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Operator: Good day, and thank you for standing by. Welcome to the Eversource Energy Q3 2025 Earnings 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, Rima Hyder, Vice President of Investor Relations. Rima Hyder: Good morning, and thank you for joining us today on the third quarter 2025 earnings call. During this call, we'll be referencing slides that we posted this morning on our website. As you can see on Slide 1, some of the statements made during this investor call may be forward looking. These statements are based on management's current expectations and are subject to risk and uncertainty, which may cause the actual results to differ materially from forecasts and projections. We undertake no obligation to update or revise any of these statements. Additional information about the various factors that may cause actual results to differ and our explanation of non-GAAP measures and how they reconcile to GAAP results is contained within our news release, the slides we posted and in our most recent 10-Q and 10-K. Speaking today will be Joe Nolan, our Chairman, President and Chief Executive Officer; and John Moreira, our Executive Vice President, Chief Financial Officer and Treasurer. Also joining us today is Jay Buth, our Vice President and Controller. I will now turn the call over to Joe. Joseph Nolan: Good morning, and thank you for joining us today. Starting on Slide 4. Over the past 10 months, our team's relentless focus on executing on our key strategic initiatives has driven strong results and consistent performance. We are well on our way to delivering against these initiatives and ending the year on a strong note. Our strong results have also greatly improved our standing among our peers. On a year-to-date basis, our share price has been a top performer among the EEI peer group. Today, I'll walk you through how we're capitalizing on our unique market position, fueling sustainable growth and strengthening the balance sheet to power our future outlook. Moving to Slide 5. In the last few months, we have gained more clarity on the Connecticut regulatory environment and the impact for our ongoing and future regulatory proceedings at PURA. Additionally, each day of construction that passes yields progress on the derisking of Revolution Wind. We're seeing a constructive shift in Connecticut's regulatory landscape. Last month, Governor, Lamont appointed 4 new commissioners at PURA, filling out the 5-member requirement under Connecticut law. With this new commission on the way, there is now a genuine opportunity to collaborate with all parties on regulatory initiatives and to achieve more balanced regulatory outcomes. This will enable us to better serve the needs of our customers in this state and to do so with a strong focus on safety, reliability and affordability. Critical needs exist for state and regional infrastructure investments to maintain a strong, reliable and resilient grid that can accommodate new sources of generation to meet the increasing levels of projected electric demand. A transparent and predictable regulatory process is going to benefit all stakeholders, including our customers, and we are looking forward to getting back to work on Connecticut's energy goals. For our ongoing Yankee rate case, we submitted a motion to adopt an alternative resolution with PURA. This was in response to PURA's request for parties to reach a consensus based resolution to reestablish trust in balance in the regulatory process and avoid further legal appeals. Our proposal includes important customer affordability provisions that we believe are supportive of all stakeholders affordability goals. We expect to see a final decision from PURA today. We remain on schedule to receive a final decision for the sale of Aquarion Water on November 19 and we continue to expect to close the transaction by the end of this year. As you may be aware, we filed a comprehensive offer of compromise to address concerns raised by the Connecticut Office of Consumer Counsel. The commitments that were outlined in the offer of compromise provide additional assurances that the transaction will serve the interest of Connecticut and the customers served by Aquarion Water. Moving on to an update on offshore wind. We have substantially completed construction of the onshore substation for Revolution Wind project. We expect to provide back-feed energization to the offshore facilities by the end of November, which will support testing and commissioning of those facilities. In parallel, we will complete the final testing and commissioning of the remaining onshore equipment. Overall, as Orsted has stated, Revolution Wind is substantially complete and work has continued since the stop order was lifted in September. We recognized an increase to our liability to GIP in the third quarter, which was largely offset by tax benefits. We continue to support the project's owners in their completion of this important generation resource for New England. As I said at the start of the call, our execution has delivered positive results and we have made great headway on our many key strategic initiatives this year. We have continued to deliver on our operational metrics with top decile reliability performance among our peers. We have significantly improved our FFO to debt ratio through constructive regulatory outcomes and managed our balance sheet to support solid credit ratings. And we know we are not done yet. We have continued to invest in transmission and distribution infrastructure across our service territories. We are on track to invest nearly $5 billion this year. We have installed over 40,000 AMI meters in Massachusetts and completed the communication network deployment in the Western portion of our service territory. These achievements are just a few that underscore the strength of our execution engine and the depth of our operational rigor. As you can see on Slide 6, we have many growth opportunities ahead of us. Our service area is truly the crown jewel of the country. This area is home to cutting-edge biotech and research in the best universities and health care in the world. As these industries expand, they turn to us for a reliable, resilient grid, making us an indispensable partner in their success. We're seeing robust load growth, driven primarily by electrification of transportation and heating, decarbonization initiatives from both the public and private sectors and economic expansion across manufacturing and commercial sectors. These factors help to ensure that our growth is broad-based, durable and aligned with state sustainability goals. Year-to-date, we have seen weather-normalized load growth of 2%. And this summer, we experienced a peak of over 12 gigawatts, the highest record since 2013 as load growth in our service territory has started outpacing the impacts of distributed generation such as rooftop solar. The evolving electric demand landscape presents a need for numerous transmission projects such as upgrades linking onshore and offshore wind to load centers, interconnections improving regional reliability and addressing congestion as the generation mix for our region evolves. Some of the projects we are pursuing to get ahead of this continued load growth include the Cambridge underground substation, which will be the largest in the nation in 1 of 14 substations currently on the drafting table that we expect to build in Massachusetts alone to support future growth. Being opportunistic about land acquisitions in our service territory to support this growth, such as the Mystic Land acquisition we did last year with more in the pipeline. Responding to requests for proposals from ISO New England to address longer-term transmission solutions, such as the most recent one to bring power from Northern Maine to Southern New England. These opportunities, some being outside of our 5-year forecast period could add billions of dollars to our future investment plans. Each project that we are considering not only supports our growth trajectory, but also deepens our value proposition as a grid innovator. We also recognize that as demand increases, affordability must remain top of mind. We are working closely with our regulators to offer our customers various options to address affordability as shown on Slide 7. We collaborate with large and small customers to design rate structures that incent efficiency. For example, earlier this year, we worked constructively with our regulators in Massachusetts to offer a 10% discount to our gas customers during the winter peak months and recover that in the summer months to smooth the impact of high bills. Similarly, starting this month, we are offering a seasonal heat pump rate in Massachusetts. Eversource electric customers who use a heat pump to heat their homes can take advantage of a seasonal heat pump rate, which is a reduced rate during the winter months. We are expanding energy efficiency programs to provide incentives for residential and low income customers who choose to adopt energy-efficient technologies. These programs, coupled with AMI give customers greater transparency and control over their energy pocketbook. Our nation-leading energy efficiency programs have already generated $1.4 billion in savings for our customers. We have also implemented low-income discount rates for our most vulnerable customers, and we are recognized for our leadership in advocacy for state utility partnerships in hardship programs. We are excited about new energy supply coming into our region, which should alleviate supply cost pressure on customer bills. Over the next 12 months, Eversource is directly supporting new generation coming into the region totaling over 2,500 megawatts. We aim to deliver reliable, sustainable energy while keeping costs manageable and partnering with customers to ensure affordability through cost-effective investments, efficient operations and equitable rate design. Before I hand the call over to John, I want to thank our 10,000-plus employees for their dedication, our regulators for their collaborative spirit, and our shareholders for their trust. We're executing against a clear strategy, serving extraordinary customer base and working to build the grid for tomorrow, responsibly and sustainably. I look forward to your questions and sharing more details on our path forward. With that, I'll turn the call over to John Moreira. John Moreira: Thank you, Joe, and good morning, everyone. This morning, I will review third quarter earnings results, provide a regulatory update and discuss our recent financings and progress on credit metrics. I'll start with our third quarter results on Slide 9. As announced last month, during the third quarter, we recognized a net after-tax nonrecurring charge of $75 million, or $0.20 per share related to our offshore wind liability. This charge increased our estimated liability for future payments to GIP by approximately $285 million, which was offset by $210 million of tax benefits. These tax benefits were the result of a change to previously estimated tax attributes primarily associated with Revolution Wind. Our GAAP earnings for the third quarter of this year were $0.99 per share, including the impact of this recent offshore wind net charge. GAAP EPS for the third quarter of last year was a loss of $0.33 per share, reflecting the impact of the sale transaction of South Fork and Revolution. Excluding the after-tax losses from offshore wind in both years, non-GAAP recurring earnings for the third quarter of 2025 were $1.19 per share compared with $1.13 of non-GAAP recurring earnings per share last year. Now looking at the quarter results by segment, starting with transmission. Higher electric transmission earnings of $0.01 per share were due to increased revenues from continued investment in the transmission system. Next, we have higher electric distribution earnings of $0.03 per share that reflect distribution rate increases in New Hampshire and Massachusetts provided for cost recovery for infrastructure investments in our distribution system. These higher revenues were partially offset by higher interest, depreciation, property taxes and O&M. The improved results of $0.04 per share at Eversource's Natural Gas segment were due primarily to base distribution rate increases in both Massachusetts utilities and from capital tracking mechanisms to provide timely cost recovery of investments in our Natural Gas businesses. These revenue increases were partially offset by higher interest, depreciation and property tax expenses. Water distribution earnings were lower by $0.02 per share for the quarter as compared with prior year, primarily due to higher O&M and depreciation expense. Eversource parent earnings results were flat for the quarter, excluding the net impact from offshore wind that I mentioned earlier. As a reminder, all of these segment results reflect the impact of share dilution. Overall, we are very pleased with the solid performance for the third quarter and our recurring earnings are in line with our expectations. Moving to some key regulatory items as shown on Slide 10. As Joe mentioned, we recently filed an alternative resolution proposal in the Yankee rate case. If adopted by PURA without modifications, the alternative resolution would waive our statutory right to appeal the final decision, resulting in a fair and balanced outcome. The alternative resolution is an improvement over the draft decision, increasing revenues by approximately $104 million as compared with the PURA's draft decision of $55 million. The alternative resolution would also provide customer relief this winter to a greater extent than the draft decision by accelerating the refund of an existing regulatory liability. Also, as Joe mentioned, on the Aquarion sale, PURA has maintained its final decision date of November 19 and pending that decision, we continue to expect to close the transaction by year-end. In Massachusetts, we received the approval of our NSTAR Gas PBR adjustment, and we also filed a motion for reconsideration on the NSTAR Gas rate base reset. Next, let me reaffirm our 5-year capital plan of $24.2 billion, as shown on Slide 11, which reflects our 5-year utility infrastructure investments by segment through 2029. As a reminder, this plan only includes projects for which we have a clear line of sight from a regulatory perspective. Through September, we have executed on $3.3 billion of our $4.7 billion infrastructure investment plan. We are very pleased with this progress, and we are on track to meet our planned target for the year. We continue to see additional capital investment opportunities in the range of $1.5 billion to $2 billion within the 5-year forecast period. We plan to update our next 5-year capital plan in our fourth quarter earnings call. Turning to Slide 12. We remain highly focused on improving our cash flow position and strengthening our balance sheet condition. As I have stated before, we expect our FFO to debt ratio for 2025 to be approximately 100 basis points above the rating agency thresholds by year-end. In fact, our Moody's FFO to debt ratio was 12.7% as of the second quarter of this year and reflects an improvement of over 300 basis points from December of 2024. We expect this ratio to be over 13% as of the third quarter. As we have shared with you last quarter and as shown on Slide 13, we have executed on substantially all the items necessary to improve our cash flows and strengthen our balance sheet. As a result, our operating cash flows have continued to improve, increasing over $1.7 billion year-over-year through the third quarter. Moving on to our financing activity on Slide 14. While earlier this year we did not anticipate issuing long-term debt at the parent company during 2025. However, we did see the need to capitalize on favorable credit spreads, proactively prefunding an early 2026 maturity and strengthening our liquidity position. Given where our short-term debt balances were forecasted to be and in order to maintain an appropriate level of liquidity, we issued $600 million of parent company debt. On the equity side, to date, we have issued $465 million of equity under the ATM program. We expect that this level will take care of our equity needs for the near term. We also continue to pursue recovery of our deferred storm costs. As of the third quarter, 98% of our deferred storm costs are either under review or already in rates. And as a reminder, our previous cash flow improvement forecast did not assume securitization as the cost recovery mechanism for the Connecticut deferred storm costs. Next, I will turn to 2025 earnings guidance as shown on Slide 15. As announced in October, we are now in 2025 recurring earnings per share guidance to the range of $4.72 to $4.80 per share to a higher midpoint and reaffirming our longer-term EPS growth rate of 5% to 7% off of the 2024 non-GAAP EPS base. We remain confident in our EPS growth trajectory driven by disciplined execution of our strategic plan, targeted customer-focused investments in transmission and distribution are backed by constructive regulatory frameworks that enable timely cost recovery for our operations. Continued progress on storm cost recovery combined with strict O&M discipline strengthens our financial foundation and positions Eversource to deliver consistent long-term value to customers and shareholders. I'll now turn the call back to the operator to begin our Q&A session. Operator: [Operator Instructions] Our first question today comes from Shar Pourreza from Wells Fargo. Shahriar Pourreza: So just on Yankee Gas, obviously, everyone is watching this one. You've got this motion to adopt the alternative resolution out there. There's some stuff coming out now on it, I think. Is there anything you want to flag? And just remind us, what's kind of embedded in the plan around the outcome? Is it fair to assume that you're kind of conservative around what you're embedding there? And any sort of updates, I think we're starting to see some things come across. Appreciate it. Joseph Nolan: Sure. As you know, our call started at 9:00 and the commission went in and the order is out. We need to go through it. As you know, the devils are in the details. So we'll continue to take a good look at that, and I think we'll have some answers for folks on this call later today, I can promise you. John can talk to you a little bit about what's embedded in the plan. John Moreira: Yes. No, Shar, I would say it's in line with our plan, and it appears that the decision is a little bit better than the draft decision, which is very encouraging for us. But as Joe mentioned, we have to go through it. It's -- the ink is not dry yet at this point. So -- but we will have much more information when we meet with you all at EEI. Shahriar Pourreza: Perfect. I'm just glad we're getting through this process. That's good. And then just on the NSTAR Gas PBR, right? I mean, you have a proposal for recovery of roughly $160 million. Just walking through what you did and didn't get. Why did the Massachusetts, DPU deny that? Is there kind of an opportunity to get it later? And does this mean you're filing a rate case? Obviously, the governor has been kind of warning around rates being too high, then guiding the DPU to scrutinize everything. So I just want to get a sense there. I appreciate it. John Moreira: Good question, Shar. So the $160 million component, the piece is the 3 major items. One is a roll-in of GSEP, which is about $107 million. That really has no impact to customers. It's just going from the right hand to the left hand, the normal PBR adjustment, which was -- which did get approved of about $10 million. What we had proposed as a mitigation plan for the DPU was to allow us to roll in rate base similar to what we saw last year that the DPU approved for EGMA. That number is about $45 million. And we were very specific when we made that mitigation filing that if we did not receive the rate base role and then our alternative would be to file a general rate case. So as of yesterday, we filed a