2025. So we'll go through a full annual look at that as we close out 2025 to see what the valuation is there. That will be recognized on the balance sheet and then will be paid out at that 7-year anniversary of the close of that deal. Peter Heckmann: Okay. Both payments would be on the 7-year anniversary. Potentially. Jeremy Heaton: Correct. Peter Heckmann: Okay. And then on the headwind, given stronger retention levels in 2024 and into 2025, do we still expect attrition to be a smaller drag on revenue growth in 2026, maybe something closer to 450 basis points versus something like 650 this year? David Guilmette: Pete, it's Dave. So let me take that one. Firstly, we had a considerable amount of volume that played through the renewal process in 2025. And as we said in our opening remarks, we're going to see a pretty material drop in that activity next year. And in addition, among our largest clients, which is where there's a pretty big concentration of revenue, the vast majority of those have gone through the renewal process in the last couple of years. So we've had a lot of renewal activity in 2024 and 2025. We feel good about our retention rates for those largest clients, and we're going to see a drop going into 2026. In addition, our expansion of the Renew Everyday program initiative and the collaboration between Rob and Steve is going to push that level of client management focus down through all of our clients. And the initial focus was on our largest ones. So as we continue to expand that initiative through the full client suite, we expect to see some positive returns on both retention and the upside and cross-sell opportunities that exist by bringing new services to those clients. Operator: The final question we have comes from Andrew Polkowitz of JPMorgan. Andrew Polkowitz: I wanted to ask, so last quarter, you spoke to changes within your go-to-market organization, including greater specialization, domain expertise in the sales force. Obviously, these things take time to ramp. But I was curious if you could just provide an update 3 months later about the progress here, how these things have resonated with your sales force. David Guilmette: Sure. So it's Dave. I'll take that one, Andrew. Firstly, bringing Steve Rush back to Alight has been a tremendous boost for us and for our sales team. This is somebody who knows our business really well, has tremendous credibility in the marketplace and is a great team player. So he's collaborating, working through, looking at every deal, et cetera. So that's helpful. We brought some industry expertise on board as well with specialty areas of focus in the leave space, in the navigation solutions and in Core Health admin. And it's Steve's intent to continue to build out that domain expertise across the sales force. To your point, those changes then have to play their way through on new business situations and opportunities. We're laser-focused on those deals that are deep in the pipeline right now, and we still have a material number of those that we're pursuing. And the key there is to improve our close ratio. And I feel confident that with Steve and the additions that he has already impacted and we've impacted, we should see some uptick on our success with closing on those deals. And then as we enter into 2026, we're going to have the right alignment of our go-to-market teams and our client teams, which I feel really confident is going to give us the opportunity both for upsell, cross-sell and for new logos coming into the company. Andrew Polkowitz: Great. That's good to hear. And just one follow-up for me, more of a macro question. I was curious if there's been any change in the hiring assumption or net hiring assumption you laid out last quarter and the outlook, understanding there's offsets like you called out, Dave, with kind of lagged impact. So maybe even just adding on to that question, how material is the hiring assumption within your model or within your outlook considering you have those offsets? Jeremy Heaton: I think from -- included in the guide for this year, Andrew, we've got -- and you'll see it in the deck that we posted online. So we've got about down 0.5 point to flat is what we've got in for 2025. And again, year-to-date, it's been really minimal in terms of any impact, I'd say slightly down. But again, you're talking basis points. And so certainly not seeing what we historically have had with the, call it, 1% to 2% of help on the growth side. So our expectations right now, and we would know typically in the fourth quarter right now as we stand if we had larger impacts that were happening already through our client base. And so that's the call on the guide and based on what we see so far this year. And then as we think about next year, I'd say, yes, it's hard with the headlines to think that it's certainly going to be anything that is additive to growth, but we'll manage that. Our teams stay close with clients on a daily basis. And so we're always getting a pre-read, if you will, around what might be happening within the client bases. Operator: There are no further questions at this time. I would like to turn the floor back over to Dave Guilmette for closing comments. Please go ahead, sir. David Guilmette: Thank you, operator. So in closing, our strategic execution is transforming our delivery services and is reenvisioning the client and participant experience. Our progress is making a real impact across our current clients and operations, and we're confident in how that translates to our competitiveness and our long-term growth. Thank you for joining us today. Operator: Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the PAA and PAGP's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Blake Fernandez, Vice President of Investor Relations. Please go ahead. Blake Fernandez: Thank you, Andrea. Good morning, and welcome to Plains All American's Third Quarter 2025 Earnings Call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at ir.plains.com. An audio replay will also be available following the call today. Important disclosures regarding forward-looking statements and non-GAAP financial measures are provided on Slide 2. An overview of today's call is provided on Slide 3. A condensed consolidating balance sheet for PAGP and other reference materials are in the appendix. Today's call will be hosted by Willie Chiang, Chairman, CEO and President; and Al Swanson, Executive Vice President and CFO, along with other members of our management team. With that, I'll turn the call over to Willie. Willie Chiang: Thank you, Blake, and good morning, everyone. Thanks for joining us. Earlier this morning, we reported solid third quarter adjusted EBITDA attributable to Plains of $669 million, which Al will cover in more detail. It's an exciting time for Plains as we continue our multiyear strategy of building the premier North American pure-play crude midstream company. Over the past few years, our team has successfully executed on our strategy by meaningfully lowering our leverage profile, maximizing free cash flow and optimizing across our broad system, all while remaining capital disciplined and returning cash to our unitholders through meeting and beating our targeted annual distribution increases. With the pending sale of our NGL assets expected to close early next year, our portfolio will become even more crude-focused with a more stable and durable cash flow stream. As discussed on our previous calls, the NGL sale is a win-win transaction at an attractive valuation for Plains and our capital allocation priority has been to redeploy those proceeds to a strong return, DCF accretive bolt-ons while staying within our targeted leverage range over the long term. To that point, we're pleased to announce that we now own and operate 100% of the entity that owns the EPIC Crude pipeline. This past Friday, we closed on the previously announced acquisition of a 55% nonoperated interest in EPIC from Diamondback and Kinetik. And on Monday this week, we signed and closed the acquisition of the remaining 45% operating interest in EPIC Crude Holdings from a portfolio company of Ares private equity funds for approximately $1.3 billion inclusive of approximately $500 million of debt. As part of the 45% transaction, Plains has also agreed to a potential earn-out payment of up to $157 million tied to the sanctioning of potential expansions of the pipeline system by year-end 2028. The EPIC acquisitions are summarized on Slide 4. These transactions are highly synergistic and very strategic to Plains existing footprint and are expected to generate a mid-teens unlevered return. We anticipate a 2026 adjusted EBITDA multiple of approximately 10x which we expect to improve meaningfully over the next few years. Going forward, we intend to rename the pipeline system, Cactus III, which complements our integrated Cactus long-haul system that we have operated for years. The acquisition of the remaining 45% of EPIC gives us the opportunity to assume operatorship, which accelerates and increases the synergy capture of the full pipeline, including meaningful cost, capital and operational synergies while improving the takeaway flexibility of our crude system to meet customer needs. Near term, we're poised to benefit from contractual step-ups, reduced operating costs and overhead, quality optimization opportunities and utilizing the broader plans, Permian and Eagle Ford asset base to drive volumes to EPIC crudes downstream assets. Longer term, the potential expansion capacity of the system provide Plains and its customers with additional egress to the U.S. Gulf Coast and will generate strong returns as demand dictates further expansions. Regarding the divestiture of our NGL business, we're on schedule to complete the transaction by the end of the first quarter 2026. We have received 2 of the 3 required regulatory approvals, U.S. Hart-Scott-Rodino and the Canadian Transportation Act while the approval process for the Canadian Competition Bureau is ongoing. Importantly, the majority of the proceeds to be received upon closing of the divestiture have effectively been redeployed through our acquisition of EPIC, which will result in an accretive and more durable cash flow stream. Due to timing differences between the closing of the transactions, we do anticipate our leverage ratio will temporarily exceed the upper end of our target range until the NGL divestiture is finalized, at which point we expect our leverage ratio to trend towards the midpoint of our target range of 3.5. With that, I'll turn the call over to Al to cover our quarterly performance and financial matters. Al Swanson: Thank you, Willie. For the third quarter, we reported Crude Oil segment adjusted EBITDA of $593 million, which benefited from higher volumes and contributions from recently completed bolt-on acquisitions as well as the impact of annual tariff escalation. This was partially offset by certain Permian long-haul contract rates resetting to market in September. Please note that the fourth quarter should serve as a baseline, representing the full impact of lower contract rates out of the Permian. Moving to the NGL segment, we reported adjusted EBITDA of $70 million which was down sequentially due to lower sales volume tied to temporary downtime on a third-party transmission system as well as the start-up of LNG Canada. Slides 5 and 6 in today's presentation contain adjusted EBITDA walks that provide additional details on our performance. We are narrowing our full year 2025 adjusted EBITDA guidance range to $2.84 billion to $2.89 billion to reflect lower realized crude prices and contributions from our completed acquisition of EPIC. Please note the benefit from EPIC for the remainder of the year is forecast to be approximately $40 million. A summary of our 2025 guidance metrics and assumptions are located on Slide 7. Overall capital spending remains consistent with our prior forecast. Growth capital spending for the year is expected to be approximately $490 million. The $15 million increase is primarily associated with new lease connects and capital associated with acquisitions, while the 2025 maintenance capital is trending closer to $215 million, representing a $15 million decrease from our last forecast. In September, we issued $1.25 billion of senior unsecured notes consisting of a $700 million due in 2031 at a rate of 4.7% and $550 million due in 2036 at a rate of 5.6%. Proceeds were used to repay the senior notes that matured in October and to partially fund the EPIC acquisitions. With that, I'll turn the call back to Willie. Willie Chiang: Thanks, Al. We've made significant progress on our journey of becoming the premier crude midstream provider over the last several months, and we believe there are significant opportunities to continue to create value for unitholders through initiatives that are within our control. As seen on Slide 8, the combined benefits from bolt-on M&A, synergy capture and streamlining efforts across the broader organization will provide Plains self-help tailwinds through the near-term volatility. As part of our 2026 guidance in February, we intend to share additional details on these initiatives. Our strategy centers on the view that crude oil remain essential to global energy and society for decades as outlined on Slide 9. And despite near-term volatility, we remain confident in our ability to navigate current market dynamics and we expect improving fundamentals longer term, anchored by continued global energy demand growth, coupled with underinvestment in organic oil supply growth in diminishing OPEC+ spare capacity. I'll now turn over the call to Blake to help lead us into Q&A. Blake Fernandez: Thanks, Willie. [Operator Instructions] The IR team is also available after the call to address any additional questions. Andrea, we're ready to open up the call for questions, please. Operator: [Operator Instructions] Our first question comes from Michael Blum with Wells Fargo. Michael Blum: Wanted to ask on the EPIC deal. Can you give us a little more detail on the synergy capture? How much of that is going to be cost savings versus commercial synergies? And where do you see the time line? Will you capture those synergies and then reach that mid-teens return? Willie Chiang: Michael, this is Willie. First thing I want to do is I want to complement our team. If you think about these transactions, these are never perfect timing and they're hard to do. And we were able to do the 2 portions, and particularly with the 45% just announced, it gives us the ability to have more control over every question that you asked. I would also refer you to Slide 4. And if you look at the map and you see how integrated it is with the system, I think that helps illustrate the number of ways that we can win. There are a lot of ways we can do this. There's a lot of cost structure savings. There's overhead savings and a lot of this will be immediate, and we'll be able to capture it in 2026. And if you think about the expansion opportunities, it's not one step change function on expansion because we operate it, we'll be able to dictate partial expansions as we go and whatever market demands will be. So there's a lot of different ways to win, and it's not simply the expansion. And I would tell you, a good portion of it is the cost synergies, capital synergies and integration with our existing systems. Jeremy, do you have anything to add to that? Jeremy Goebel: No. Just from a timing standpoint, I think Willie hit a lot of it. But just the compression in multiple to next year is step-ups in contract and cost savings. So things that are almost immediate and contractual. Beyond that, that is all the things Willie talked about. So we're very confident in the ability to compress this over time and part synergies, but part expansions and just recognize we sell a substantial amount of barrels at Midland, and we can move those barrels. We have demand from customers to go to the docs, the docs are willing to expand and ready to expand. There's additional markets that we're not connected to in Corpus that we can move barrels from Midland today that we sell into that pipeline. So as Willie mentioned, we can expand the pipeline system, we can capture cost synergies, there's a lot we can do immediately, and that's contractual. That will compress to the 10x we announced and the compression beyond that, a lot of that's in our control as well. Willie Chiang: And remember, Michael, we operate in that quarter, right? Hence, the Cactus III. So it's not that we have to learn new ways of doing business. This really fits hand in glove with our existing system. Michael Blum: Great. Second question, just with your -- the sale of your Canadian NGL business and now this EPIC acquisition, can you just you refresh us on your expectations for capital return and whether this extends the runway now to deliver the outsized distribution growth you've been providing now for a while? Al Swanson: Michael, this is Al. Yes, our view is that we will continue to increase distributions by $0.15 until we hit our targeted coverage. The year where we're transacting here, part of it will depend on when does the NGL sales close. But we expect to continue to grow the company in 2026, 2027 and beyond. Again, once we hit covered -- our target coverage level, we will revert back to a DCF growth concept. But again, we expect to be able to grow again, if you think of the embedded growth in EPIC from today through next year, that's pretty significant. And again, as that multiple kind of compresses from 10% to 15% unlevered, we see significant growth on this asset. So really no change in our approach there. Willie Chiang: Michael, this is Willie again. We've got quite a bit to digest here. So I think what you can see is we'll be looking -- we continue to look at a lot of things. But if we were to transact on things, they'd likely be smaller bolt-ons that fit into the system as we've talked before. We've got plenty of things to get accomplished here over the next 6 months. Operator: Next question comes from Keith Stanley with Wolfe Research. Keith Stanley: I want to follow up on the distribution question first that Michael just asked. So Al, on your answer, you referenced how there's some noise potentially next year related to the Canadian NGL sales. So to the extent you weren't at the coverage threshold for a $0.15 increase next year because of timing factors related to that sale and redeployment of proceeds, would that impact how you look at the distribution? Or would you see through that and look more at kind of where the run rate DCF would be? Al Swanson: I'll take a shot and Willie jump in. Yes, clearly, we would look through noise to run rate as to how we would think about that. Clearly, if the NGL asset doesn't close early in the year and takes, we'll have more DCF. So some of that noise necessarily wouldn't be a limitation per se. But again, our view would be to look beyond the current year as we evaluate this. Clearly, management and the Board have robust discussions around distributions and what we're expecting to do. And clearly, the first call on that will be early January when we announce our distribution for February. Willie Chiang: And Keith, Willie here, you know our coverage target is 160% of DCF to coverage. So that gives us a little bit of flexibility. And as Al said, we always play for the long term. Our focus is return of cash to our unitholders. So I think a lot of that would play into it, and I would agree with everything that Al said. Keith Stanley: The second question, going back to EPIC. Can you give some color on the duration of the contracts and how you would characterize rates on that pipeline relative to market? It sounds like 2026, there's somewhat of a recontracting benefit already that gets you to the 10x? Jeremy Goebel: Sure, Keith. This is Jeremy. There's a substantial portion of the pipeline that's contracted for long term, and I believe that was announced in the restructuring last year that EPIC did. The balance of the pipe has medium duration contracts, we feel comfortable in our ability to work with those shippers to either extend those contracts or add new shippers to those contracts. We're just taking over this week, so it would be premature to talk about everything associated with it, but I'd say we like where we sit. The rates are at current market rates, they're not meaningfully above market rates, which means longer term, we expect this to be a stable and growing cash flow profile, which at least to Michael's question earlier about DCF accretion between the sale of the NGL in this business? We think that will be substantially DCF accretive over time the trade of those 2 assets. Al Swanson: And Keith, I might just help. I think publicly and previously, we said the portfolio had a weighted average duration through 2028 with EPIC, this should extend that out to October of '29 in case that's helpful. Operator: Our next question comes from A.J. O'Donnell with TPH. Andrew John O'Donnell: I just wanted to talk -- go back to EPIC. And now with 3 pipelines in the Permian, Corpus and Christi corridor under your control, how are you thinking about portfolio optimization and maybe like what kind of opportunities there are to move flows across your pipelines and/or reduce operating costs on the 3 assets? Jeremy Goebel: A.J., this is Jeremy. Great question. All of the above, and it all depends on market conditions, right? So as you -- as the pipes get tighter or looser, you're going to do different things. So you can obviously optimize operating costs, variable costs across the pipeline system. You can offer flexibility across the pipeline system between common shippers to access more markets and push barrels into different connections, you can optimize capital across the system, you're going to optimize tankage. There's a lot you can do with -- and Chris' team is going to do a great job and they've been actively involved in the diligence system of the system. So I think we're very excited with that. We're just scratching the surface. It extends beyond the long-haul business. This is optimizing flows through the POP JV to get to the origins at quality in all those locations as well as in the Eagle Ford. So this touches hundreds of miles across multiple assets for us. So we think there's a lot of ways even on the operating costs aside from the initial cost reductions we'll see to optimize our costs across the system, our quality optimization and connectivity across the system and flexibility for our customers. So the same thing that's allowed us to grow a strong position in the gathering business in the Permian. We can apply all those same things and extend the runway from the gathering business through the long-haul business to the docs, to the markets at Corpus and throughout the Eagle Ford as well. Andrew John O'Donnell: Okay. Great. Appreciate that detail. Maybe just one more on EPIC and thinking about potential capital requirements to achieve some of these synergies excluding larger projects such as powering the pipeline up to the full design capacity. What kind of additional capital requirements do you see for making these connections either in the Eagle Ford or downstream? Are they relatively small in nature? Or could we potentially see CapEx moving a little bit higher next year beyond the normal range? Chris Chandler: AJ, this is Chris Chandler. I'll take that. The short answer is the investments for the activities you talked about are expected to be on the modest side. Our near-term capital spending related to EPIC is certainly going to be directed towards that synergy capture. I think about connecting the systems throughout whether it's at the origin for supply optionality or throughout for our operating and quality optimization. So we see some good opportunities there, but it won't be significant from a capital standpoint. The update to the guidance we gave in for 2025, certainly incorporates what I just mentioned there and our guidance in '26 and beyond, we'll capture that as well, but we don't expect it to be significant. Operator: Our next question comes from Brandon Bingham with Scotiabank. Brandon Bingham: Just wanted to maybe look into 2026 a little bit, if we could. Operator commentary so far this earnings season seems a little mixed with some guys talking about flat crude and others still blown and going to a certain extent and everything in between. So just wondering what you guys are hearing currently you're seeing from your customer base and how that fits with this year's expected Permian growth. And it also looks like the Permian volumes guide is implying a decent step up in 4Q. So just anything that you guys can comment on as we set up for 2026? Willie Chiang: Brandon, let me start with that. For the reasons that you described, it's really hard to get a good gauge on 2026. My observations have been, you've got 2 of the large majors that are very, very steady and continuing to grow. There's others that have taken the stop light approach and maybe a little more hesitant. I think it's a very difficult call on where oil prices are near term. Longer term, we're very bullish. The Permian, we're very bullish. Canada, we're very bullish on North American oil growth. But I think there's a lot of signals that have to play out through that. We've been -- if you think about where our portfolio is, I made a comment in my -- in the prepared comments, you think about global demand continuing to grow, which I do believe that it will because it's going to be -- we need oil for all the different reasons that we all know to create quality of life. But the thing that I've been watching for quite some time is drill bit or organic investment. And if you look at the trends, these are not my numbers, but other people that study this, if you look at the last trend organically, we're not replacing reserves, right? It's below 100%. And you can't do that for an extended period of time. So that's why we're very, very bullish on North American oil sources. And I think the whole restructuring of the flows of trade from barrels going into the North America to leaving is going to continue. And I would say we're in mid-innings on the efficiency of being able to do that with oil. Certainly, we're doing it not Plains is doing it, but you've got NGLs, you've got gas, all that is an export story, but I think there's a lot of opportunities to win going forward. But calling 2026 is a really tough one, and that's why we have decided to go to February to be able to give you the best intelligence that we've got. So sorry for the long-winded answer, but hopefully, it lets you know how we feel about it and where we fit in the long-range outlook. Brandon Bingham: Yes. Very helpful. And then just a quick one. The sales proceeds are effectively utilized now for the most part. So could you just maybe discuss your thoughts on fresh retirement and how it fits into the capital allocation strategy moving forward and just kind of what the pecking order is? I think you discussed a little bit in your prepared remarks, but just any updates there? Al Swanson: Sure. This is Al. Yes, since we announced the sale in June, we've now deployed $3.1 billion via the acquisitions, the BridgeTex acquisition earlier in the year are now $2.9 billion here. So effectively, the proceeds will go to debt reduction. That will allow us to get to roughly the midpoint of our leverage range, shift ahead after closing and reducing debt and being at the midpoint, then we'll go back to our normal capital allocation, which we'll look at -- return cash to shareholders through distribution as well as bolt-on acquisitions, retirement of the [indiscernible] and/or opportunistic common repurchases. But quite honestly, when you're sitting at the midpoint of the leverage range and still seeing potential opportunities to deploy capital with good returns, we'll be more biased towards looking at the bolt-ons at that point. Operator: Our next question comes from Sunil Sibal with Seaport Global. Sunil Sibal: So just a quick one for me. Now that you transitioned to a pure-play crude. The DCF coverage ratio of 1.6x. Could you talk about that in terms of how you think about that in more medium to longer term with the new business mix? Willie Chiang: Yes, Sunil, this is Willie. The coverage that we said on 160, you'll recall, I think it was late '22 that we announced that. It's something our Board looks at regularly, clearly without the NGL assets and in the more durable cash flow stream that we have, that's something else we can look at, but we still expect to be conservative in our approach. No change to the 160. But as we go forward, the way I would characterize it is we've got a lot more levers that we can work with as we go forward and get a better triangulation of what the future brings. Sunil Sibal: Okay. And then when you look at your crude portfolio in Permian post the EPIC, could you talk a little bit about your operating leverage in the system vis-a-vis between your gathering and in-basin pipeline and the long haul. Where do you see the most operating leverage? Jeremy Goebel: Sure, Sunil, this is Jeremy. We've been working on contracting. You saw additional volumes on basin through the summer. We've done more contracting there. With the acquisition of BridgeTex with ONEOK, we've worked with them to put more barrels on that system. So we're executing with operating leverage now. So despite the falloff and contractual rates, we're backfilling that using operating leverage. We see a lot of opportunity to do that with EPIC. So that creates a new opportunity for us to use operating leverage in a substantial way, given that the rest of our system is heavily contracted. And then within the gathering system, there's a few underutilized laterals within the EPIC, we'll work with our POP JV partners to fill those up. So that creates capital avoidance opportunities and the ability to reduce operating expenses through it. So EPIC providing us additional operating leverage in the gathering, intrabasin and the long-haul system for us to then go fill through the long-term contracts we have on the gathering business. So we're excited about the pull-through benefits for the entire system. Willie Chiang: Sunil, this is Willie. You didn't asked about the Permian? I might make a broader comment on North America. When you think about the broader macro, there's been a lot of chatter in North America, particularly around Canadian crude, ability to get more Canadian crude to markets. And you're very aware of the expansion that has happened on or the new line of TMX going to the West. Canada has vast resources that could get produced if they are more export routes to markets. And when you think about our system and other systems across North America, one of the challenges are, if you can stitch all that together, there's a lot of ability to get to global markets, primarily by going south to the U.S. And as you know, we have a large pipeline called Capline that goes from Patoka down to the Gulf Coast that's got a lot of spare capacity to your point on leverage. So we haven't taken our eye off the ball of be able to solve a broader problem of oil that might be in the next inning or even the next inning to be able to get more energy and oil to global markets. And with the footprint we have, we've got a lot of flexibility around that also. Operator: [Operator Instructions] Our next question comes from Jeremy Tonet with JPMorgan Securities. Jeremy Tonet: Just wanted to pick up with thoughts you might be able to share in 2026 and granted, as you said, with the Permian, it's too early to really have much specificity there. But just wondering at a high level outside the Permian for other basins that you're in, if you could provide any kind of high-level thoughts as far as direction of travel in volumes there over time, that would be helpful. Willie Chiang: Jeremy, what we've seen this year is a slight decline in the Rockies and Mid-Continent regions across the gathering assets, some in the Eagle Ford as well, modest. We see activity levels being able to sustain that. Some of that was -- you had significant growth in the DJ and Bakken from blowing down drilled uncompleted wells, that's out the system. So we see more stable production in the next year in those regions. And in the Permian, we see maintenance level activity for the short term, but we see significant leverage to increasing that. You've seen it, everybody is reducing capital, but maintaining production. So you can see through this fourth quarter so far in the earnings that efficiencies are there and the ability to drive, we see resource expansion in New Mexico and other locations. So longer term, it's giving us more confidence in the ability to grow the Permian and maintain the other basins at a lower breakeven price. So that gives us some confidence, but that's the near-term look. Jeremy Tonet: Got it. That's helpful. And just a smaller question, if I could, on Keyera sale. How are you guys going about managing FX risk there given the volatility we're seeing in FX? Al Swanson: We fully hedged that basically at the time of the transaction. So we did a deal contingent structure that effectively locked down the rate. And if for some reason the transaction didn't happen, we're not exposed to the adverse movement that could have happened. Operator: Our next question comes from Manav Gupta with UBS. Manav Gupta: So a quick follow-up. I think you answered it in a way, but I just wanted to follow up. There are some good deals out there, and you have been very prudent and very smart about these bolt-on deals. So I'm just trying to understand, if there is a good deal out there, which meets all your these criteria, even if you're slightly above the midpoint of your leverage targets, would you hold back or you probably are okay with moving towards the top end and closing on a good opportunity, we think should not be just let go just because you're slightly over the midpoint of leverage. If you could talk a little bit about that. Willie Chiang: Yes, Manav, thanks for the question. Well, we always look for opportunities to grow the enterprise value. And I would like to think that our judgment would be good enough to be able to shift through what I would call short-term noise versus long-term noise. And if it was characterized as you did, it was something that met all of our thresholds was strategic with a high risk of being able to execute it, that's something we would absolutely consider. Manav Gupta: And a quick follow-up on Keyera, what is the gating item here, if you could -- which needs to be done before the deal can be closed. If you could help us understand that a little better? Willie Chiang: Well, I wish I could help you understand it better as I'm not an expert in this, but it's the Canadian Competition Bureau in the process that they go through similar to our FTC HSR process which is ongoing. Operator: Next question comes from Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Just one for me. As you're considering whether or not to expand EPIC? Can you give us an update of the relative attractiveness of Houston and to Corpus for export. It seems like over the next few years, there are roll-offs on pipelines to both destinations that would be competing for recontracting. I know Corpus has historically been more desirable, but is that narrowing at all with the Houston Ship Channel expansion? Jeremy Goebel: Jean Ann, this is Jeremy. I would say nothing has materially changed Certainly, both ports are competing. You've seen expansions of Corpus as well. The Ingleside dredging has been done. The channel has largely been dredged. It's way more efficient than it's ever been. So for me, Corpus is getting more and more efficient, even more so than Houston from a large ship standpoint. But the quality differential is a big one, just because it's only Permian barrels touching the docs first, touching a lot of barrels that come from the Mid-Continent. So there's a quality benefit and the logistical benefit and that continues to hold the advantage. That's why you see the premium of it on the water at Corpus versus Houston. And so pricing is also indicating the preference for Corpus over Houston. Operator: Our next question comes from John Mackay with Goldman Sachs. John Mackay: Willie, I wanted to pick up on your comments around potential involvement on some incremental Canadian crude egress. Could you maybe just talk to us about what some of the moving pieces are? I know you don't have a formal project yet, but would love to hear a little bit more color on maybe what you guys are thinking? Willie Chiang: Well, fundamentally, you've got resources that are trapped and you've got -- if you think about the Canadian down to the U.S. Gulf Coast, you've got refiners that want to run that heavy barrel, and you've got different players with different strengths and weaknesses. There are some large long-haul lines out of Canada that could have expansion capacities. Then you get to the border, and there's a number of different options you can get barrels from the border to key hubs, and Patoka is one of them, and you've got a large unutilized capacity at Capline that could ultimately be a solution. That's not to say it's the only solution. My point on this is really just to reinforce, when we talk about a midstream -- a crude-focused midstream business, this is exactly the things that we are looking at of how we might participate and being able to get low-cost, reliable solutions to additional markets without having to build a brand-new long-haul line from source to destination. Hopefully, that helps, John? John Mackay: No, that's clear. And the second one will be quick, I think, for Al. Just on the EPIC debt, -- is that -- would you guys just expect to kind of refinance that at some point? Or could that be a, I guess, net use of cash from the Plains side? Al Swanson: Yes. Our plan is -- the base plan was we assumed it. And so it's now ours. And our view was, depending on the timing of these closing and us being owning 100%, which happened obviously on the early track. Our view is to repay it with the proceeds from the NGL sale. So it will be going away. The question is how quickly -- our view will be now that we've closed and depending on how long we think if the NGL transaction doesn't close until maybe later in the first quarter, we might look to do a term loan up at the parent to -- and funnel the proceeds down to repay it earlier. The economics may support doing that. It's a function of how long -- how long the term loan needs to be out. So that's something we'll explore now that we can catch our breath a little bit after getting the thing signed up and closed. Operator: I'm showing no further questions at this time. I'd now like to turn it back to management for closing remarks. Willie Chiang: Well, listen, everyone, thanks for joining us this morning. We'll look forward to giving you further updates and seeing you on the road in the near term. Have a great day. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Operator: Ladies and gentlemen, good day, and welcome to the Grasim Industries Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Ankit Panchmatia, Head of Investor Relations at Grasim Industries. Thank you, and over to you, sir. Ankit Panchmatia: Yes. Hi. Thanks, everyone, and good evening, and thank you for joining everyone on Grasim's Second Quarter Financial Year 2026 Earnings Call. The financial statements, press release and presentation are already uploaded on the websites of stock exchanges and our website for your reference. For safe harbor, kindly refer to cautionary statement highlighted in the last slide of our presentation. Our management team is present on this call to discuss our results and business performance. We have with us Mr. Himanshu Kapania, Managing Director, Grasim Industries and Business Head, Birla Opus Paints; Mr. Hemant Kadel, Chief Financial Officer of Grasim Industries. Also from the business team, we have with us Mr. Jayant Dhobley, Business Head of Chemicals, Cellulosic Fashion Yarn and Insulators business; Mr. Vadiraj Kulkarni, Business Head of Cellulosic Fibers business; and Mr. Sandeep Komaravelly, CEO, Birla Pivot, our B2B e-commerce business. Let me now hand over the call to Himanshu sir for his opening remarks on macro and updates on key businesses. Over to you, sir. Himanshu Kapania: Thank you, Ankit, and good evening to everyone. We welcome you to Grasim Industries Earnings Call for the quarter ending 30th September 2025. Hope you had a good Diwali and New Year Vikram Samvad 2082. Also, as today's Guru Nanak Jayanti, may you be blessed with peace, happiness and love. Starting with macroeconomics, we have now entered the final lap of this calendar year 2025 with a global economy that is not in recession, but not in a synchronized expansion either. We are living in a world where trade is rewiring, capital is repricing and geopolitics has once again become a single order economic variable, not a background noise. On October 29, 2025, the Fed cut the target range for the federal fund rate by 25 basis points to 3.75% to 4%, the lowest in 3 years. This followed an earlier cut of 25 basis points in September. The rate cuts indicate balance of risks are now shifting towards risk of growth and employment. Add to that, the Trump administration's renewed emphasis on tariff-based negotiations, especially on Europe and key Asian blocks may amplify short-term noise. However, the structural drivers of demand, competitiveness and consumption momentum remains intact. China is the second spotlight. China's GDP growth slowed to 4.8% year-on-year in quarter 3 of this calendar year 2025, the weakest pace in a year. Data shows China is not in an acute crisis, but in a structurally lower growth orbit. Property demand is frozen, household confidence is weak and private entrepreneurs are holding back CapEx decisions. The upcoming 5-year plan will be closely watched as it will set national priorities through 2030. Just to summarize, the situation that global trade is seeing is more pressure points. It is not a collapse, but more friction and friction slows velocity. And then India. The country is the positive outlier in the sentimental spectrum, but even India cannot fully decouple from the global liquidity and global trade. In a landmark move in September 2025, the center rationalized GST slabs from 4 to 3, reducing taxes across essential and aspirational items. The reform simplifies GST rates, eases compliance, boost disposable income and supports long-term economic revival. India's GDP growth for FY '25, '26 was revised upwards, thanks to a strong domestic consumption, robust investment activity and resilient exports. Supportive government reforms and RBI's accommodative monetary policy has further boosted demand while moderate inflation provides room for sustained growth. So if I had to summarize the world in one line today, globally, this a low-speed economy with pockets of strength, intermittent confidence and policymakers for moving carefully, not boldly. The world is not constant. And in this environment, winners will not be those who bet on direction. Winners will be those who stay flexible on timings. It is an era where optionality has more value than certainty. We don't need to predict the future with 100% precision. What we need to do is stay prepared for multiple futures. Grasim's multi-segment presence create a synergistic engine of growth, combining resilience with opportunity. The growth continues to exhibit resilience with trailing 12-month revenues now nearing INR 1,60,000 crores, that is over USD 18 billion compared to approximately INR 95,000 crores, that is USD 11 billion in FY '22 when measured on equal currency rates, a remarkable growth of 14%. Moreover, the stand-alone business continues to gain share now at 24% in quarter 2 FY '26 in the overall consolidated revenues nearing its highest ever milestone of INR 10,000 crores per quarter. Our CFO, Mr. Hemant Kadel, will further touch upon these numbers in detail. However, as I said earlier, we do not live in a constant world, which is why 2 years back, we entered into 2 new high-growth businesses, and I'm very happy to say that both these businesses are on track to achieve their stated targets. I will start with our growth businesses, Paints and B2B e-commerce businesses. Birla Opus is now a distinctive force in India's decorative paints landscape, not as another brand in the shelf stack but a category pace setup. We are institutionalizing a, superior paint performance; b, quality assurance up front and in writing; c, tech-led contractor, painter and consumer engagement. This resetting expectations of what premium should actually mean in India. From application science to film durability testing to shade integrity to dealer enablement, we are building this new gold or should we say, platinum standard. This why Birla Opus is becoming integral in conversations across the value chain, whether it is with retailers, contractors, applicators, builders, institutions and homeowners because we have not just launched Decorative Paints, we are raising the reference benchmark for how paints should be engineered, sold and serviced in India. I'm happy to share that we have commenced production at our largest and sixth plant in Kharagpur, West Bengal on 15th October 2025. The plant has 236 million liters per annum capacity and is one of the largest paint plant in West Bengal and Eastern India. This plant can manufacture water-based paints, solvent-based paints, colorants and distemper paint. It will significantly improve our serviceability to Eastern and Central India markets and bringing network efficiency. With this plant's commercialization, the announced project phase of Decorative Paints concludes and the decorative paints installed capacity is now 1,332 million liters per annum across the 6 plants. This makes Birla Opus the second largest decorative paints company commanding 24% of the industry capacity, a feat unmatched around the globe for speed and cost. Now we focus all our energies to bridge the gap between our volume market share and capacity share. Coming to the performance of Decorative segment, Birla Opus continues to grow its market share and expand its position as #3 decorative brand with double-digit market share, including Birla Opus and Birla white putty revenues, similar to the revenue reporting by legacy companies of all paint majors. Despite the extended monsoon, Birla Opus hits its highest ever monthly sales in the month of September and saw an equally strong October month, indicating increasing brand salience across markets. Not only the primary sales at highest level, but also the secondary sales have been touching levels higher as a percentage of primary sales, indicating fast movements that is offtake from dealers to contractors or from dealers to customers from these counters. As per internal estimates, the organized decorative paint industry has grown in low single digits on Y-on-Y basis in quarter 2 FY '26, largely due to incumbents push for lower-end economy products. However, as per our estimates, excluding Birla Opus revenues, the organized decorative paint industry has degrown slightly on a year-on-year basis. Birla Opus continues to disrupt through innovation and launched 2 big consumer proposition in the second quarter. First one was the Birla Opus Assurance Campaign, the first ever written paint promise by any paint company to assure the customers of painting performance backed by superior product quality of Birla Opus products. This campaign was another disruptive and differentiated campaign in which we launched 4 films that you must have seen on print, television and digital media. The campaign has received overwhelming response from customers, contractors, painters, dealers and thousands of paint projects under Birla Opus Assurance program have been undertaken and continue to be executed. We expect the demand for Birla Opus Assurance to accelerate snowballing into basic consumer expectation doing painting beyond product warranty. The second one was expansion of Birla Opus painting services offered under PaintCraft brand through our dealer and franchise partners on a pan-India basis. This first of its kind differentiated painting services offering that leverages digital technology and integrates the platform for all stakeholders, including company, franchise, applicators, painters and consumers. PaintCraft is a win-win for all stakeholders as it offers, a, transparent consumer pricing; b, EMI financing on painting first time in India; c, end-to-end company oversight of dealer-led painting services through trained execution network; and d, a fully GST-compliant painting service. The network has appreciated these initiatives by Birla Opus to bring a standardized painting service in the market. We're happy to announce that PaintCraft has already scaled up across 170, 1-7-0 towns and expected to reach 300-plus towns by quarter 3 and through company's dealer-operated franchisees and high-performing dealers. We remain on track to build India's differentiated and largest painting service network serviced through the largest branded franchise network. Customers can simply log in to Birla Opus website and avail the benefit of these 2 unique programs. The success of these campaigns is reflecting in our brand scores as well. Our independent research shows the consumer love for Birla Opus brand continued to rise as Birla Opus has become the #2 brand in top of mind recall across India at the end of quarter 2 FY '26. Such brand recall within 18 months of our launch and 12 months of pan-India operation is quite unheard of in the marketing world. On the product front, the premium and luxury products revenue contribution was upwards at 65% of revenue, covering all categories across emulsion enamel, wood finish and waterproofing, including retail and institutional segment. The company has also launched an array of new products and crossed 190-plus products in this portfolio. Out of this, 13 new products were launched during this quarter, the company launched a new branded tools segment with a range of non-mechanized tools under the sub-brand known as Artist. Company is proud to launch in-house made in India, high-quality range of wallpapers, which has seen excellent network response. The other new products launched are pure elegant soft shine, aerosols, aluminum paints, clear varnish and few new bases in the existing product range. The Birla Opus products have been now applied by over 6 lakh painters and contractors, across lakhs of residential sites, making it one of the largest contractor painter network in India. On distribution front, the brand has crossed its earlier guidance and reached to over 10,000 towns on a pan-India basis, which is historic achievement in such a short time. The focus now shifts to depth of presence in each of these 10,000 towns. The company's branded franchise store network has crossed 500-plus towns presence and will soon cross 4-digit mark of branded exclusive store count, making it amongst the largest branded stores in the country. The total CapEx spend for Paints business stood at INR 9,727 crores as on 30th September 2025. Grasim applauds the Birla Opus team for flawlessly executing a large and global scale greenfield project, commissioning 6 state-of-art plants simultaneously, achieved without cost overruns with rapid scale-up and consistent first-time right quality across 190-plus products. This speed showcases exceptional physical -- financial discipline and manufacturing and supply chain excellence, a truly unparalleled achievement by a dynamic start-up. Finally, continuing on Birla Opus, our CEO, Mr. Rakshit Hargave has decided to pursue opportunities outside Grasim. Today, Grasim NRC has accepted his resignation and approved his request to exit the company effective 6th December 2025. Rakshit joined Grasim in November 2021 and has played significant role at the Birla Opus start-up stage and initial scaling of the Decorative Paints business. Today, the operations are stable, and we have built a high-performing team. In the last 4 years, this team has helped establish 6 integrated manufacturing facilities, scale distribution, build brand salience and supply chain network. I believe we have built a rock-solid foundation for next level growth in the Decorative Paints business, which has all the necessary ingredients to achieve #2 revenue market share and committed profitability in the 3 years of full-scale operations. The company appreciates Rakshit's contribution and wishes him the best for the future endeavor. Rakshit's successor will be announced in due course. In the interim, I as business head for the last 5 years of Paints business, and who helped conceptualize, strategize, plan and execute this large project will directly oversee the paints business until the new CEO is appointed. Moving on to other new business, Birla Pivot, which has been marching steadily and strongly. Birla Pivot has created -- was created to solve a pressing challenge in India's business landscape, simplifying building and other sectors raw material procurement for the companies that power the nation's growth. Today, it has evolved into a one-stop shop B2B platform covering the complete spectrum of procurement, fulfillment, assured quality and quantity with financing solutions of material needs from steel and cement to tiles and chemicals, all in one smart seamless ecosystem by enabling digital adoption across the B2B [Technical Difficulty] Operator: Participants, please stay connected. The line for the management has dropped. We're reconnecting them. [Technical Difficulty] Ladies and gentlemen, thank you for patiently holding your line. Line for the management is reconnected. Over to you, sir. Himanshu Kapania: Apologies to everybody. I'm going to start again on the new business. Moving on to other new business Birla Pivot, which has been marching steadily and strongly. Birla Pivot has created to solve a pressing challenge in India's business landscape, simplifying building and other sectors, raw material procurement for the companies that power the nation's growth. Today, it has evolved into a one-stop shop B2B platform, covering the complete spectrum of procurement, fulfillment, assured quality and quantity with financing solutions of material needs from cement -- and steel to tiles and chemicals, all in one smart seamless ecosystem. By enabling digital adoption across the B2B ecosystem, Birla Pivot is not just a procurement platform, it is a catalyst for efficiency, transparency and growth in India's industrial and construction sector. Post a successful foray into building materials, the business now expands its product portfolio to become full stacked raw material procurement platform. The platform has now added a diversified range of raw materials, including polymers, solvent, textile chemicals and nonferrous metals. For your reference, B2B e-commerce market is set to hit USD 200 billion by 2030, powered by strong demand from chemicals, metals, infrastructure and construction sector, et cetera. Birla Pivot's expansion is well timed to capture this momentum, enabling smarter tech-enabled procurement. As digital penetrations remain below 2%, India's B2B e-commerce trade is on the cusp of a major shift. What does such product additions give to us. First and foremost, growth momentum, which is what is -- it is visible in quarter 2 FY '26, where the revenues are sequentially higher by 15% in spite of monsoons. Secondly, it also gears up for new aspirations, which means newer targets to our businesses beyond its stated revenue guidance of achieving INR 8,500 crores or $1 billion mark by FY '27. To conclude, Grasim's diversified business model spans India's high-growth sectors from cement powering infrastructure, decorative paints, enabling urban aspiration, B2B commerce and financial services driving enterprise and inclusion to chemicals and sustainable fibers like cellulosic, linen, wool and cotton, addressing industrial and global demand. This multi-segment presence creates a synergistic engine of growth, combining resilience with opportunity, a true force for growth building India, enabling aspiration and driving sustainable progress. Let me now hand over the call to Hemant for discussing financial performance and highlight on our core business, which is cellulosic fibers and chemicals. Over to you, Hemant. Hemant Kadel: Thank you, Himanshu. Good afternoon and festive greetings to everyone. It is a privilege to address all of you on this earnings call in my capacity as CFO. I have been with the group for more than 30 years. And during this journey, I have been part of the core management team, leading several strategic initiatives and governance responsibilities. My experience spans across corporate finance, risk management, mergers and acquisitions and enterprise-level initiatives. As a CFO of a conglomerate like Grasim, my role is to ensure that our financial strategy and execution are fully aligned with the 5 pillars that has defined our organization's long-term growth journey, which is leadership, innovation, sustainability, capital allocation and cost leadership. Coming to our current quarter performance, Grasim has delivered consistent revenue growth for 21 consecutive quarters on a year-on-year basis with trailing 12 months consolidated revenues of INR 1,59,663 crores, up by 8% compared to FY '25 revenues. The stand-alone revenue grew at a faster pace, reaching a record high of INR 9,610 crores, up by 26% year-on-year. Let me now talk about business-wise performance. Firstly, cellulosic fiber business, the average quarter 2 FY '26 cellulosic stable fiber utilization rates in China have improved to 89%. And inventory days, though higher year-on-year, have sequentially reduced to 15 days. Total sales volume of CSF was lower by 5% year-on-year due to logistics-related issues that Vilayat, which is now normalized. Specialty fiber volume mix improved to 24%, led by higher exports of specialty fibers, improved product mix and currency depreciation supported blended realization of CSF. Cellulosic fashion yarn sales volume grew by 3% year-on-year, led by festive demand. However, the realizations continue to remain impacted by cheaper imports from China. The cellulosic fibers segment revenue were up 1% year-on-year to INR 4,149 crores. High input price of key raw materials impacted the EBITDA, which degrew by 29% to INR 350 crores. Coming to our Chemicals business, the business revenue stood at 2-year high levels driven by all-round performance across caustic soda, chlorine derivatives and specialty chemicals. While the global caustic prices have softened with CFR SEA down by 5%, domestic caustic prices stood higher due to stable demand and rupee depreciation. The improvement in caustic prices led to higher ECU, which was partially impacted by increasing negative chlorine realizations. Caustic sales volume for the quarter were flat due to constrained production on account of lower power availability. Specialty Chemicals revenue contribution improved to 30% versus 26% in quarter 2 FY '25 driven by volume growth of 34% year-on-year due to stabilization of newer capacity. Specialty chemical profitability remains impacted by elevated raw material prices. During the quarter, chlorine derivative capacity increased by 11 KTPA with addition of aluminum chloride capacities. Two key projects, CPVC in partnership with Lubrizol and ECH remains on track. The mechanical completion is expected by Q3 FY '26. Post completion of ongoing projects, chlorine integration is expected to reach 70% compared to current 64%. In our Cement business, UltraTech's capacity expansion continued to reinforce its position as the backbone of India's infrastructure build-out. With every incremental 1 million tonne added, the business is structurally strengthening supply to support the country's historic CapEx cycle across roads, ports, industrial corridors, logistics infrastructure and housing. The business has recently announced capacity expansion targeting total gray cement capacity of over 240 million metric tonne per annum by March 2028. Compared to its current capacity of 192.3 million metric tonne per annum for quarter 2 FY '26, the consolidated sales volume were up by 6.9% year-on-year to 33.85 million metric tonnes. Operating EBITDA per metric tonne grew by 32% year-on-year to 966 led by volume and realization growth, coupled with lower power, fuel and logistics cost. Coming on Financial Services business, Aditya Birla Capital's financial service portfolio continued to sharpen its focus on customer-first execution. While leveraging cross-business synergies to strengthen outcomes, revenue for Q2 FY '26 grew by 3% year-on-year, led by growth in NBFC, Housing Finance and Health Insurance segments. Total lending portfolio, that is NBFC and housing finance stood highest ever at nearly INR 1,78,000 crores, up 29% year-on-year. The NIMs have started to marginally improve quarter-on-quarter. Total assets under management of AMC, Life and Health insurance grew by 10% year-on-year at nearly INR 550,000 crores. Talking about Other businesses, firstly, textile revenue grew by 6% year-on-year to INR 586 crores. The business has demonstrated remarkable turnaround, returning to profitability with EBITDA of INR 24 crores due to normalization of input prices in linen segment. Just as a reference, this business historically demonstrated 8% to 10% EBITDA margins. Coming to renewable business, Aditya Birla renewables revenue nearly doubled on a year-on-year basis to INR 259 crores, led by newer capacities and onetime revenue of INR 50 crores on account of rate differential. The business current peak capacity stood at nearly 2 gigawatt and is laying the foundation for a greener, more resilient India. It is also playing its part in the group's collective transition to a sustainable energy future. Let me now briefly touch upon the CapEx. Grasim has outlined a CapEx outlay of INR 2,263 crores for FY '26, of which INR 941 crores was deployed in first half of financial year '26. The lyocell capacity expansion with the cellulosic fiber business is progressing as scheduled and remains on course for commissioning by mid-2027. On sustainability front, happy to share that Birla cellulosic -- Cellulosic Fiber division of Grasim has received the highest rating of dark green shirt in the Canopy's Hot Button Report for the sixth consecutive year, reflecting its focus on sustainability. We remain committed to continuously elevating our sustainability performance. A key thrust will be to improve the capacity share of renewable energy and increasing recycled water usage to structurally reduce our dependence on freshwater. These shifts are integral to embedding resources efficiency into our operating model and strengthening long-term environmental resilience. On the balance sheet side, net debt declined by INR 292 crores and stood at INR 6,861 crores as on 30th September 2025 as against INR 7,153 crores as on 30th June 2025. Stand-alone net debt to TTM EBITDA stood at 2.19x as against 2.41x. With this, we open the floor for question and answers. Operator: [Operator Instructions] First question is from Avi Mehta from Macquarie. Avi Mehta: Sir, my questions were on the paint business, especially wanted to better understand your thoughts post the resignation of Rakshit, in terms of the rough time line for the successor announcement, any change in growth strategy, aggression. I would love to hear your thoughts on that. And so the second question, if I can put it up front, is on the performance in the paint business in the quarter on a sequential basis. We did -- you did point towards market share gains, but the other peers have seen -- who have announced have seen almost a 10% decline given the weak monsoon -- weak environment, I would love to know how does the business stack up versus that? Those are the 2 questions. Himanshu Kapania: Thank you, Avi. In the life of a professional, individuals take their call on where they want to build their career. Rakshit has helped Birla Opus from the very start of the business to build the project and in the initial phase of launch. Now Birla Opus has a very strong, high-performing team and will continue to stay course on the vision that has been announced to the market. I'd like to remind you the vision that the company has announced to the market, we have committed to be #2 as well as profitable within 3 years of full-scale operation. We will stay course on that. As regards to the performance of quarter 2, this our first time that we have faced a full monsoon season. And the first time we saw that the overall industry on a quarter-on-quarter basis has had a double-digit decline. And it is our internal estimate on a year-on-year basis. If you were to eliminate the performance of Birla Opus, the industry is slightly negative in performance. Our Birla Opus on a year-on-year basis had a significant growth, but on a quarter-on-quarter basis, had a low single-digit decline, which was primarily during the periods of July and August. We turned back very strongly in the month of September as well as in the month of October, as I mentioned in my opening remarks. We are seeing very strong secondaries or movement of paint buckets from the dealer counter to the contractors and consumers and as well as return of the institutional business. We remain committed to growth, and we remain committed to the vision that has been articulated to the market. I forgot to tell that Rakshit be there with us until 5th of December. Operator: [Operator Instructions] We'll take the next question from Rahul Gupta from Morgan Stanley. Rahul Gupta: A couple of questions. First, just as a continuation on the Paints question earlier. Now that we are out of a pretty long and persistent monsoon season, how should one look at the industry demand for the second half? And to that extent, with Kharagpur now fully commercialized, how should we look at your ramp-up in second half from that perspective? So that's my first question. Himanshu Kapania: Thank you, Rahul. We are highly optimistic and results of September and October bear us out of a strong quarter 3, both on a year-on-year basis as well as a quarter-on-quarter basis. So our guidance is continued double-digit growth on a quarter-on-quarter basis and a significantly high growth on a year-on-year basis. As regards to our capacity, as we mentioned, we are at 1,332 million liters per annum, with Kharagpur arrival -- in the short term, it will help our -- managing our logistics costs and better servicing on the Eastern and Central India. But in the long term, our aim is to ensure that the volume market share and capacity market share converge and all efforts -- all investments and all efforts, whether it's advertising, manpower, distribution, servicing and any new initiatives will be directed towards to match the -- our volume market share closer to our capacity share. Rahul Gupta: Got it. Maybe we will revisit on the industry a quarter later. My second question is on B2B e-commerce. See, the business is growing at a very fast pace. And if I look at this quarter numbers, the revenues are annualizing more than INR 6,000 crores. Now you have guided for INR 8,500 crores for fiscal '27. Is there a case for this number getting revised up? Or will you be reaching this targeted number sooner than fiscal '27? So any color on this will be very helpful. Sandeep Komaravelly: Thanks, Rahul. This Sandeep here. I think your observation is right. Our growth has been compared to what our expectations, I think we've been doing very well compared to our plan. We are on track. And I think our earlier recommendation was that we will achieve $1 billion scale in FY '27. There is a likely chance that we will get there and hit that milestone sooner. But for now, we are not changing any of our direction as of now. Operator: Next question is from Amit Gupta from ICICI Securities. Navin Sahadeo: This Navin Sahadeo from ICICI Securities. So 2 questions. One on paints and the second on B2B commerce. On paints, if you could just give us more details about the number of dealers in this particular quarter versus the last quarter. And the reason I'm asking this because this time, Diwali was a little advanced. As you mentioned in your presentation, there is net addition to the number of accounts from 8,000 in the previous quarter to 10,000. The SKUs have gone up. The product portfolio has also expanded. But yet, sequentially, as you mentioned in your opening comments or to the previous question that there is a marginal lower single-digit kind of a drop in revenue. So how should one look at this in terms of the expanding network in the first place. Himanshu Kapania: Thank you, Navin. You're right. We have expanded our distribution network to beyond our original guidance of 8,500 towns to 10,000 towns. And we continue to be able to expand beyond urban into the rural and the small town category. As regards dealers, the way to look at it is either we measure dealers on a quarter-wise basis or we measure on a month-wise basis. Your concern has been how is it that we have been expanding our reach and it has not translated into revenue. To measure that, we should look at the number of dealers that have participated with us in September and October. And there have been -- we've had -- we've been growing dealer participation on a month-on-month basis. There was a lull in July and August, and it has returned back to a significant growth, almost a double-digit growth of dealer participation in September, and the same momentum has continued in the month of October. So the overall number of dealers have continued to grow, if I were to measure the total number of dealers who participated in quarter 2 over quarter 1. What is important is you will say the throughput may have fallen. The throughput may have fallen on a quarterly basis. But when we measure on a September basis, the throughput is back and both in September and in October, dealer throughput is at levels and slightly higher than what it was at quarter 1. So we are -- our focus is both expansion as well as depth of performance. And currently, if you -- while we are getting a lot of dealers to be able to sample our products and start using our products, there are dealers who have sustained with us now for more than 1 year. And almost 30% of the dealers are currently doing more than 40 to 80 products for us. And that number continues to grow. And the dealers, I'm very happy to report the dealers who have worked with us in the -- over 1 year, we've sustained a large percentage of them. So I hope that answers your question. Navin Sahadeo: Just to clarify, if you could give us the number of dealers? And second is the traction that you said or rather a spurt that you've seen in September and October, is it led by the consumer style financing or the EMI options that you introduced a couple of months back? Himanshu Kapania: So those are factors which help in secondary sales. So I'll not mix the 2 certain topics that we first focus on primary sales, that is sales from companies to dealers. The number of dealers participation has grown as well as number of products sold has grown, both in September and October. Now once this has grown, how has been the throughput from the -- different from our legacy companies, which have a track record and they are able to force dealers to stock. Most of