motion for reconsideration and we also filed our intent to file a rate case. There's been a lot of change, not only in the Connecticut PURA, but also in Massachusetts. The putting 2 new commissioners really have not been there that long. So we're hopeful that the efforts that we will work very closely with the DPU will move in the right direction. Shahriar Pourreza: Okay. Perfect. Big congrats, Joe, on sort of the traction. It seems like you guys are getting to a pretty good inflection point here. So congrats. Joseph Nolan: Thank you. Well, I'm very, very proud of the team. We've worked very, very hard at that, getting our message out there. We've been all over actually all the states talking about the issues and engaging key decision makers. So we're really, really proud of the team. It took a village [ job], but thank you, and I will see you at EEI. I'm looking forward to seeing you. Operator: Our next question comes from Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just to go back to Connecticut, I guess just as you think about the recent changes from a regulatory standpoint, are there any updates you can share from conversations with credit agencies in terms of their views, just given the focus on the regulatory environment and some of the credit rating changes that they've made recently? John Moreira: Sure, sure. I would say, and I have -- I always have discussions with the credit rating agencies, but I'm sure you can appreciate. Right now, they're in a wait-and-see mode. They want to see some constructive regulatory outcomes to make the determination similar to what we expect and would like to see come out of PURA. But working collaboratively, we think that this new commission is focused on working collaboratively with all the utilities. So -- but I would overall, they're in a wait-and-see mode right now. Carly Davenport: Got it. Okay. That makes a lot of sense. And then just one other one, I guess, on Connecticut as well. I know you guys have talked previously about kind of timing to file another rate case at CL&P. Just kind of curious how the recent shifts kind of impact your views on timing there? Joseph Nolan: Yes, sure. We had never really had any intention to filing prior to 2026. So we are looking at that, as you know, a filing of that nature is comprehensive. So we would need to get test year and that type of stuff. This would not be something that would happen until at least second, third quarter, if we were to file. Obviously, we're going through that now, and that's what we're looking at, at this point, Carly. Operator: Our next question is from Jeremy Tonet with JPMorgan Securities. Aidan Kelly: This is actually Aidan Kelly on for Jeremy. Joseph Nolan: You're breaking up. Aidan Kelly: Can you guys hear me now? Joseph Nolan: Yes, it's better now. Yes. Aidan Kelly: Upon on the equity... Joseph Nolan: But Jeremy, we're losing you again. Can you call in and we'll come back to you? We'll put you back in the queue? Aidan Kelly: Sounds good. Operator: Our next question is from Andrew Weisel with Scotiabank. Andrew Weisel: First question, Joe, you talked about the land acquisition strategy. I know Mystic was a big one last year. Can you talk a little more how you're thinking about this? Is this kind of like a land grab where you're trying to get as much acreage as possible in strategic locations for your own stand-alone development? Or is it working with potential customers or partners like large load customers or data centers? And would it be right to assume that dollars are small, it's more about optionality? Joseph Nolan: Well, yes, a couple of things. This would be for our own use, for our own regulated business. It's in locations that are strategic in nature to allow the injection of energy, whatever energy that is. We are not in the data center business. We're not attracting data centers. As you know, we have a finite amount of generation in the region. What we're working on kind of the single and double strategy that I talked about is to be able to unlock the captive generation that might be in the New England market to allow it to fall freely also to allow anyone else to interconnect into our territory. So we did purchase the Mystic, and we'll have some news on another very strategic site that we're excited about that will position this company for decades to come. Andrew Weisel: Interesting. Looking forward to that. Okay, great. Then on equity, just a couple of fine-tuning questions maybe for John here. It looks like the 2025 outlook went up by about $200 million, and you removed the comment that the majority of the outlook will be issued in the back half of the forecast period. But John, I think I also heard you say that you're satisfied for the near term after the recent activity. I might have asked a similar question last quarter, but just wondering about the outlook. Maybe you can detail some of these changes, does that relate to kind of CapEx or the long term thinking of how to get to your targeted credit metrics? John Moreira: Yes, yes. So I mean, as I said in my formal remarks, for the near term, I believe we're done, right? Although we took that off the slide, it wasn't an indication that we're going to continue to issue equity. Still the majority is we may have issued like 37%, 38% thus far. So I still stick to my position that the majority of that will be issued towards the latter half of next year. With the approval of Aquarion, once we get that decision, that's going to bring in net cash at $1.6 billion. And then with the securitization of Connecticut storm costs likely coming in the door in '27, I think we're primarily covered for those years. So my position still stands. So as I said in my formal remarks, the near term, we're good for now. I have the appropriate level of liquidity. I'm very happy with that, given the financings that we did in the last 2 months. Andrew Weisel: Okay. That's very clear, and it sounds like you're in a good position. Thank you so much. Operator: Our next question is from Anthony Crowdell of Mizuho. Anthony Crowdell: I guess JPMorgan did an update of phone system in a new building there. Just, I guess, quickly on Revolution. I think it was reported from Orsted this morning, it's 85% complete, Revolution. Just if you could talk about what are maybe the critical parts left bringing the project to completion, that's end and is it second half '26 when you believe it's all finished? Joseph Nolan: Yes, Anthony. Yes, Revolution is going very, very well. And right now, we're -- Orsted announced this morning that 52 of the 65 turbines are installed, I will tell you that the work that we're doing in Rhode Island is pretty close to being finished. We've got great job at that onshore substation, we're going to begin to see some power there at the substation very, very soon. So right now, I know that Orsted is talking about a second half of 2026. But I will tell you that we've made significant progress. We've brought the dates in by 4 to 5 months. So we're hoping that we can see that improve. But I will tell you that I feel very, very good about the project and the work that's been done down there. So I think we'll see that project schedule improve. Anthony Crowdell: When is the first megawatt, first power expected to come online from the project? Joseph Nolan: Yes. That's an issue that -- for Orsted to discuss. We are basically a partner that's building the onshore piece. They are the conductor of this particular train. So let them -- they can tell you what's going on. Anthony Crowdell: Got it. And then just flipping to the storm cost securitization in Connecticut. I know it's with PURA. Any -- and I know the recent change there and it -- only recently has changed. But any update on maybe the timing of getting resolution on the storm cost securitization? Joseph Nolan: Yes. So a couple of things. I mean, our focus has been on the Yankee case. It has been on the Aquarion sale. So when we start to sequence these items, those are the things that were top of the list for us. We now shift our focus onto storms. I think the team has done an extraordinary job of documenting everything. We've had tremendous success in both Massachusetts, New Hampshire. And I don't think it will be any different in Connecticut. We have been asked that we pulled that ahead right now. It's a second quarter event, second, third quarter that we'll see a decision. But we think given that the decks have been clear that PURA we're hoping that, that can improve. We can get a decision that will allow us to go forward with securitization and get that money in the door for us. So yes, and the other issue is the interest cost, which -- that will provide us a great opportunity there to stop the interest cost. Operator: Our next question is from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: Look forward to see you guys next week. Look, I wanted to just follow up on the Massachusetts backdrop. I know Shar asked it, but just how would you frame expectations here from gas onto the electric PBR? Just with respect to the backdrop here, anything to read -- again, I get that the gas PBR had very specific metrics but anything that you'd read into the backdrop here on the electric or EGMA? John Moreira: Well, the -- similar to what we have on the electric side, we have the same composition on the gas side. We have to perform. And on the gas side, this was the first touch point being under the PBR structure for Yankee -- for NSTAR Gas. So there's several performance metrics. There's really 3 criteria that you have to meet. One of them is you have to meet the performance measures that have been approved by DPU. We -- there were 18 actually. We performed very well in 15. So 3, we did not perform. And those 3 are very, let's call it, very subjective opinion surveys like J.D. Powers and surveys that we do, which are very driven by how the customers perceive us. The history of the precedent in front of the DPU as it relates to these performance measures is always viewed as while the company didn't have control. Okay, the company couldn't have done anything. And obviously, in a high-cost environment, it's very challenging. So that was the reason that the DPU took the action and did not allow us to roll the $45 million into rate base. And as I mentioned earlier, yesterday, we did file for a motion for reconsideration. So we will continue to work with the DPU. Obviously, as I mentioned, it's -- we have some new players sitting at the table, and we look forward to working with them very closely as we progress on this motion. Julien Dumoulin-Smith: Right. But the PBR metrics on the electric side kind of have that same composition, though? John Moreira: And we performed well. We have performed well. It's not an annual assessment with NSTAR Electric, it's a 10-year deal, you have a 5-year. So the fifth year happens in 2028. Julien Dumoulin-Smith: Excellent. No, indeed. And then just if I can -- I mean, obviously, you guys roll forward typically with 4Q. But any early indications, especially as it pertains to transmission and long lead time right time investments where you perhaps had some visibility here already? And any indications from ISO New England's planning process this year? John Moreira: Well, as you've seen in the last 5-year plan that we rolled out, the latter years are no longer a dip. And I expect that trend to continue where the outer periods will be more increasing versus what we've seen historically. So that's the reason -- that is the primary driver, that's because we have the clarity, and we have the projects that are in the queue to allow us to roll that into our plan. Julien Dumoulin-Smith: I appreciate the disclosures on the credit side, and we'll talk to you soon. John Moreira: Operator, I would like to correct a statement that I made earlier to Andrew Weisel's question. I think I may have spoken I just want to get that on the record. The equity, I said that our equity needs in the near term are taken care of. And I stay with my statement that I had made previously that the majority of the equity needs will be towards the tail end of our forecast period. I think in my former -- in my answering Andrew's question, I may have said next year. That is not the case. Operator: Thank you for that clarification. Our next question is from Paul Patterson from Glenrock Associates. Paul Patterson: So just on -- I'm having a little trouble with this. How should we think about your tax rate on an adjusted basis for the quarter and how you see it going forward? John Moreira: Paul, this is John. So as I've said previously, over the past several years, we have taken advantage of some very attractive tax benefits last year, and I may have said this previously, we were in the high teens. The expectation is this year, it's probably be in the low 20 -- 20%. But I think next year in 2026, we probably would get to more of a normal sustainable level. But we've taken full advantage of some nice tax benefits for the past several years and we will continue to harvest any and all tax benefits that we can actually achieve. Paul Patterson: Okay. Because when I look at the after-tax benefit or the -- excuse me, the hit on the offshore wind that was offset by the tax benefits, should we -- are all of those tax benefits reflected in the non-adjusted number? In other words, they seem to be allocated. When you talk about the write-off, it seems like that's being allocated to the write-off. And that isn't leaking into the -- correct? John Moreira: That is not the case. So let me -- the percentages that I just mentioned only relates to our normal recurring results. The $210 million that we harvested to offset the tax liability is directly related to offshore wind. And it's primarily the final change in estimate from where we were at the end of the year of 2024. And the characterization of that benefit is really we were able to deem the loss on wind as more ordinary versus capital. So we changed the percentage that we had used in '24 versus that tax split of capital at ordinary increased in this year when we file our tax return in the third quarter. So we were able to allocate more as ordinary versus capital and ordinary, we can carry forward for 15-plus years. So that's really what changed in our tax position as it relates to offshore wind. Paul Patterson: Okay. And there's -- and so okay, that answers the question, that's kind of what I thought. So okay, I appreciate the clarity. Operator: Our next question is from Sophie Karp with KBCM. Sophie Karp: I don't know if you guys know this on top of your head, but I'm curious what legally constitutes kind of the end of the Revolution project as far as your agreement with Orsted? Like at what point are you no longer on the hook for anything there? Like is that first power? Is that something of other milestones? Any color would be helpful here. Joseph Nolan: Sure. So it's similar to the protocol we're using on the South Fork project. It would be COD. At COD, we will hand that over and that is when we are off the hook. Sophie Karp: And what is COD specifically? Joseph Nolan: Full operation, turning over of all of the documents all -- anything associated with the work that we have done and the PPA is in full force. Operator: I'm showing no other questions at this time. So I would now like to turn it back to Joe Nolan for closing remarks. Joseph Nolan: Thank you once again for taking the time to join us today. We know many of you have been patient investors over a long time, and we will continue to execute our key strategic initiatives that create value for our customers and shareholders. We look forward to seeing many of you at EEI next week, safe travels. Operator, this ends our call today. Operator: Thank you. This does conclude the program, and you may disconnect.
Operator: Hello, everyone, and welcome to Owens Corning's Third Quarter 2025 Earnings Call. My name is Lydia, and I will be your operator today. [Operator Instructions] I'll now hand you over to Amber Wohlfarth, Vice President, Corporate FP&A and Investor Relations, to begin. Please go ahead. Amber Wohlfarth: Good morning. Thank you for taking the time to join us for today's conference call and review of our business results for the third quarter 2025. Joining us today are Brian Chambers, Owens Corning's Chair and Chief Executive Officer; and Todd Fister, our Chief Financial Officer. Following our presentation this morning, we will open this 1-hour call to your questions. In order to accommodate as many call participants as possible, please limit yourself to 1 question only. Earlier this morning, we issued a news release and filed a 10-Q that detailed our financial results for the third quarter 2025. For the purposes of our discussion today, we have prepared presentation slides summarizing our performance and results, and we'll refer to these slides during this call. You can access the earnings press release, Form 10-Q and the presentation slides at our website, owenscorning.com. Refer to the Investors link under the Corporate section of our home page, A transcript and recording of this call and the supporting slides will be available on our website for future reference. Now please reference Slide 2 where we offer a few reminders. First, today's remarks will include forward-looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. We undertake no obligation to update these statements beyond what is required under applicable securities laws. Please refer to the cautionary statements and the risk factors identified in our SEC filings for more detail. Second, the presentation slides and today's remarks contain non-GAAP financial measures. Explanations and reconciliations of non-GAAP to GAAP measures may be found in our earnings press release and presentation available on the Investors section of our website, owenscorning.com. Third, financials and metrics for current and historical periods discussed on this call will be for continuing operations, except for capital expenditures and cash flow measures, which include amounts related to glass reinforcement until the closing of the sale of the business. For those of you following along with our slide presentation, we will begin on Slide 4. And now opening remarks from our Chair and CEO, Brian Chambers. Brian? Brian Chambers: Thanks, Amber. Good morning, everyone, and thank you for joining us today. During our call, I'll provide an overview of our third quarter results and our work to continue outperforming the market in the near term while investing to strengthen and grow our company for the future. Todd will then provide more detail on our financial performance and I'll come back to discuss what we're currently seeing in the market and our outlook for the remainder of the year. In the third quarter, we delivered solid results despite challenging market conditions, demonstrating the strength and agility of our team and the power of our operating model. Because of the strategic choices and structural improvements we have made, the new Owens Corning continues to operate with greater efficiency outperforming prior cycles. I'll share more about our financial performance in a moment, but first, I'll begin with safety. In October, we celebrated our annual manufacturing appreciation month, which includes recognizing our teams for their unconditional commitment to safety as they produce the high-quality products our customers rely on. That ongoing commitment was reflected in our third quarter safety performance where our recordable incident rate was 0.56. Financially, in the quarter, we generated $2.7 billion in revenue and $638 million in adjusted EBITDA, delivering an adjusted EBITDA margin of 24%. We also generated strong cash flow and continued to return capital to shareholders through dividends and share repurchases. Through the first 3 quarters of the year, we have returned over $700 million of the $2 billion we committed to returning over this year and next. This performance reflects our disciplined capital allocation and confidence in our ongoing cash-generating capabilities. Our financial results continue to reflect