our dealers prefer to buy and keep a very low stock. So for them, the most important is throughput or secondary sales. And what has been encouraging for us is, number one, we have a central monitoring system of our tinting. And we are finding that the secondary on our tinting for dealers in September and October has been almost 120% to 130% of the volume that they purchased in September and October, showing a very strong secondary or throughput from the dealers on towards -- on to customers as well as reducing their inventory significantly. That is part one. Second thing that has helped is assurance. So it is helping painters and contractors to be able to tell to customers of the assurance program. And we've had thousands of projects being registered are -- and in multiple stages of execution at this point of time, the Assurance plan. And the third is the new painting services. Both Assurance and painting services are secondary-based programs as well as dealer stocking and dealer purchase are the primary-based programs. So both are running strong. I hope that clarifies. Navin Sahadeo: My question second was on B2B e-commerce. So if you could just help us understand the private labels now are what percentage of our revenues. And in the same way then what's different from a technology or any other innovation that we are doing in this B2B e-commerce gives the confidence that we might be able to surpass the revenue target sooner. But that was my question. Sandeep Komaravelly: I'll answer your question on the innovation that we're doing and what gives us the confidence that we will grow and continue on this growth momentum. So look, as you're aware, we have built an integrated e-commerce platform, which fundamentally forms a digital backbone and connects pretty much every stakeholder in the entire ecosystem, starting from the brands, OEMs to our buyers who are consuming these products, logistics service providers who are actually moving the material to our lending partners who are providing financial solutions to all other network operators who plug into our -- into this backbone. And what this fundamentally helps us is in creating this end-to-end visibility, which is predominantly not there in most of the sectors or most of the materials that are fundamentally transacted today. And that, I think, is where our ability to provide bring in efficiency, ability to provide the best price, ability to provide the widest assortment, ability to provide a very reliable experience, all of that come into play. And this already showing up in the way our repeat transactions are happening in the way the buyers are coming back to our platform to keep buying. And just as an indication, all the buyers who we acquired last year, they've already purchased on an average more than twice the amount this year, giving us the confidence that whatever experience that we're delivering through both a combination of our assortment and our technology backbone is giving results. And I think that is one of the biggest reasons why we believe our growth momentum will continue. And to drive all of this, we've built -- these are custom-built tech modules that we've built from the ground up, and they are very specific in terms of addressing the use cases that are for B2B. There are a bunch of solutions that have come up in the past for B2C e-commerce, but B2B e-commerce is a lot more complex. There are a lot more stakeholders. To fulfill a single transaction, it requires more than 30, 40 touch points. and to orchestrate all of this in a system that is seamless is where our edge comes in. I hope that answers the question on innovation. On the second part or on the first part that you had asked about private labels, we are right now not breaking down our revenues into different product categories, and we will share that at the right moment. But I'll share this that our private label since the time of launch, they have seen very good acceptance. Most of the buyers who are coming to our platform to buy some of the bulk categories. As the project progresses, they have shown very good interest to continue that purchasing experience with us. They started buying behind the wall categories, and now they've also started buying the finishing categories. So we are currently operating in tiles, ply, bathware and faucetware, and we continue to increase our penetration there. What we've also seen is that we see great acceptance for these private labels in our retail channel. So we fundamentally have 2 channels. One is the projects channel where we are able to directly supply materials to the site locations. And the other channel is our retail channel wherein we work with retailers who further then sell a lot of these finishing products to individual homebuilders or smaller contractors or smaller retailers. We've seen great acceptance for these private labels in the retail channels because they are seeing a great way to diversify their portfolio without having to do higher investment or having to keep inventory at their location, and that is what is driving acceptance of these private labels. So overall, I'd say all indicators are towards good experience, reliable experience. [Technical Difficulty] Operator: We have the management reconnected. Over to you, sir. Himanshu Kapania: Yes. Sorry, Navin, I guess, apologies, the line got disconnected and -- but... Operator: Next question is from Percy Panthaki from IIFL Securities. Percy Panthaki: Can you just tell us the number of distributors, your target was 50,000. Have you achieved that target? Himanshu Kapania: Yes, we are there. Percy Panthaki: Okay. Okay. And how many of them would be monthly active distributors as in ordering at least once a month? Himanshu Kapania: We believe we are better than the industry standards. Percy Panthaki: In percentage terms? Himanshu Kapania: Yes, right. Percy Panthaki: Understood. Understood. And your guidance of INR 10,000 crores turnover by FY '28, does that remain valid? Himanshu Kapania: Yes. Percy Panthaki: Understood. Understood. Also, just wanted to understand what is the next push in terms -- see, when you started off, the first push was in terms of making the distribution available and increasing the number of distributors. Now more or less, that lever is sort of done. Of course, there will be some incremental growth there, but nothing major. So for the sales growth to continue double-digit on a Q-o-Q level, what is the next thing that you will focus on? What is the next lever which will drive this growth? Himanshu Kapania: I think this very typical of any business. Focus is on consumer. So you need a distributor or a dealer to be able to make sure the products are available at the right time at the right place. That activity, we have managed. So all our attention is moving to consumers. And those -- there are 2 types of consumers. One is a painter contractor and second is direct homeowners. That's the reason why we continue to be the most visible brand amongst the most visible brand. And we are really happy to report that within a period of 1 year, this the last World Cup, then we started to advertise. And this World Cup, this happens with Women's World Cup, and we won both the World Cup. And we have -- in the results, we saw that we have top of mind recall, we are #2 brand, which is the starting fact of consumers to be able to go and ask for Birla Opus at the dealer outlet. So that is the one step, and we believe 30% to 40% of the consumers make direct purchase of paints. Remaining 60% to 70% of the consumers do it with the help of the painters and contractors. So all our effort is be able to attract maximum number of painters and contractors, ensure these painter contractors are able to experience our high-performing products and superior products as well as able to offer to customers 2 very new services, number one, direct painting services from branded by us, which has transparent pricing, EMI as a GST bill and also Assurance where not only the customer gets product warranty, but he will get in the first year itself, if there is any problem, our commitment to not only replace product, but also cover his labor costs to be able to give assurance both to the painter and contractor as well as to consumers. So all the focus of the business is to be able to do consumer-related activities. And that will help us in what is happening is that is helping us dealers who first joined and took a small percentage of our 192 products. And now we are getting dealers who are increasing the number of products that they're buying and offering to consumers. Operator: Next question is from Manish Poddar from Invesco. Manish Poddar: So just wanted to get some sense, sir, let's say, because of this rainy season, has there been any sort of impact in this Q2 thing? And that is why you're calling out, let's say, the early part of the quarter was tapered. And despite you adding stores or adding distribution, you haven't seen performance to that extent. Because what is happening is the market always correlates individuals leaving at the top to the delivery of outcomes. And if that is, I'm just trying to get some sense on that. Himanshu Kapania: Understood, Manish. So let me first clarify. We believe that we have the best growth on a quarter-on-quarter basis. Obviously, when you measure on a year-on-year basis, we are a triple-digit growth. So that may not be so relevant. But on a quarter-on-quarter basis, we had a least decline when the industry had a double-digit decline. I had almost flat or slightly negative on decline basis. What is the reason for this decline? Broadly, whenever there is monsoons, the exterior products and institution business slows down. And that is our peak monsoons in July and August. So if a part of our business is not happening. That is the reason why the slowdown happens. And that is historic of industry. On a quarter-on-quarter basis, quarter 2 is amongst the slowest quarter for the industry, and we faced it for the first time. But having said that, we have to measure the overall industry on a year-on-year basis. If you were to remove Birla Opus performance, the industry has had a slightly negative growth is what our assessment is based on various feedback that we've got from the market. Not every company has yet reported their financial results. But whatever our study of the market is against -- but Birla Opus -- with Birla Opus, there has been a low single-digit growth that has happened and Birla Opus continues to help grow the market at this point of time. I hope that answers the question. Operator: Next question is from Nirav Jimudia from Anvil Wealth. Nirav Jimudia: I have 2 questions on chemicals. Sir, the first is when we see our EBITDA run rate for chemicals, like last year, we were at anywhere between INR 250 crores to INR 300 crores. And today, when we see we have inched up to anywhere between INR 350 crores to INR 400 crores. So just want to understand from you that when can we again start seeing the meaningful improvement in the EBITDA run rate for chemicals? And if you can explain this in context of, a, chlorine value-added products. So is there any scope for improvement in per kg margins here. B, newer capacities like ECH and CPVC and when it should start contributing meaningfully? And, c, whether the benefit of the power cost reduction with our shift to renewables is optimally achieved or there is a further scope of improvement? Himanshu Kapania: [Technical Difficulty] Renewable consumption rate of... Nirav Jimudia: Sir, your voice is not audible. Himanshu Kapania: Is this better? Nirav Jimudia: Yes. This better, sir. Himanshu Kapania: So I'll go in reverse order of your questions to the extent I remember all of them. So firstly, we are at about 24%, 25% renewable level as of now, right? If I look at all that we have and all the state-level regulations, we expect that in the next 3 years, we should be able to technically get to 40%. And I use the word technically because we have not yet envisaged those projects. We have not yet signed the PPAs, but that would be a kind of aspirational level for the next 3 years. I can't forecast because, as you know, every state has its own regulation on banking, billing, surcharges, et cetera. But we think that the current 25% has feasibility to reach the 40%. Then I think your second last question was ECL. Nirav Jimudia: Yes, when it should start meaningfully contributing in terms of the operating profits? Himanshu Kapania: So that ECH and CPVC would be meaningfully contributing from Q1 of next financial year. We will be mechanical complete by Q3, worst case situation in January, but the start-up times of these plants are long and complicated. And as you know that some of it are -- there are safety risks as well. So we expect that meaningful contribution will happen from first quarter of next financial year. Then I think you had a question on chlorine derivative profitability. Rather large basket of products, right? We have probably the largest basket of chlorine derivatives in India. And some of them are pretty seasonal because, for example, water treatment and monsoon has a higher season, right? Plastics has another high season. So I think these are mature products. It's not like you're going to see breakthrough profitability in any of these traditional chlorine derivatives, but it is necessary for us to do them so that we can get the caustic utilization rates that we want. And then your very first question was around what could be the catalyst for the next improvement -- step improvement, I think, in profitability. And Nirav, the honest answer to that is it essentially depends on [ chloride ], given our large exposure still to the chlor-alkali business. It's a combination of caustic prices and chlorine demand in India. That is the most meaningful factor that drives our results. And the business of predicting caustic prices for a long time is very tricky. So far, we can make our best estimates, but it's a tricky business. Operator: Next question is from Jai Doshi from Kotak. Jai Doshi: My question is generally on market share trends. Now last year, during the course of the year on a Q-o-Q basis, you were adding 100, 150 basis points of market share every quarter. It seems to have moderated to about 20 basis points starting this year. So is this entirely the difference between primary, secondary? That's my first question. Second is, is there a risk that it decelerates further? Or you think that you will be able to gain 20, 30 basis point market share Q-o-Q from here onwards over the next few quarters as well. And lastly, mathematically, for you to sort of INR 10,000 crores in FY '28 means 13%, 14% market share. So whereas if I understand correctly, you may be at 6.5% today, gaining 20, 30 basis points quarter-on-quarter. So what do you think from here can sort of drive acceleration in sequential market share trends for you? Himanshu Kapania: Thank you, Jai. I'm not sure how you're doing your calculations and how you're arriving at quarter 1, 20 basis point or quarter 2 at a slow market share growth. So first and foremost, I want to register the revenue reporting of paint companies has 3 broad components: decorative paints, putty business as well as industrial paints. Now we have a fair bit of idea of their industrial paints, some of them are also reporting a breakup between industrial and decorative paints. Now with decorative paints and putty business of the legacy players and decorative paints and putty business of Birla White, our assessment is we have grown very significantly. And last quarter, we had talked about reaching double digit, and we have grown more than 700 to 800 basis points in this quarter further. So we are there. And on a stand-alone basis, our assessment is we will be in quarter 4 to quarter 1 of next year, double digit. We are targeting -- we're trying to reach in this -- in the quarter 4. But we are between quarter 4 of this year or quarter 1 of next year, we should be in a double-digit number. And we are -- our degree of confidence remains solid around there. So you may have your own internal calculations and the number that you are giving us as the end market share is quite different from the numbers that we have on our internal calculation basis. Operator: Next question is from Prateek Kumar from Jefferies. Prateek Kumar: I have a couple of questions. Firstly, on PSF segment and caustic, the performance on a cumulative basis remains range bound like last few quarters. Do you see any figures which could provide any positive change in performance in this business. Some of it you have already alluded and like answered that. Unknown Executive: Yes. See, we expect a slightly better performance in Q3. But obviously, there are a lot of ifs and buts in terms of U.S. tariffs, in terms of global pulp prices. We expect stability and a slightly better performance for Q3. Prateek Kumar: Okay. Also, another question is on resignation of Rakshit, which comes as a big surprise to anyone who has been tracking Birla Opus closely. My question is, should investors view this -- should investor view this transition as a natural phase in generally difficult competitive business or as inflection point of any refreshed strategy? Himanshu Kapania: It's a natural phase of professionals growing in their career. This will have no impact on the business and business will be as usual. And there will be no change in the growth strategy. Operator: Next question is from Raashi from Citigroup. Raashi Chopra: I just had a clarification. When you're saying that the paints industry has grown at low single digits in the second quarter, and it's negative, excluding Birla Opus. This just decorative organized paints or adding putty as well? Himanshu Kapania: Yes, including putty. Operator: Thank you very much. Due to time constraints, we'll have to take that as the last question. On behalf of Grasim Industries Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.
Operator: Thank you for standing by, and welcome to Arvinas Third Quarter 2025 Earnings Call. I'd like to remind everyone that this call is being recorded. [Operator Instructions] Thank you. I would now like to turn the call over to Mr. Jeff Boyle. You may begin. Jeff Boyle: Good morning, everyone, and thank you for joining us. Earlier today, we issued a press release with our third quarter 2025 financial results, which is available in the Investor and Media section of our website at arvinas.com. Joining the call today are John Houston, Arvinas' Chief Executive Officer, President and Chairperson; Noah Berkowitz, our Chief Medical Officer; Angela Cacace, our Chief Scientific Officer; and Andrew Saik, our Chief Financial Officer. Before we begin the call, I'll remind you that today's discussions contain forward-looking statements that involve risks, uncertainties and assumptions, which are outlined in today's press release and in the company's recent filings with the U.S. Securities and Exchange Commission, which I urge you to read. Our actual results may differ materially from what is discussed on today's call. A replay of today's call as well as an updated corporate deck will be available on the Investor and Media section of our website. And now I'll turn the call over to John. John? John Houston: Thanks, Jeff. Good morning, everyone, and thank you for joining us today. As highlighted in our third quarter earnings release issued earlier this morning, this has been a dynamic and productive period for Arvinas marked by meaningful progress across both our corporate initiatives and clinical development programs. During the quarter, we announced significant developments, both in our pipeline and enhancing efficiency across our organization, all geared at driving value from our portfolio to deliver benefit to patients and value to shareholders. Our deep pipeline provides multiple opportunities for value creation, as we work to address the largest areas of significant unmet need in oncology and neurology. We have entered the beginning of a data-rich period with multiple readouts from our early-stage clinical programs, including recent clinical data from ARV-102, our LRRK2 degrader and preclinical data from ARV-806, our KRAS G12D degrader. We also presented the first preclinical data from ARV-027, our promising new clinical candidate that targets polyglutamine-expanded androgen receptor or polyQ-AR, the root cause of spinal bulbar muscular atrophy or SBMA. In addition, we also anticipate sharing preclinical data from our BCL6 degrader, ARV-393, at the ASH Conference in December and preclinical data from our new HPK1 degrader, ARV-6723 later this week at the SITC Conference. Noah will also share a promising update from our ongoing Phase I monotherapy trial with ARV-393 later in the call today. We have a strong track record of translating promising preclinical results into important successes in the clinic with a platform that has consistently shown its versatility and promise. We continue to build on that record with multiple ongoing and planned clinical trials in areas of high unmet need, a pipeline of high-value assets, a strong research engine and cash on hand into the second half of 2028 that gives us financial and strategic flexibility. In September, we announced that we and Pfizer will jointly select a third party for the commercialization and potential further development of vepdegestrant with the goal of rapidly bringing it to patients, if approved. Vepdeg's new drug application is currently under review by the FDA, and the agency has issued a PDUFA action date of June 5, 2026. Our goal is to have a partner in place before this date to make sure that Vepdeg, if approved, is launch-ready as a potentially best-in-class therapeutic option for ER-positive/HER2-negative advanced breast cancer in the second-line ESR1 mutant setting of ARV-393. Noah? Noah Berkowitz: Thanks, John, and good morning, everyone. I'll begin with ARV-102, our oral PROTAC LRRK2 degrader, specifically designed to be brain penetrant. Enthusiasm from key opinion leaders and investigators, most recently about the biomarker data we presented at MDS, has further strengthened our belief that this is a truly differentiated program. Let me begin with some background about ARV-102's target and what has come into focus as potential diseases of interest. LRRK2 is a multi-domain protein with 3 key functions of kinase, GTPase and scaffolding activities. These activities help it regulate endolysosomal trafficking. When LRRK2 expression or activity is elevated, it disrupts lysosomal function, impairing the clearance of aggregated pathologic proteins that would normally be degraded through the pathway. Degrading LRRK2 may restore endolysosomal homeostasis and provide therapeutic benefit in disorders characterized by lysosomal dysfunction. Unlike inhibitors that only inhibit LRRK2's kinase activity intermittently, ARV-102 eliminates the entire LRRK2 protein. This is important because the 3 key functions, not just kinase activity, may be linked to neuroinflammation and lysosome dysfunction. Increased activity, scaffolding and expression of LRRK2 have been implicated in the pathogenesis of neurological diseases, including idiopathic Parkinson's disease, a prevalent neurodegenerative disease, and progressive supranuclear palsy or PSP, a rapidly progressing neurodegenerative disease that is typically fatal within 5 to 7 years of diagnosis. We believe that eliminating all 3 functions of LRRK2 through PROTAC-mediated degradation offers the potential for deeper and more durable therapeutic benefit versus traditional inhibitors. At the MDS Conference last month, we were pleased to share data from 2 ongoing Phase I clinical trials with ARV-102: one in healthy volunteers and one in patients with Parkinson's disease. Both trials included single ascending and multiple dose portions. ARV-102 is generally well tolerated in both trials. In the healthy volunteer study, ARV-102 was well tolerated at single doses up to 200 milligrams and multiple daily doses up to 80 milligrams with no discontinuations due to adverse events or serious adverse events observed in the study population. In the Parkinson's disease study, single doses of ARV-102 at 50 milligrams or 200 milligrams, were well tolerated with only mild treatment-related adverse events, which were generally lumbar puncture procedure related and with no serious adverse events. Pharmacokinetic data were also excellent across both trials. ARV-102 demonstrated dose-dependent PK in both periphery and the CSF, the latter indicating brain penetration. In terms of pharmacodynamic effects in healthy volunteers, repeated daily dosing of ARV-102 led to LRRK2 reductions of up to 90% in peripheral blood mononuclear cells or PBMCs and more than 50% in the CSF. Repeated daily doses of ARV-102 resulted in reduced concentrations of phospho-Rab10T73 in PBMCs and urine concentrations of BMP. Both of these are important biomarkers for modulation of the lysosomal pathway downstream of LRRK2. In patients with Parkinson's, we showed that single doses of ARV-102 resulted in median PBMC LRRK2 protein reductions of 86% with the 50-milligram dose and 97% with the 200-milligram dose. Perhaps most interestingly of all, in healthy volunteers treated with 80 milligrams of ARV-102 once daily for 14 days, unbiased proteomic analysis of CSF showed decreases in many lysosomal pathway markers such as GPNMB and neuroinflammatory microglial markers like CD68. A recently published proteomics analysis showed the same panel of biomarkers was elevated in patients with LRRK2-related Parkinson's disease. We are aware of inhibitor data showing the movement of some of these biomarkers, but only in patients with Parkinson's disease and only after at least a month of treatment to engage the intended disease pathway even in healthy volunteers where the biomarkers would not be expected to be elevated and after only 14 days of treatment is direct evidence that our approach is working as designed. This rapid pathway biomarker response suggests that our total protein degradation approach may have best-in-class impact on underlying disease processes compared to kinase-only targeting inhibitors. We believe that in totality, our data to date set a very high bar and further strengthen our belief in the promise of ARV-102. The multiple dose cohort of our trial in Parkinson's patients is ongoing, and we look forward to sharing data, including CSF LRRK2 degradation data, at a medical conference in 2026. We also intend to initiate a Phase Ib trial in patients with PSP in the first half of 2026. I'll now turn to ARV-393, our investigational oral PROTAC designed to degrade B-cell lymphoma 6 protein or BCL6. BCL6 is a previously undrugged transcription factor, a master regulator of multiple cellular processes during B-cell development, including proliferation, survival and apoptosis. Altered BCL6 activity has been implicated as an oncogenic driver in several subtypes of non-Hodgkin lymphoma, making it an exciting therapeutic target with initial clinical validation emerging. With its iterative activity, ARV-393 potently and rapidly degrades the BCL6 protein, which is critical to overcoming its rapid resynthesis rate and sustaining antitumor activity. Preclinically, ARV-393 has shown robust in-vitro potency and in-vivo efficacy as a monotherapy. And earlier this year, we presented preclinical data showing enhanced antitumor activity with ARV-393 in combination with 5 classes of small molecule inhibitors in models of aggressive diffuse large B-cell lymphoma or DLBCL. Our development plan for ARV-393 includes combination strategies in DLBCL. And at next month's American Society of Hematology Annual Meeting, we will present new preclinical data showing the combinability of ARV-393 with glofitamab, a CD20xCD3 bispecific antibody, and an emerging standard of care for DLBCL. BCL6 degradation has the potential to increase CD20 expression, which provides rationale for the exploration of ARV-393 with CD20-targeted agents and in the context of low or loss of CD20 expression. We intend to initiate a combination trial with glofitamab next year and look forward to updating you on our progress. Turning to our clinical progress to date, enrollments in our Phase I monotherapy trial is ongoing. This is a first-in-human dose escalation trial, and we have not yet achieved the predicted efficacious exposure level. However, this morning, I'm pleased to report that even in exposure levels below those predicted to be efficacious, we have already seen responses in early cohorts in both B- and T-cell lymphomas. We also see evidence of robust BCL6 degradation and the safety profile of ARV-393 has supported continued dose escalation. We are very pleased with these early data, which we believe support an emerging and differentiated therapeutic benefit of ARV-393. We look forward to sharing additional data from the Phase I trial at a medical congress in 2026. With that, I'll now turn the call over to Angela. Angela? Angela Cacace: Thanks, Noah, and good morning, everyone. I'm pleased to share compelling preclinical data we recently presented that reinforces our confidence in our ability to deliver differentiated treatments across our oncology and neuroscience pipeline. I'll begin with ARV-806, our novel PROTAC degrader targeting KRAS G12D. KRAS G12D is a well-characterized oncogenic driver associated with poor prognosis and recalcitrant to standard treatments across several major tumor types, including pancreatic, colorectal and non-small cell lung cancers. There are currently no approved targeted therapies for KRAS G12D. At the Triple Meeting in October, we shared preclinical data highlighting the high potency of ARV-806 and its clear differentiation from both KRAS inhibitors and degraders currently in the clinic. These preclinical data showed dose-dependent robust antitumor activity with regressions across preclinical models of KRAS G12D mutant cancers. ARV-806 forms productive ternary complexes with the on and off states of KRAS G12D, demonstrated in vitro picomolar potency with near complete degradation and high selectivity. ARV-806 demonstrates antiproliferative activity approximately 25x greater than KRAS inhibitors and the leading clinical stage degrader. Importantly, ARV-806 induces durable degradation greater than 90% for 7 days after a single dose with efficacy across pancreatic, colorectal and lung cancer models. We also presented early and very promising preclinical data from our oral pan-KRAS degrader and look forward to sharing more as this program advances. We are rapidly enrolling a Phase I clinical trial of ARV-806, reflecting strong interest from clinical investigators and underscoring the high unmet need for effective KRAS-targeted therapies. We look forward to sharing initial clinical data from this trial next year. Finally, I'd like to briefly mention updates from 2 other promising programs that you'll hear more about in 2026. First, at World Muscle in October, we shared exciting preclinical data for ARV-027, a PROTAC degrader designed to target polyglutamine-expanded androgen receptor or polyQ-AR in skeletal muscle. This degrader will be developed for patients with spinal and bulbar muscular atrophy or SBMA, a rare genetically defined neuromuscular disease with no approved treatments and significant unmet need. Second, this week at SITC, we will introduce our first immuno-oncology focused PROTAC degrader, ARV-6723. ARV-6723 targets HPK1, which functions as a negative regulator of T-cell signaling causing tumor microenvironment immune suppression and could be relevant for numerous solid tumors. Our preclinical work to date suggests that degrading HPK1 leads to differentiated biology versus HPK1 inhibitors and anti-PD-1 therapies. We anticipate beginning first-in-human studies for ARV-027 and ARV-6723 in 2026. As we begin those studies, we look forward to providing full updates on the unmet need for each disease, the rationale for each high-impact target and why we believe that our PROTAC degraders will represent highly differentiated therapies for patients. With that, I'll turn the call over to Andrew to review our quarterly financial information. Andrew Saik: Thanks, Angela, and good morning, everyone. I'm pleased to provide financial highlights for the third quarter ended September 30, 2025, and expand on our approach to capital allocation, capital returns and development strategy. As a reminder, detailed financial results for the third quarter are included in the press release we shared this morning. I'll begin by briefly touching on some key financial highlights for the third quarter of 2025. At the end of the third quarter, we had approximately $787.6 million in cash, cash equivalents and marketable securities on the balance sheet compared with $1.04 billion as of December 31, 2024. Revenue for the 3 months ended September 30, 2025, totaled $41.9 million compared to $102.4 million for the 3 months ended September 30, 2024. The decrease of $60.5 million was driven by the Novartis License Agreement, which was entered into during the second quarter of 2024 with revenue recognized through the end of 2024, offset by the recognition of a milestone payment from Novartis of $20 million this quarter as part of the same agreement. General and administrative expenses were $21 million in the third quarter, compared to $75.8 million for the same period of 2024. The decrease of $54.8 million was primarily due to a decrease of $43.4 million from the termination of our lease of 101 College Street in August 2024, a decrease in personnel and infrastructure-related costs of $7.3 million and professional fees of $3.6 million. Total non-GAAP G&A for the quarter was $14.6 million, compared with $64.8 million in the prior year. Research and development expenses were $64.7 million in the third quarter compared to $86.9 million for the same period of 2024. The decrease of $22.2 million was primarily driven by a decrease in the vepdeg program of $5.4 million, a decrease in the luxdeg program of $4.7 million and a decrease in personnel expenses and non-program-specific expenses of $15.1 million, offset by an increase in the KRAS program of $4.3 million. Total non-GAAP R&D for the quarter was $56.9 million compared to $73.2 million in the prior quarter. Total non-GAAP expenses were $71.5 million in the quarter. We expect expenses to continue to decline as we work with Pfizer to ramp down our spend on vepdeg and as our cost reduction programs take full effect. Our goal is to continue with a quarterly run rate spend below $75 million, which will allow us to manage non-GAAP expenses below $300 million in fiscal year 2026. In September, we announced that our Board had authorized the repurchase of up to $100 million of our outstanding common stock. This authorization underscores the Board's confidence in our long-term strategy and its belief that our current share price is undervalued relative to our long-term opportunity. As of the end of September, we have bought back approximately 2.56 million shares at an average share price of $7.91 per share. Details of our stock repurchase program can be found in our 10-Q. At the same time, we announced further cost reductions that allowed us to maintain our prior cash runway guidance into the second half of 2028. We remain committed to investing in areas that will maximize shareholder value as we move towards important catalysts in the coming months. In addition, we will continue to look at ways to reduce costs and increase efficiency while continuing to focus on our goal of progressing our very promising early pipeline. With that, I'll turn the call over to John for closing remarks. John? John Houston: Thanks, Andrew. We are focused on continuing to deliver innovative and differentiated