our ability to perform at a high level in challenging market conditions as we see weakening residential trends in the U.S. impacting our volumes in both repair and remodel and new construction product lines. In Roofing, market demand in the quarter was impacted by a uniquely quiet storm season with no named storms making landfall in the U.S. in the third quarter for the first time in a decade. In Insulation, we saw our nonresidential and European markets remain relatively stable but continue to see the impact of slower housing starts in our residential Insulation business. Despite these weakening residential trends, both businesses continue to benefit from the structural improvements made over the past several years. In fact, when we compare today's results to similar market conditions seen over the past 10 years, we have improved margins by over 500 basis points in both our Roofing and Insulation businesses. In our Doors business, volumes continue to be impacted by both slower discretionary spending and repair and remodel and weaker new construction activity, resulting in lower-than-expected earnings. Even with these headwinds, we continue to make good progress on achieving the anticipated cost and operational synergies and are beginning to see the benefits of our unique commercial position working with common customers. While I'm disappointed in the current financial performance, I am pleased with how our team is responding to position the business for long-term success and remain confident in our ability to achieve our margin and cash flow goals for the business. In fact, across all three businesses, we see revenue and margin growth potential driven by our execution and the favorable long-term secular tailwinds in North America and Europe, two of the largest and most attractive building products markets globally. In the U.S., mortgage rates are slowly coming down, improving housing affordability, which we expect to trigger residential market activity as we move through 2026. We also see increasing investments in several nonresidential segments, including data centers, manufacturing and energy. And in Europe, macro indicators continue to improve, which will lead to growth, particularly in the nonresidential sector. Our financial performance to date and into the future, reflects the strength of the company we've built, one that can sustain annual EBITDA margins above 20% even as markets fluctuate. In the near term, we will continue to be disciplined operators focused on our cost, our customer share and our capital allocation. We will leverage our structurally improved cost positions that we have achieved through network optimization and operational efficiencies, while making strategic investments that strengthen our market-leading positions and support our growth. In Roofing, this includes unlocking efficiencies and creating network flexibility through ongoing debottlenecking efforts, the successful start-up of our new laminate shingle line in Medina earlier this year and the future addition of a new plant located in the Southeast, the largest asphalt shingle region in the country. This facility, which will be built in Alabama, will include leading technology and have the capacity to produce approximately 6 million squares of laminate shingles annually, enhancing service across our network. As we continue to invest for growth in Roofing, we're also building loyalty and demand through our industry-leading contractor engagement model. Since the beginning of the year, our contractor network has grown by about 9%, with that growth accelerating throughout the year, reflecting our unparalleled commercial strength and the value we create for our customers. In Insulation, the strategic investments we have made give us more balanced end market exposure across residential and nonresidential applications and we continue to make structural improvements to maintain a winning cost position, such as our new state-of-the-art fiberglass line in Kansas City, which will provide us with the low-cost flexible production line capable of serving both nonresidential and residential customers, depending on market demand. We're also capitalizing on the growing demand in both residential and commercial applications for XPS foam with a new low-cost plant in Arkansas. We recently celebrated the grand opening of this facility which is on track to be fully operational in early 2026. In Doors, we're capturing cost synergies and applying the same commercial and operational playbook that has driven success in Roofing and Insulation. Over one year into the integration, we have line of sight to achieving all of the $125 million in enterprise cost synergies we committed to by the end of year to have ownership. In addition, we have identified an additional $75 million of structural cost savings through operational improvements and plant consolidations, giving us a lower cost position to leverage as volumes increase. We're also starting to see the benefit of our commercial strength as we expand the success of our contractor engagement model in Roofing to shape the PINK Advantage dealer program in our Doors business. Through this program, we can serve more than 4,000 small privately owned dealers across the U.S. while creating downstream demand and product pull-through distribution. We are seeing acceleration in dealer sign-ups and have increased the membership count by more than 35% this year. In addition, we are starting to see the power of our enterprise retail capabilities, creating new opportunities for Doors in home centers by leveraging our highly recognized and valued brand with homeowners and small contractors, as well as our in-store service and merchandising capabilities. By utilizing the unique capabilities of the OC advantage in Doors, we are positioning the business for increased revenue and margin growth. Through our reshaped product and geographic focus, we built a company powered by three market-leading businesses with multiple opportunities to win and grow. In line with our building products focused strategy, we continue to make progress on the divestiture of our glass reinforcements business, targeting completion by the end of the year as we work through closing and regulatory approvals. Before turning it over to Todd, I would like to thank and congratulate my Owens Corning colleagues for their role in our most recent recognition. We have been named to the 100 Best Corporate Citizens list which ranks the largest publicly traded U.S. companies on their environmental, social and governance performance and transparency. Owens Corning ranked third, marking our eighth consecutive year in the top 10 and reflecting our commitment to doing business the right way. Overall, for the quarter, we delivered solid results in a challenging environment, outperforming previous cycles and operating with greater efficiency and resiliency. Our durable margins and strong cash generation reflect the power of our operating playbook and the strength of our market positions. As we navigate near-term market dynamics and seasonal inventory controls, we remain committed to serving our customers, maximizing our performance and investing in the growth of the enterprise, creating multiple paths to deliver long-term value. With that, I'll turn it over to Todd. Todd Fister: Thank you, Brian, and good morning, everyone. As Brian said, our performance in the third quarter demonstrates the impact of our structural improvements in portfolio transformation, delivering more resilient earnings in challenging markets. I'd now like to turn to Slide 5 to discuss the results for continuing operations for the quarter. In the third quarter, we continued to build on a strong first half and execute well despite weaker end markets. While revenue decreased 3% over prior year as a result of lower volumes, we still generated adjusted EBITDA of $638 million and adjusted EBITDA margins of 24%. In the quarter, we had adjusting items of $784 million primarily due to a noncash goodwill impairment charge in our Doors business of $780 million. This impairment is driven by updates to the macro assumptions in our accounting valuation model due to near-term market weakness, not a change in our longer-term view of the earnings potential of the business. Adjusted earnings per diluted share for the third quarter were $3.67. Turning to Slide 6. Free cash flow for the quarter was $752 million compared to $558 million in the same period last year. We benefited from disciplined working capital management as well as lower cash taxes as a result of the tax bill updates earlier this year, which more than offset the impact of higher capital investments. We continue to invest in capital projects at elevated levels in the near term to drive improvement in long-term efficiency and growth. As a result, capital additions for the quarter were $166 million, up $25 million from the same quarter prior year. Our return on capital was 13% for the 12 months ending September 30, 2025. As a reminder, at our Investor Day earlier this year, we gave a long-term target of mid-teens or better return on capital. While currently below mid-teens due to the Doors acquisition, there is no change to our long-term target. At quarter end, the company had debt-to-EBITDA of 2x at the low end of our targeted range of 2 to 3x. During the third quarter, we returned $278 million to shareholders through share repurchases and dividends. We repurchased common stock for $220 million and paid a cash dividend totaling $58 million. Year-to-date through the third quarter, we've returned more than $700 million to shareholders and we are on track to meeting our commitment of returning $2 billion to shareholders between 2025 and 2026. Our capital allocation strategy remains focused on generating strong free cash flow, delivering mid-teens returns on capital, returning cash to shareholders and maintaining an investment-grade balance sheet while we invest in attractive capital projects for growth. Our capital allocation strategy is focused on compounding long-term value for shareholders. Now turning to Slide 7, I'll provide additional details on our segment results. Starting with our Roofing business. Our results in the third quarter continue to demonstrate the power of our contractor engagement strategy and vertically integrated cost position to outperform the market and deliver resilient earnings. Sales in the third quarter were $1.2 billion, up 2% from prior year. In the quarter, revenue growth was driven by positive price realization on our April increase with volumes relatively flat. The U.S. asphalt shingle market on a volume basis was down low double digits compared to the prior year. The big driver of the year-over-year decline was lower storm-related demand. As Brian shared, for the first time in a decade, no named storms in the Atlantic made landfall in the U.S. Our U.S. shingle volume down slightly outperformed the market as we continue to see good demand for our shingles and ongoing contractor pull-through distribution. We had another strong quarter of EBITDA performance as we navigated a declining shingles market. EBITDA was $423 million for the quarter, up slightly from prior year. Positive price more than offset the impact of cost inflation. Overall, for the quarter, we delivered EBITDA margins of 34%, in line with prior year. Now please turn to Slide 8 for a summary of our Insulation business. In the third quarter, Insulation sustained 20-plus percent EBITDA margins in more difficult markets, showing the impact of the structural improvements we have made. We continue to deliver results above historical performance in similar markets, highlighting our ability to create value for customers. Q3 revenues were $941 million, a 7% decrease from Q3 last year. The decline was primarily due to lower demand for residential products in North America and the sale of our building materials business in China. In North America residential, we saw volume decline in line with our expectations for fiberglass due to ongoing weakness in demand for residential new construction. In North America nonresidential, revenue was down slightly versus prior year on the timing of projects in the U.S. and Mexico. And in Europe, we continue to see stable markets. Strong operational performance partially offset the impact of lower demand that resulted in additional production downtime as we remain disciplined in inventory management. Insulation delivered EBITDA margins of 23% in the third quarter, resulting in EBITDA of $212 million, down $36 million from prior year. Moving to Slide 9. I'll provide an overview of the Doors business. Overall, the business is responding well to a challenging market. In the quarter, the business generated revenue of $545 million, down 5% from prior year. The decline in revenue was primarily due to lower volumes as the Doors business continues to navigate challenging market conditions for both new residential construction and discretionary repair and remodel. We are also seeing a decline in EBITDA versus prior year as a result of lost leverage. Price cost was negative in the quarter as pricing was down slightly and inflation, primarily tariffs, continues to impact the business. Despite these market headwinds, the integration is progressing well. We are run rating slightly ahead of our $125 million of enterprise synergies. To date, we have captured about 40% of our synergies in Doors and the other 60% across the remainder of the enterprise. This reflects our ability to scale the OC advantage while applying the same playbook that structurally improve margins and Roofing and Insulation over time. We continue to take actions in support of achieving these savings and driving network optimization, which include the decision we made in the third quarter to close a facility in Texas and another announcement this week to close a facility in Canada. EBITDA for the quarter was $56 million with EBITDA margins of 10%. Overall for the company, there was about $12 million in net impact from tariffs in Q3. Our sourcing and supply chain teams have continued to demonstrate agility and discipline mitigating tariff exposure and preserving margins. We expect net tariff exposure to continue at a similar rate in Q4, with the biggest headwind in the Doors business. As a reminder, last year in Doors, we also saw a $14 million onetime benefit from tariff recovery efforts in Q4 that will not repeat this year. This impact is included in the outlook Brian will share in a moment. Moving on to Slide 10, I will discuss our full year 2025 outlook for key financial items. General corporate EBITDA expenses are expected to be approximately $240 million, at the low end of the range we had previously shared of $240 million to $260 million. We expect our 2025 effective tax rate to be 24% to 26%, anticipate a cash tax benefit of approximately $100 million in the year for the recent tax bill. Capital additions are expected to be approximately $800 million. This level of capital investment reflects the strategic choices we are making to expand capacity and drive improved efficiency. This CapEx continues to include glass reinforcements which is expected to be approximately $80 million in 2025. We expect CapEx to remain elevated in the near term as we work towards completing the high-return capital-efficient projects currently underway. We remain focused on executing our strategy, delivering strong returns and compounding long-term value for our shareholders. Now please turn to Slide 11, and I'll turn the call back to Brian to further discuss our outlook. Brian? Brian Chambers: Thank you, Todd. In the third quarter, our team continued to perform well, responding to slowing demand trends in most of our product lines. For the fourth quarter, we expect residential new construction and remodeling to remain challenged, with softer market conditions and customers carefully managing year-end inventory. For nondiscretionary roofing repair activity, we expect the market to be down significantly on lower second half storm activity and Q4 seasonality. Nonresidential construction activity in North America is expected to decline slightly and market conditions in Europe are anticipated to gradually improve. As Todd shared, we remain disciplined in our inventory management in this environment. As a result, we will realize additional year-over-year production curtailment in the fourth quarter. Given this near-term outlook, we anticipate fourth quarter revenue for continuing operations to be approximately $2.1 billion to $2.2 billion, down mid- to high teens versus prior year. For adjusted EBITDA, we expect to deliver margins of approximately 16% to 18% for the enterprise. Now consistent with prior calls, I'll provide a more detailed business specific outlook for the fourth quarter. Starting with our Roofing business, we anticipate our revenue to be down mid-20% versus prior year. While we typically see a decline in roofing shipments in the fourth quarter due to colder weather, we expect to see a more significant drop this year due to much lower storm activity and a more pronounced reduction in end-of-year inventory levels at distribution versus prior year. Given this environment, we expect a high 20% decline in ARMA market shipments. Based on our strong contractor engagement model, we would expect our volume to decline slightly less than the market overall. We anticipate volume declines for components and nonwovens to be down a similar amount tied to lower demand for shingles. For the quarter, we expect pricing to be up slightly versus prior year, but with ongoing inflation, we anticipate seeing negative price cost for the fourth quarter. We also expect to take additional production curtailment to manage inventory and perform needed maintenance on our production lines, partially offset by productivity. Overall, for Roofing, we expect to generate a mid-20% EBITDA margin in the fourth quarter. Moving on to our Insulation business. We anticipate overall revenue to decline high single digits compared to the prior year, primarily due to a volume decline in North American residential and the sale of our building materials business in China. As a reminder, this business had approximately $130 million of revenue annually. In our North American residential Insulation business, we expect revenue to be down low double digits versus prior year due to lower demand as we work through a step down in housing starts and overall market uncertainty. Additionally, we anticipate targeted price moves to result in slightly lower price year-over-year. For North American nonresidential, we expect revenues to be down slightly versus prior year, in line with the declines Todd shared for the third quarter tied to lower project-related demand in North America. And in Europe, we anticipate revenue to be up versus prior year as we see gradual market recovery and currency tailwinds. Overall, for the Insulation business, we expect ongoing cost inflation resulting in negative price cost in the quarter. Additionally, we anticipate strong operational performance and cost controls to largely offset the incremental production curtailment tied to the volume decline from the market pressure in North American Residential. Given all this, we expect EBITDA margin for the Insulation to be slightly above 20%. Turning to Doors. We expect our business to continue to be challenged by slower discretionary repair and remodel spending and weaker new construction activity. Also in the quarter, similar to our other residential product lines, we expect to see distributors reduce end-of-year inventories. As a result, we expect revenue in Q4 to decline high single digits versus prior year, driven primarily by lower demand. While we anticipate synergies and cost control realization to continue, we expect EBITDA to be impacted by lower volume and the resulting leverage loss from production curtailment. Additionally, we expect price cost to remain negative with relatively flat pricing and ongoing inflation driven primarily by tariffs. Overall, for Doors, we expect fourth quarter EBITDA