assets in areas of high unmet need. We are operating with scientific rigor and building on our proven track record of success from discovery to clinical to collaborations. We have a deep pipeline with multiple clinical candidates for near-, mid- and long-term value creation and the potential to be differentiated with critically important therapies for patients. Arvinas is entering a pivotal phase in its growth trajectory. Our clinical pipeline offers a rich set of catalysts throughout the balance of the year and into 2026 with multiple study initiations and data readouts anticipated across our neuroscience and oncology franchises. With our PDUFA date now confirmed for next year, we are approaching an historic moment with the potential for the first ever approval of our PROTAC therapy. We are well positioned to deliver significant value for our shareholders, our partners and for the patients we serve. With that, I'll turn the call over to Jeff to begin the Q&A portion of the call. Jeff? Jeff Boyle: Before I turn the call over to the operator, I'm going to ask that you limit yourself to one question per cycle to make sure we're able to give everyone the appropriate time. You can feel free to join the queue afterwards for a follow-up question. So with that, operator, can you please open up the queue? Operator: [Operator Instruction] Your first question comes from the line of Etzer Darout with Barclays. Etzer Darout: Just a quick question on the BCL6 degrader program. Just we're going to see some updated data from [indiscernible] at ASH. I just wanted to -- if you could comment on points of differentiation there that they're doing [indiscernible] and if you could just talk a little bit about the dosing profile that you envision for the molecule and any areas you could potentially differentiate longer term of that molecule? John Houston: Great. Thank you so much for the question. And yes, we're very excited about our BCL6 program, and we do believe that we have a profile that will differentiate itself as the compound continues to be developed. Noah, do you want to add some comments? Noah Berkowitz: Sure. Thanks, John, and thanks for the question. Yes. So indeed, we -- and by the way, you broke up a little bit, but if it had to do with dosing -- yes and differentiation. So the drug is being dosed once daily in oral drug. Differentiation has to do there on a couple of different levels. Number one is that we've already demonstrated and will continue to demonstrate upcoming at ASH some kind of, I guess, a differentiated profile for combinations of a drug and even for monotherapy preclinically. So we noticed that we can achieve complete responses in various models versus tumor growth inhibitions that are seen with some competitor -- or yes, some competitor drugs. In terms of our program, we're focused in -- we've said pretty explicitly that we're focused in monotherapy for AITL, and we're interested in developing the combination with the bispecific for DLBCL. So there's, at this point, several competitors that have entered the market. One little -- one of them that has already reported data, the others seem to have just filed their IND. We believe that -- and we've shared data here that we have monotherapy activity in T-cell and B-cells. That has not been reported by the competitor that's already reported out some B-cell malignancy responses. And so that's a point of potential differentiation in the future. Operator: Your next question comes from the line of Yigal Nochomovitz with Citi. Unknown Analyst: This is Caroline on for Yigal. On your LRRK2 program, can you tell us about the first types of signals you'd be looking for in the Parkinson's disease MAD Phase I? And how long do you hypothesize you'll need to dose for the PK effects that you've already observed in healthy volunteers in Parkinson's patients to translate to clinical benefit? John Houston: Yes. No, thank you, Caroline. Great question, and I'll hand back to Noah. Noah Berkowitz: Thanks, John and Caroline. Thank you for the question. So yes, we're pretty excited about what we've seen so far with our LRRK2 degrader and the reception that we received at a recent conference at MDS. So as you state, we are currently moving pretty aggressively through a Parkinson's disease Phase I study that has 28 days of dosing. We expect that this will generate data that's principally biomarker related. And -- but we may also start to collect a little clinical efficacy data that's not expected with 28 days dosing. Now what we've shared is that we've already been able to demonstrate pathway engagement in ways that competitor LRRK2 inhibitors have been -- at least have not reported to date. So we know in healthy volunteers, we can impact endolysosomal trafficking and also neuroinflammation, at least through microglial pathways -- mediated pathways. And so now when we look at our Parkinson's disease patients, the idea would be we have patients at baseline who have more than 2, maybe even 3x the baseline level of LRRK2 in their CSF. There's much more activation of these pathways. And it will be important to see how much the degradation that we've already reported out in healthy volunteers, we can recapitulate now in this Parkinson's disease population and look at that pathway engagement. So we've guided to an update on those pathway markers next year, relatively early next year. And -- but I think that the next step for clinical data will be when we can have more than 28 days of treatment. So for that, we're working our way through the chronic tox study. And so you'll see as we file our IND next year that allows us to move into PSP that we're prepared to continue with chronic treatment of patients, and that will be an opportunity for us to demonstrate the clinical benefits in diseases like PSP and potentially Parkinson's. Operator: Your next question comes from the line of Michael Schmidt with Guggenheim. Unknown Analyst: This is Sarah on for Michael. I just wanted to ask on your KRAS G12D. So you've mentioned before and we've seen evidence for KRAS amplification as a mechanism of resistance to inhibitors. So -- and the fact that potentially with the iterative activity of a PROTAC might be able to overcome that. So I just wanted to ask if you have any plans to potentially test ARV-806 or maybe even eventually a pan-KRAS in the clinic in a KRAS amplified population. John Houston: Yes. Great questions, Sarah. I'm going to ask both Angela Cacace, our CSO, and Noah to give you 2 parts to that answer. Angela Cacace: Great. Thank you for the question. We have been studying certainly our G12D degrader ARV-806 in resistant setting. And we look after -- we see amplification of KRAS G12D, and we see that we durably repress KRAS in all conditions. And then for our pan-KRAS degrader, we've also been studying the amplified setting, the wild-type amplified setting. And in the wild-type amplified setting, we're gratified to see some early data that shows that we see very nice tumor growth inhibition. And in cases of PDX models, we've also seen regression. So we're advancing very quickly with our pan-KRAS degrader program, and I'll turn over to Noah for the clinical perspective. Noah Berkowitz: Thanks, Angela. And so Sarah, to your question about amplification and what we've seen. So we specifically, right, in the ongoing Phase I study, we exclude patients that have been treated previously with KRAS inhibitors. So that's not something we're going to see in the dose escalation portion of our study, and you would understand why we would want the cleanest signal. We've made that choice as really anyone would. But we have learned over the past year, and this is really data that's generated outside of our company, right, that as data -- we see many reports of amplification being a principal mechanism of resistance after patients have been exposed to KRAS inhibitors. So we've obviously -- as Angela has pointed to, we've done work in our models to show that this creates a great opportunity for us moving forward. [Audio Gap] expect some updates over the course of the next year in terms of if we want to expand our targeting or thinking in this regard. It certainly is compelling science. Operator: Your next question comes from the line of Derek Archila with Wells Fargo. Unknown Analyst: This is Hal calling in for Derek from Wells Fargo. So I guess we have a question on the ARV-102. For the SAD data, do you see any CSF degradation for LRRK2? And then for the MAD data next year in 2026, just wanted to see do you have any expectations? Is more than 50% in healthy volunteer you wanted to repeat or just some expectation for us to set up? John Houston: So thanks for the question. Absolutely. So Noah, do you want to take that? Noah Berkowitz: Sure. Yes. So -- but I think we've guided to this. Essentially, we will provide our LRRK2 degradation data when we've completed the MAD in the Parkinson's disease patients. And that's basically what we're going to guide to for next year. Operator: Your next question comes from the line of Jeet Mukherjee with BTIG. Jeet Mukherjee: Just coming back to ARV-806. Based on your learnings from other G12D inhibitors and degraders in development, are there any molecular features or attributes that may be correlated to or linked to the GI tolerability and elevated liver enzymes we've seen with some of these molecules? And if yes, does ARV-806 avoid those features? John Houston: Yes. Thanks for the question. I mean I think certainly, the -- our G12D compound has a very exciting profile. Obviously, the molecule is different from other G12D inhibitors. Maybe, Angela, do you want to talk to what you think might be some of the kind of the features that give the profile that we see? Angela Cacace: Sure. So as we described, our ARV-806 G12D PROTAC really does have some very nice features from a molecular perspective. It binds to both the on- and the off-state and is 25x more potent than all mechanisms that are currently in the clinic that we've tested to date. But given what we've seen with the clinical degrader, we're also several orders of magnitude more potent at engaging the target and degrading the target durably. So with that in mind, we expect to have greater potency which should translate clinically. And I'll let Noah go ahead and take the liver and other questions. Noah Berkowitz: Yes. So I think our strategy there right now based on the science that's available is to win on that potency issue, meaning we already know from a competitor's degrader that they were limited in their ability to escalate their dose because of transaminitis that was seen. So the fact that we can engage our target at much lower concentrations suggests that we have the potential not to run into those types of toxicities and still get the significant degradation we're shooting for. So we're looking for more than 80% degradation of our target. We could probably do significantly better than that. And we'll provide updates as we go through our dose escalation cohorts. Operator: Your next question comes from the line of Sudan Loganathan with Stephens Inc. Unknown Analyst: This is [ Keith Alve ] on behalf of Sudan. I got a quick one on ARV-806. Are you all evaluating how PROTAC medicated KRAS G12D degradation might complement or differ from combination strategies like the cetuximab pairing seen with Verastem's KRAS12 G12D inhibitor? Angela Cacace: Yes. So preclinically, we have evaluated combination with anti-EGFR inhibitors like cetuximab. And so we think this is a big advantage because we have a selective approach to degrading G12D KRAS. We combine very well in that case, and we'll be sharing the preclinical data that we've generated in those combinations within the year. Noah? Noah Berkowitz: And yes, I would just add that there certainly are accumulating evidence that combinations of inhibitors with chemotherapy, but also, as you mentioned, with an EGFR inhibitor can lead to cumulative tox which may be limiting for this drug, but creates the -- for this set of inhibitors, but that creates an opportunity for us, especially, right? Because going back to this potency argument, if we can get our drug on board, which right now requires weekly -- once-a-week dosing and may allow us eventually to also get to once every 2-week dosing, and we can do this with lower dosing -- lower doses, and we might not achieve the same type of cut tox from combinations, that opens up a whole set of opportunities to generate the better benefit risk profile. So, again, we have to get through our monotherapy dosing. It's moving very fast. And we're hoping that we can get into our combinations next year already, but more to follow on that. Angela Cacace: And just to briefly add that tackling the pan-KRAS mechanism is a challenge in that combination setting largely because they're also hitting and in HRAS. And that becomes a big challenge for adding on an EGFR-based mechanism. So our KRAS G12D degrader would avoid that. Operator: Your next question comes from the line of Tyler Van Buren with TD Securities. Unknown Analyst: This is Francis on for Tyler. So for the BCL6 asset, what combination partners do you believe are most exciting? And where do you think it's most likely to exist in the lymphoma treatment paradigm if successfully developed? John Houston: Thanks for the question. Yes, there's a lot of potentially exciting combinations that we can carry out with BCL6. I'll ask Noah to maybe give an overview of where we're thinking. Noah Berkowitz: Sure. So we've shared data about the ability to combine this drug, which uses an orthogonal approach to many of the agents that are currently approved in the B-cell malignancy setting. And we see just beautiful synergies and combinability with -- preclinically with EZH2 inhibitors, BTK inhibitors, BCL2 inhibitors, and also anti-CD20 agents. So those -- that's a whole set of opportunities for combination. We recognize that the way the field is evolving, there's going to be a significant outsized role for bispecifics targeting CD20 in the -- eventually the first-line setting, but in the second- and third-line setting as well for large B-cell lymphoma. We think that's our -- we want to be laser-focused as a company, and we recognize that's a significant opportunity where we can combine these therapies that have non-overlapping toxicities. Ours -- we first have to identify a toxicity. But obviously, there is CRS with the bispecifics, and we should be able to combine favorably with those. And that would be our plan. That's why we've announced that next year, we expect to be moving ahead in our Phase I study with combinations with bispecifics. Operator: Your next question comes from the line of Li Watsek with Cantor Fitzgerald. Li Wang Watsek: A strategy question for me. It looks like you're moving more programs into the preclinical clinical settings and then maybe deepening your footprint in neuromuscular space and expanding into I-O. So just curious, number one, your BD strategy here, given that you got 5 programs. And then two, your approach to resource allocation. John Houston: Yes. So thanks for the question. Clearly, the last several months, the company has done a significant reset, obviously, with the decision along with Pfizer to find a new partner or out-license vepdegestrant allowed us to focus on the rest of our pipeline. And obviously, KRAS G12D, LRRK2, BCL6 are next in line assets that are in Phase I heading fairly rapidly to Phase II. And then we have 2 programs behind that that should be in the clinic relatively soon: one in SDMA, which we can talk to and the other HPK1, which is an I-O. And we believe that gives us an array of different programs across oncology and neuro. And yes, HPK1 has a huge amount of potential in immuno-oncology. So we're excited about that. It gives us a lot of flexibility. It gives us a lot of choices. And as ever in the history of -- the whole history of Arvinas, those choices have also included appropriate and well-placed BD opportunities. So we'll always be open for that. We think that some of our targets that really lend themselves to BD opportunities. And right now, as we stand today, all of our portfolio is fully owned by our vepdegestrant, and we did do a great deal with Novartis on luxdegalutamide. So yes, we move forward with a lot of confidence, and we have some really great exciting data that should be coming out over the next several months and year, and we'll be able to position our portfolio the best way we can. And that could include selective partnering. Operator: Your next question comes from the line of Srikripa Devarakonda with Truist. Srikripa Devarakonda: Maybe a follow-up question to the previous one. With nearly $800 million in cash and runway to second half of '28, not just in terms of the time line -- the run rate time line, but in terms of what studies you can get through with this cash would be helpful. And also, as you are advancing your pipeline, do you continue to -- do you expect to continue PROTACs in both oncology and CNS? Or at this point of time, do you think there is a need to prioritize from a therapeutic area perspective? John Houston: Thanks for the question. I'll certainly hand over to our CFO, Andrew, to talk about the first half of that question. But in terms of the balance, yes, the company right from its beginning has been an oncology company and the very -- I think it was the third target we worked on was a neuroscience target. So we've been in neuroscience right from the beginning of the company's inception. And we think PROTACs and the ability to get brain penetrant PROTACs gives us a huge potential advantage in neurodegenerative diseases. So we want to explore that as we go forward with our programs like LRRK2. We'll also be -- now we're very excited to be looking at neuromuscular target like SBMA. And we do still think we've got a lot of differentiation in the oncology space. So although it may sound like 2 very radically different therapeutic areas, the insights and the ability to use PROTACs in those areas really does allow us to, I think, unlock a lot of differentiated opportunity. So we're going to continue with that for now. We are open and always looking for other opportunities as well. But right now, and I'll hand over to Andrew, we're well placed to fund the programs that we have, certainly after we did the reset that we did. Andrew? Andrew Saik: Yes. Thanks, John. So the way I think about capital allocation for at least the next year or 2, the company has had significant spend on the vepdegestrant Phase IIIs the last several years. You're going to see those costs start to ramp down. And what's going to happen is that those costs are going to be replaced by a series of Phase I early phase studies, right? So we're making a bet on the early-stage programs. We love them. We can't obviously right now tell you which ones we're going to take through on our own and which ones we're going to license. We're going to push on all of them. We think that many of them are highly, highly promising. And we'll be making decisions on those as we go through the development pipeline. So we look at these programs all the way out. Obviously, we've known our programs for a long time. So they've been incorporated into our spend even before we announced that they were coming into the clinic. So this is not a surprise to us. And we're just delighted. So we're going to continue pushing on our Phase I programs, and we'll make decisions as we go through based on which ones we think make the most sense for us to keep and which ones make the most sense for us to partner potentially. Operator: Your next question comes from the line of Tazeen Ahmad with Bank of America. Tazeen Ahmad: Just as it relates to 102, just given the current data that you have in biomarkers, how do we think about the translatability of those into clinical endpoints as it relates to PD? And then I just wanted to know about once you show the PD data in 2026, what do you think is going to be your area of focus that will allow you to support the advancement into a Phase Ib study into PSP? John Houston: Thank you. Great question. Noah? Noah Berkowitz: Sure. Thanks, John, and good to hear from you, Tazeen. So yes, 102, it's just such an exciting story for us because just to review and build off of what John and Andrew just said, if you think back, we've been working in oncology, but also developing neuroscience. And here, we are on the heels of a positive registration study for [ VEP-2 ], out-licensing of luxdegalutamide, an AR degrader to Novartis, and we're advancing 2 oncology drugs. And here now, we have ARV-102 that -- where we've shared some incredible results recently that drive us in this direction for PSP and possibly for Parkinson's disease. So for years -- over the past many years, there's been tremendous investment in the Parkinson's disease community and the PSP community to understand what are the pathways that drive this neurodegenerative disease. And so there's a large biomarker study called PPMI, and this looks at the natural progression of Parkinson's disease. And it has demonstrated that there are markers such as GPNMB, IAB1 -- IBA1 and also CD68, a series of cathepsin. So markers that are predictive of progression of disease because they are driving neuroinflammation and also driving neurodegeneration because of mistrafficking of proteins. And so that's because of endolysosomal function. So these markers are all elevated in the disease. And we just reported out a study at MDS that drew tremendous excitement from investigators or scientists more broadly because we showed that in healthy volunteers, we were able to reduce these biomarkers, right? And now we're running the Parkinson's disease study that is looking at all of these biomarkers and we expect that if we degrade LRRK2 as much as we saw in healthy volunteers where we achieved 75% reduction, more than enough to advance this into PSP and PD studies that we should be able to drive down these biomarkers that cause the neuroinflammation and the mistrafficking of proteins such as tau. So building on that, we have the healthy volunteer data. We're going to report out our Parkinson's disease, LRRK2 degradation and biomarker data. And then next year, things go right, start a PSP study. PSP is a neurodegenerative disease that relies also on this mistrafficking of tau and we know that our drug can correct this mistrafficking. It can improve the -- decrease the neuroinflammation that is also at a root cause of PSP. And we'll be treating patients for continuously, meaning no longer just limited to 28 days, continue to accumulate biomarker data and correlate that with clinical measures like PSPRS and others. And we will hope to report out in short order the results of that Phase Ib study. And if things go right, we may be able to start a Phase II study even before we have the Phase Ib study has completed. So a registration quality Phase II study. But exactly guiding on when that can start that we have to await clearing our IND and starting the Phase Ib study. Angela Cacace: And just to add to that, we do know that human genetics point to LRRK2 and LRRK2 is elevated in the brain of patients in idiopathic Parkinson's disease in microglia as Noah stated. And then also in progressive supranuclear palsy, these same SNPs that elevate LRRK2 also drive increased progression in a clinically meaningful way and time to death. And so by going in with a clear way to modulate the LRRK2 pathway, we feel that we stand the best chance of proving the LRRK2 hypothesis in disease in both progressive supranuclear palsy and potentially Parkinson's disease. Operator: Your next question comes from the line of Paul Choi with Goldman Sachs. Kyuwon Choi: I wanted to check if you might have any additional dosing cohorts for ARV-393 at the upcoming ASH Meeting, including ones that might potentially be in the target therapeutic range where that you're aiming for. And then on ARV-027, I'm just curious if you thought of other CAG repeat related diseases as being potential areas to explore, including Huntington's or other neuromuscular diseases beyond spinal cerebellar that you focused on initially. John Houston: Yes. Thank you. Noah and Angela can probably cover those. Noah Berkowitz: Sure. So to the first question of ARV-393, we've given particular guidance here. I think we would have liked to be able to give a full update at ASH this year on our dose escalation in ARV-393. But in fact, we are not yet in what we had anticipated to be the -- or predicted to be the efficacious range, although fascinatingly to us and very promisingly in our data, we are seeing responses, significant responses, CRs even in T-cell and B-cell malignancies. So we don't think it's prudent just to report what we're seeing at low dose levels. Usually, studies would want to report out when you know that you're hitting your target fully and you could see the full robustness of the drug. That would be an appropriate time. But certainly, we didn't want to leave you -- people hanging. So we wanted to share that we're making progress, and we're seeing efficacy and tolerability of the drug. Regarding the 027 question, I'll turn it back to Angela. Angela Cacace: Sure. Great. 027, we selected based on its unique profile for degrading the polyglutamine repeat androgen receptor in the nucleus and the cytoplasm, which is really important for a disease driver for spinal and bulbar muscular atrophy. And we reported out some very exciting data showing that we rescue muscle function, including grip strength and endurance to end of phenotypes that are really important for patients with that disease. So that's a very exciting opportunity. With respect to polyglutamine repeat expansion disorders, we have a robust approach. We're taking to those repeat disorders. We're taking a two-pronged approach also for Huntington's disease. For Huntington's disease, we have identified selective ligands for mutant Huntington and sparing wild type. So we're continuing our efforts. We're early, but we're making good progress there. And then also the idea of tackling repeat expansion disorders is something we're taking very seriously, and we have a very unique opportunity there as well. So that's early, but very exciting space for Arvinas. Noah Berkowitz: Just one more comment, if I could build on that. So look, when we go into the SBMA, we're starting in healthy volunteers. That's the appropriate thing to do. The great opportunity here is this disease is -- it's basically a monogenic disease. We know exactly what the target is, the polyQ-AR. And we know from -- we know that we can degrade it. So in healthy volunteers, we're going to be able to also do muscle biopsies if permitted, and it's going to be very validating very quickly for this technology. So it's the perfect setup for us to enter a rare disease space because we can get to results and have conviction about our pathway engagement in healthy volunteer studies, which is an unusual opportunity. Operator: Your next question comes from the line of Jonathan Miller with Evercore ISI. Jonathan Miller: Congrats on all the progress in the early pipeline. I'd like to start with KRAS combos, if I might. You mentioned a couple of interesting potential combo partners for the KRAS program, things that other players in the space maybe had trouble combining with given tolerability profile. How early could we get into combo cohorts? Is this the sort of thing that we could expect to see even in expansion cohorts starting next year? Or should we think about rituximab combos and beyond maybe being a little bit more delayed from that? And then secondly, just on the HPK1 program, that seems like it's obviously very early still, but potentially pretty interesting. I noticed not much on the deck. When would you expect to show us more of that preclinical data and give us a sense for what indications maybe are the most fruitful for early looking there? John Houston: Great questions, and I'll use my usual double act here of Noah and Angela to answer that. Noah Berkowitz: Thanks, John, and thanks for the question. Yes, so to field the 806 question, we're not guiding yet to the timing of combination. So it'd be speculative on my part, but I love speculating. So the bottom line is we're really tearing through our dose escalation right now because there's tremendous interest in this and tolerability, it seems for patients. And so the idea is we are planning to go into that combination immediately after we do some -- we don't even have to wait until we have our expansions read out completely. We could start that earlier. So we're hopeful if things go very fast, it might be something we could start next year, but I can't offer guidance. It's all going to be clinical data dependent on, right? That's certainly possible. Angela Cacace: Great. And then your next question was about ARV-6723, our HPK1 degrader. And so we're very excited about the opportunity for that degrader. It has a very differential profile with respect to both PD-1, and also the kinase inhibitor, the HPK kinase inhibitor that's in the clinic. So what we've been able to show and what you'll hear about at SITC is the impact to T-cell exhaustion and importantly, the impact to the T-cell microenvironment. We are seeing dramatic changes there and outperforming anti-PD-1 and HPK1 inhibitors in both low and high immunogenic tumor models preclinically. So stay tuned. You'll hear a lot more about our oral immunotherapy that we think will outperform, and also be very useful in the setting that is resistant to checkpoint blockade. So we have a lot of enthusiasm around that asset. Operator: And your final question comes from the line of Andrew Berens with Leerink Partners. Unknown Analyst: This is Amanda on for Andy. We wanted to know what you've learned about drug-drug interactions with vepdeg that gives you confidence you won't be seeing similar interactions with the new degraders. I mean, there's something [indiscernible] holds or how they're metabolized in different or similar ways. John Houston: Yes. Thanks for the questions. I mean, in general, PROTACs are no different from small molecules in terms of how you'd analyze them for DDIs. Every single molecule is different. They get metabolized differently. They interact with other molecules differently. So there's not a generic answer on PROTACs because every single PROTAC is going to be unique and different. So yes, some compounds like many drugs, you look at to see how they're metabolized to see if they have a drug-drug interaction, you might see some of that, you might not. That's exactly what we're seeing with PROTAC. So there's no difference between a PROTAC and its DDI potential versus any small molecule. Operator: There are no further questions. I will now turn the call back over to Mr. John Houston for closing remarks. John Houston: Well, thank you very much, and thanks for everybody's great questions. As you can tell, we're very excited about this next wave of programs coming through our early development pipeline, and we're going to be excited to tell you more about them in the coming months. We've got a lot of interesting data coming out. So again, thank you for your time. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello. Good day, and welcome to Diebold Nixdorf's Third Quarter 2025 Earnings Call. My name is Eric, and I'll be coordinating your call today. [Operator Instructions] I'd now like to turn the call over to our host, Maynard Um, Vice President of Investor Relations. Maynard, please go ahead. Maynard Um: Hello, everyone, and welcome to our third quarter 2025 earnings call. To accompany our prepared remarks, we posted our slide presentation to the Investor Relations section of our website. Before we start, I will remind all participants that you will hear forward-looking statements during this call. These statements reflect the expectations and beliefs of our management team at the time of the call, but they are subject to risks that could cause actual results to differ materially from these statements. You can find additional information on these factors in the company's periodic and annual filings with the SEC. Participants should be mindful that subsequent events may render this information to be out of date. We will also discuss certain non-GAAP financial measures on today's call. As noted on Slide 3, a reconciliation between GAAP and non-GAAP measures can be found in the supplemental schedules of the presentation. With that, I'll turn the call over to Octavio. Octavio Marquez: Thank you, Maynard. Good morning, everyone, and thank you for joining us. Starting on Slide 4. Q3 was another solid quarter for Diebold Nixdorf. I'm proud of our team's execution as we grew revenue, profit and earnings per share. This morning, we also announced a new $200 million share repurchase program, reflecting our continued confidence in the strength and cash generation of our business. In Q3, we continue to see healthy demand across our business segments, giving us the confidence to reaffirm our full year outlook. We continue to trend toward the higher end of our guidance ranges across total company revenue, adjusted EBITDA and free cash flow. Product orders grew 25% year-over-year, driven by strength in both banking and retail, with backlog now standing at approximately $920 million. Total revenue grew 2% year-over-year and was up 3% sequentially, fueled by acceleration in our retail business and continued steady contributions from bank. Operating profit grew 4% year-over-year and 19% sequentially, while adjusted earnings per share grew to $1.39, up over $1 per share year-over-year and up about 50% sequentially. Retail delivered particularly strong results in the quarter as the second half recovery gained momentum. Revenue was up 8% year-over-year and order entry grew 40%, reflecting solid demand and execution. I'm very optimistic about our retail growth trajectory going into Q4. We also achieved an important milestone this quarter, positive free cash flow for the fourth consecutive quarter, another new record for Diebold Nixdorf. In addition, we received a credit rating upgrade from Standard & Poor's. As I mentioned, we announced a new $200 million share repurchase program. This underscores the strength of our business, our fortress balance sheet, robust cash flow generation and continued commitment to returning capital to shareholders, a top priority for us and a clear reflection of our confidence in the long-term value of Diebold Nixdorf. Let's move on to Slide 5. Three quarters into our 3-year plan, we are firmly on track to deliver the key objectives we outlined at our Investor Day. In 2024, we stabilized the business and built strong operational teams. In 2025, we strengthened our foundation, both operationally and financially with tangible improvements in manufacturing, service and profitability. These gains have translated into sustainable, profitable growth and continued positive cash flow. We have multiple levers to achieve our targets from operational and manufacturing efficiencies to product and service innovation to disciplined capital allocation. As we already demonstrated, we have multiple ways to win across a dynamic market environment. We remain committed to our long-term goals, generating $800 million in cumulative free cash flow by 2027, achieving 60% plus conversion and approximately 15% adjusted EBITDA margins, all while maintaining a fortress balance sheet and returning capital to shareholders. With a clear strategy and a strong execution track record, Diebold Nixdorf is well positioned to deliver sustainable value for all stakeholders. Now let's turn to Slide 6. Year-to-date, we've made significant progress across the 4 pillars of our growth strategy. In banking, our annual Intersect event in Nashville brought together hundreds of customers and marked the formal launch of our branch automation solutions. This is not just a single product. It's a comprehensive approach across hardware, software and services that redefines how banks operate by seamlessly integrating and automating digital and physical channels. As the banking landscape evolves, automation will be the defining factor for a bank's success. Roughly 70% of global bank operating expenses are tied to branches. Our solutions help banks reduce those costs, enhance efficiency and improve the customer experience. We continue to see steady refresh activity in ATM cash recyclers and have successfully rolled out teller cash recycling solutions to our first customers, reinforcing our confidence in the broader branch automation strategy. On the service side, leveraging common components between DN Series ATMs and teller cash recyclers is driving greater efficiency, scale and flexibility in how we support our customers. At the same time, our software enables seamless end-to-end cash management and integration into digital channels, helping banks modernize their operations. Together, these capabilities strengthen customer relationships and position us to capture the growing opportunity in branch automation. In retail, while the broader industry continues to face headwinds, our retail product business is bucking that trend. We anticipated an inflection in the second half, and that's exactly what we're seeing. We have important new wins with key customers in the point-of-sale and self-checkout spaces as retailers maintain focus on optimizing and improving the customer experience. Feedback on our AI-powered dynamic SmartVision deployment has been overwhelmingly positive, helping us differentiate from competitors and expand our pipeline. Our ability to rapidly develop, pilot and most importantly, scale this technology is positioning us as an industry leader. Dynamic SmartVision is now live in over 50 stores, and we're expanding the use cases to address shrinkage and point of sale in manned lanes with future opportunities to extend and tackle shrink across the store aisles. Our service organization continues to deliver. SLA performance has improved meaningfully versus last year. We accelerated investments in technology and people to deliver a premier service experience because great service drives customer loyalty and market share gains. As we've refined our branch automation solution strategy, customers are increasingly asking for a single provider to manage all their service needs. In line with our disciplined capital allocation strategy, we've completed a targeted tuck-in acquisition in the service area to enhance our multi-vendor capabilities. As we look at our operations, we have multiple ways to win. I'm proud to report that we saw strong progress in working capital with year-over-year improvements in both DSO and DIO. This highlights the strong cross-functional collaboration across the company. In our manufacturing operations, our lead times are down, quality is up and our supply chain execution remains a strength. North American operations are benefiting from higher throughput at our Ohio facility and increased sourcing of parts in the U.S. We are also on track to achieve at least $50 million in SG&A run rate reductions next year. Overall, the pillars of our company are strong and provide us with multiple ways to achieve our goals. Now on to Slide 7. We continue to advance in our lean and continuous improvement journey. This approach now extends well beyond manufacturing, empowering teams across the organization to identify and act on new opportunities for efficiency and effectiveness. In Q3, our European operations held a Kaizen week in France, resulting in safety improvements and an optimized invoicing process that accelerated collections. Our field and logistics teams also uncovered process improvements, including a redesign of our logistics network in France that is expected to generate meaningful cost savings and serve as a blueprint for other regions. In Paderborn, our teams focused on eliminating energy waste, implementing daily energy management programs and new LED lighting initiatives that will deliver immediate and growing savings over time. The facility also achieved ISO 50001 certification, underscoring our commitment to sustainability. I am pleased to share that Diebold Nixdorf was recently named one of the world's best companies by Time Inc. After a comprehensive analysis of employee satisfaction, revenue growth and sustainability that included participants from thousands of global companies, Diebold Nixdorf earned a place in this prestigious annual list. My thanks goes out to the talented global Nixdorf team. With one quarter left in 2025, we are well positioned to finish another strong year, delivering on our commitments and continuing to create value for all stakeholders. With that, I'll turn it over to Tom to walk through our financial results. Thomas Timko: Thank you, Octavio. First, I want to express my sincere appreciation to all Diebold Nixdorf employees for their dedication and hard work. Q3 was yet another quarter where we demonstrated our commitment to doing what we say. Turning to Slide 8. Diebold Nixdorf posted solid Q3 revenue growth, which rose 2% year-over-year and was up 3% sequentially. We finished Q3 with very solid product backlog of $920 million, down from $980 million at the end of the second quarter on planned deliveries, partially offset by strong new order entry, which was up 25% year-over-year, led by retail. As we previously shared, we expected revenue to be weighted toward Q4. Given the momentum we're seeing and our backlog, we have line of sight to deliver one of the strongest Q4s in recent history for the company and achieve our full year guidance. Gross margin improved 10 basis points year-over-year and declined 30 basis points sequentially. Product gross margin improved significantly year-over-year, rising by 140 basis points. There are a number of puts and takes, but the strong performance was primarily driven by favorable geographic mix as well as improved pricing. On a sequential basis, product gross margin declined by 60 basis points, which was expected and primarily due to the normalization in mix and continued strength in point-of-sale units, which generally realized lower margins. Importantly, we remain well ahead of our initial expectations with product gross margins on track to exceed the 50 basis point year-over-year improvement we projected earlier this year at Investor Day. On the service side, gross margins declined by 10 basis points sequentially and 80 basis points year-over-year. In prior quarters, we discussed how vital delivering the best service in the industry is to our customers and to us. To that end, we accelerated and increased investments in the rollout of our enhanced field services software, new field technicians and the consolidation of our spare parts and distribution facilities in Europe. Strength on the product side of the business gives us the conviction to make and accelerate investments we believe will generate profitable growth for products and services going forward. By continually raising the bar, we'd strengthen our relationships and create a positive cycle. Outstanding service leads to greater customer loyalty and over time, more opportunities for product sales. As a result of these investments, we now expect margins for services to be comparable to last year at approximately 26%. These service headwinds are offset by product margins and OpEx improvements, demonstrating that DN has multiple ways to win. Turning to operating expense. We continue to take disciplined cost actions through focusing on facilities and indirect procurement. Operating expense was down sequentially, reflecting these efforts. This is part of our ongoing actions to improve our cost structure. 2025 is about strengthening our foundation for accelerated profitable growth in 2026. As part of this effort, we've conducted a comprehensive review of SG&A spend across the organization, identifying over 200 actions, which are expected to deliver up to $50 million in net run rate savings next year. We're confident in our ability to sustain cost discipline while reinvesting in areas that support long-term growth. Continuing to Slide 9. We continue to see strong trends across our profitability and cash flow metrics. In Q3, adjusted EBITDA reached $122 million with margin expansion of 70 basis points. sequentially and 20 basis points year-over-year, underscoring our commitment to driving higher quality earnings growth. Operating expense controls contributed to 4% year-over-year and 19% sequential increase in operating profit, reaching $87 million for the quarter and a very solid 9.2% operating margin. We're also making significant progress on non-GAAP EPS, which increased about 50% sequentially to $1.39 and increased by over $1 a share year-over-year. In Q3, our effective non-GAAP tax rate came in at approximately 19%. This improvement was primarily driven by the recent announcement of lower tax rates in Germany. As a result, we now expect our non-GAAP effective tax rate for the full year of 2025 to be in the 35% to 40% range, down from 45%. Free cash flow nearly doubled sequentially to approximately $25 million. Q3 marks the first time the company has generated positive free cash flow for 4 consecutive quarters, a clear demonstration of our ability to build and sustain a consistent quarterly cash flow generating business. We're very proud of the continuous progress we've made in working capital management. As of the third quarter, we have realized year-over-year improvements of days inventory outstanding, or DIO, by 11 days and days sales outstanding or DSO by 9 days. Looking ahead, we see continued opportunities. Moving to Slide 10. Banking continued to deliver solid results. We achieved sequential growth across key global markets. Revenue was roughly flat year-over-year and up $11 million sequentially. Gross margin in our Banking segment increased by 20 basis points year-over-year and was down 70 basis points sequentially. Last quarter, we benefited from a favorable geographic mix, while this quarter was more balanced. Looking ahead, we expect to continue driving steady ATM refresh activity in all geographies, and we're encouraged by the first orders of our teller cash recyclers in our branch automation solutions strategy. Turning to Slide 11. Our Retail segment delivered strong results for the second consecutive quarter with sequential growth in order entry, revenue and backlog. Gross margin was up 100 basis points sequentially with improvement in service margins and continued point-of-sale strength. As we committed to last quarter, retail revenue and gross margin grew sequentially. We expect to continue driving sequential growth in this segment through year-end. Moving ahead, let's review our guidance on Slide 12. We're maintaining the guidance we shared last quarter and continue to trend toward the higher end of the ranges across total revenue, adjusted EBITDA and free cash flow. The strong performance we posted so far, along with what we see shaping up to be one of the strongest Q4s in recent history, gives us a high level of confidence we can close the year well positioned to achieve further growth in 2026. And as we've shown, we have multiple ways to win. Turning to Slide 13. We remain committed to maintaining our fortress balance sheet, which underpins our disciplined capital allocation strategy. During the quarter, we received a credit rating upgrade from S&P Global from B to B+, validating our efforts to strengthen financial performance and focus on maintaining our strong balance sheet. Also today, we announced our new $200 million share repurchase program. Our goal is to maintain the momentum established with our prior program. This action reflects our disciplined approach to capital allocation and our confidence in the long-term value of the company. We will continue to prioritize actions that drive profitable growth, maintain our fortress balance sheet and deliver value to our shareholders. At the end of the quarter, we had approximately $590 million of liquidity, including $280 million in cash and short-term investments and $310 million of our revolving credit facility, which remains untapped. Our net leverage ratio remains comfortably within our targeted range of 1.25x to 1.75x. With that, I'll turn it back to Octavio for closing remarks. Octavio Marquez: Thanks, Tom. To wrap things up on Slide 14, our banking business continues posting solid performance, and we're executing well. We're seeing strong growth in APAC and the Middle East, which is expanding our installed base and driving recurring service revenue. In North America, we expect to build further momentum with our branch automation solutions. In retail, we're back to year-over-year and sequential growth, and our solutions continue to resonate well with the market, driving efficiency and enhancing customer experience. Across the organization, we're streamlining our structure, aligning functional expertise with strategic objectives and leveraging AI and standardizing processes. These actions are expected to further reduce SG&A and enable faster, more scalable growth. Finally, we strongly believe in the long-term value of Diebold Nixdorf and remain laser-focused on delivering shareholder value. We appreciate your support as we advance on our journey building a stronger Diebold Nixdorf for many years to come. And with that, operator, please open up the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Matt Summerville with D.A. Davidson. Matt Summerville: Maybe first, can you talk about the magnitude of impact on service profitability associated with the accelerated investments you referenced and if this changes kind of the margin cadence into '26 and '27 as it relates to your targets? And then I have a follow-up. Thomas Timko: Yes. Sure, Matt. So service margins this quarter and what we're looking at for the year, we expect now to be flat to slightly up, really driven by -- you heard Octavio on the call mention our product margins and some of the OpEx resilience that we're seeing, and this is the best thing about sort of the new Diebold, right? We have multiple ways to win. So although service margins are going to be flat, what we decided to do because of the product margins and some of the OpEx upside that we saw earlier was to accelerate some of the investments that we need to make into that service business to get to a world-class service level for our customers. That included the consolidation of repair and spare parts depots across Europe, and we're looking at other opportunities in labs and where we have commercial offices as well, but also the field technician software rollout, the acceleration of that in North America, and then lastly, as our C-base has expanded, we've added more field technicians to the mix as well to really help improve our SLAs. So that investment was about $10 million, and that will be spread between Q3 and Q4. So that's really what drives the service margins down. But again, we're still able to do what we said we were going to do and meet total EBITDA expectations because of the multiple ways to win on product margins and OpEx. Matt Summerville: And then maybe spend a minute focused on the retail business, specifically in North America. Some of the KPIs you've been disclosing around proof of concepts, pilots, no mention of that this quarter. Maybe just a refresh on where things stand. And obviously, no logos mentioned per se. So maybe talk about how that effort is tracking versus your expectations. Octavio Marquez: Yes, Matt, and again, sorry for not talking to more in this call about proof of concept. But again, we keep increasing the number of proof of concepts globally, particularly in North America. We're happy that we're now in several dark stores at some large grocers where they're testing our solutions. So we remain optimistic that we've created a differentiated product for the market. It keeps resonating. And as you know, we're trying to unseat some very long-standing incumbents in those markets, but we remain very optimistic that through the strength of our technology, the strength of our service team and the focus that our new sales team is putting on things, we should be seeing results. And we remain very, very optimistic about the retail business. As you saw, order growth was very substantial. Revenue growth was substantial as well. And we're very well positioned to do that again in Q4. So we remain very optimistic about the retail business. Operator: Your next question comes from the line of Antoine Legault with Wedbush Securities. Antoine Legault: Just on the banking front, Octavio, I think you had mentioned expecting a pace of about 60 to 70 annual refresh orders on your installed base. Is that still the right way to think about cadence? And are those typically simple refresh orders of existing machines? Or are those -- can those be orders that are upgrades to recyclers? Can you just help us think about that? Octavio Marquez: So Antoine, I think that, that pace of around 60,000 machines every year is the right way to think about it, and all these will be new placements. We are not upgrading old machines into recyclers. It's more cost effective and it's a much better machine, the BS Series, every customer I talk to keeps reminding me that we have the best product in the industry there and that we should just accelerate the deployment of those because of the reliability, the functionality that it provides to customers. So yes, keep thinking about it that way, 60-plus thousand machines every year for the foreseeable future. Antoine Legault: Noted. And on the gross margin front, you are looking at Q4, I think last year, gross margins dipped a bit sequentially due to geographic mix in the ATM business. How should we think about it this year? I know you mentioned you're expecting continued sequential improvement in retail in the fourth quarter, but how should we think about it from both on a segment basis and on a consolidated basis? Thomas Timko: Yes. So margins for Q4 we expect a pretty -- in total, I would say, pretty similar run rate to what we saw in Q3 as we finish out the year, and the split between banking and retail, I would say, is compared to last year, banking coming in closer at 20 -- where do we end the year at 24% last year, probably closer to 26.5-ish, which is very consistent with what we did last quarter, and then retail coming in at 2024. So a little -- that was last year and then this year, it would be closer to 25%. So again, you'll see sequential improvement quarter-over-quarter and year-over-year. So think mid-25s on retail. Operator: Our next question comes from the line of Justin Ages with CJS Securities. Justin Ages: Can you give us a bit more detail on that small acquisition you mentioned? What capabilities are you getting out of it and how it better serves your customers or what your customers are looking to do? Octavio Marquez: Yes. So yes, Justin. So it's a fairly small acquisition, but it gives us a very important capability that we didn't have in the U.S., which is to serve different brands of equipment in the branch. When you think of our branch automation solutions, we're clearly very focused on having our own teller cash recyclers in the branch. But this is a process for most banks that are already using teller cash recyclers or teller cash dispensers, replacing those machines. So there has to be a transition period where they're asking us to maintain their old fleet from different vendors. So with this small acquisition, we've acquired the skill set to repair third-party parts. And this company had also a fairly robust process on how to serve third-party products. So that's the capabilities that we're acquiring, something that will expand our addressable market going into this multi-vendor space, particularly around branch products. Justin Ages: Okay. That's helpful. And then now that BAS has formally launched, can you give us some insight into the response versus the big national banks and the smaller regional banks? Are you seeing more demand on one side than the other? Octavio Marquez: So Justin, as with everything in banking, kind of the leading banks of the world set the pace for the rest of the market. So we had the opportunity a couple of weeks ago to -- or a couple of months ago to have some of our largest customers present our customer event. Some of our large customers were up on stage with us touting the benefits of this closed-end cash ecosystem where you have the ATM recycler, the teller cash recycler, the interchangeability of the cassettes inside the devices, the overall management software that not only controls the cash at the branch level, but that helps integrate the branches more to the digital world of banking. So big banks are very excited about that. And the response is that as we presented this to literally hundreds of our smaller customers, there's now increased interest on them on how can they actually deploy similar solutions. So I think that the thing that would happen with recycling, we started with the larger banks and it's trickled down to the regionals, now to the smaller credit unions, community banks, I think that we will see that same trend with our branch automation solutions. Operator: Our next question comes from the line of Matt Summerville with D.A. Davidson. Matt Summerville: Just a couple of quick follow-ups. Obviously, you accelerated pretty materially the cadence of your share repurchase wrapping up that $100 million. How should we be thinking about how that $200 million just announced, how that unfolds heading into 2026? Thomas Timko: Yes. Look, our goal is to really maintain the momentum that we established under the prior program and maintain as much flexibility as we can for the company as we go forward. But look, Matt, as we're looking at 2026 as a year where we end up converting more cash, our EBITDA conversion, our cash conversion number increases by over 10% year-over-year. We're going to have more cash during the year to deploy. And right now, we think given the stock price, and we just feel very confident in our company's ability to generate cash. And we feel the stock is the best return on investment that we can make at this point in time. So again, we're dealing with stock that we feel is undervalued and underappreciated. And we're going to continue to be in the market, I would think, at a similar pace that you saw, but we reserve the right to be flexible as opportunities like HTx come up or other type of bolt-on acquisitions as well. So -- but right now, our plan is to sort of maintain that same level of buyback that you saw over the last 2 quarters. Matt Summerville: Got it. And then, Octavio, I always find it useful if you take a minute and just kind of talk through the ATM side of the business in terms of what you're seeing with respect to geographic demand trends? Octavio Marquez: Yes. So thank you, Matt. So I'll -- let's walk around the world. So North America, I would say we see a very steady business. The refresh cycle in large banks continues to evolve at the same pace that it's been over the past couple of quarters. Recyclers are now, I would say, basically the only product that we sell in North America with a few exceptions that customers that still require cash dispensers, particularly like in the casino space or customers that have a large presence in convenience stores. But North America remains at a very steady pace. I'm happy with the progress that we're making. I think that's a big opportunity in North America is as we mature branch automation solutions, teller cash recyclers will start becoming a bigger part of the mix. So I'm happy that we're manufacturing them here in Ohio because that clearly creates a competitive advantage for us. As far as Europe, Europe, to be honest, is having a blockbuster year. I'm super proud of the team there. The -- as Tom likes to say, they found multiple ways to win in a market that is not really growing that much. We continue to gain share, gain customers, significantly improve our service capabilities there. So I'm very happy with Europe. We had strong orders from all major markets in Europe. So again, I think Europe will end the year in a very strong note. So Europe continues to be very healthy. Asia Pacific, we made that big decision to reenter, as you know, India create fit-for-purpose devices for multiple markets. The Middle East with the high capacity cash recycler, the highest capacity device in the world, India with a more energy-efficient, smaller footprint device, and we've been winning business, which is very important because, as you know, we have been -- had a shrinking installed base in that part of the world, which we are now starting to reverse the trend. So that provides significant upside for us in future years around the service and software opportunity. Lastly, let me talk about Latin America. As you know, it's always been dear to my heart. This year hasn't been as strong in Latin America overall. It hasn't been a bad year, but it hasn't been as strong as we had hoped for. There's a little bit of political turmoil in most markets in Latin America. So banks are a little bit more cautious. But -- as we look at our opportunity there, continues to be the most heavy cash usage society in most places. So we're optimistic that as we enter Q4 and go into next year, Latin America will once again pick up the pace. And again, I always separate Brazil from Latin America because it's such a unique market. But now that Brazil is manufacturing devices for all of Latin America, we're gaining also a lot of efficiency in our Brazilian manufacturing. And we're still waiting for some of these big government RFPs that keep being postponed, but we know that we will get them. We're just hoping that they can materialize faster. But again, Latin America, still very optimistic about the market, even if this year wasn't as strong as we had hoped for. But once again, that's the importance of having the geographic diversity that we have that when one market is suffering, then a couple of others can pick up. So North America picked up some of the slack, Europe picked up some of it, Asia Pac. So we're very confident that the model that we have, the distributed manufacturing footprint, the local to local clearly is a strength for the company. Operator: Thank you. At this time, we have no further questions. I'll now turn the call over to Maynard Um for his closing remarks. Maynard Um: Thanks, everyone, for participating in today's call and your interest in Diebold Nixdorf. If you have any follow-up questions, feel free to reach out to the Investor Relations team. So thanks again, and have a great rest of the day. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Hello, everyone, and welcome to the Johnson Controls Q4 2025 Earnings Conference Call. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions] I will now hand the call over to Jim Lucas, Vice President, Investor Relations, to begin. Jim, please go ahead. James Lucas: Good morning, and thank you for joining our conference call to discuss Johnson Controls' Fiscal Fourth Quarter 2025 results. Joining me on the call today are Johnson Controls' Chief Executive Officer, Joakim Weidemanis and Marc Vandiepenbeeck, our Chief Financial Officer. Before we begin, let me remind you that during our presentation today, we will make forward-looking statements that reflect our current views about our future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Please refer to our SEC filings for a list of these important risk factors that could cause actual results to differ from our predictions. We will also reference certain non-GAAP measures throughout today's presentation. Reconciliations of these non-GAAP measures are contained in the schedules attached to our press release and in the appendix to this presentation, both of which can be found on the Investor Relations section of Johnson Controls' website. I will now turn the call over to Joakim. Joakim Weidemanis: Thanks, Jim, and good morning, everyone. Thank you for joining us on today's call. As we close out our 140th year as a company, I want to begin by recognizing the extraordinary efforts of our 90,000 colleagues around the world. Their dedication to our customers and their commitment to our mission have been the driving force behind our progress and the results. Since joining Johnson Controls, I made it a priority to spend time where value is created, in the field with customers and our teams, at our innovation centers and on the factory floors around the world. It's important to be right alongside our team, as they do the work to deliver for our customers. These experiences have given me a firsthand appreciation for the passion and expertise that define our culture. Our customers and my colleagues on the front lines give me valuable insights on how we work and where we can improve processes and uncover new opportunities together. Learning about our capabilities and seeing our teams drive our company forward by problem solving, to better serve our customers, has reinforced my belief in the strength of our foundation and the significant opportunities we're beginning to capture. Before I dive into the specifics, I want to summarize where we stand today and our path forward. First, we delivered strong results this quarter and for the full year, exceeding our free cash flow target and continuing to build a record backlog. Second, our proprietary business system is taking shape as our growth engine, combining 80/20 and lean principles with digital and AI approaches to create a more customer-centric and continuous improvement-oriented organization. Third, we are updating our long-term growth algorithm to reflect improved mid-single-digit top line growth, enhanced operating leverage, double-digit adjusted EPS growth and continuing to target 100% free cash flow conversion, demonstrating that the opportunity in front of us is clear, significant and achievable. Turning to our results. Fiscal 2025 was a year of strong execution and momentum. Sales grew 6%, segment margins expanded by 100 basis points and adjusted EPS increased 17%. Notably, we offset the dilution from the residential and light commercial divestiture in 1 year, ahead of our original expectations. Free cash flow conversion reached 102%, reflecting our disciplined execution and financial strength. Orders grew 7% for the year, and our backlog expanded 13%, ending at a record $15 billion. This sustained demand highlights the value our customers place in our solutions and the strength of our portfolio. This quarter's performance reflects our disciplined execution and operational focus. While our evolving business system is still in its early stages, we're already seeing encouraging signs of progress. Let's turn to Slide 6. Last quarter, we introduced our proprietary business system, a proven approach to building a stronger, more disciplined company. It is rooted in winning and retaining customers through differentiated products, services and exceptional experiences. It's about enabling frontline colleagues, engaging all teams in building a better Johnson Controls and being a magnet for talent. Our system is built on 3 pillars: simplify, apply 80/20 principles to focus on what matters the most; accelerate, use lean methodologies to remove waste and accelerate execution and scale, leverage digital and AI approaches to amplify impact across the enterprise. And it's anchored in a global cross-functional language and methodology for how we communicate and collaborate to win. The approach is practical, identify barriers to growth and remove them quickly. We start narrow and go deep, get the root causes, pilot countermeasures, adjust and secure frontline buy-in before scaling broadly. While it's still early days and business systems take time to mature in large organizations, I'm energized by our progress. More than 700 colleagues are actively engaged across several priority areas and have conducted over 50 kaizens to date with many more to come. We have already trained 200 leaders worldwide through activation boot camps. Leadership plays a pivotal role in the progress of our business system and our opportunity to build an even stronger company that is more capable, more focused and more disciplined, a company that executes with consistency and delivers for customers where it matters most. To further strengthen our leadership capabilities and align talent with strategic priorities, we recently announced a new leader of our Americas segment, Todd Grabowski. He brings over 30 years of experience in the commercial part of our business and product management within our largest franchise, our global applied business. His industry knowledge and customer orientation will be instrumental, as we accelerate growth and sharpen our customer focus in this important region. Earlier this week, we announced to our colleagues the hire of a global leader of manufacturing, a key role accountable for performance across our factory footprint, driving improvements in safety, quality, delivery and cost, SQDC, using our business system to build competitive advantage and winning performance for our customers as well as drive overall productivity, creating more funding for reinvestments. As we continue to strengthen our talent development, it will enable us to accelerate our progress. Last quarter, we highlighted 2 areas with clear potential, sales capacity and productivity and factory on-time delivery. Today, I want to show you how our proprietary business system is already delivering measurable progress. By working together across teams and leveraging 80/20 and lean tools, our conventional HVAC sellers in one of our local markets increased the time they're able to spend engaging with customers by over 60%, and our team manufacturing key chillers in North America improved on-time delivery to over 95%. These examples reflect our commitment to going narrow and deep, focusing on specific areas to uncover the true sources of waste and avoid surface level fixes. This approach enables faster piloting, stronger frontline engagement and eases broader deployment later across the organization. As is typical in continuous improvement, we see even more opportunities as we dig deeper. In the example of selling time with a customer, the team streamlined the sales process by eliminating non-value-added process steps and upgrading tools to accelerate the sales cycle. These improvements simplified workflows and led to more than a 60% increase in time spent engaging directly with customers. We're now applying AI to the overall sales process of estimation and selection to codify, scale and amplify several process steps that will yield even more time with customers on top of that. We've also been focused on improving the on-time delivery in one of our key chiller plants that serves the rapidly growing data center vertical. While we have a leading position in advanced thermal solutions for data centers, historically, our on-time delivery was inconsistent and our lead times were longer than what customers demand. Leveraging 80/20 and lean approaches, we have dramatically improved on-time delivery and are now over 95% and lead times are on the way of being cut in half. I'm confident we can maintain this standard, which only strengthens our competitive advantage and our ability to win in this fast-growing vertical. This isn't about putting a playbook on a shelf, it's about fundamentally changing how we work. These improvements come from going narrow and deep, countermeasuring root causes and