margin of approximately 10%, similar to Q3. With that review of business outlook, I want to close out with a few enterprise comments. Based on this outlook for the fourth quarter, we expect 2025 revenue for the enterprise to be up modestly versus prior year, inclusive of the full year impact of the Doors business. Despite ongoing market challenges throughout the year, we expect to deliver full year EBITDA margin of approximately 22% to 23%. As we finish the year, we remain focused on executing our strategy with discipline, leveraging our reshaped portfolio, structurally advantaged cost position and the unique capabilities of the OC advantage. These strengths position us well to navigate near-term market pressures, while continuing to invest in the long-term efficiency and growth of our enterprise to achieve the targets shared at Investor Day in May. Moving forward, we remain energized by the opportunities to continue positioning Owens Corning as a best-in-industry performer. We are building a stronger, more resilient company, one that delivers higher earnings and cash flow, creates lasting value for our shareholders and is built to outperform. In closing, I want to recognize the continued dedication and resilience of our global Owens Corning team. Their commitment to safety, operational excellence and customer service is what enables us to perform at such a high level in any market environment. With that, we would like to open the call for questions. Operator: [Operator Instructions] Our first question today comes from Stephen Kim with Evercore ISI. Stephen Kim: I appreciate all the color. Obviously, a tough market out there. I'm going to focus on Roofing and particularly the margins. I think you've guided for margin -- sorry, pricing in 4Q to be up slightly year-over-year. But we have been understanding that there's some growing pricing pressure sequentially in Roofing. And I'm wondering if you could describe where do you feel more pressure? Is it more prevalent among manufacturing peers, distribution, retail or end users? And how does your pricing strategy generally change if the pressure comes from one channel versus another? Brian Chambers: Stephen, thanks for the question. I think pricing has continued to remain positive all year. We've talked about that in terms of our realization. And it's really driven by the value that we're bringing to our contractors and distributors, through our brand, through our innovation, through our commercial strength in the market. So that positioning in the market, that investments we've made to build out all of those capabilities, I think, reflect a strong pricing for our products, and that's retained and been maintained throughout the year. And typically, we see some pricing moves as we close out the year, and we see that more generally in a more normalized roofing market, which clearly we are facing today with limited storm activity, Q4 seasonality, distributors taking a harder look at inventory levels. So in the fourth quarter, particularly, we would normally see some pricing moves to make some pricing moves as distribution adjust their end-of-year inventories. And we've made some of those pricing moves to remain competitive, and those have been very targeted. When we look at pricing actions like that in Roofing or in Insulation or in Doors, we're very targeted. We're very focused regionally. We're very focused on specific product lines. So we've made some of those moves. So I'd say the pricing environment though is fairly typical to what we have seen in past fourth quarter cycles, nothing unusual given any of the distribution changes or any of the consolidation moves out there. So those are what I would call pretty typical seasonal pressures. And we're still, as we said in our guide, maintaining a positive price in the quarter. But we are seeing some continued inflation. So we're going to have a negative price/cost mix when we take into account the ongoing inflation in the quarter. So in terms of the overall pricing strategy, we remain consistent with how we price our products. We want to be competitive in the market, but we also want to be recognized for the value we bring relative to our brand, our innovation, our service, our commercial skills and capabilities, and that's how we'll continue to price our roofing products and all our products as we go forward. Operator: Our next question comes from Anthony Pettinari with Citi. Anthony Pettinari: In Insulation, I think you discussed North America nonres revenue down slightly in 3Q with the timing of projects, I think you cited. And you also discussed 4Q revenue slightly down. And I'm just wondering if you can give us some background on nonres demand? And are these projects -- are they moving from 3Q to 4Q or '25 to '26 or any further detail on the nonres side? Todd Fister: Anthony, thank you for the question. I can give more detail in both Q3 and Q4. We're seeing some project delays in both the U.S. and in Mexico. When we think about the delays, we do view it as shifts from quarter-to-quarter, but potentially also shifts from '25 into '26. We've seen some customers in the space share similar data for the commercial and industrial segment that they're also seeing some project delays. So we don't think this is unique to us. We think it's more a broad phenomenon that we're seeing in the industry. We are seeing a bit of a slowdown in construction activity in Mexico, where we do report that through our North American nonres piece of the business. Some of those delays appear to be related to just overall economic activity in Mexico. This could be delayed a bit longer into next year. But in the U.S., we think it's more related to just normal kind of delays we see in projects that occur from time to time. So not too unusual relative to what we've often seen. Operator: Our next question comes from John Lovallo with UBS. John Lovallo: Maybe just sliding over to the Door segment to round it out here. You took a sizable impairment based on the outlook for the business. However, it does seem like you guys are outperforming your largest peers. So I guess the question is two part. One, do you still think you're gaining share in this business despite the softer market? And then what assumptions within the kind of the fair value analysis changed the most? And should we expect further impairments in the fourth quarter? Todd Fister: Well, John, let me start with some more detail on the impairment itself and then I'll kick it over to Brian to share more on the business and what we're doing from a share standpoint. So as a reminder for everybody, when we finalize goodwill, by definition, there's 0 cushion between the value of the goodwill and the assumptions that we have in the model. And then on an accounting basis, if we have triggering events in a quarter, we have to retest that model and all the assumptions. So we did have a triggering event in Q3, which was the revenue decline that we saw. And when you look at these goodwill models, they're really sensitive to early year dynamics, in particular around market growth rates and then the subsequent impact on our margins. So when we look at the business, we did need to take an impairment in the quarter based on the accounting model. We remain confident that we're going to see margin improvement over time, but the model has put a heavy weight on the near-term results as we discount some of those future year results just as we look at the math of it. So really, from our standpoint, no fundamental change in long term, how we view the business, how we view the earnings potential. It's just we're facing in the near-term market weakness here that is different from what we assumed when we calculated goodwill originally in the models. Brian Chambers: And John, maybe I'll pick it up from that. I think we continue to stay very focused on the actions we can take to position the business for success in both the near term in this environment and then longer term. We've talked about the ongoing focus on cost synergies. We continue to see good realization there and on track to the $125 million in overall enterprise synergies. We announced another $75 million of targeted production efficiencies and we're making very good progress on that. And then I talked last quarter on some green shoots that were emerging around some of the commercial opportunities we saw in the market. And I think we continue to see those come through, and I highlighted some of those in the prepared comments. We continue to see great conversion at the lumber dealer level. And these are dealers that are servicing very local communities with a wide variety of products, but inclusive of the doors, and we're seeing some increased interest in positioning as we bring the broad product offering of Owens Corning to these dealers in Roofing, Insulation and Doors that they can take in the market, build their business and grow their business through our brand and our marketing and merchandising capabilities. So we're seeing some business pick up in that -- in that specific area. And then we continue to see a lot of interest across broad distribution around the full product offering we bring and have been able to differentiate ourselves around our service proposition and quality and the teams have done really, really great work to build a really strong value proposition around service and quality that we think is benefiting in the market today. And then the last one I talked about was around the home center. Again, back to leveraging the OC capabilities, the brand, our merchandising capabilities, we've seen some pickups there and some business opportunities. Unfortunately, a lot of that in the near term is getting overshadowed by the market declines but we do see that accelerating. As we see kind of market volumes pick up as we move into next year, we see some more of those volumes coming through and we think that's going to give us some great incremental operating leverage as we take the business forward. Operator: Our next question comes from Michael Rehaut with JPMorgan. Michael Rehaut: Wanted to zero in on hopefully a couple of areas, if you don't mind. One is, just trying to get a sense and parse out in Roofing and it sounds like a little bit perhaps in Insulation. In terms of the year-over-year revenue expected decline in 4Q, if it's possible to try and break out, how much of that was due to inventory reduction in the channel? And then secondly, in Insulation, maybe if you could just describe what's going on from a pricing standpoint sequentially and if that's something that you would expect to persist into '26 absent any rebound in demand? Brian Chambers: Mike, let me start with roofing and then I'll have Todd kind of come in on the Insulation front. On the Roofing step down in the quarter, it's probably a combination of three factors that are driving the more substantial kind of decline in the quarterly volumes. One is, as we work through the year, I think we've seen the market resetting to more normalized storm volumes. And we saw that in Q2. We expected in Q3, we're going to see some declines relative to some lower storm activity versus prior year. In fact, in Q3, we saw really no major storm activity, as we talked about first time in the decade. So we saw that kind of step down more dramatically. So I think in Q4 now, when you look at the big sequential and both -- and the year-over-year decline, I mean best guess is we probably say maybe it's probably half and half, half tied to a bigger step down in storm activity that's limiting volume and about half in terms of more dramatic inventory corrections versus prior year on lower overall demand. So as I look at the opportunities in the quarter, it's probably been a few years since we've seen this kind of significant step down, Q4 2022 is probably the last time we saw a pretty weak second half storm year in '22 and we saw that step down in volume. So we have seen these kind of big decreases. That was about a 20% decrease in Q4. This one is a little more impactful, though, because of the lower storm activity we feel. So best view is about half and half. The good news is that inventory reduction generally comes back in the first part of next year as distributors start to restock for the new season. But I think we're going to see a pretty cautious buying behavior across all of our distribution customers to close out this year, given the market uncertainty. Todd Fister: Mike, I'll comment on what we're seeing in the Insulation market in Q4 and then sequential pricing in res Insulation. So when we look at the res side of the story in Q4, we are seeing a decline in lagged housing starts in Q4 on a year-over-year basis. We're expecting the market to decline more than the decline in lagged starts. So why is that? Some of that is the mix of single-family versus multifamily. We're seeing a bit weaker mix on the single-family side. But some of that also is just conservative inventory posture as Brian just described on the Roofing side, also in Insulation. We are in free supply now. There's enough capacity to serve our customers' needs. So there's less of a need for folks to build large inventory positions at year-end. So it's hard to put a specific number on the destocking that we expect. We believe more of it is driven by the slowdown in res housing and just overall demand for the market. But we do think destocking is a part of the story. When we look at pricing in Q3, we made surgical pricing moves on the res side, as we talked about on the last call, targeting specific product lines, specific regions, specific areas where we needed to respond to competitive issues. Overall, though, we expect a relatively stable pricing environment into Q4. So while the guide includes a bit of year-over-year pricing down on res, that's really the carryover of that Q3 set of surgical actions that we made into Q4 rather than new actions that we anticipate in the quarter. Operator: Our next question comes from Trevor Allinson with Wolfe Research. Trevor Allinson: I wanted to ask about capacity utilization rates. Can you comment about on where those were in both your U.S. resi Insulation and Roofing businesses in 3Q? And then given anticipated softer market conditions, where are you expecting utilization rates to move into the fourth quarter? Todd Fister: Trevor, I'll start with the res side, and then Brian can talk through the Roofing side. So at the highest level, we still view the industry, if all assets are running in the industry, is capable of supporting 1.4 million to 1.5 million starts. When we look at Q3 and Q4, we are tracking below that 1.4 million to 1.5 million range. As I shared before, we're seeing a weaker mix of single-family versus multifamily. And just again, as a reminder, single-family starts carry about 30% more pounds of insulation per unit than multifamily starts. Now what's happening is we are taking idle. So we took our Nephi plant cold and we talked in the last call about hot idle versus cold idle. We decided to take the Nephi line down completely. We also have maintenance downtime that we're taking in the fourth quarter. That's fairly normal on our assets, but we're able to fit a little more maintenance into the quarter now that we've got time to do it. So both of those for us are reducing the amount of production we've got in the quarter. We suspect that competitors are taking similar opportunities to do maintenance. We know of a couple of lines that also have been curtailed in the industry. So it's really hard today to point to a specific number in terms of capacity utilization. But what I would share is we've done a good job of maintaining relatively stable sequential share from Q2 into Q3. And then we're positioned to maintain pretty stable sequential share now in the fourth quarter. So we're balancing out with that sequential stability in share. We're taking idle to make sure we maintain the right level of inventory in our assets in our businesses. Brian Chambers: Yes, Trevor. And then for Roofing, clearly, with the step-down in demand, capacity utilization rates are going to come down. For us, we're going to take advantage of that in the fourth quarter to do some maintenance on our assets. It's going to be the first quarter in a while -- fourth quarter and while that we can take some more extended downtimes to do that preventative maintenance work. But overall, I'd say in Roofing, we don't track capacity utilization rates the same as Insulation. It's a material conversion business. So the pricing and margin dynamics in the business are generally not tied to capacity utilization rates. They're tied value and price capture over inflation and tied to those material conversion economics of efficiency. So we don't see the same dynamics and trends in terms of the margin of the Roofing business because of the nature of a material conversion side of it. I will say, though, we will see in Q4 as we take down some of the production curtailments that, that does create some higher cost inventory that does generally spill over into the next quarter. So we would expect with some more extended downtimes this year, that's going to have an impact in terms of Q1 margin rates in the business on some higher cost inventory that we're going to have to work through. That's fairly normal in the seasonal business of Roofing. But I think we've not seen kind of this level of downtime in the last several years. So that's going to have a little bit bigger impact as we take that inventory into Q1 and sell it. Operator: Our next question comes from Matthew Bouley with Barclays. Matthew Bouley: So on Insulation, I guess the volume declines have been fairly sharp for 3 quarters at this point, more so in North America residential while still holding the EBITDA margin above 20%. I think back to the Investor Day, you spoke to the Insulation margin range. I believe, it was 20% to 27% on a full year basis on 1.2 million total starts at the low end. So understanding you're not guiding beyond 1 quarter, but do you have a view that in that light, we could be reaching a trough on Insulation margins or is this more just going to be dependent on utilization and pricing? I'm just curious on the ability to hold the line on that low end there. Todd Fister: Overall, there's no change to our guide from Investor Day in terms of where we view Insulation margins on a full year basis in that 20% to 27% range. We are seeing pressure on the margins in Q3 and Q4 as we see a relatively stable pricing environment, but we are still absorbing cost inflation in the business. We're also taking on idle to catch up for a bit of a heavier inventory position as we ended the first half of the year that we're correcting now in the back half as we've seen the market continue to be relatively weak from a volume standpoint. So that starts to get spread out more as we get into next year as we reset inventory levels at year-end. So fundamentally, no change to the guide on the business. in terms of what we expect to see. And we were really happy with the execution in the third quarter as we see the strategy play out of really focusing over time on growth in the non-res and European pieces of the business, that are holding up really well from a volume standpoint, but also a pricing standpoint. And while res pricing, we've had to make some selective moves, we are seeing some product lines and end markets within the non-res and Europe piece where we're seeing positive price in our market. So the long-term strategy is -- continues to pay off for us. In terms of relative stability in the Insulation business, but we are working through this choppier period on the res side. Operator: Our next question comes from Philip Ng with Jefferies. Philip Ng: I appreciate all the great color. Brian, I guess, from an inventory destock, whether it's your system or the channel, how long do you expect this to kind of take to flush out? Is this a 1 quarter event? Or is it going to take a few quarters? And when I look at your Roofing margin guidance for the fourth quarter, you're calling for a mid-20% EBITDA margin, certainly