engaging the teams impacted, ensuring sustainable change and easier scaling across the enterprise. Simplify, accelerate, scale. That's how we win together. As we move to Slide 7, you'll see how our focus on technology innovation and sustainability is powering our future growth and reinforcing our leadership in mission-critical verticals. Johnson Controls continues to strengthen its leadership in advanced thermal management. With AI-driven demand for high-density data centers, pushing cooling technology to new limits, we are well positioned across the thermal management or cooling chain as well as with our integrated offering of digital monitoring and controls. During the quarter, we successfully launched our coolant distribution unit offering, a major milestone in our differentiated data cooling center strategy. CDUs are critical enablers of liquid cooling, which is rapidly becoming essential, as AI chips are becoming more powerful and generating more heat. Traditional air cooled systems are reaching physical limits, driving a transition toward liquid and hybrid cooling architectures that improve thermal management performance in addition to energy and water efficiency. This launch, combined with our award-winning YVAM magnetic-bearing chillers, absorption chillers and now our strategic investment in Accelsius positions Johnson Controls to deliver a comprehensive and integrated portfolio that addresses the full thermal management spectrum from chip to ambient, covering the entire heat capture, removal and regen journey. We are receiving strong early interest from hyperscale customers, who are prioritizing energy efficiency and sustainability, core pillars of our innovation strategy. Our data center solutions are aligned with global trends in AI and increasing compute density, where thermal performance is now a strategic differentiator. With our cooling technologies reducing non-IT energy consumption by more than 50% in most North American hubs, we are delivering substantial energy savings. This reinforces our role as a strategic partner to the world's leading data center professionals at a time when the vertical is poised for significant growth over the next decade. In Europe, we recently made a major announcement that underscores our leadership in decarbonization. Johnson Controls will provide green heat to the city of Zurich through a landmark waste incineration project. While we've delivered similar solutions across the region, this deployment more than doubles the heat capacity of our previous largest project and ranks amongst the largest heat pump installations globally to utilize the zero GWP refrigerant ammonia. Our advanced heat pump technology will recover energy from flue gases and feed it into the district heating network, supplying heat to approximately 15,000 homes, about 15% of the city's total district heating demand. This project is another powerful example of how Johnson Controls is enabling critical industries, institutions and now cities to transition to sustainable heating solutions, while maintaining reliability and performance, and it highlights the tremendous opportunity to harness excess heat, reduce operating costs and accelerate decarbonization. In 2024 alone, our heat pumps enable customers to cut energy costs by 50% and emissions by 60%. The partnership we have with Zurich and other cities as well as with hundreds of others from global manufacturers in pharmaceuticals, chemicals, food and beverage and more solidifies our leadership position in the European energy and heat transition where we can capture our share of these opportunities amid regulatory tailwinds and accelerating customer demand. These initiatives reinforce our leadership in thermal management, decarbonization, digital solutions and mission-critical environments, supported by our commercially advantaged embedded service capabilities and relationships. The strength of our service model lies in the combination of customer intimacy, technical depth and global reach. With direct service operations across the globe, Johnson Controls delivers consistent high-quality support to customers over the life cycle in mission-critical verticals such as data centers, advanced manufacturing, life science manufacturing and large hospital and university research centers. Our ability to deliver consistent service across the global footprints of hyperscalers is a unique differentiator. As data centers multiply, our service model is helping maintain the pace, positioned to deliver reliability wherever our customers build. Our view is that customers will always demand high-touch, high availability service, and that is an unparalleled differentiator for Johnson Controls. Now as we look ahead, our guidance for fiscal 2026 builds directly on the momentum we've established this year. I already previewed our updated long-term growth algorithm, and Marc will discuss the details shortly, but I want to highlight how excited we are about the opportunity in front of us. In short, our strategy to leverage our strengths, particularly in HVAC, Controls and Digital to deliver differentiated value and long-term growth underpins our success. Our ability to meet global demand for mission-critical systems, whether in data centers or decarbonization projects is backed by an exceptional service organization and positions us to capture significant opportunities ahead. With that, I will now turn it over to Marc. Marc Vandiepenbeeck: Thanks, Joakim, and good morning, everyone. We closed fiscal 2025 on a strong note, delivering another quarter of solid financial performance. This consistent execution throughout the year has strengthened our foundation and position us well, as we enter the new fiscal year. Our ongoing focus on stronger operational discipline, customer satisfaction and continuous improvement is driving results, and we remain committed to generating sustainable long-term value for our shareholders. Now let's take a closer look at fourth quarter results on Slide 8. In the quarter, organic revenue grew 4% and segment margin expanded 20 basis points to 18.8%, driven by our ongoing focus on cost discipline, favorable mix and the tangible benefit of our productivity programs. Adjusted EPS of $1.26 increased 14% year-over-year and exceeded the high end of our guidance range. On the balance sheet, we ended the quarter with approximately $400 million in available cash. The net debt remained within our long-term target range of 2 to 2.5x, declining to 2.4x compared to the prior year. For the year, adjusted free cash flow improved by approximately $700 million to $2.5 billion. Our strong earnings performance and rigorous approach to working capital management enabled us to achieve 102% free cash flow conversion for the year. This reinforces the strength of our execution and the quality of our earnings. Let's now discuss our segment results in more detail on Slide 9 and 10. We are seeing strong customer engagement and healthy demand for our solution across key verticals. Orders grew 6% in the quarter, highlighted by 9% growth in the Americas, supported by strength in data centers. In EMEA, orders increased 3% despite a challenging comparison to 14% growth in the prior year with double-digit growth in service. In APAC, orders saw a small decline of 1% as decrease in system more than offset mid-single-digit growth in service. At the enterprise level, organic sales growth was led by mid-single-digit growth in service. In the Americas, sales were up 3% organically on a tough compare, supported by continued strength in both HVAC and Controls. EMEA delivered 9% organic growth with strong double-digit growth in system and high single-digit growth in service. In APAC, sales declined 3% organically due primarily to lower volumes in China. This result reflects strong execution, particularly in the Americas and EMEA against a backdrop of challenging year-on-year comparisons. Margin performance improved steadily throughout the year, as we capture greater operating leverage and continue to optimize our cost structure. Our resilient operating model enabled us to align pricing, productivity and mix to support consistent profitability even as market conditions evolved. This translated into notable fourth quarter performance. By region, adjusted segment EBITDA margins in the Americas improved 50 basis points to almost 20%, supported by productivity gains and operational efficiency. In EMEA, margin expanded by 30 basis points to 15.6%, reflecting positive operating leverage from top line growth. In APAC, margins declined 190 basis points to 17.8% as lower volumes in China created pressure on factory absorption. Our backlog remains at a record level, growing 13% to $15 billion. System backlog grew 14% and service backlog grew 9%. With this momentum in mind, let's discuss our long-term outlook and capital allocation priorities on Slide 11 and 12. We are updating our long-term growth algorithm to incorporate the principles of our value creation framework and the momentum we have built this year. As we look ahead, we expect to deliver mid-single-digit organic revenue growth, operating leverage of 30% or better, double-digit adjusted EPS growth and approximately 100% free cash flow conversion. This algorithm is supported by 3 key factors: first, the sustained demand for decarbonization and mission-critical solutions. Second, the continued evolution of our proprietary business system to drive operational efficiency and third, the ongoing technological innovation through new product launch and a disciplined approach to portfolio management by channeling resources into our most attractive growth areas. On capital allocation, our priorities remain unchanged. We are investing in organic growth. We are focusing on returning capital to shareholders through dividend and share repurchases. And finally, we are pursuing selective acquisition to strengthen our portfolio. Our strong balance sheet and consistent cash flow generation gives us ample flexibility to execute on these priorities with confidence. Let's now discuss our fiscal first quarter and full year guidance on Slide 13. Momentum remains strong as we begin the first quarter, supported by operational efficiencies and a record backlog. We anticipate organic sales growth of approximately 3%, operating leverage of approximately 55% and adjusted EPS of approximately $0.83. For the full year, we are confident in our ability to deliver our long-term growth and profitability commitments. We expect organic sales growth of mid-single digits and adjusted EPS of approximately $4.55 per share, which is over 20% growth. We anticipate operating leverage to be approximately 50%, which is above our long-term algorithm, as our efforts to remove stranded costs are recognized faster in the new fiscal year. Our guidance reflects continued operational discipline, strong customer demand and the visibility provided by our record backlog. Our ability to navigate evolving market conditions reflect the strength of our enterprise capabilities and the resilience of our operating model. We expect approximately 100% free cash flow conversion for the year, consistent with our long-term financial framework. This reflects our focus on earnings quality, working capital discipline and efficient capital deployment, all of which support our ability to invest in growth, while returning value to shareholders. We have built a strong foundation for the years ahead. As we enter fiscal 2026, our focus remains on advancing sustainable growth, expanding margins and creating lasting value for our shareholders. We look forward to keeping you updated on our journey. Operator, we are now ready for questions. Operator: [Operator Instructions] The first question goes to Amit Mehrotra of UBS. Amit Mehrotra: Marc, the 50% operating leverage target for 2026, can you just walk that the segment EBITDA margins? There's some moving parts on corporate expense amortization, but it looks like it implies about 90 basis points of expansion from the 17.1%. Correct me if I'm wrong, but if you can just kind of double-click on that, that would be helpful. Marc Vandiepenbeeck: Yes, sure. Thanks, Amit. Yes, you're pretty close on margin. I would say by segment, EMEA and APAC will be the main driver of margin improvement this year. Not that Americas will not contribute, but if you look at that incremental, they've shown a decent improvement this year and the level of ramp year-on-year will be probably a little bit more muted than the other segment. But overall, we feel very comfortable that our operating leverage will be in the 50s or above. Amit Mehrotra: And then, Joakim, just on the opportunity going forward. I mean, there's a lot of stuff here. There's a cost opportunity. There's maybe a portfolio opportunity. You talked about M&A, maybe rank those. It just seems like there's maybe a huge G&A opportunity, but then also there's a lot of questions about maybe slimming down the portfolio further. But can you -- obviously, you're 237 days into the job now. So maybe just offer a little bit more color on prioritizing all those buckets of opportunity. Joakim Weidemanis: Amit, thanks for keeping count on the number of days I've been with the company. Well, let's start with where you left off with Marc. So the operating leverage. There's a reason there's a plus behind the guidance and how we're thinking about operating leverage. And that really comes back to what we're doing with the business system, where we are going after driving productivity in our field operations and our factory footprint and then -- field operations and service. And then in SG&A, we see leverage opportunities, i.e., getting more out of the SG&A investment that we have, more the S of the SG&A with the help of the business system, and I gave you an example here in the prepared remarks. So I'm very excited about the continued progress that we're going to be able to make there and hence, the plus behind the leverage in the guidance. And then as we've talked about before, we have and we're working away at reducing the G&A cost and our corporate costs. So we continue to do that. There's no change in our ambition level there at all. And then on the M&A side, we continue to work away at the portfolio that we have together with the Board, and we have evolved a little bit more clarity on our future strategies here. But as I said last time, that's a multi-quarter effort together with the Board, and that effort is really guided by creating shareholder value. That's the #1 principle, right? And then in terms of acquisitions, we have started to apply some of the discipline that I have learned in prior roles, prior to joining Johnson Controls. So I can tell you that our acquisition pipeline is vibrant. And we are engaged in multiple situations. And we are being very, very disciplined about doing the proper strategy work, the proper target work and not falling in love with anything in particular and being just very, very disciplined about capital allocation. Operator: The next question goes to Nigel Coe of Wolfe Research. Nigel Coe: I just want to go back to the 50% incremental margin -- sorry, 50% plus incremental margin for FY '26. And if I take 30% as your baseline operating leverage, it suggests there's about $250 million of benefits over and above that 30%. Number one, is my math okay on that? And maybe just talk about that $250 million, and you suggested delayering and a number of other initiatives. Is there anything in there for process improvements, et cetera? Just want to get a bit more details on that. And should we think about this as confined to FY '26? Or could there be benefits beyond this year? Joakim Weidemanis: Marc can help you on the exact math here. I'm sure we'll be talking about that in follow-up calls as well, but we are just getting started with our business system. And so some of the examples that I shared with you today, my objective was to share an SG&A example and an above gross margin example. And we are just getting started. And as you saw from the examples I gave, the opportunities are significant here. So that operating leverage is going to continue to improve over time. And the main reason we're actually shifting the guidance to include that, and have a strong element of that, is it's really reflecting what we're trying to do here. We're trying to build a higher-performing company that's more focused on profitable growth and -- but both driving top line by pointing at higher growth opportunities, verticals, applications, but also doing the solid productivity work that I talked a little bit about as well as the responsible cost reductions that we've discussed in other quarters. Marc Vandiepenbeeck: Nigel, directionally, your numbers are there or thereabout, yes. Operator: The next question goes to Steve Tusa of JPMorgan. Patrick Baumann: Hello? Joakim Weidemanis: Yes, can you hear us? Patrick Baumann: So just on this -- yes, I can hear you now. Just this amort coming down this year, can you just talk about the drivers? And is that related to this $400 million restructuring charge you guys took in the quarter? Also kind of like what -- if it wasn't the amort, what was -- what's kind of like in that charge? What does that relate to? Marc Vandiepenbeeck: Yes. It's not around the restructuring. It's more on the impairments we took in the quarter, Steve. It reflects the different portfolio actions also we've taken over the year, obviously, but there's further reduction possible, if we do act on some of the divestiture we've been contemplating for a while on the fringe of the portfolio. The vast majority came from those onetime actions you saw in the quarter. Patrick Baumann: Okay. Got it. So that decline in amort is sustainable is what you're saying. And is that part of like your stranded cost takeout? Or is that something outside? Marc Vandiepenbeeck: No, completely outside. The stranded cost takeout is incremental today. Patrick Baumann: Okay. And then just one last one on orders. I know you had a really tough comp in the first quarter of last year, but you beat this quarter. Is there -- what would you expect for the first quarter? Will you be up despite the tough comp? Or will that be down on the tough comp in 1Q order-wise? Marc Vandiepenbeeck: Yes. As you know, we generally don't guide around orders. I can tell you that the health of our pipeline continues to improve, and we see opportunity to continuously see growth on our order this quarter and the upcoming quarter as well. Patrick Baumann: Wow, so you can grow off that comp in orders? Marc Vandiepenbeeck: That's right. Patrick Baumann: With your pipeline? Marc Vandiepenbeeck: Correct. Joakim Weidemanis: Yes. And maybe just to reinforce that, we're, as part of, building a faster-growing, more profitable company here. It's not just about the productivity work and the business system work that I talked about. It's also about pointing our efforts from verticals, applications and so on at parts of the market that are growing at a faster rate. Operator: The next question goes to Jeff Sprague of Vertical Research. Jeffrey Sprague: Maybe just a couple of modeling nits for me, too. Interesting on the amortization, obviously, lifting the earnings, but I was maybe actually a little bit more surprised that with lower amort, you've got this comfort level on 100% cash conversion going forward. And I guess that cash flows from everything you're talking about from productivity. But maybe you could just give us a little bit more color on maybe what the target-rich environment might be on free cash flow and how that might unfold over the next year or 2. Marc Vandiepenbeeck: Yes. So you're right. Amort is not -- reduction in amort is not going to help, but we see opportunities to continue to outperform on our working capital management overall, but free cash flow conversion, particularly. This year, fiscal year '25, we've seen strong improvement in our receivable management, just the way we build the customer when we do and how we collect and the quality of that process. There's obviously continuous improvement we can bring there, and there's a lot more we can do there. But I don't think moving forward, it will be the core pocket of opportunities. Where we think we're going to drive a lot of value moving forward from a free cash flow conversion comes a lot from our inventory management and the amount of inventory we need to continue to grow the company. And that's where the business system will bring tremendous clarity and visibility into where we can continuously improve and reduce that reliance and therefore, improve our cash flow conversion. Joakim Weidemanis: Yes. That just hasn't been a focus in the past, Jeff. That's an opportunity for us. Jeffrey Sprague: Yes. And then, Joakim, could you just address a little bit more color? Marc alluded to the upside in EMEA and APAC margins for 2026. Are there some -- and I get the comps easier in Europe, especially, but are there some clearly targeted actions that support that? Or are you counting on sort of a stronger revenue recovery in those businesses? Maybe just a little bit more color on what's going on there. Joakim Weidemanis: Yes. I think the short answer is we're not counting on one single big thing. So it's a combination of things that we have largely proof of already that we're able to execute on. So it includes some elements of our pricing discipline that has become much better here over the recent couple of quarters, but it also includes a better discipline around where we point our efforts. But then also, again, the -- some of the examples that I gave here around how we're deploying the business system, that work is ongoing in EMEA and Asia as well. So we see opportunities on multiple parts of the P&L here. Operator: The next question goes to Chris Snyder of Morgan Stanley. Christopher Snyder: I wanted to ask about the content opportunity into data center. So maybe moving aside the CDU that you guys announced, if we look at the legacy business, just kind of wondering how content changes on the move from air cooling to liquid cooling. I imagine the chiller opportunity is still as strong as ever. Could we lose some content in air handling? I'm just trying to figure out how that nets out as we look towards the future. Joakim Weidemanis: I think the simple answer to that is because newer chips require more power and therefore, generate more heat so in general, more cooling is needed. So the scope of our offering and the performance required from the chillers only increases over time here. And the -- you heard me talk in the past about how -- when I first joined the company, how I thought our technological capabilities, in particular, in HVAC are impressive. And some of the needs here of the data center market here going forward for higher precision, higher capacity cooling actually plays to our strengths when it comes to the chillers. Marc Vandiepenbeeck: But if you think about the different offering we have between airside solution and chiller, we see continued demand for both. And regardless of the -- how the chip themselves are cooled, you have solution liquid to air and liquid to liquid, and liquid to air continues to see very strong momentum and matches well our offering. And obviously, we have a very strong developing solution on liquid to liquid. Christopher Snyder: I really appreciate that. I wanted to then follow up on some of the investments that the company is making in the aftermarket. It seems like the investments in technology are both lowering the cost to serve the aftermarket for JCI, while also providing efficiency savings to the customer. So I guess my question is, is this more of a driver of share gain through the value add you're bringing to the customer? Or is it more of an opportunity to improve the incremental margin profile of services by lowering that cost to serve by using more technology and less labor, I would presume? Joakim Weidemanis: It's both -- it's really both. You could say it's share gain because we're able to, with the technology investments, serve customers at a price point, which allows them to -- so we become more competitive in certain mission-critical applications so that they will actually give us that business versus having to maintain some of their own service staff. But -- and then it's also share gain against various third parties that service our equipment as well as every other OEM in this industry. But as we deploy the technology, we also reduce our cost to serve. So it's both a share gain and a margin improvement effort here. And I'd say we're in the early innings of that, in general, as an industry, when it comes to deploying more sophisticated technology-based approaches and life cycle services. So that's an exciting area for us, both from a growth and a margin improvement outcome. So we'll be talking more about that over the next couple of quarters. Operator: The next question goes to Nicole DeBlase of Deutsche Bank. Nicole DeBlase: Yes. Maybe just starting with the nice acceleration you guys saw in order growth this quarter. Can you talk a little bit more about maybe what you saw from a vertical perspective within Applied in particular? And any color on the magnitude of data center order growth that you'd be willing to give? Joakim Weidemanis: Yes, so we typically don't comment on order numbers by vertical, but I can talk -- I can say that in general, we have a shorter list of vertical that's driving outsized growth of our backlog. Backlog is up 13%. We have an ingoing backlog of almost $15 billion going into this year, record backlog. We never had that kind of backlog in this company, which is phenomenal. So data centers, as you mentioned, is a vertical we're very excited about. Our pipelines remain very healthy. Those orders are variable. We get a couple of very big ones in one quarter and -- but maybe not every quarter, but overall, over a couple of quarters, you can see the results here, so 13% up in backlog. So data center is very healthy. And then you have verticals such as pharmaceutical -- or biologics, rather, manufacturing where new campuses are being built since the pharmaceutical campuses of the past cannot manufacture the drugs of the future here that are biologics based. So that's a vertical that's very healthy for us. And then in general, large campuses where a significant amount of research is conducted. So I think both universities, general research institutions but also hospitals that, of course, are places of significant research, those kinds of verticals are very, very healthy for us. And then finally, what we typically would call advanced manufacturing, so semicon and other types of manufacturing where very precise indoor climates need to be created because they're mission-critical for the manufacturing. So those are generally the areas where we see the healthiest growth. Nicole DeBlase: Okay. Got it. That makes sense. And then just maybe a little nitpickier one around the quarterly cadence of organic growth. I think you guys have embedded a little bit of decel in the first quarter. If you could maybe speak to what's driving that? And then the way you see organic growth kind of progressing throughout the year to get back to mid-singles? Joakim Weidemanis: Yes. It's really a compares issue, Nicole. So think of the first half being lower than the second half. And like I said, it's mostly a compares issue. The backlog that we have gives us good visibility to what we can do in the individual quarters. And then, of course, we -- our service business, there's such a heavy recurring element there. So we have pretty good predictability there as well. And -- so we're excited about the outlook for the year here, and we'll keep you updated as we make progress here. But it's a tale of compares first half and second half. Operator: The next question goes to Scott Davis of Melius Research. Scott Davis: So, look, you're doing a lot of stuff here, 80/20, lean, you've changed a bunch of leaders and stuff, and it's a lot of change. And none of that works if there isn't accountability and -- to the right KPIs. Have you changed compensation structures meaningfully down into the organization, Joakim? Or do you need to based on what you've seen so far? Joakim Weidemanis: I would say, in terms of accountability, first, you have to define what you're going to measure to hold people accountable for. So we're in the process of establishing and rolling out, what we call, our enterprise KPIs. There are 9 of them, which we could probably come back and talk about at some other point in time. And how we do that and drive them through the organization is as important as the compensation part to drive a higher level of accountability for holistic results. And as we're deploying that throughout the organization, we are looking at the different compensation approaches and models that we have. And I would largely say there are some tweaks here and there, Scott, but not fundamentally any big changes that are necessary. Scott Davis: Okay. And, Joakim, have you pretty much unwound any remaining matrix within the management, within the structure of the organization? I mean, I haven't heard you talk about running a certain number of P&Ls, but maybe you can address that and just talk about how you changed that part of the organization. Joakim Weidemanis: So that's work in progress, Scott, together with the team. And we made a couple of changes like you pointed out here. So trying to put in place a championship team that can help us build a champion of a company here. And as we staff up here, of course, we have more capabilities, higher caliber in our senior mods teams, we are reflecting and looking at structures and so on. We made a couple of tweaks since I joined, but no major moves, not at this point. Operator: The next question goes to Joe Ritchie of Goldman Sachs. Joseph Ritchie: Joakim, so I want to focus on the strategic investment in Accelsius. And ultimately, with the launch of your CDU, just can you maybe just like double-click on like how complementary the investment is, like whether you'll be going to market together? I just want to try to understand what the opportunity is as I think about this over the course of the next 12 to 24 months. Joakim Weidemanis: Yes. Yes, good question. So we continue to invest beyond the chillers and the various HVAC solutions that we have, right? So -- and the way we think about it is what's the end-to-end thermal solution that is needed for data centers. And the CDU investment or launch, rather, is to capture a market that's significant and there right now. And that product was really a result of a very close collaboration with a number of our existing hyperscaler customers. And it's actually a platform with several different products available in all the regions of the world already. So we're super excited about that. Accelsius is about -- really about looking ahead. And this is a 2-phase cold plate technology platform. And so here, we're looking ahead. What are the chip launches that NVIDIA and others will be making over the next 4 to 5 years, and therefore, what kind of cooling solutions, end-to-end thermal solutions will be needed. And so Accelsius is about anticipating what will be needed in 4 to 5 years from now. But of course, applications for this technology are available already today, and we are going to be working on both commercial collaboration as well as technology and product integration, 1 plus 1 equals more than 2 here over time. So we're excited about both. One is short term, drive revenue now. And the second one is more strategic, anticipating where the puck is going and what will be needed over the next 4 to 5 years. Joseph Ritchie: Very helpful. And then just a follow-on there. Just around the portfolio, you've mentioned a little bit on the fringes, on the divestitures. Just how has your thinking evolved just in terms of addition by subtraction across the portfolio? Joakim Weidemanis: Yes. So there's no change. We had mentioned already well before I joined actually that about 10% of the portfolio, we're looking at alternatives for and better ownerships. And the driver here is to create shareholder value. And then there are some other parts of the portfolio that I've mentioned before that we've been looking into strategically, how we're positioned, what one could do with the businesses operationally, how much do we think we can improve them. And this is a dialogue we're having with the Board. And over the next couple of quarters, we'll draw some conclusions and decisions. And they will all be guided by driving shareholder value is goal #1, and we'll keep you posted. Operator: The next question goes to Julian Mitchell of Barclays. Julian Mitchell: Maybe I just wanted to circle back to the discussions on commercial HVAC. Because I guess in the Americas, for example, I think the last few quarters, you've grown at a sort of high single-digit rate in Applied. I think some of your competitors are growing at a much faster pace in revenues right now. And I suppose when I look at your guidance for '26, it doesn't suggest an acceleration in the Applied business. I just wondered if that was correct on '26 and how we should think about that Applied HVAC growth in revenue vis-a-vis the market growth rate? Joakim Weidemanis: I have read those scripts as well. We are not losing share on Applied and the part of Applied that we are playing in. I'm very confident of that. And so -- and I also -- I know what we have in the backlog, what's coming in, in orders and in the pipeline. So for the verticals where we are pointing our company, we are -- we can always do better, but we're doing pretty well. Julian Mitchell: Understood. And then just my follow-up, I suppose, would be just circling back to clarify on that incremental margin -- or operating leverage, sorry, guide for fiscal '26. Is the right way to think about it that you've got a sort of traditional segment EBITA operating leverage of sort of high 20s percent, let's say, similar to that 30% long-term algorithm. And then the augmentation to get to 50% for the year is the amortization reduction largely and some stranded cost takeout. Is that the sort of framework for margin expansion this year ahead? Marc Vandiepenbeeck: No, I would say the traditional operating leverage you'll get out of the segment is solidly in the 30s, excluding some of the benefit from amortization. And then the effect of our restructuring and transformation will come on that number, and that's how we think we're going to get well beyond that 30-plus percent algorithm we shared. So for '26, more than 30%. And then over time, obviously, this will naturally go back to a 30-plus kind of average as you go beyond '27. Operator: The next question goes to Joe O'Dea of Wells Fargo. Joseph O'Dea: Can you unpack the mid-single-digit organic for fiscal '26 a little bit? Talk about the price, if that price is already in place? Any color on kind of volume by regions, HVAC versus Fire & Security? Just give us a little bit of a sense of how it all comes together and sort of what is already there with respect to price and kind of backlog and what you would still need to go get to achieve it? Joakim Weidemanis: Yes. So I'll start, and then Marc will fill in with some additional detail. Our backlog grew by 13%. We have a record backlog going into the -- our fiscal year that we're in right now, $15 billion. Of course, not all of that is shippable in this year, but the vast majority is. On top of that, we have a very large part of our service business, that is not in the backlog, is recurring. So we actually have pretty good predictability for the year already. And as I alluded to here, our growth guidance here is not counting on anything that we haven't been proven to be able to execute