magnified by the destock and the seasonal dynamic. But as inventory and store demand normalizes at these lower levels, the 27% to 35% EBITDA Roofing margins you provided at your Investor Day, is there a good way to think about that as we kind of settle at these levels looking out to 2026? Brian Chambers: Yes. Thanks, Phil. Let me start and then I'll talk about the destock. The margin profile of the routing business, when we set the guide of approximately 30% annual on average in that range, was really contemplating at the 30% level, a more normal seasonal business. And I think we're going to see that. So normally, in the Roofing business, you got to go back a few years but we would see lower margin performance in Q4 and in Q1 coming out of the downtimes and some higher cost inventory. And then Q2, Q3 is where we see an acceleration in margins based on operating leverage and just higher demand. So that seasonality in that cycle where we would call the Q4 at mid-20% would not take us away from our expectation that we can still operate on an annualized basis around that 30% EBITDA margin business. So I think it's just we have not seen the seasonality in the business for several years. And so that cycle and that performance through the year, that moves up in the mid part of the year and then comes back down fourth quarter and then Q1 is more typical, more normal. And given the guide we're setting, we still think we have the ability to achieve that 30% on average annual margin profile for the business. So on the inventory destocking, I think we normally see things in Q4 get destocked and then restocked in Q1. I would say because of probably the cautious buying nature in distribution that we're seeing this quarter, it might take into the second quarter, into the first half to really see everything get restocked. We would normally see a big portion of that come through in Q1 as distributors are getting ready for the season. But I think some of that's going to kind of play out in terms of the beginnings of Q2 storm season, how people are going to buy and set up for the year. But I would expect that distributors will get back to more normalized inventory levels, but that might, depending on the start of the year, take more into the second quarter. Operator: Our next question comes from Michael Dahl with RBC. Michael Dahl: Yes, Brian, I just want to follow up on that, just so we're clear because if I think about what this implies for 4Q, I think this is going to be the lowest Roofing volumes in a decade if your guide is correct. And so I guess the first part of the question is, I didn't get the sense that inventories were necessarily that elevated. So just the -- like as you go into year-end, do you have a more quantitative sense of where channel inventories would be relative to normal? And then to your point in response to Phil, I think the last time we saw this in kind of '22, you did see a similar year-on-year decline in 1Q of '23. We still have a tough comp against 1Q '25 when we flip to next year. So should we still be thinking about a 20%-plus decline in shipments in 1Q? Is that kind of the order of magnitude that you're thinking about at least initially? Brian Chambers: Yes, Mike, in short, yes, I think you're describing it how we're kind of seeing it play out in real time. I think the -- it would be the lowest Roofing volume in about a decade, given the fact that there has been no named storms here in Q3 on top of a pretty light overall storm season. So the combination of those two factors are just leading to some lower storm activity as we finish the year. That on top of just normal Q4 seasonality, I think -- and I think a little bit more cautious on distributor buying behaviors given that. So the last time we saw this in '23, you're exactly right. We saw our Q1 that was also down 22%, 23% in terms of prior year shipments and that could be the set up. We're not guiding to Q1, but that certainly feels like a realistic setup to how 2026 is going to start. Now that you also saw more normalized storm volumes coming through, and we saw the margin progression in the business and the volume progression in the business throughout the year. But I think the next couple of quarters for Roofing volumes are going to be pretty light, relative to the last couple of years, and we'd probably take on that shape of the year. Operator: Our next question comes from Garik Shmois with Loop Capital Markets. Garik Shmois: Just to follow up on that point. On Roofing, historically, the industry has done a good job of pricing to recover cost inflation, just given these volume run rates that you're describing. As we get into the next season, do you anticipate any change in the industry's ability to recover the cost inflation you're seeing right now? Or is there anything changing perhaps competitively or from a capacity standpoint or anything happening in distribution that might give you some pause? Brian Chambers: At this point, I would say no, nothing that would change our view of kind of the historical pricing practices that we've had in the business and the overall ability to recover inflation through price. I go back to roofing shingles are still the most affordable roofing material in the market. It is still architecturally the most widely used product in the market. So there are a number of fundamental demand drivers. It is a nondiscretionary repair and replace product category. So I think we're seeing some adjustments and resetting on more normalized storm volume. But when I look at kind of the fundamental repair remodeling drivers of the business, those are still staying very strong in terms of the need for roofing materials when a roof is damaged. So I think those underlying drivers of nondiscretionary repair business, the ability -- the fact that it's the lowest-cost roofing material in the market, but the fact that it's architecturally the most desired, I still think create demand drivers even though it's stepping down on a year-over-year basis on an absolute basis, that would still allow us to get pricing in the market and the expectation that we'd be able to recover inflation over time. Operator: Our next question comes from Susan Maklari with Goldman Sachs. Susan Maklari: I want to change a bit and talk about capital allocation. Understanding that 1 or 2 quarters doesn't necessarily change the longer-term needs. But can you talk about what you're looking for to determine if you need to make any changes to plans to add capacity across the different segments? And then with that as well, can you just talk about your priorities for capital allocation in this kind of an environment? And anything that has changed relative to the last couple of quarters? Todd Fister: Thanks, I appreciate the question. From a capital allocation standpoint, as we think about the major projects we've got underway, these are multiyear projects that generally are going to add capacity in the out years, in 2027 and beyond. When we look at our markets, we still have a lot of confidence in the long-term tailwinds that support both the new construction and repair and remodel activity in North America and in Europe. So there's no fundamental change long term to our outlook for the business. And we know we're in short-cycle businesses where things could change very quickly on the upside as well around market conditions in really all 3 of our businesses. When we look at those larger projects, there's no change today in our work underway against those, in part because they support growth, but they also support cost efficiency and capital efficiency for us going forward. So these are important projects for us as we think about generating long-term EBITDA growth and cash flow growth for investors. Right now, our priority from a balance sheet standpoint is staying very, very disciplined when it comes to working capital. As you've heard throughout the call today, we're taking idle and curtailment on our existing assets to make sure we keep enough inventory to serve our customers, but we remain appropriately postured for the current market environment in terms of total inventory in the business. As a result of that and focus on accounts payable, we're maintaining good cash flows in a fairly challenging market environment today that's enabling us to continue to invest in these longer-term projects to support earnings and cash flow growth. It's enabling us to continue to make great progress on our target of returning $2 billion to shareholders this year and next year through dividends and repurchases. We are $700 million along that journey already this year. But then at the same time, we're preserving a really strong balance sheet at the low end of our targeted range of 2 to 3x. So really no change in terms of how we're thinking about capital allocation in today's market environment, even with the challenging market conditions that we're seeing, which speaks again to the new Owens Corning and the cash generation power of the business that we've created. Operator: Next in queue we have Sam Reid with Wells Fargo. Richard Reid: One more on Roofing. I was just hoping you could disaggregate some of the inventory comments, but perhaps in the context of the components business, just thinking through that destock, stock up dynamic that you talked to on some of the prior answers, I would just love to know if the components business is going to follow a similar path or whether there could be a divergence between shingles and components? Brian Chambers: Yes. Thanks for the question, Sam. The -- we would expect that the inventory destocking on components would follow a similar path to shingles. Generally, distribution will buy those products in tandem. They'll manage the balance of out-the-door sales of shingles and the level of components and attachment rates and keep those inventory positions in balance. So we would expect a similar step down in terms of volumes in our components business in Q4. And then we also talked about nonwovens. We're vertically integrated, which gives us a great cost and innovation advantage, but we'd expect to see a similar step down there. But in the component side, I think it followed the same path. And then again, when we think about the first part of 2026 and distributors starting to rebuild those inventories, I would also expect the same restocking mindset towards components to match the shingle restocking that we would expect to see in the first part of next year. Operator: Next, we have Rafe Jadrosich from Bank of America. Rafe Jadrosich: Can you just walk us through the downtime that your impact to EBITDA that you're assuming for Roofing, Insulation and Doors in the fourth quarter? And then if the macro sort of stays consistent and soft into next year, is that something that you would expect to persist? Or is any of that related to temporary sort of maintenance downtime? Brian Chambers: I think overall -- maybe I'll give an overarching answer because it's going to vary a little bit by business, but you can see some of the downtime curtailments. I'd say in Insulation, we've been able to manage those really, really well. You look at third quarter downtimes. We've been able to offset by the productivity. And then some of that, you can see in the MD&A. We'd expect to continue similar trends here in Q4 in terms of that. Roofing will be a more significant sequential and year-over-year impact because of the extent of downtimes we're going to start to take in the business. But when we think about the decremental margins in Q4 year-over-year, it is primarily all volume and deleverage that fits inside of that. So the bulk of that volume and then a little bit more incremental. And then in Doors, you'll see that come through some higher manufacturing costs in Q3. We think that continues into Q4 with kind of similar levels. So as we move into next year, I think given the volumes that we're running at today, we might see some more incremental depending on the business in terms of how we set up the year to stay very disciplined around working capital and inventory management and cash flow. But I think the bigger impact will probably be on the year-over-year comps in the businesses where you'll see a higher amount of production downtime going forward versus prior year. That will impact some of the margin performance in all three businesses to start the year. But we'll have to see how the rest of the year plays out if that would continue. But we are going to be very disciplined in terms of managing working capital and inventories as we operate the business going forward. Operator: This concludes our Q&A session. So I'll pass you back over to Brian Chambers for any closing comments. Brian Chambers: Thanks, Lydia. I'd like to thank everyone for making time to join us on today's call and for your ongoing interest in Owens Corning. We look forward to speaking to you again in the fourth quarter call. Thanks, and have a very safe day. Operator: This concludes today's call. Thank you very much for joining. Your line will now be disconnected.
Operator: Hello, and welcome, everyone, to the Intapp Fiscal First Quarter 2026 Earnings Webcast. [Operator Instructions] Please be advised that this conference is being recorded. Now it is my pleasure to turn the call over to the Senior Vice President, Investor Relations, David Trone. The floor is yours. David Trone: Thank you. Welcome to Intapp's Fiscal First Quarter Financial Results. On the call with me today are John Hall, Chairman and CEO of Intapp; and David Morton, Chief Financial Officer. During the course of this conference call, we may make forward-looking statements regarding trends, strategies and the anticipated performance of our business, including guidance provided for our fiscal second quarter and full year 2026. These forward-looking statements are based on management's current views and expectations, entail certain assumptions made as of today's date and are subject to various risks and uncertainties, including those described in our SEC filings and other publicly available documents that are difficult to predict and could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Intapp disclaims any obligation to update or revise any forward-looking statements, except as required by law. Further on today's call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results, including non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP diluted net income per share and free cash flow. Our GAAP financial results, along with a reconciliation of GAAP to non-GAAP financial measures can be found in today's earnings release and its supplemental financial tables, which is available on our website and as an exhibit to the Form 8-K furnished with the SEC prior to this call, or a supplemental financial presentation, which is available on our website. With that, I'll hand the conversation over to John. John Hall: Thank you, David. Good afternoon, everyone. Thank you for joining us today as we share the results of our fiscal first quarter. Now starting our fifth year as a public company, I'm pleased to share that once again, we've achieved strong quarterly results, supported by cloud ARR growth, new products, new partnerships, new logos and expanded client accounts around the world. We added new applied AI capabilities to our platform, furthered our strategic partnership with Microsoft and migrated more clients to the cloud. I'll share details on these and other select growth drivers throughout this call. In Q1, our cloud ARR grew to $401 million, up 30% year-over-year. Cloud now represents 80% of our total ARR of $504 million. In the quarter, we earned SaaS revenue of $98 million, up 27% year-over-year and total revenue of $139 million, up 17% year-over-year. Now I'd like to share some highlights from our fiscal first quarter. We continue to execute on our vertical AI roadmap, specifically through applied AI innovation and growing client adoption. For a bit of context, our industry-specific AI solutions do automate rote manual tasks. But more importantly, they deliver actionable insights drawn from a firm's proprietary data, knowledge and relationships, which are unified and enriched with our own industry graph data model and trusted third-party sources. Critically, our solutions do all this while helping firms maintain compliance with the industry's most complex regulations. These advanced, tailored compliant capabilities are what set Intapp apart and why firm leadership continues to invest in our technology, which brings me to my first example. In Q1, we announced a significant new release of Intapp Time, which delivers faster, easier, more accurate timekeeping powered by major new AI features. Built on our secure cloud foundation, the new Intapp Time offers GenAI capabilities that monitor users' workdays to find and capture billable activities, to validate entries against client guidelines, to suggest corrections when needed, and to answer questions about entries and unreleased time via an AI chat experience. The response has been very enthusiastic, reflecting that we're tapping into real need with our thoughtfully designed vertical AI. More than 100 clients and prospects attended our introductory webinar, and we booked over 200 meetings in the 6 weeks following its launch. Brian Donato, CIO at Vorys, who participated in our early adopter program said, the Intapp Time release is very intuitive and won't require us to retrain our lawyers. Our users really like the quick add functionality, the ability to use AI to create narratives and the ability to group activities in the activity stream. Additionally, this quarter, Starwood Capital Group, a leading real estate investment firm with over $120 billion in capital deployed globally and a leader in technology adoption, added Intapp's agentic AI capability to its DealCloud deployment. The agentic capability will give Starwood's investment professionals a 360-degree view of the firm's investments and portfolio, all enabled and orchestrated in a modern AI chat interface. And third, Alpaca Real Estate is showcasing its use of DealCloud as a differentiator to its clients and prospects. At a recent client retreat, the firm shared how its modern tech stack gives them a competitive advantage among real assets investors and highlighted DealCloud as an integral part of their evolution toward AI, powering their workflows, analytics and data. Now let's turn to our expansive partner network. We continue to grow our high-impact partner ecosystem, anchored by Microsoft and a strategic set of 145 curated data technology and services partners. It's one of the most powerful vertical ecosystems in our industry. And its real differentiator is how deeply our partners are integrated into our commercial operations. They're strategic amplifiers of our business, enabling us to pursue larger opportunities, execute faster and scale more efficiently without a proportional increase in internal costs. To name just one example, in Q1, Lexsoft joined our network to help drive growth in our legal vertical in Latin America and other Spanish-speaking markets. And as in previous quarters, Microsoft continues to be a major growth driver for us. Of our 10 largest Q1 wins, more than half were jointly executed with Microsoft. In several of those, Microsoft fronted Azure investment dollars to help accelerate the deals. I'll share more specifics as we turn now our attention to notable wins from the quarter. Our growth was again powered by adding new clients, expanding within existing clients and migrating clients to the cloud. We also continued to make traction in new markets, spanning across our verticals, products and global locations. This quarter, we saw 3 notable trends driving wins in our legal vertical. First, the largest law firms continue to consolidate. In other words, the big firms keep getting bigger. They're taking a bigger share of the growing legal market, and they're going to continue to need an enterprise-class technology partner that can scale with them. To cite an example, one of the 95 Am Law 100 firms we count as a client increased