on already, such as price, but also in terms of what growth we're able to drive in the different regions or the different businesses that we are in. So I'd say that's sort of the headline here, and that's why we have such great confidence in the guide here. And then, Marc, I'm still so new, so I don't know exactly how -- what detail of guide we provide here to the colleagues on the call. Marc Vandiepenbeeck: Joe, overall, if you think first regionally, I would say across the board, everybody is going to be within that mid-single digit with EMEA might be just slightly above the average, but Americas and APAC just at the enterprise level. So each segment, think about it overall wherever the company guide overall lands. And then by domain, yes, our traditional Applied and HVAC business will grow probably a little faster than the mid-single digits, supported by the strength in some of the core vertical we talked about, including data center. And then Fire & Security will be probably on the lower end of that enterprise guide and probably bring some contribution, obviously, to growth, but not as much as the domain that are highly supported by those high-growth verticals. Joseph O'Dea: That's helpful color. And then on the restructuring side of things and coming back to the $500 million over a multiyear period of time, can you just update us on what you achieved in 2025? What's baked into the '26 guide with respect to that $500 million? Marc Vandiepenbeeck: Yes. So if you look at that $500 million benefit, and we had mentioned when we launched the program, kind of 2- to 3-year program, $400 million on restructuring expenses, we probably spent about $200 million in fiscal year '25, a little bit ahead of where we anticipated when we started the program. But the run rate benefit of that $200 million is reflected both in our guide here for '26, but also in the upside of results we saw in '25. As you know, we came into the year with expecting segment margin up 50% plus, and we then moved that to 90% and now have achieved up 100%. So you can see that benefit probably close to the $350 million to $450 million run rate, as we exit '25 and printed into our guide for '26. As we look at further opportunity that the business system will provide that our Monaco focus on reducing our footprint, there may be some incremental restructuring that's going to be needed above and beyond the original program, but I don't think we are there yet. And as we look at opportunity, obviously, we expect the return on any incremental restructuring beyond that program we've announced to actually translate into the operating leverage kind of profile we laid out as part of our new algorithm. Operator: The next question goes to Andrew Obin of Bank of America. Andrew Obin: Yes, just to dig in a little bit more on the data center market. Generally, you guys -- I believe you invented the mag-bearing chiller. A lot of your competitors are adding capacity to go after this market. Do you think over the next 3 years -- given your capacity additions, given sort of the efforts to improve the throughput on-time delivery, do you think you can keep your market share? Or do you think it's just naturally as incremental capacity comes in from other players? You're a natural market share donor just given what everybody else is doing? Joakim Weidemanis: That's a great question, Andrew. We are going to take share. We made a significant investment in capacity before I got here. But now with the example that I gave you, leveraging our business system, where we had one of our high sellers and data centers, was not running at a variable on-time delivery and too long lead times. So with the focus work that we've done here over the last couple of months, we brought on-time delivery up to 95%, and we're on track to cut the lead time in half. And that lead time will be market leading, and we know that already because we've taken orders as a result of having capacity earlier and faster than some others in some cases. And of course, you shouldn't generalize all the time, right? But our goal is to build a capability here -- an innovation capability to stay on the forefront of what's needed by the data centers, not just on the chillers, but as we talked about here, the end-to-end thermal solution or the cold chain, including CDUs and anticipating what will be needed in the future, like Accelsius and other investments and then to be -- and have a manufacturing position that is very agile and fast with market-leading lead times and then augmented finally with our proprietary and differentiated 40-plus thousand people in the field around the world. And because field service -- life cycle services is such an important part for -- of -- in the data center market because downtime or unexpected downtime is just so incredibly more valuable to avoid, if you can, in data centers than in most other verticals. So we are definitely building -- continuing to build off of the capabilities that we already have, but strengthen those to make sure that we stay on the forefront here. We are not going to donate market share. Operator: Thank you. This concludes our Q&A session. I will hand the call back to Joakim Weidemanis for any closing comments. Joakim Weidemanis: Thank you. We have an exciting future ahead of us here at Johnson Controls and the important work we have underway will position us to capitalize on compelling opportunities ahead, not just in data centers, as I was just commenting on, but more broadly. With a culture focused on customers and centered around our proprietary business system, I'm confident we'll continue winning with our customers and delivering value to our shareholders. I'd like to take another moment to thank our 90,000 colleagues around the world. You are the foundation of our company, and I'm energized by the prospect of what the future has in store for us. I look forward to continuing my conversations with all of our stakeholders. Thank you all for joining today and see you on the follow-up calls. Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Good morning, and thank you all for attending the Northwest Natural Holdings Company's Third Quarter 2025 Earnings Call. My name is [ Brika ] and I will be your moderator for today. [Operator Instructions]. I would now like to pass the conference over to your host, Nikki Sparley, Head of Investor Relations. Thank you. You may proceed, Nikki. Nikki Sparley: Thank you. Good morning, and welcome to our third quarter 2025 earnings call. A presentation for today's call is available on our Investor Relations website at ir.northwestnaturalholdings.com. And following this call, a recording will also be available on our website. Turning to Slide 2. As a reminder, some things that will be said this morning contain forward-looking statements. They are based on management's assumptions, which may or may not occur. For a complete list of cautionary statements, refer to the language at the end of our press release. Additionally, our risk factors are provided in our 10-Q and 10-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany today's call, which are available on the Investor Relations page of our website. Please note, our guidance assumes continued customer growth, average weather conditions and no significant changes in prevailing regulatory policies, mechanisms or assumed outcomes or significant changes in local, state or federal laws, legislation or regulations. We expect to file our 10-Q later today. Please note, these calls are designed for the financial community. If you are an investor and have additional questions after the call, please contact me directly at (503) 721-2530. News media may contact David Roy at (503) 610-7157. Moving to Slide 3. With us today are Justin Palfreyman, President and Chief Executive Officer; and Ray Kaszuba, Senior Vice President and Chief Financial Officer. Justin will provide an update on each of our businesses, and Ray will walk through our financial results, liquidity and financing and guidance. After Justin and Ray's prepared remarks, they will be available along with other members of our executive team to answer your questions. With that, I will turn it over to Justin on Slide 4. Justin Palfreyman: Thanks, Nikki. Good morning, and welcome, everyone. I am very proud of the effort and dedication from our team so far this year, resulting in significant progress toward our strategic goals while fulfilling our mission of delivering safe, reliable and affordable service to our nearly 1 million customers. We continue to expand our customer base, invest in our systems, drive operational excellence through cost efficiency and discipline and achieve constructive regulatory outcomes. We are well positioned to deliver on our commitments to shareholders and create value in the future. Starting this morning with financial results. Northwest Natural Holdings continued its momentum from the first half of the year and delivered a strong third quarter. Our results reinforce my confidence in executing against our 2025 plan. That's why we are expecting full year 2025 results to be above the midpoint of our adjusted earnings range of $2.75 per share to $2.95 per share. Through September 30, we invested over $330 million in our gas and water systems to support customer growth, system reliability and long-term infrastructure resilience. Our combined utility customer growth rate was 10.9% for the 12 months ended September 30. This substantial growth was largely driven by our gas utility acquisitions in Texas. Northwest Natural Water also contributed incremental meter growth, posting a 4.1% increase. With our robust long-term capital plan and customer growth, we are reaffirming our long-term earnings growth rate of 4% to 6%. We remain highly confident in our ability to execute. I am pleased to report that in the fourth quarter, the Board approved a dividend increase, making this the 70th consecutive year of annual dividend increases. Northwest Natural Holdings is 1 of only 3 companies on the New York Stock Exchange with this outstanding record. While our growth and financial results are strong, we are executing on our strategic priorities for 2025, laying the foundation for success in the coming years. Moving to Slide 5. Turning first to our Northwest Natural Gas utility and a few updates on the regulatory front. I'm happy to report Northwest Natural and parties worked collaboratively and received a constructive order from the Oregon Public Utility Commission approving our all-party settlements. Under the order, Northwest Natural's revenue requirement increased $20.7 million. That consisted of a 50-50 capital structure, an ROE of 9.5% and a cost of capital of approximately 7.12%. In addition, rate base increased $180 million since the last case for a total of $2.3 billion. New rates went into effect on October 31. At the end of August, we filed our first Washington general rate case since 2021. As context, about 10% of our Northwest Natural Gas utility revenue comes from our Washington customer base. The 3-year rate case request has new rates beginning August 1, 2026. The request to be spread over 3 years included a total revenue requirement increase of $42.4 million over current rates. The increase is based on a capital structure of 51% equity, 48% long-term debt and 1% short-term debt, a return on equity of 10.2% by year 2 of the filing and a cost of capital of approximately 7.6% by year 2. This request includes an increase in average rate base of $175 million since the last rate case. We carefully considered this rate case filing and the effect on customers' bills. In parallel, our team continues to identify operational efficiencies and cost-saving opportunities while remaining focused on delivering safe, reliable service. In October, we received approval for our annual purchase gas adjustments in both Oregon and Washington. Taking into account the Oregon general rate case increase and gas costs. On average, Northwest Natural residential customers are paying about the same today for their natural gas service as they did 20 years ago. While a customer's monthly bill has not changed much over the last 2 decades, the value of the gas system in the Pacific Northwest has increased exponentially. Let me give you an example. During our last peak event on the coldest winter hour, Northwest Natural's system delivered 2.5x more energy than the largest electric utility in the region. Said another way, our gas system provided the equivalent of 12 gigawatt hours of electricity, which is comparable to about 11 nuclear power units operating at full capacity. At the same time, natural gas use in our customers' homes and businesses accounts for just 6% of Oregon's annual greenhouse gas emissions. Now that's an efficient system. During that event, our system performed well. Our Mist gas storage facility delivered a new record volume and provided essential support for the entire region's energy system. These facts underscore the unmatched reliability, scalability and efficiency of our gas system, especially during critical peak events. As demand continues to grow, our investments in long-duration assets like our Mist storage facility position us to meet regional energy needs. Turning to our SiEnergy gas utility in Texas. SiEnergy continues to provide strong customer growth and is hitting its financial targets. Perhaps most importantly, SiEnergy posted a sizable increase to its customer backlog and now has signed contracts representing over 240,000 future meters. Including the Pines backlog, that's nearly a 35% increase in a year, a strong signal that developers increasingly want to work with SiEnergy and expect to build Texas housing for years to come. Turning to regulatory updates. We are pleased with Texas House Bill 4384, which became law in June of 2025. This is a highly constructive piece of legislation for SiEnergy, and we expect it to be particularly beneficial after our first rate case. The bill enables real-time recovery of distribution investments, essentially eliminating lag, further streamlining the regulatory process and enhancing earned ROEs. This mechanism strengthens our ability to invest efficiently in the infrastructure build-out needed in Texas. SiEnergy currently accounts for approximately 10% of our business. We anticipate it will be an increasing portion of our business mix moving forward and are very supportive of further investment in Texas. Turning now to Northwest Natural Water. Our objective from the very beginning of our water strategy was to purchase anchor utilities in high-growth regions and then tuck-in smaller utilities and grow organically around that central utility. We continue to see the benefit of this strategy playing out. Over the last 12 months, our water and wastewater utility customer base grew quite rapidly at a 4.1% clip, including 3 small acquisitions and organic customer growth on its own was 2.4%. Our water CapEx plan for 2025 continues to be robust as our utilities replace end-of-life infrastructure, improve our wastewater treatment facilities and support clean water and continued growth in our communities. To recover our water investments, in 2025, we completed 7 rate cases at utilities in Idaho, Washington and Oregon. On average, we received about 67% of our requested revenue increases, a constructive outcome that reflects the value of upgrades to these systems and our regulatory approach. Looking ahead to 2026, we will continue to execute on rate cases to support essential investments in these utilities. Another recent success was the approval by the Texas Public Utility Commission of our purchase of in-line utilities in Houston, Texas. This is our second fair market value acquisition under the Texas rules, and I'm pleased with how our team worked with regulators to get this across the finish line. We expect to close on the 1,500 connection water and wastewater utility by year-end. Beyond the regulatory progress, we're expanding our water playbook to further develop our footprint organically in Texas. To do that, we're leveraging SiEnergy's approach and relationships, partnering with developers and homebuilders in the region and establishing a strong reputation for building out new infrastructure reliably and on time. Our Texas business development team is now offering developers in Houston water and wastewater services. We are already seeing strong momentum here. So far, we have signed multiple contracts for 3,200 future water and wastewater connections and the pipeline of opportunities is growing. We are just in the opening innings of this opportunity, and we'll continue to leverage strong existing relationships with developers and homebuilders to increase the scale of our operations at both SiEnergy and our water utilities in Texas. Our renewables business also continues to deliver steady operational performance and consistent financial results, supported by disciplined execution and long-term contracts. While we are taking a cautious approach to future project investments in this space, we are pleased with the projects we have operating today and the steady earnings and cash flows those assets are generating. In conclusion, I am happy to report that all of our businesses are in a strong financial position and poised for future growth. With that, let me turn it over to Ray to cover the financials in more detail. Raymond Kaszuba: Thank you, Justin, and good morning, everyone. Turning to Slide 6. As Justin mentioned, third quarter results continued our momentum from the strong first half of the year. This performance keeps us firmly on track with our expectation to be above the midpoint of our guidance range for 2025. As a reminder, our gas utility earnings are seasonal with the majority of revenues and earnings generated in the first and fourth quarters during the winter heating months. We reported a loss of $0.73 per share for the third quarter of 2025, relatively unchanged from the loss of $0.71 per share for the same period in 2024. For our Northwest Natural Gas segment, earnings per share improved slightly, largely in line with last year. SiEnergy provided an incremental $0.04 of earnings per share for the third quarter of 2025 compared to the same period last year. In our first year after the acquisition, margin and net income are trending well and are aligned with our expectations. Our Water segment earnings per share increased $0.04. The key drivers were new rates at our largest water and wastewater utility in Arizona and additional revenues from the ICH utilities after the acquisition in September 2024. Finally, the adjusted net loss of our other segment increased $0.14 per share compared to the same period last year, primarily due to higher interest expense at the holding company. On Slide 7, we have outlined our year-to-date results. Adjusted earnings per share were $1.52 to date in 2025 compared to $0.88 for the same period of 2024. The year-to-date increase in earnings per share reflected strong earnings across all business segments, including new rates for our gas utility in Oregon, contributions from SiEnergy, higher net income from our water utilities and earnings contribution from renewables, which is in other. These items are partially offset by higher O&M costs, depreciation and interest expense. Turning to our growth outlook and guidance on Slide 8. We reaffirmed annual 2025 adjusted earnings guidance today in the range of $2.75 per share to $2.95 per share. Given the strong results from the first 9 months of 2025, we expect to be above the midpoint for the full year. We continue to expect SiEnergy and Northwest Natural Water to each provide approximately $0.25 to $0.30 of adjusted earnings per share this year. For 2025, we continue to project 2% to 2.5% consolidated organic customer growth across our utilities. Turning to our capital expenditures. For the year, consolidated capital expenditures are still expected to be in the range of $450 million to $500 million, anchored by the significant projects at our Northwest Natural Gas utility related to modernizing end-of-life meters, system reinforcement and gas storage upgrades. Longer term, we continue to expect an earnings per share growth rate of 4% to 6% compounded annually from the midpoint of our 2025 adjusted EPS guidance range. Moving to Slide 9. Regarding capital structure, our objective remains to keep our balance sheet strong with ample liquidity. On September 30, 2025, we had liquidity of approximately $437 million with significant availability on our gas utility line of credit and cash on hand. Year-to-date, we have issued $48 million of equity through our ATM program. At this point, we have satisfied our 2025 ATM issuance needs and issued less than we originally expected. Related to debt, we have no material debt maturities in 2025. In August, we successfully issued $185 million of inaugural investment-grade bond at SiEnergy, refinancing the existing debt of approximately $150 million. In summary, we are pleased with our performance so far in 2025 and remain confident in achieving our financial targets for the full year and beyond. Thanks for joining us this morning. With that, we will open it up for questions. Operator: [Operator Instructions] The first question we have comes from Alex Kania with BTIG. Alexis Kania: Maybe the first question would just be on -- a little bit more color just on the lower equity requirement for '25. Is this a function of just performance year-to-date, kind of better cash flow generation? And is there any potential read-through kind of on an ongoing basis to fund CapEx? Raymond Kaszuba: Alex, I appreciate the question. I think you've got it. We start the year off. We look at our plans from an overall capital structure perspective, debt issuance, earnings, cash flow. As the year goes, we reassess that. That's what you're seeing here where we are now over or complete with our ATM program for the full year, and we wanted to communicate that. Alexis Kania: Great. And maybe just a kind of some additional follow-up just on where the company is seeing additional tuck-in opportunities, I guess, particularly in Texas around the water and gas lines of business here. Is there -- on top of the organic growth that you're seeing as well? It's just -- is there a fairly wide kind of a wide range of other kind of opportunities to tuck in relative maybe -- and kind of how would you compare that relative to the organic growth pattern? Justin Palfreyman: Yes. Thanks for that question, Alex. This is Justin. So the tuck-in opportunities for us across our water business -- they constantly exist, but we have built up a platform now that gives us the opportunity to continue to build and expand through organic growth, and we are prioritizing that. We will continue to look at opportunities on an opportunistic basis as they arise. And as you probably know, the water segment is very, very fragmented. There's a lot of small systems out there. But where we're seeing most of our growth right now is organically, and it's in areas like Texas, Arizona and Idaho, where there's strong housing growth. Operator: [Operator Instructions] And your next question comes from Selman Akyol with Stifel. Tyler Rakers: Tyler on for Selman. With the change in the rate case timing with sort of one behind you now in Oregon, does it seem as though the commission has been more or less receptive to certain items in the request versus the multiyear rate cases? Justin Palfreyman: Yes. Thanks for your question, Tyler. So we are -- the commission has just opened up a docket on multiyear planning in Oregon. As you know, that's something that's been in place for a while now in Washington. And as part of legislation that passed earlier this year, the commission is looking at implementing multiyear plans. We'll be engaged with them throughout that process, which will be a rule-making process that occurs next year. But right now, with new rates in effect here in Oregon, we think we're well positioned. Tyler Rakers: And then is there any change in the status of the -- like the hydrogen pilot projects given attitude with the administration? Has anything been kind of sidelined for the time being on blending or otherwise? Justin Palfreyman: Yes. So we have -- as you know, we've done hydrogen blending tests over the last few years at our facilities in Sherwood and are very comfortable with the technical capabilities there. We also had a hydrogen pilot at one of our facilities where we're testing new methane pyrolysis technology, and that pilot is largely complete as well. There are broader hydrogen production projects that you probably heard of the hydrogen hub projects across the country that were supported under the Biden administration. The latest news there, and we are not directly involved in those projects, but the latest news there is that funding has been reallocated away from those projects. So I think those are up in the air. But at some point in the future, if there is a clean hydrogen available that's affordable and can compete with other forms of renewable fuels on an affordability basis, we would be in a position to blend that in, in our systems. Operator: I would like to conclude the question-and-answer session here and hand it back to Justin Palfreyman for some final closing comments. Justin Palfreyman: Great. Thank you. Appreciate everybody's interest in participating in this call this morning and appreciate the questions and wishing everyone a safe rest of the week. Thank you. Operator: Thank you all for joining. I can confirm that does conclude the Northwest Natural Holdings Company's Third Quarter 202 Earnings Call. Thank you all for your participation. You may now disconnect, and please enjoy the rest of your day.
Operator: Good morning, ladies and gentlemen. Welcome to CGI's Fourth Quarter Fiscal 2026 (sic) [ 2025 ] Conference Call. I would now like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Please go ahead, Mr. Linder. Kevin Linder: Thank you, Joelle, and good morning. With me to discuss CGI's fourth quarter and fiscal 2025 results are Francois Boulanger, our President and CEO; and Steve Perron, Executive Vice President and CFO. This call is being broadcast on cgi.com and recorded live at 9:00 a.m. Eastern Time on Wednesday, November 5, 2025. Supplemental slides as well as the press release we issued earlier this morning are available for download along with our fiscal 2025 MD&A, audited financial statements and accompanying notes, all of which have been filed with both SEDAR+ and EDGAR. Please note that some statements made on the call may be forward-looking. Actual events or results may differ materially from those expressed or implied, and CGI disclaims any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A complete safe harbor statement is available in both our MD&A and press release as well as on cgi.com. We recommend our investors read it in its entirety. We are reporting our financial results in accordance with International Financial Reporting Standards, or IFRS. As always, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian, unless otherwise noted. Now I'll turn the call over to Steve to review our Q4 financials, and then Francois will comment on our full year performance and business and market outlook. Steve? Steve Perron: Thank you, Kevin, and good day, everyone. In our fourth quarter of fiscal 2025, we continue to demonstrate discipline in the management of our operation while effectively executing on our strategy of deploying capital to generate superior long-term return on investment for our shareholders. This starts with our profitable SI&C offering that we grow organically and/or with M&A. Second, to bring our managed services and IP offering to existing or new clients to help them be more efficient. This offering resonates strongly during this more challenging economic period. Finally, our strategy focused on investing in CGI with our share buyback program to increase our EPS while returning cash to our shareholders. In the quarter, we delivered $4 billion of revenue, up 9.7% year-over-year or up 5.5% when excluding the impact of foreign exchange. Growth was driven by our recent business acquisition and continued demand for our APAC delivery centers with this segment reporting growth of 6.4%. There was also some planned runoff of lower margin work from recent acquisitions. In our U.K. and Australia segment, with our acquisition of BJSS, growth was 28%. This acquisition adds further scale to our U.K. operations, and we can now showcase the breadth of CGI's end-to-end services to new clients. Across our U.S. segments, combined growth was 5.7%, primarily driven by our Aeyon and Daugherty merger investments, and our pipeline of opportunities continues to increase as we bring our managed services, IP and offshore delivery capabilities to our new client relationships. IP remained steady sequentially at 20.5% of our total revenue, even as we add a larger proportion of non-IP revenue from recent business acquisitions. The vast majority of our IP continues to be delivered through recurring revenue streams. Bookings in the quarter were close to $4.8 billion for a book-to-bill ratio of 119%, led by U.S. Federal at 185%. U.S. commercial and state government at 136% and Western and Southern Europe at 117%. Of the total booking in the period, 45% were for new business. On a trailing 12-month basis, book-to-bill was 110% with North America at 120% and Europe at 102%. On the same basis, managed services had a book-to-bill ratio of 120% and the SI&C book-to-bill ratio was 99%. IP book-to-bill was 107%. Our contracted backlog reached $31.5 billion or 2x revenue. Turning to profitability. Adjusted EBIT in the quarter was $667 million, up 11.2% year-over-year for an industry-leading margin of 16.6%, up 20 basis points. Including restructuring acquisition-related costs of $122 million, earnings before income taxes were $516 million for a margin of 12.2% (sic) [ 12.9% ]. Our effective tax rate in the quarter was 26.1%, 30 basis points less than last year, and we expect our tax rate for future quarters to be in the range of 26% to 27%. Adjusted net earnings were $472 million, up $33 million year-over-year for a margin of 11.8%. On the same basis, diluted EPS was $2.13, an accretion of 11% when compared to Q4 last year. Net earnings were $381 million for a margin of 9.5% and diluted EPS was $1.72, impacted by restructuring and acquisition-related costs in the quarter. We finalized our restructuring program and related expenses in the quarter. Turning to cash. We generated $663 million in our cash from operations, representing 16.5% of total revenue, even when incorporating $43 million in restructuring, acquisition and related integration payments. DSO was 45 days in the quarter compared to 41 days in the prior year, impacted by recent business acquisitions. In Q4, we continued to allocate our capital and invested $81 million back into our business, which includes strategic investments in Agentic and Gen AI, $250 million on business acquisitions, $491 million to buy back our stock. And in addition, we returned $33 million to our shareholders under our dividend program. Yesterday, our Board of Directors approved a quarterly cash dividend of $0.17 per share, representing a 13% increase. This dividend is payable on December 19, 2025, to shareholder of record as of the close of business on November 21, 2025. With $2.4 billion in capital resources readily available and a net debt leverage ratio of 1, CGI has the balance sheet strength and capacity to deliver on our profitable growth strategy. CGI's capital allocation priorities have remained consistent, focused on investing back in the business and pursuing accretive acquisitions. Additionally, we expect to remain very active in our repurchase program. Now I will turn the call over to Francois to further discuss insights on the year and the outlook for our business and markets. Francois? François Boulanger: Thank you, Steve, and good morning, everyone. CGI's strong performance in the quarter and in the year demonstrated our team's ability to execute with discipline in an environment that remained largely unchanged given the market dynamics. On a year-over-year basis, fiscal 2025 performance highlights where revenue increased 4.6% on a constant currency basis, with managed services up 6% in constant currency, in line with client demand given the challenging macroeconomic environment. EPS expanded 8.9% on an adjusted basis to a higher recurring revenue mix as well as proactive operational excellence actions. EPS accretion and share price growth are typically highly correlated. So we believe CGI stock is currently undervalued. Bookings were $17.6 billion, up $1.5 billion with full year book-to-bill ratios above 100% in both North America and in Europe on the strength of managed services, which were up 12% compared to last year. And cash from operations remained robust at $2.2 billion as a result of sustained quality delivery for clients. In fiscal 2025, we deployed over $3.7 billion, and we plan to continue our aggressive use of capital in 2026. Specifically, in fiscal 2025, we invested $368 million back into our business, which includes strategic investments in Agentic and Gen AI. $1.8 billion on business acquisitions, $1.3 billion to buy back our stock, and we returned $135 million to shareholders through dividend payments. As Steve indicated, our Board of Directors approved a 13% dividend increase for Q1 2026. Our investments in the buy strategy remain pivotal to our revenue growth as we closed 5 acquisitions in fiscal 2025, all accretive within the first year. We expect these mergers to drive future growth as we bring our full offering value proposition to new clients. These mergers expanded our geographic footprint and our end-to-end offerings, including in key areas such as AI, data, cloud and engineering. Subsequent to the end of the fiscal year, we announced an agreement to acquire Comarch, a leading IT company in Poland. Upon successful completion of the merger, which we will more than double our presence in Poland, we will incorporate new ERP IP solutions and digital transformation services. I would like to warmly welcome all new consultants who have or will join CGI from these mergers. Today, I will highlight how CGI is positioned to lead in the next phase of digital transformation, particularly for the majority of our clients who are large enterprise, commercial and government organizations. We are partnering with them to simplify and orchestrate digital complexity in order to advance towards AI-driven business transformation. For CGI, AI-driven transformation amplifies what we do best, delivering trusted client outcomes faster at scale. In short, we refer to our positioning as being the AI to ROI partner for clients. To bring this positioning to life every day, our 94,000 CGI partners are using AI tooling to develop and manage systems jointly with clients. These clients partnerships are based on our operational experience and perspectives on the digital complexity that is a reality for clients. Every organization, every government and every industry runs on an invisible digital infrastructure underpinned by billions of lines of code. This digital ecosystem powers everyday life, and it continues to grow in complexity with each business process, regulation and cybersecurity threat. With this context in mind, CGI's AI strategy is structured around 4 key pillars: First, embedding AI into our end-to-end services of consulting, systems integration and managed services to drive continuous innovation that achieves industry-tailored business results; second, leading with AI integrated platforms across CGI IP and alliance partner technologies to accelerate industrialization and transformation at enterprise scale. Third, uniting talent and AI technologies to amplify and augment human creativity, productivity and potential for both clients and CGI partners. And finally, accelerating CGI's internal AI adoption to evolve our processes, systems and delivery to be an organization that is designed by and for humans powered by AI. These 4-pillar strategy creates new opportunities to drive revenue growth and margin improvement on existing and future engagements. I will now talk through each of these pillars, starting with embedding AI into our end-to-end services. In consulting, our AI advisory framework applies CGI's expertise in change management and process engineering to simplify and rethink how work happens in the future. Offerings like AI LaunchPad and AI Maturity Assessments help clients identify, prioritize and validate use cases with clear ROI. Then our behavioral science-based methodologies for AI adoption and workforce readiness helps clients implement their strategies and build future-ready organizations. From a software development and systems integration perspective, CGI is accelerating delivery by incorporating AI across every phase of system development from requirements to deployment. We continue to train CGI partners on our integrated methodology and on tools such as Google Gemini Code Assist, Microsoft GitHub Copilot and OpenAI ChatGPT Enterprise. We are applying these capabilities along with CGI's AI native platforms of PulseAI, Digishore and NAVI to accelerate solution delivery and support legacy systems modernization. These tools, when applied with our AI-driven software development methodologies are now major productivity drivers. For example, just in cogeneration, which typically represents 25% of the system development life cycle, we see efficiency gains of 30%. Through CGI's managed services, we operate within our clients' most complex mission-critical environments, giving us a unique opportunity to embed AI responsibly, practically and profitably. CGI's managed services engagements have, for decades, included commitments to deliver ongoing productivity improvements. We have always evolved in line with innovation cycles and delivery models and technology from offshore to cloud. Our default managed services pricing models are outcome-based, meaning we commit to cost predictability and delivering results, not just inputs. This is an approach we are very experienced with and has contributed to improving profit and reinvesting in capability building. Now advanced AI, which we consider to be generative and Agentic AI, provides us additional levers to do this while continuing to create compelling client offers. For example, CGI's DigiOps suite helps clients industrialize AI within their managed services to drive efficiency and innovation at scale without disrupting core operations. Our modular approach works with any technology stack, including CGI's IP solutions as well as any technology platform our clients use. Today, DigiOps is in production for many clients with over 165 AI agents and over 2,000 automation workflows across industries such as retail, banking, communication and energy and utilities. DigiOps is becoming a growth driver and margin levers for our managed services engagements. As an example, for the run of applications, depending on the maturity of the business processes, we saw results such as up to 30% productivity gains and up to 40% faster resolution of operational IT requests. Across each of our end-to-end services, we are integrating AI by design into enterprise workflows and processes instead of using it as an accessory. With this holistic value chain approach, AI is tightly aligned and tailored to an industry which helps drive continuous innovation for clients. The second pillar focuses on leading with AI integrated platforms across both CGI IP solutions and alliance partner technologies. CGI's IP business solutions remain one of our competitive differentiators. In line with our multiyear strategy, we continue to invest in embedding advanced AI into our IP solutions with 65% of the strategic IP portfolio incorporating intelligent automation. We currently have a robust ecosystem of operational agentic solutions with over 200 AI agents across a wide range of CGI IP solutions, digital enablers and delivery accelerators. A key component of this ecosystem is PulseAI, which is CGI enterprise platform for building and scaling AI and applied intelligence. PulseAI currently has over 20 industry-specific agents that combine complex business reasoning with tools, data and multi-agent orchestration to take action, not just generate text. Turning to CGI alliance strategy. Our approach is intentionally to be highly inclusive with over 150 relationships with technology companies. This breadth of partnerships ensures CGI remains agile in selecting the best solutions to meet each client's unique needs in terms of technology stack and other business requirements such as addressing digital sovereignty. We collaborate through joint go-to-market relationships with all major hyperscalers, Google, AWS and Microsoft as well as leading software platform providers such as SAP, Salesforce and ServiceNow. We are also expanding our partnerships and client delivery with AI native firms such as OpenAI, Snowflake, NVIDIA, Databricks and Mistral AI. Our global alliance partnerships continue to drive new wins and client relationships with our fiscal 2025 alliance-related bookings up more than 120%. Well over half of these wins were new business. CGI's strength in AI delivery is also earning recognition from industry analysts who influence procurement decisions across industries. Earlier this week, we announced that IDC named CGI a leader in worldwide AI services for state and local governments. As a professional services firm, our third strategy pillar of uniting talent and AI technologies is among our most important investments. Through the use of Gen AI platforms, our teams have created more than 8,000 personal productivity agents to learn faster, unlock creativity and drive better results for clients and CGI. Naturally, our delivery of advanced AI services to clients relies on our culture of continuous learning, and it requires different skills and new ways of working. We continue to invest in the development of our consultants and experts for both today's needs and as technology innovation evolves. Our approach marries deep industry expertise with tool adoption, structure learning, project rotation and real-world experimentation. This hands-on access, coupled with our AI-infused offering is driving tangible productivity gains and accelerating our ability to embed AI within complex client systems. For CGI, it's also driving higher revenue per CGI partner as we saw this increase by 5% year-over-year. This is a trend we expect to continue. Our award-winning AI learning and certification programs provide multi-tiered role-based learning path from AI literacy to advanced vendor certified technical expertise. Currently, approximately 20% of our consultants have expertise in advanced AI and data, bringing this expertise to their work every day with clients. Continuing to develop and hire talent with these skills remains a top priority for fiscal 2026. Through our holistic talent strategy, CGI has continued to build an organization where advanced AI proficiency is not a specialty but a core capability. The final pillar of our strategy is accelerating CGI's internal AI adoption to evolve our processes, systems and delivery. Each of our enterprise teams are embedding AI to drive process efficiencies, enable faster decision-making and increase productivity. We are currently implementing or improving more than 50 AI solutions. Our most recent internal solutions launch is underway now. The CGI AI exchange enables our experts around the world to find, share and leverage reusable assets, innovation and best practices. This new hub will enable increased productivity, more predictable cost and lower risk through proven and repeatable solutions and promote entrepreneurship, one of our core values. For fiscal 2026, we are progressing the use of Agentic AI within our business processes to drive operational efficiencies, decision intelligence and service innovation. In summary, our positioning and what makes CGI unique for the AI wave is not rooted in height, but instead in the confidence we have in our proven ability to anticipate trends, embrace change and grow through nearly 50 years of technology innovation. In fact, our pipeline of opportunities that integrate AI in our offerings increased by nearly $5 billion compared to this time last year. Turning to the outlook. The high degree of market uncertainty continues to contribute to some caution among clients and their discretionary IT spending, notably for SI&C projects. However, the need for clients to simplify, modernize and secure complex systems and business processes will continue to increase. This means we do not expect to see a long-term trend of IT budget declines. We see most clients rebalancing their spend as managed services and AI integrated services help them reduce operational costs. In most cases, clients are planning to reinvest those savings to fund their backlog of monetization initiatives, all of which require technology partners to realize ROI. Demand for managed services remains robust, given the challenging economic environment in many of the industries where our clients operate. We see this demand reflected in our pipeline where managed services opportunities are up by more than $11 billion compared to this time last year. Before I conclude, I would like to give an update on our U.S. operations. We continue to work with our clients to help achieve their outcomes. While we are pleased with the Q4 bookings across our U.S. operations, government procurement cycles remain challenging, given the length of the federal shutdown and its related impacts, including some indirect ones for our state and local government clients. Given this and our current assumption of a mid-November reopening, we expect a revenue impact across our U.S. operations in the next quarter of approximately $60 million to $75 million and $15 million to $22 million in margin impact. Lastly, specific to the U.S. administration's changes to the H-1B visa program, CGI does not have a material number of new applications. Therefore, any potential impact would be manageable. In closing, we remain confident in our profitable growth strategy, which is designed to optimize total return on investment for our shareholders through new and expanded engagements to deliver AI outcomes, sustained demand for managed services given economic dynamics, continued M&A given the favorable environment and active deployment of capital through our share buyback and dividend programs. Thank you for your continued interest and support. Let's go to the question now, Kevin. Kevin Linder: Thanks, Francois. Joelle. We can now poll for questions. Operator: [Operator Instructions] Your first question comes from Thanos Moschopoulos with BMO Capital Markets. Thanos Moschopoulos: Maybe starting off on the federal side, I guess, putting aside the shutdown, based on the bookings you saw in the September quarter and based on revenue trends heading into the shutdown, does that change your level of optimism or pessimism with respect to how the federal business should do over the next year once the government reopens? François Boulanger: Well, I think you saw the booking at the last quarter, 185%. So it was a very good booking, very happy to see that. I think at a certain point, the federal government needs to spend in IT. And that's what we were seeing. We were seeing a lot of momentum on the procurement side. But naturally, with this shutdown, that stopped for -- in October. So -- but when this will reopen, we think that growth will be there because they need to spend, and that's what we were seeing in the summer time frame. Thanos Moschopoulos: Great. And with respect to the AI discussion, is there any way for us to think about the potential margin uplift you may already be capturing or that you might be able to capture over the next year or 2 as you adopt AI and to what extent you'll be able to get that benefit internally versus having to pass it on to customers? François Boulanger: Yes. So two things. For sure, like we were saying in -- we're using a lot of AI in our managed services today. So that's helping us to give the benefit to our clients and win new business on that side and improving at the same time our margin because we are outcome-based basis most of the time with these clients. The second thing also when I'm talking about what are we doing internally with client zero to some point. So we will invest and we invest and we continue to invest, for example, in Agentic AI to optimize some processes. So expectation is that we would see even the SG&A -- CGI SG&A improving in the future with these automations. Operator: Your next question comes from Robert Young with Canaccord Canada. Robert Young: First question, you noted that the default for CGI is outcome-based pricing. If you could just narrow down in on that. Is that like as it relates to managed services? Or is it the consulting business? I noted some of your peers are highlighting pricing pressure. And so is this something that is a protection for CGI as it relates to pricing pressure? Can you just expand on that and how it compares to some of the peers in the IT services industry, that would be very helpful. François Boulanger: Yes. Thanks, Robert, for the question. So for sure, on the consulting side, that's mostly time and material. And so that will continue in the future. And again, the fact that we have the expertise and especially on the AI side, the right expertise, people are looking for that expertise. So while pressure, you'll always have pressure on pricing, when you have the right people and the right value to bring to the clients, the price is the second lever and not the first. As for SI&C, we have what, perhaps 40%, 50% of our SI&C business or SI, sorry, business where it's fixed price. So using, again, some of these AI tools is helping us to increase the profit or the margin on our projects while hitting the right price tag or the price point for the client. So that's what we see in the SI side. And actually, on managed services, our majority of managed services contracts are outcome-based. And so again, it's a negotiation of having it at the right price point for the client. And after that -- and the percentage of savings that they want. And after that is to work on producing that saving and producing our margin needed. So we -- while like I'm saying, we're seeing the pressure every day, the fact that we're outcome-based is an easier way of producing the value for the client and having the right level of profitability for us. Robert Young: Okay. My second question would be around the comment around higher revenue per employee. I think you said it was 5% and that it would improve or that, that trend would continue. If you could expand on that, is that being driven by AI? Or is it maybe better the growth in APAC and the addition of Poland? Maybe you just talk about where that revenue per employee growth is expected to come from and how it flows down to the operating margins. François Boulanger: For sure, with the use of AI, we would expect that this revenue per employee will continue to go up because, again, these tools are helping our clients to deliver more with their same time. So that will help us to deliver more opportunities to our clients. So that's how we were looking at it. for sure, the fact of using India, an example, Poland will also contribute to this. But I would say that AI will be also a big factor in this. Operator: Your next question comes from Jerome Dubreuil with Desjardins. Jerome Dubreuil: The first one is on the forecasting power that bookings bring. Historically, it has been a bit uneven and obviously, 119% book-to-bill is very strong. So I'm wondering if M&A has an impact on the book-to-bill or if there's some sort of organic book-to-bill that you can share? I appreciate that your strongest booking deal is U.S. Federal and no M&A there, but if you can comment, please? François Boulanger: Yes. But M&A by itself won't touch the booking because, again, when we're actually doing the acquisition or the merger, we are looking at their backlog, and that backlog is included in our backlog, and it's not going through the book-to-bill ratio. So we are starting to include the wins of these acquisitions at the date that we actually closed the deal. So the before is actually put in the booking -- in the backlog and not in the bookings. But on the other hand, the fact that we have these acquisitions, example, BJSS, it's helping to accelerate some of our discussion, example, on the managed services side. And we have a lot of clients of BJSS that we were capable of bringing them to India, for example, and we did the same thing with Daugherty, and to see our capabilities in the managed services side, and that's triggering some bookings on that side. But that's, again, after the acquisition and not before the acquisition, Jerome. Jerome Dubreuil: Awesome. That's great color. Second one, I think it was excellent. The prepared remarks were very good in terms of what you're doing to -- in AI. If you can please maybe communicate because the market apparently thinks that there's going to be an impact from AI that it's going to be automating a lot of the implementation processes that you're exposed to. So I'm wondering if you -- what you're telling investors that are concerned by that or if you have data on whether implementation processes can or can't be automated with AI? François Boulanger: Yes. Jerome, like I said in the text, we are seeing some savings. We are seeing some automation. And again, we are applying them in our day-to-day operations and to help our clients to achieve the savings. At the same time, we are dealing with very complex clients, banks with -- where they have thousands and thousands of applications, interfaces, and that needs to be managed, and that still need to have people working on that. And so AI will bring some savings, but you'll still need to have people to manage all that. And we are living in a complex world, and you need people to manage that complexity. That said, it will bring some savings. And naturally, by bringing these savings to clients, it will create new demand. And you'll see more, I think, more people will look at managed services and looking at specialists and people like us to help them in managing their infrastructure, managing their IT solutions, IT applications and bringing savings to them. So we're seeing that demand will go up for that reason. And all the savings that they can have also on the running of the application, we are seeing that they'll reinvest it back in their -- in systems and new systems. We don't see IT budget going down from clients. They will do more with the same amount or the same budget, but they won't go down. And they'll still need help from specialists like us who is investing a lot in AI, in our people, in our processes to help them succeed. Operator: Your next question comes from Stephanie Price with CIBC. Stephanie Price: Thanks for the color on CGI's AI strategy. I was hoping you could maybe dig a little bit deeper into the partnership strategy and talk a little bit about who your largest and fastest-growing partners are and how you kind of see that partnership strategy evolving over time? François Boulanger: Yes. Well, again, like I said, we have partnership with all of them. And the reason is, is that depending on the region, depending of the industry, some partners are better than others to work with. And also, sometimes it's a choice of a client. So that's why we are talking to all of them. You saw also the announcement that we did this week with Snowflake and ServiceNow and UiPath, where we move up in their evaluation. So we are working with all of them, and we will continue. So we don't have any preference for 1 or 2 of them. Stephanie Price: Okay. And then you mentioned some planned runoff of lower-margin work from recent acquisitions in the prepared remarks. Just hoping you could quantify that or -- and then talk a little bit about if you expect it to continue into future quarters. Steve Perron: Look, it's Steve here, Stephanie. Thank you for the question. in each M&A, as you well know, CGI, we are working for profitable revenue. We want to make sure that when we are taking a risk in the revenue, we are getting rewards and we are getting the profit out of it. So obviously, when we are looking at M&A and integration of company, we are looking at all the projects that they have. And some projects are not to our expectation in terms of return in order to be rewarded for all the good work we're doing. And because of that, sometimes we are reducing the activity that we do for some projects. In terms of the volume, it won't be a material one. And usually, you will see that in the first year after the acquisition. François Boulanger: But that said, I just want to reiterate, we are seeing a lot of synergy by putting these acquisitions together. Like I was saying, a lot of visits to our Asia Pac from these clients. And we will see some longer-term contracts signed with these clients. I'm convinced. We see a very good momentum on that. Operator: Your next question comes from Surinder Thind with Jefferies. Surinder Thind: Francois, can you maybe talk about just the demand trends within SI&C? It seems that, that part of the business continues to struggle at this point. François Boulanger: Yes. It depends of the area. For sure, on the AI side, a lot of demand, a lot of consulting on that side and more and more implementation. I think the pure business consulting, that's still some struggle and especially in places like in France. But I would say that on everything that's related to AI, yes, it continues to be pretty in demand. So it's really depending on the demand, but I would agree that the business consulting is still pretty flat, if I can say. Surinder Thind: Just a clarification, I guess, is the idea that we should expect the current growth rates organically to kind of continue? Do you see improvement here? It just seems like it's hard to get a picture of where exactly things are, I guess, and how they're trending on an organic basis. François Boulanger: Yes. As you know, we're not splitting organic versus inorganic, and it's very tough to do it because, again, when we are integrating these companies, it's tough to understand what's coming from the old -- from the acquisition versus the legacy CGI, if I can say. And like I was saying, we are seeing good momentum on having both together and winning new services. As for example, for sure, I talked about the federal side. And again, we have a temporary headwind this or next quarter related to this. And so that's one thing that -- yes, it will be tougher in the federal side the first quarter. But if everything is going well and we can see end of the shutdown, we're expecting to bounce back in the second quarter. Surinder Thind: That's helpful. And then just on the M&A side, just any color or commentary on just the pipeline of deals, whether you might be closer on more deals? Or how do we think about what you've done in the past 1.5 years versus maybe how you're thinking about what's coming in the next 12, 18 months? François Boulanger: Thanks. That's a good question. For sure, we're seeing a lot of momentum on that side. We just -- like I said, we closed Comarch. We're still waiting for some approvals, but we're expecting really the formal close to happen in the next couple of weeks. And we are talking with a lot of other potential acquisitions. The evaluation went down. And so we need to take advantage of this environment, and we will continue to be aggressive on that level. We had a good 2025. And for sure, we need to dance. But like I'm saying, we have a lot of opportunities, and we think we'll be able to close some of them in 2026. Surinder Thind: Got it. So it sounds like just on -- just to clarify the last comment, it sounds like with valuations down, you're willing to be a bit more aggressive on the M&A front? François Boulanger: For sure, because the demand are -- when before we were talking about, I don't know, people wanted to have 2 and 2x and more on the revenue. This evaluation went down a lot lower. I mean now we're talking 1 to 1.5x revenue. So it's in our sweet spot. So that's why we think that we will be very aggressive on that. Like I was saying, the environment, it's a fantastic environment for that level. It's good also for managed services, like I'm saying, we are in an environment where people want to have savings. So managed services is the way. And I'm saying on the evaluation side for acquisition, they went down. So it's a good -- very good opportunity time for us. Operator: Your next question comes from Paul Treiber with RBC Capital Markets. Paul Treiber: Just a follow-up question on the M&A environment. The question is, how are you evaluating AI readiness and risks with M&A targets? Is it something that you're proactively looking at in your due diligence? Or is it less at the forefront? François Boulanger: Again, we -- our strategy on M&A, like I always said in the past, we're really focused on buying relationship, client relationship. And that's a focus we will continue, especially in places like in the U.S. Like I said in the past, several places, metro markets or region in the U.S. were still underrepresented. So we want to have more -- so Chicago and the West Coast, for example, are good places where we're looking for potential acquisition for -- like I'm saying, to build a new relationship and client relationship. But for sure, expertise like AI expertise is also very important, and we are looking at it. And I'll give you the example. BJSS was one that you had a lot of AI expertise. And so that's one thing that we will also look in the potential merger, what kind of AI expertise that they have because, again, that's what is in demand today. Paul Treiber: And secondly, the Canadian federal budget came out last night and the government is making or plans to make a number of large investments. Can you elaborate on CGI's footprint with the Canadian federal government and what you see as opportunities for CGI's growth with the federal government going forward? François Boulanger: For sure. That's a great question, Paul. And yes, when you're reading the budget and the initiatives that they want to do, we see a lot of potential where we can help them, right? The first one is sovereign cloud. So they want to create a sovereign cloud. So that will have a lot of work to bring activities from public cloud and data from public cloud and solution from public cloud to their sovereign cloud. So a lot of exercise, a lot of work that will need to be done there. They want to do -- they want to have a more efficient government. So -- and they talked about implementing AI and automation. So again, they'll need partners like us to help them to create these AI solutions and the automation to achieve their goal of reducing expenses. And the other one is defense. And they talked about investing a lot on the defense side and on the digital and all the IT that needs to be supporting these defense initiatives. And again, that's a big portion of our business in other countries like in U.S., in Germany. We are a NATO partner for IT. So we see a lot of potential there and see how we can help them to bring what we have across the world and what we can bring to them. So it's very important. The fact also that they want to bring back some work in Canada. I think for a company like ours where we have a very good presence in Canada will be beneficial. And I think we can bring a lot of solutions to the federal government. Operator: Your next question comes from Richard Tse with National Bank. Richard Tse: Francois, about a year ago, I think you talked about elevating CGI's brand. And my guess is it was sort of to help you grow the U.S. commercial footprint. Where are you in that? And what sort of metrics are you monitoring to assess whether those investments are working? François Boulanger: Thanks, Richard, for the question. Yes, it's still a focus of mine and the company. And one of the KPIs that we're following the most for that is new business. And this quarter, we had 45% of our booking that was new business, not necessarily new clients, but new business and a lot of them were new clients also. So that's how we are managing this. And also the alliances is helping us on that side and having -- working closer with them is bringing also new kind of business. You see also what we're doing with the industries, analysts like IDC that name us on the state and local for AI services. So that's the kind of work that we're doing with the marketing team, with the operations to be more visible with these analysts to be more visible with these partners. And again, the ultimate goal is to sign new deal with existing clients, but also more importantly, to bring new clients in -- and by the way, the pipeline is up by 30% for that -- for these new business, new clients. Richard Tse: Okay. My second question has to do with some of your prepared comments on the increased demand in your APAC delivery centers. How does offshore play in terms of the increasing shift to AI? Does it sort of increase or decrease in importance there? François Boulanger: I would think, yes, two things. First of all, we have the GCC thing, right? So as you know, a lot of companies are looking at opening their own GCC or captive in India. So that's demand. We see a lot of demand to help them to create that for them with a transfer optionality at the end of the contract. So that's still creating a lot of demand in this business. And so we see that continue in the future. As for AI, for sure, we balance the number of hiring in India because a lot of activities or some of the activities can be done now with AI. So for example, when we're doing our development of our IP, that's mostly all done in India, but with some of these tools, AI tools, it's helping us to do some automation on the coding side or the development of the code of these new IP. So that's helping to not having the same number of employees to do the work that it was done like 2 years or 3 years ago. And finally, in the managed services, they have the expertise to manage -- to do these managed services. So they have also the expertise of implementing these tools to help us. So like I was saying DigiOps, who's applying DigiOps, it's mostly our Indian colleagues who's doing it. We're doing it elsewhere, but a lot of it is also done in India. So I'm seeing still India as an important tool and way of generating revenue for the future. Operator: [Operator Instructions] Your next question comes from Suthan Sukumar with Stifel. Suthan Sukumar: For my first question, I wanted to touch on AI spending priorities here. What are you seeing with respect to how clients are thinking about their spending priorities when they start to realize some of the initial ROI from early AI projects. Just wondering, are you seeing savings being reinvested elsewhere with respect to other buckets of IT spend? Or are they doubling down on AI and more of the underlying modernization work needed? François Boulanger: I think it's both. Right? Some of them are doing some investment in AI. And if they are seeing the ROI, for sure, they'll continue to invest on that side. But also, they had a backlog on the modernization side. For the last several years, they didn't do a lot of that modernization. So the fact that if they can find savings by the use of AI, at least that's what the clients are telling me when I'm meeting with these CEOs and also what the voice of our client is saying to us is that they need to find savings to tackle that backlog of transformation that they didn't do. So we are seeing that demand will continue on that side. The other thing also is on the data itself. it's nice to apply AI. It's nice to having your AI tool looking at your data, but still so much to do on the cleaning of that data and what's making sense, what's not making sense. So that -- and the security around the data, who can see what. And so again, a lot of work on that side that needs to be done. So again, I'm seeing data -- AI as a way of companies to resolve their backlog of transformation, and they'll need help. They'll need help from companies like ours. Same thing for business processes, same thing for security, cybersecurity with AI, naturally, it's bringing some risk on the cybersecurity. And again, they need people like us to help them to manage these risks. Suthan Sukumar: Great. My second question, I just wanted to touch on recent M&A. Can you provide a brief update on sort of how integration is going and how that's tracking to your expectations? And with respect to potential synergies, what sort of early traction or potential are you seeing that might be better than what you expected initially with these acquisitions? François Boulanger: Yes. I can start on the, say, opportunity side with clients and perhaps, Steve, you can give some color on the synergy side. Again, like I was saying a bit with the ones that we did, example, on Daugherty in the U.S. in the St. Louis and Chicago area, again, a place where we were not that well implemented. We have a lot of new clients and new relationships that we created. And again, we are showing to them. Daugherty was a great SI&C company, but without any managed services offering. And we came in and present to these clients, hey, we still have the opportunity to work with Daugherty great team. But more and above that, you are able now to tap on the overall CGI on the managed services, for example, and any other capabilities that we have. And it's working. We have several clients where we were able to sign new deals. And so it brought not just the revenue from Daugherty, but when I'm saying sometimes 1 plus 1 equal 3, that's what's happening in some of these acquisitions. So it's going well on that side, on the revenue, on the top line, on the savings side. Steve Perron: The savings side, look, if you look at all the acquisitions we did, the ones that we did in the U.S. earlier in the year, obviously, that's now all integrated. BJSS and the German one also Novatec that we did in the spring time. It was more integrated during the summer. So now it's integrated. So obviously, the savings are coming a lot faster when we are using our system, when we are using our processes. And you can see the benefit of the synergies. Apside was done recently. So not yet all integrated into our processes and system. It's going to be done over the next couple of months. And with that, obviously, margin will improve. It's part of the plan. And -- but still, we are quite proud with the situation that we had in Q4 with the margin of 16.6% that we were capable of delivering even during this integration period for a couple of acquisitions. Operator: There are no further questions at this time. I will now turn the call over to management for closing remarks. Kevin Linder: Thanks, Joelle, and thanks, everyone, for participating. As a reminder, a replay of the call will be available either via our website or by dialing 1 (888) 660-6264 and using the passcode 14123. As well, a podcast of this call will be available for download within a few hours. Follow-up questions can be directed to me at 1 (905) 973-8363. Thanks again, everyone, and look forward to speaking soon. François Boulanger: Thank you. Operator: Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect your lines.