their contract for Intapp Conflicts, Intake, Terms, Time, Walls and Collaboration this quarter to accommodate its growing size. Second, our clients are adding additional Intapp solutions, including AI when they migrate to the cloud. For example, another Am Law 100 client started moving its Intake and Conflict solutions to the cloud while also augmenting its portfolio of Intapp solutions by upgrading to the newly released Intapp Time with GenAI on the Azure marketplace. And an Am Law 200 firm chose to move all of its Intapp solutions to the cloud, starting with Compliance. They purchased Intapp Assist to add GenAI capabilities to its Time, Terms and DealCloud solutions. The firm completed the purchase via the Azure marketplace using their existing MACC agreement. And third, current cloud clients are also growing their Intapp footprint. For example, Bryan Cave Leighton Paisner bought Billstream and added Intapp Assist to its Time contract, expanding their existing product portfolio of Intapp Compliance and Collaboration solutions. One of our Intapp Time GenAI early adopters also added Intapp Terms with Assist to enable comprehensive compliant time recording. These solutions add to the U.K. law firm's existing portfolio of Intapp Compliance solutions. In our accounting and consulting vertical, we saw continued modernization of compliance and timekeeping practices with many adding new products to their existing Intapp investments. I'll share a couple of examples. One of the largest providers of tax, accounting and advisory services purchased Intapp Employee Compliance to complement its existing instances of intake and conflicts. And SEA Limited, a leading consulting firm in forensics analysis and investigations, added the new Intapp Time to its portfolio that includes Billstream, Conflicts and Intake. In our financial services verticals, firms continue to choose our purpose-built solutions for their industry-specific capabilities. Here are some examples. A leading bulge bracket investment bank chose to replace a homegrown system with DealCloud for AI-enabled client coverage and deal execution that are attuned to the complexities of a multinational bank with complex clients. A mid-market PE firm moved from its legacy horizontal CRM to DealCloud with Intapp Assist as part of its AI-first approach to deal origination, deal sourcing and business development. Compass Capital chose DealCloud for AI-driven marketing, deal origination and relationship management capabilities. The firm is replacing disparate legacy systems with a unified solution designed for PE workflows. And a global investor and manager focused on real assets, selected DealCloud for its ability to improve investment process efficiency and manage complex transactions. In conclusion, we're proud of our strong performance in our first quarter, and we're optimistic about our continued growth opportunities. As our Q1 performance has shown, we continue to grow by adding new capabilities to our platform and increasing our global and enterprise go-to-market reach. We see continued opportunity both to add new clients across a broad TAM and to deliver greater value by expanding within our existing client base. We're serving a durable end market with our subscription revenue model, industry-specific cloud platform and applied AI and compliance capabilities. We have a great growth opportunity to drive AI, cloud adoption and modernization across all the industries we serve. As always, I'd like to thank our clients, our partners, our investors, our Board and our global Intapp team for their teamwork and dedication. Thank you all very much. Okay. David, over to you. David Morton: Thank you, John, and thanks to everyone for joining us today. I'm pleased to report a solid start to fiscal 2026 with our first quarter performance. These results underscore the opportunity ahead as we prudently invest and execute against key market tailwinds, digitalization, cloud forward adoption and compliance-driven demand. Our Q1 execution reflects these dynamics and reinforces our confidence in driving sustained profitable growth this fiscal year and beyond. Cloud annual recurring revenue surpassed $400 million in Q1, a 30% year-over-year increase as we expanded enterprise wallet share across our vertical markets. We excelled on both upsell and cross-sell activity this quarter while continuing to transition client spend to the cloud. We're also seeing strong progress in executing our vertical applied AI strategy with absolute growth in AI SKU ACV dollars and attach rates, while maintaining discipline in our operating model, proving that efficiency and leverage are tenable. Let's begin with our fiscal Q1 results. SaaS revenue was $97.5 million, up 27% year-over-year, driven by new client acquisitions, contract expansions and ongoing migrations from on-premise products to the cloud. Cloud positive mix progression continued with SaaS now contributing 70% of total revenue, up more than 5 points year-over-year. License revenue totaled $29.2 million, up 2% year-over-year. The on-premise portion of our business continued to migrate toward cloud offerings, while legal client growth remained steady and in line with firm expansion. Professional services revenue was $12.3 million, down 8% year-over-year. Our partner ecosystem continues to help us prioritize long-term cloud growth by focusing on co-sell execution, client satisfaction and efficient implementation practices. Total revenue was $139 million, up 17% year-over-year, driven primarily by strong demand for our cloud solutions. Turning to our capital allocation. As announced in August, our Board authorized $150 million share repurchase program. During the first quarter, we repurchased $50 million or approximately 1.1 million shares, reflecting our confidence in long-term value of the business while maintaining a strong balance sheet. Our partner ecosystem continues to deepen its role in the go-to-market execution and client delivery. Partners are facilitating complex deals, opening new geographic opportunities, accelerating value realization and promoting platform adoption and retention. Our FY '26 sales kickoff included a dedicated in-person partner track for the first time, a reflection of the expanding network opportunity. Year-over-year, co-sell growth in Q1 was strong, and we feel well positioned for even greater partner-driven contribution in FY '26 and beyond. As we continue to focus on margins and operational efficiency, Q1 non-GAAP gross margin was 77.7%, up from 76.3% a year ago, reflecting continued mix shift in cloud efficiency gains. Non-GAAP operating expenses were $87.1 million compared to $75.6 million in the prior year period, largely reflecting go-to-market spend related to sales kickoff and targeted marketing initiatives as we entered the fiscal year as well as ongoing investments in our product-led growth strategy. Non-GAAP operating income was $20.9 million, up from $15.1 million in Q1 of last year. Non-GAAP diluted EPS was $0.24 compared to $0.21 in the prior year period. Free cash flow was $13.2 million for the quarter, defined as cash flow from operations less capital expenditures. Our cash and cash equivalents balance at the end of the quarter was $273.4 million, reflecting our $50 million share repurchase. Turning to our key metrics. Cloud ARR increased 30% year-over-year, while total ARR grew 21% over the same period. Total remaining performance obligations, or RPO, was $715.2 million, up 30% year-over-year. Our increasingly enterprise-focused go-to-market motion showed continued progress in Q1, yielding at quarter end, 813 clients with ARR of at least $100,000, up from 707 in the previous year. Our $100,000-plus ARR clients now comprise approximately 30% of our total clients of 2,750. Our cloud net revenue retention rate was 121% in the first quarter, demonstrating continued strong retention and strong upsell and cross-sell expansion among existing cloud clients. Now turning to our outlook. For the second quarter of fiscal 2026, we expect SaaS revenue of between $100 million and $101 million, total revenue in the range of $137.6 million and $138.6 million. Non-GAAP operating income is expected to be in the range of $21.4 million to $22.4 million and non-GAAP EPS in the range of $0.25 to $0.27 using a diluted share count weighted for the quarter of approximately 84 million common shares outstanding. For the full year fiscal 2026, we expect SaaS revenue between $412 million and $416 million, total revenue in the range of $569.3 million and $573.3 million, non-GAAP operating income in the range of $97.7 million and $101.7 million and non-GAAP EPS in the range of $1.15 to $1.19 using a diluted share count weighted for the fiscal year 2026 of approximately 85 million common shares outstanding. Thank you. And I'll now turn the call back to the operator. Operator: [Operator Instructions] And our first question comes from the line of Kevin McVeigh with UBS. Kevin McVeigh: Congratulations really on terrific results. John or Dave, I don't know who this is best for, but the net revenue retention, 121%, just really, really amazing. That was up from last quarter. Can you help us maybe understand what drove that a little bit, and maybe we could start there. David Morton: Kevin, it's Dave. Yes, the team has done -- continue to do extremely well. We continue to make continued inroads both not only on the upsell, which is additional seats, but also a true cross-sell motion. And I think going back in time, last year, we introduced our true enterprise model, and we've continued to densify that around a lot of key accounts, and we're continuing to see a lot of success with our cloud offerings with that profile. And so you just continue to see that general nature of how we've been going to market and been articulating and quite frankly, given some really good examples even in today's conversation point. As well as our churn continues to remain low single-digits. So our product adoption and delivery has been very welcomed by our respective clients, and we'll continue to make progress there. Kevin McVeigh: That's helpful. And then obviously, the results continue to be terrific. There's obviously a lot of debate as to how GenAI could potentially impact your clients. As you've kind of started on the journey, have you seen any changes in behavioral around that where they're consuming maybe more, maybe less or shifts in terms of how you're charging just based on any behavioral changes from your client perspective? I mean the numbers don't suggest that at all. If anything, it seems they get better, but just anything to help us kind of answer that question that we've gotten from our clients. John Hall: Thanks, Kevin. This is John. So we're big believers in what this generation of AI is going to bring to this end market. There's an incredible opportunity for these firms who are very knowledge-oriented in the way that they create value, either as investors or as advisors. And so we're putting a huge program behind extending our traditional machine learning generation AI with this GenAI generation technology. And we have a lot of expertise in the business to continue to do that. And you've seen a series of announcements from us over the past 18, 24 months of a sequential expansion of the GenAI generation throughout the platform. And the most recent one we talked about on this call was the time release, which has been very well received. It's interesting to get the feedback from the clients. A lot of them are trying a lot of the different tools. We had an advisory board with our COOs and one of the leaders told me that she had 9 different AI start-up tools that they were trying. So that's kind of where we are in the adoption cycle. From our perspective, we think there's a tremendous opportunity to leverage the position that we have developed over many years as the scaled compliant systems to bring GenAI into the workflows, we call it vertical AI and really differentiate from a lot of the more general horizontal systems that are being offered out there from some of the larger companies, but also in an integrated workflow that differentiates from some of the smaller companies that are working on more of a point solution approach. And that's been very positively received from our advisory boards and our early adopters. I gave some examples of how our adoption is working. And this is historically how we have grown the company. We've had many years working with these firms and the advisory board system that helped build the company as a bootstrap business. And we're doing the same thing with this GenAI generation. So it's a very deliberate strategy to look for the key value propositions that will enable us to roll GenAI out and monetize it. Your question about charging. We have said that we have in our contracts the ability to meter in different ways. We already have revenue that comes both from a per user basis and from a firm size basis. And we are working with some of the early adopters on some other models that we'll hear more about as the fiscal year rolls on. But I think there's a real opportunity to continue to leverage the existing relationships we have. And the firms are pretty excited to pay for it given some of the ROI that we can show. So we're optimistic about how this goes. Operator: Our next question comes from the line of Alexei Gogolev with JPMorgan. Alexei Gogolev: Given the very strong ARR and NRR acceleration, how much of this acceleration is coming from industry-specific changes like the one, John, you mentioned in market consolidation in legal? And how much is coming from macro tailwinds or perhaps that internal enterprise sales build-out and productivity improvement? John Hall: Thank you, Alexei. I think it is a combination of several of those trends. So there's definitely a set of trends in each of the industries that is helping us at the enterprise level. As I mentioned, the law firms have a consolidation trend going on. In the accounting industry, there is a trend where the private equity firms are coming in and investing in the midsized accounting firms and basically rolling them up. So they're becoming more enterprise class pretty quickly. And they have a strong technology need and in particular, a strong compliance need because now you have, for the first time, private equity owners of these professional firms and the compliance issues are very meaningful there. So that's helping us. There are a couple of regulatory things that are happening. I mentioned on an earlier call what's happening in places like Australia with some of the AML regulations. And then the private equity industry is continuing its secular growth. So the firms are getting bigger. They're raising larger funds, and they're taking more share from the public market. So we're very well positioned in several of these macro trends. I think from a technology transformation perspective, we're continuing to follow the digital transformation trend that you all have studied in a lot of the other markets for a long time. It was slower to come to this market. And we're benefiting from the fact that these firms are really committed now to getting to the cloud, particularly after COVID, and you hear us give examples of that accelerating. So we're excited about that for us. And then finally, this AI conversation that we just talked about is definitely causing people to take a new look at their IT portfolio and how are they going to position themselves to make sure they compete in this era when AI is going to play a meaningful role in the operation of the firms. So there are several overall drivers, I think, that are supporting that NRR and ARR growth. Alexei Gogolev: And Dave, considering the strong dynamic for ARR, do you feel like the guidance that you've given is somewhat conservative? It looks like you've raised full year outlook by less than the Q1 beat. Can you maybe elaborate on that? David Morton: Yes. We're always going to show a series of prudence here as we exit not only this year, but then going into next year. So that's one. Two, we're definitely cloud-focused, SaaS-focused. We do have some moving parts going on with both services and with license, but we feel that we provided a very prudent guide that just lets us keep our heads down and execute accordingly. So... Operator: Next question comes from the line of Parker Lane with Stifel. J. Lane: John, clearly showing a lot of progress here in the percentage of business from cloud from an ARR perspective. For those holdouts that you're seeing today with the amount of innovation you're delivering from an AI perspective, what are the common reasons that people are continuing to stick on-premise? And do you think AI is becoming that tipping point that can perhaps accelerate their decision-making to move to cloud more quickly? John Hall: Thanks, Parker. I do think the trend is strong and accelerating because a lot of the traditional impediments that help back this industry have kind of been tackled. There were some regulatory requirements that people needed, but a lot of the capabilities of our partner, Microsoft now to meet the different hosting requirements in each of the jurisdictions have been solved. Lot most of the firms that we serve, certainly the enterprise class firms are operating in more than one regulatory jurisdiction. So that was an important part. I think the Microsoft partnership overall has really helped us in that regard at the larger end of the market. I think now AI has absolutely captured the attention of the firms, but they really are experimenting in a lot of places and looking for an experienced partner that they can trust. And particularly for this market, where we're focused, the compliance questions about how do they make sure that they respect client confidentiality and the incredible importance to each of them, sometimes from a pure regulatory point of view around how do you manage MNPI inside these large firms and make sure that it doesn't get accidentally shared, over shared inside the firm. And then how do you make sure that the firm's intellectual property of history of knowledge and experience, which is really what forms the basis of these firms' ability to compete and differentiate themselves. How do you make sure that, that is something that you can manage and use for the firm's proprietary advantage going forward? These are all key issues for these firms as they look at a lot of these solutions. And we've been very focused on continuing our strong position in compliance and information governance and confidentiality as the key partner to enable them to deploy AI in a trusted way to really get the value of it in a way that's consistent with the obligations that they have from regulations, but also from their professional obligations. And that's playing well. So I think that we have a great opportunity to continue to pull people to the cloud now. The final piece is just the IT budget and prioritization of all the projects that they're doing this year. It's become less and less of an argument against as much as a practical how do we plan for this. And so we're working with each of our clients with our account plans and our teams to make sure that we get in line and make sure we're at the front of the line with the AI story to help them make this move. And you're seeing some examples of that, that we shared with you. J. Lane: Makes sense, John. And Dave, maybe one for you. As you lean more into partners, you alluded to this more moderated pace of professional services revenue growth. Would you expect that trend to continue here in fiscal '26? And given that, would the somewhat of a pressure that we saw in gross margins professional services also come with that? Or do you expect utilization rates to sort of normalize here? David Morton: So on the margin pressure, we expect that to moderate here through the back half of the year. So plenty of planning and activity there. With respect to revenue, we're always playing the trade-offs of building the ecosystem as well as what gets delivered without -- gets delivered internally without losing the aspect of the customer first. And so that's always going to be relatively tricky balance that we're trying to make game-day decisions on and then with respect to the margins that follow. And so I think from a longer-term perspective, you want to model around 10% of revenue to be in our services, but that could deviate a point or 2 here or there as you modulate through the respective quarters. Operator: Next question comes from the line of Koji Ikeda with Bank of America. Koji Ikeda: Maybe the first one on AI and looking at your 2 target verticals, the financial services and professional services, of the 2, which are more open to adopting AI tools today? And for the other one that maybe is less open, what do you think is the catalyst or trigger within this specific vertical to drive more AI adoption? John Hall: Thanks, Koji. The market generally is super excited about the AI opportunity, particularly because so much of what these folks do is in the style of research. And a lot of the first tools that have come out have helped people to look into the outside world and research what's available on the Internet and take a point of view on that. It's very familiar to a lot of the work that a lot of the folks inside these organizations do. So there's a lot of enthusiasm for what it can do to help them. As they try to bring those experiences and integrate them into the overall management workflows of the firm, they're needing to integrate more and more with the proprietary data of the firm, with the governance practices of the firm, with the financial management, operational management requirements of the firm. And I think this is what's pulling us in at the top of the leadership group to say, how can we help them orchestrate the role of AI across the various activities that people are trying inside the firm and do so in a compliant way and in a governed way and take advantage of a lot of the firm's proprietary knowledge in our industry graph data model and other sources inside the firm to help them really get the full value for the institution out of this style of adoption. I think there's different flavors of that in the law firm side, we make this distinction, which is kind of a classic distinction between the practice of law and the business of law. Historically, Intapp has been very much helping the firms as a whole orchestrate their business. And so that's sort of an angle inside that firm. There's an analogous case though, on the financial services side, where firms are really focused on the process of sourcing and origination of business, which is completely analogous to what we're doing in professional services. So I think rather than contrast the 2, I would say it's more about the vertical AI solutions, the category solutions and how are the firms going to think about AI overall as a program of improving productivity in a compliant way for all of the players inside the organization. That's our focus. Koji Ikeda: Got it. No, that's super helpful. And a follow-up here for David. I focus a lot -- we focus a lot on ARR and specifically cloud ARR and great to see the acceleration there. But I can't help look at my model and notice billings and just looking at kind of mid-high teens growth in total billings, but also a lot of volatility in that quarterly billings, the calculated billings metrics. Maybe help us understand some of the puts and takes there? And is there the potential for billings to start to smooth out here in the coming quarters? David Morton: Good question. So yes, we do see it smoothing out in 6 to 9 months, really getting through things such as services, which has a lot of fixed fee, getting through some of these license, which you get half upfront at times with ASC 606. And so as those things transition, so too will the noise. You also have to -- just with respect to Q1 of '26, if you look at the DRs, right, going from the deferred revenue of almost an all-time high or actually an all-time high in Q4 of '25 coming down to Q1 of '26, $259 million down to $239 million. But then if you look at that year-over-year, the $239 million up over the $205 million, I mean, you are seeing pure growth within that number. And so we think it's on the right trajectory. Operator: Next question comes from the line of Terry Tillman with Truist. Dominique Manansala: This is Dominique Manansala on for Terry. So considering fiscal Q2 and Q4 tend to be the stronger ARR quarters with the client fiscal cycles and the renewal base, as your mix shifts more into enterprise with the new enterprise sales group, do you expect that seasonality to intensify or maybe flatten a bit as your deal sizes grow? David Morton: Apologies. I was trying to get my phone off mute. No, we view the same seasonal patterns with both of our -- whether it be mid-market or enterprise. It just lands naturally with our end clients year-end. And so where you see some of the incremental could be budget flush either through the respective calendar year-end and/or through -- halfway through the year when the budgets are allocated. And so that's kind of what we're selling into at more and more of these enterprise accounts. And so we don't see that deviating. We also don't see it intensifying because we have been part and part selling to a lot of these larger enterprise accounts, but now we're just doing it more formally. And so yes, we'll continue to maintain that asymptote. Dominique Manansala: Got it. And then just as a follow-up, now that Intapp has surpassed $500 million in revenues entering this next phase of evolution looking towards the $1 billion revenue narrative, what are the 1 or 2 most important execution levers that kind of move the company towards that next major scale milestone? I guess I'm thinking maybe deeper product attach, [ product ] leverage or maybe continued vertical expansion. John Hall: Yes. So we have a couple of ways to win here. On one hand, we have enough clients today. We talked about this a little bit at our Investor Day that if we just sold through a percentage of what we have on offer today, we could get the company to $1 billion and much more. And alternatively, it's a large underserved TAM, and we're landing new clients each quarter and each year. And if we just did that with the deal sizes that we're showing, we could get to $1 billion that way. So there's actually a very large opportunity for us. This market is very interesting because it's 3% of the global economy and has traditionally been overlooked by the horizontal players. So the vertical strategy across the technology generations has been a key angle for us. And a lot of the capabilities that we've developed like the compliance point transcend each of the technology generations. And now we're doing it with vertical AI. So I think there's a great opportunity for us to grow to that number. I think some of the execution levers include the continued success of our clients and the cross-sell and the upsell, continued landing of new clients based on our strong reputation and continued innovation. It's a huge opportunity. It's historically for us been very client-driven. We're a bootstrap company. We have an advisory board systems. People help us understand what it is that if we build for them, they will pay for. And that relationship goes back 15 to 20 years in some firms. They really do trust us to be the people to bring them to the AI generation. So executing on that, continuing that core capability of innovation directly to this market, I think, will really help us. And then I think just continued talent. As we grow, we've had a great opportunity to bring more and more great talent into the business, people who have seen larger and larger scale, people from the firms themselves who really bring the expertise. It's a unique group that we've assembled that really understands how to bring this next generation of technology to this specialized end market. So those are some of the key points. Operator: Next question comes from the line of Alex Sklar with Raymond James. Alexander Sklar: John, on the international opportunity and some of the commentary around expanding global reach, you've got the partner in Microsoft globally. What's the opportunity you see internationally broadly versus what's been a string of really strong quarters in the U.S.? And maybe for Dave, how much investment do you think is needed either from a product standpoint or go-to-market side given some of the partners you already have in place for that opportunity? John Hall: Thanks, Alex. About 30% to 1/3 of our business has been international historically. That has been a growing footprint around the world. We have a strong business in the U.K., obviously, Australia, New Zealand, where we started, Canada, where we started. But increasingly, good footprint in Continental Europe. The Nordics have done a lot recently. We opened a Singapore office last year. The team there, I just visited them this past quarter, a fantastic group of people that have brought on some incredible clients and a huge opportunity there. I mentioned in our partner ecosystem, we've added more and more partners that help us reach into parts of the world that we haven't set ourselves up yet. The one we talked about here was a group that's helping us expand into the Spanish-speaking countries. We're excited about that. We have another recent partner that's come on board to help us with the Portuguese-speaking countries. So I think there's a lot of opportunity for us to continue to move in that direction, and it's a huge part of the TAM that we've just begun to kind of enter. David Morton: Yes. And then with respect to the incremental investment, Alex, it's been pretty nominal thus far. We don't need to get into things as localization or any arduous local statutories from where a lot of our clients serve. And so it's just a matter of, if anything, just the opportunity cost of us addressing so many respective opportunities within our SAM and TAM. So it's just a matter of pacing and planning. Alexander Sklar: Okay. Great color. And maybe just following up in terms of direct sales hiring. You talked about some of the partner opportunity, but you talked about putting more wood on the fire this year after some of the structural changes last year. Can you just help frame like the magnitude of hiring plans this year versus maybe what you did last year? Where are those sales resources going? And then any color on kind of timing of the hiring plans this year? John Hall: Sure. We are focused on growing the enterprise group that we announced at the beginning of '25, the organization there. That's really showing some traction. I talked about our land of one of the bulge bracket investment banks this quarter, which we were super excited to be able to do as a direct result of that organizational evolution and putting more density of the team against some of these really vast institutions. We are adding some capacity, continuing to do that during fiscal '25, leading -- I'm sorry, during fiscal '26, leading into fiscal '27. So there's still an opportunity for us to continue to grow that footprint. We think that there is a large enterprise class set of firms. And as I mentioned earlier in the call, they themselves are scaling through M&A or through hiring or in a very leveraged way through growth of revenue or assets under management. And there's a real opportunity for us to be the strategic vertical-specific compliant AI generation technology partner for these growing enterprise class firms. So you're just going to hear more and more about what we're doing in that direction. Operator: Next question comes from the line of Steve Enders with Citi. Steven Enders: Okay. Great. I want to ask on the Microsoft partnership, and I appreciate the call out for the large deal contribution. But I guess with Microsoft, maybe how are the deals that are coming through that partnership? How are they different? Like are they creating or anything newer opportunities that you weren't in before? Are they bigger? Are they coming in faster? Just how do we kind of think about how Microsoft maybe changes some of those dynamics versus maybe what you would have seen historically? John Hall: Thanks, Steven. The relationship with Microsoft is an exciting one for us because they've got such an incredible relationship already with these firms in our end market. They have a very strong relationship with IT and a lot of the firms have committed to Azure as, if not the, a core pillar of their cloud strategy. We have a relationship with Microsoft on multiple levels. There's a technology relationship, strong in AI and a lot of the collaboration capabilities that we brought to market over the past couple of years. We have a strong marketing relationship where we work with them and co-present and co-market to all of the clients in the marketplace that really helps us. And then we have a co-selling relationship. There's a lot of components to that. One of them is that all of our offerings are available on the Azure marketplace. So the firms can buy all of Intapp's platform through the Azure marketplace. That has benefits for them under their Microsoft agreement. If they have a minimum Azure contract spend agreement, they can burn that down by buying Intapp's software through their MACC agreement. That helps us take the budget issue off the table in our sales because they're already committed to spending X amount with the firms every year. We also are working with Microsoft on many accounts where they will provide Azure credit upfront to incentivize the firms to move. That's really helped us in several situations. And just co-selling with Microsoft has helped us with wins competitively because people feel like we're really tied at the hip in a lot of these key technology areas that the firms need to integrate. And so that's helped us. And then the field, the Microsoft field gets quota relief when Intapp sells its products. So we have a growing person-to-person relationship across the Intapp field and the Microsoft field when calling on these accounts. To your question, sometimes we are getting leads from those sellers at Microsoft. We're very excited about that. Sometimes we find the opportunity with our direct force, but we can call the Microsoft seller and they will come in and endorse us and co-sell with us. So it works in both directions. But overall, it's become a very collaborative process, and we're very excited about the influence that that's having on the funnel in terms of size and speed and deal size and win rate is great. Steven Enders: Okay. That's great to hear. And maybe to follow up, just in terms of, I guess, margin, I mean, good to see the operating margin beat this quarter, but I guess it doesn't look like it's -- not much is flowing through to the full year guide. Just can you help us think through like factors that are being included in there? Was there some timing dynamics or some things -- some investments may be being pushed out this year? David Morton: We're continuing to invest in respectfully, our product innovation and go-to-market. We had a really good strong F Q4. We articulated that we were going to be a little bit front-end loaded with some specific marketing events. We've had great success in this first quarter. And so we're going to continue to invest in our -- in the motions that we've been demonstrating to the investment community. Operator: Next question comes from the line of Saket Kalia with Barclays. Saket Kalia: David, maybe for you, great to see the growth in cloud net new ARR. Can you just talk about how much the on-prem conversions are maybe contributing to that? And from the conversions that you have seen, what's the typical uplift that you've been getting on those? David Morton: Yes. So we're seeing about a 20% to 30% uplift just through more seats and/or the opportunities to continue to cross-sell. So once we get that moved over and track compliance and all of that other dynamics settle in. And obviously, we're delivering true value for that as well because they are getting inherent different code set that offers a lot more product attributes. So that's one. On the respectful cloud net ARR from this past quarter, it wasn't that material. I think we're going to start seeing more as we continue on through this year. John talked about our time AI that we've been narrating here for the last 2 quarters. So we'll see a little bit of an acceleration there. It is a heavy -- well, I should say it's a subcomponent of some of our respective sales teams to continue to move in that direction. And so we're really enticing the whole market to move in that direction. Saket Kalia: Got it. Actually, that's a great segue into my follow-up for you, John. I mean you're clearly adding more value to your cloud products with new AI capabilities. Intapp Time, of course, was one that we've talked about. What else is on the roadmap? Or what else can you do to help drive that -- sort of that conversion in that on-prem base? John Hall: The progress in the time component of our platform has been awesome. There's a lot of enthusiasm. This is one of the areas, as we've mentioned on the previous calls, most of our on-prem business is in legal because that's where the company started, and that's when we were still doing some on-prem offerings for them. So that's really the focus of this migration program and time is a key part of that. So we're really excited to see the progress in time. This year, we've also kicked off a parallel project for all of the compliance capabilities that exist still on-prem in some parts of the legal market. So we've learned a lot of great stuff about how to get folks there successfully and really what are the AI capabilities that will get them to make the move and what style of ROI and what style of licensing and how do you get the upsell, all those lessons we've kind of developed now and we're bringing that to the compliance group as well. It's an exciting time because there's so much opportunity in AI of various capabilities, generative AI, agentic AI. There's a lot of opportunity to bring real value to some of these core processes in our traditional compliance business, which is really a stronghold of the company and is so in demand for these firms. They need to make sure that the way that they operate stays compliant with the regulatory obligations and their professional obligations and their client obligations. And it's just something we're really well known for. So we've been deliberate about how we sequence this, but that's what's coming next. Operator: And our last question comes from the line of Brian Schwartz with Oppenheimer. Camden Levy: This is Camden Levy sitting in for Brian Schwartz. If you think about the cloud NRR of 121% and the customer expansion motion that you guys are seeing, have you seen the mix shift of the growth algorithm that's coming from product versus seat growth versus pricing change over the last couple of quarters? And from your perspective, in F 1Q, did any 1 or 2 products outperform plan maybe outside of core DealCloud or Intapp Assist that were big drivers of the SaaS beat? David Morton: Yes. Just circling back and I think even intimating on the first question we had, if you think about the NRR, probably the biggest change over the last 3 to 4 quarters with our enterprise motion has definitely been the cross-sell motion. We've always been doing very well on the upsell more seats. But clearly, as we continue to densify our enterprise accounts and provide the full breadth of offerings, we've seen a little bit tick up on the cross-sell there. So I would say that's probably one to note on that. Camden Levy: And then maybe just from a product perspective in F 1Q, did anything dramatically outperform plan or were like larger drivers of the software beat? John Hall: We've had good uptake across the board. The GenAI features in the cloud have been pulling the platform. And as we brought the capabilities out, obviously, it's been a sequence over time. So we have more out there with DealCloud, which was the first one that we launched, but we are very excited about the uptake around Assist for Terms and this new Intapp Time Horizon release with GenAI. So there's a sequence there. So you can see a pattern that's pretty consistent with that. As we get more people up and the references run, we get more and more folks excited about doing it. And you'll continue to see that roll through the platform as we bring out more capabilities. Operator: That concludes the question-and-answer session. I would like to turn the call back over to John Hall for closing remarks. John Hall: Okay. Thank you. Thanks, everyone, for your questions and for the attention. We're excited about how we've done this quarter, and we're really looking forward to continuing this year. There's a lot of good progress happening, as you can see in the results. So we appreciate your time, and we're looking forward to talking to you again next quarter. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.
Operator: Good day, and welcome to the Aflac Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Young, Vice President, Capital Markets. Please go ahead. David Young: Good morning, and welcome. Thank you for joining us for Aflac Incorporated's Third Quarter 2025 Earnings Call. This morning, Dan Amos, Chairman and CEO of Aflac Incorporated, will provide an overview of our results and operations in Japan and the United States. Then Max Broden, Senior Executive Vice President and CFO of Aflac Incorporated, will provide more detail on our financial results for the quarter, current capital and liquidity. These topics are also addressed in the materials we posted with our earnings release, financial supplement and quarterly CFO update on our investors.aflac.com. For Q&A today, we are joined by Virgil Miller, President of Aflac Incorporated and Aflac U.S.; Charles Lake, Chairman and Representative Director, President of Aflac International; Masatoshi Koide, President and Representative Director, Aflac Life Insurance Japan; and Brad Dyslin, Global Chief Investment Officer, President of Aflac Global Investments. Before we begin, some statements in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results. As I mentioned earlier, the earnings release with reconciliations of certain non-U.S. GAAP measures and related earnings materials are available on investors.aflac.com. I'll now hand the call over to Dan. Dan? Daniel Amos: Thank you, David, and good morning, everyone. We're glad you joined us. Aflac Incorporated reported net earnings per diluted share of $3.08 and adjusted earnings per diluted share of $2.49 for the third quarter of 2025. We believe that these are strong results for the quarter, leading to a very good first 9 months of the year. Max will expand upon these results in a moment. But before he does, I'd like to make a comment on our operations. Beginning with Aflac Japan, I am very pleased with Aflac Japan's 11.8% year-over-year sales increase, especially the 42% increase in cancer insurance sales. These strong sales were driven largely as expected, by sales of Miraito, our cancer insurance product launched in March. As part of our ongoing strategy, we continue to emphasize and promote the importance of third sector protection to new and younger customers with our innovative first sector product, Tsumitasu. We believe the repricing of this product for new policies effective in September has the potential to benefit its sales. We saw positive sales growth across all distribution channels. Overall, I believe we have the right strategy to meet our customers' financial protection needs through their different life stages. Our ability to maintain strong premium persistency is a testament to Aflac's reputation, our strategy and our customer recognition of the value of our products. By maintaining this level of persistency and adding new premium through sales, we are partly offsetting the impact of reinsurance and policies reaching paid-up status and maintaining strong persistency continues to be vital to the future of Aflac Japan. Being where customers want to buy insurance has always been an important element of our growth strategy in Japan. Our broad network of distribution channels, including agencies, alliance partners and banks continually optimize opportunities to help provide financial protection to Japanese consumers. We will continue to work hard to support each channel as we evolve to meet the customers' changing needs. Turning to Aflac U.S. We generated $390 million in new sales during the third quarter, which was a 2.8% year-over-year increase. More importantly, we maintained strong premium persistency of 79% and increased net earned premiums 2.5%. We continue to focus on driving more profitable growth by exercising a strong underwriting discipline and maintaining strong premium persistency. We believe this will continue to drive net earned premium growth. At the same time, Aflac U.S. has continued its prudent approach to expense management and maintaining a strong pretax margin, as Max will expand upon in a moment. In both Japan and the United States, I believe that consumers need the products and solutions Aflac offers more than ever. When a policyholder transforms into a claimant, Aflac becomes more than an insurance company, we become a partner in health and a supporter of their family in their time of need. As a pioneer and leader in the industry, we are leveraging every opportunity to convey our products can help fill the gap during challenging times, providing not just financial assistance, but also compassion and care. At the same time, we generate strong capital and cash flows on an ongoing basis while maintaining our commitment to prudent liquidity and capital management. We continue to be very pleased with our investments, producing solid net investment income. As an insurance company, our primary responsibility is to fulfill the promises we make to our policyholders while being responsive to the needs of our shareholders. Our financial strength underpins our promise to our policyholders balanced with the financial flexibility and tactical capital deployment. I am very pleased with the company's capital deployment. In the third quarter, Aflac Incorporated deployed a record $1 billion in capital to repurchase 9.3 million shares of our stock and paid dividends of $309 million. This means we delivered $1.3 billion back to the shareholders in the third quarter of 2025. Especially as we celebrate Aflac's 70th anniversary on November 17, we treasure another milestone, 43 consecutive years of dividend increases. We remain committed to extending this record supported by our financial strength. At the same time, we have maintained our position among companies with the highest return on capital and the lowest cost of capital in the industry. 2025 also marked 2 other significant milestones for Aflac, the 30th anniversary of what is now known as the Aflac Cancer and Blood Disorders Center of Children's Healthcare of Atlanta and the 25th anniversary of the Aflac Duck. These are significant milestones that celebrate the privilege of benefiting the lives of millions of people. Today's complex health care environment has produced incredible medical advancements that come with incredible cost. We are reminded that one thing has not changed since our founding in 1955. Families and individuals still seek a partner and solutions to help protect themselves from financial hardship that not even the best health insurance covers. Thanks to our relevant products, financial strength, powerful brand and broad distribution, we believe Aflac's outstanding solutions make us the ideal partner. We also believe in the underlying strengths of our business and our potential for continued growth in Japan and the United States, 2 of the largest life insurance markets in the world. We continue to take action to reinforce our leading position and build on our momentum. I'll now turn the program over to Max to cover more details of the financial results. Max? Max Broden: Thank you, Dan. I will now provide a financial update on Aflac Incorporated's results. For the third quarter of 2025, adjusted earnings per diluted share increased 15.3% year-over-year to $2.49 with no impact from FX in the quarter. In this quarter, remeasurement gains on reserves totaled $580 million, reducing benefits and also increasing the deferred profit liability in the earned premium line by $55 million. The total net impact from the Q3 assumption update increased EPS by $0.76 variable investment income ran in line with our long-term return expectations. In our U.S. business, as part of our strategic technology plan as we optimize efficiencies and migrate to the cloud, we terminated a services contract early, which led us to book a onetime termination fee of $21 million in the quarter. Adjusted book value per share, excluding foreign currency remeasurement increased 6.3%. The adjusted ROE was 19.1% and 22.1%, excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as very good. Starting with our Japan segment. Net earned premiums for the quarter declined 4%. Aflac Japan's underlying earned premiums, which excludes the impact of deferred profit liability, paid-up policies and reinsurance declined 1.2%. We believe this metric better provides insight into our long-term premium trends. Japan's total benefit ratio came in at 39.3% for the quarter, down nearly 10 percentage points year-over-year. The third sector benefit ratio was 27.8% for the quarter, down approximately 14 percentage points year-over-year. We estimate the impact from reserve remeasurement gains to be 26.6 percentage points favorable to the benefit ratio in Q3 2025. Long-term experience trends as they relate to treatments of cancer and hospitalization continue to be in place, leading to continued favorable underwriting experience. Persistency remained solid year-over-year and in line with our expectations at 93.3%. With refreshed product introductions, we generally see an uptick in lapse and reissue activity, causing reported lapsation to increase. We did experience this uptick with our recently launched cancer product, but overall lapsation remains within our expectations. Our expense ratio in Japan was 19.8% for the quarter, down 20 basis points year-over-year, driven primarily by an increase in expense capitalization rates resulting from higher sales. For the quarter, adjusted net investment income in yen terms was relatively flat at JPY 98 billion. The pretax margin for Japan in the quarter was 52.2%, up 750 basis points year-over-year, notably driven by the unlock of actuarial assumptions. But even adjusting for that, a very good result. Turning to U.S. results. Net earned premium was up 2.5%. Persistency increased 10 basis points year-over-year to 79%. Our total benefit ratio came in at 45.6%, 200 basis points lower than Q3 2024, driven by the unlock. We estimate that the reserve remeasurement gains impacted the benefit ratio by 480 basis points in the quarter, largely driven by the assumption unlock and claims remaining below our previous long-term expectations. Our expense ratio in the U.S. was 38.9%, up 90 basis points year-over-year. Primarily driven by the onetime early contract termination fee of $21 million that I referred to earlier and the timing of advertising spend. Even though we incurred a onetime fee as part of our overall strategy, we anticipate reduced costs and improved efficiency, which will offset the termination fee over the next few years. Our growth initiatives, group life and disability, network dental and vision and direct-to-consumer had no impact to our total expense ratio in the quarter. This is in line with our expectations as these businesses continue to scale. Adjusted net investment income in the U.S. was up 1.9% for the quarter, primarily driven by higher variable investment income compared to a year ago. Profitability in the U.S. segment was very strong with a pretax margin of 21.7%, a 90 basis points increase compared with a strong quarter a year ago. In Corporate and Other, we recorded pretax adjusted earnings of $69 million. Adjusted net investment income was $66 million higher than last year due to a combination of lower volume of tax credit investments and higher asset balances, which included the impact of the internal reinsurance transaction in Q4 2024. Our tax credit investments impacted the net investment income line for U.S. GAAP purposes negatively by $6 million in the quarter with an associated credit to the tax line. The net impact to our bottom line was a positive $2 million in the quarter. Higher total adjusted revenues were offset by higher total benefits and adjusted expenses of $64 million, driven primarily by internal reinsurance activity, higher costs pertaining to business operations and higher interest expense. We continue to be pleased with the performance of our investment portfolio. During the quarter, we increased our CECL reserves associated with our commercial real estate portfolio by $28 million net of charge-offs, reflecting continued distressed property values. We did not foreclose on any properties in the period. Our portfolio of first lien senior secured middle market loans continues to perform well with increased CECL reserves of $7 million in the quarter, net of charge-offs. For U.S. statutory, we recorded a $7 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On a Japan FSA basis, there were securities impairments of JPY 476 million in Q3, and we booked a net realized loss of JPY 189 million related to transitional real estate loans. This is well within our expectations and has limited impact on regulatory earnings and capital. During the quarter, we also enhanced our liquidity and capital flexibility by $2 billion with the creation of 2 off-balance sheet pre-capitalized trusts that issued securities commonly referred as PCAPs. Unencumbered holding company liquidity stood at $4.5 billion, which was $2.7 billion above our minimum balance. Our leverage was 22% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 64% of our debt in yen, this leverage ratio is impacted by moves in the yen-dollar exchange rate. This is intentional and part of our enterprise hedging program, protecting the economic value of Aflac Japan in U.S. dollar terms. Our capital position remains strong. We ended the quarter with an SMR above 900% and an estimated regulatory ESR with the undertaking specific parameter or USP, above 250% . While not finalized, we estimate our combined RBC to be greater than 600%. These are strong capital ratios, which we actively monitor, stress and manage to withstand credit cycles as well as external shocks. Given the strength of our capital and liquidity, we repurchased $1 billion of our own stock and paid dividends of $309 million in Q3, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital. For 2025, we now expect that the benefit ratio in Japan will be in the 58% to 60% range. And we continue to expect the expense ratio to be at the lower end of the 20% to 23% range as we pursue various growth and strategic initiatives. As a result, we expect the Aflac Japan's pretax profit margin to be in the 35% to 38% range. In the U.S., we continue to expect the benefit ratio for 2025 to be at the lower end of the 48% to 52% range and the expense ratio to be in the mid- to upper end of the 36% to 39% range as we continue to scale new business lines. At the same time, we expect pretax profit margin for 2025 in the U.S. to be at the upper end of the 17% to 20% range. Thank you. I will now turn the call over to David. David Young: Thank you, Max. Before we begin our Q&A, we ask that you please limit yourself to one initial question and a related follow-up. You may then rejoin the queue to ask additional questions. We'll now take the first question. Operator: [Operator Instructions] Our first question will come from Joel Hurwitz of Dowling & Partners. Joel Hurwitz: I wanted to touch on sales and maybe start with the U.S. It looks like dental and group sales were very good, but your core voluntary product sales were down quite a bit year-over-year. Just can you talk about what you're seeing across your product offerings? Virgil Miller: Yes. Joel, this is Virgil. Let me give you some commentary on that. First, let me start with where you started your question with. Yes, what we're seeing is in the market as the brokers have become more involved with selling supplemental benefits, they are leaning toward group products. So therefore, we are seeing some pressure on our individual products. I will tell you, though, that our focus is to continue to grow our average weekly producers and looking for an increase in recruiting this year. Having said that, along with recruiting comes conversions, we had an 8% increase in converting those recruits into producers for us, and then we saw overall productivity of 16%. We are seeing very strong production though in the investments we made in our buy-to-bills. With our lab business, we achieved a 24% increase during the quarter. We also won the contract with the state of Maine to provide claims administration for their paid family medical leave program. It's really a testament to the type of service we're providing in that market. And also, we stabilized our dental operations, and we are seeing a 40% increase for the first 9 months, which is strong. So our agents have returned back to selling those products. We are entering the broker market with those products, but a continued focus though on growing our Aflac nation, getting our veterans active to really drive, as you pointed out, the individual products. Overall, I would say one more comment, though, I'm pleased for the year. We are at $1 billion for the first 9 months. We are focused on persistency, which means we are still providing some strong underwriting criteria to ensure though that we are making the right decisions for long-term performance. And that's why you see the overall strong performance that we have with profitability, which exceeded our expectations. Joel Hurwitz: Got it. That's helpful. And then maybe shifting just to Japan sales. They were good in the quarter. Can you just provide some more color on how the cancer sales trended in the quarter? And then how demand is for the new Tsumitasu repriced product? Daniel Amos: Yoshizumi, would you mind taking that question? Koichiro Yoshizumi: [Interpreted] My name is Yoshizumi, in-charge of sales and marketing. I am very pleased to say that we're very much satisfied with the results in the third quarter, we did much better than in the second quarter. And it was mainly driven by our cancer insurance, Miraito. And first of all, one of the features that is not available at others is the fact that we have flexible protection design on Miraito. And this whole product can be customized to entire people, including those who already have cancer insurance and who doesn't have any cancer insurance today. And it's appealing also to the younger and middle-aged generation and also to people of all ages. And it also carries plans for children, which is unique to Aflac. And also it carries a premium waiver function. And also, it has the premium-based plans. So this is a very unique cancer insurance to APAC and that -- this product can be provided to the customers because we have the 50 years of history. And at all the distribution channels, it is showing a great result. And shifting to Tsumitasu, we went through a rate revision. And we started to see a solid growth in sales from September. So the 2 main products, Tsumitasu and Miraito, these are driving our sales performance. And we expect this momentum to sustain in the fourth quarter as well. And related to channels, our main channel is associate channels. And Japan Post Group, which is our alliance partner. They are doing -- both of them are doing very well. And we would like to make sure that we continue this momentum and close the year by doing well in the fourth quarter. That's all from me. Daniel Amos: I'd like to also add something to that, this is Dan. I was over in Japan 2 weeks ago specifically to meet on Tsumitasu product and see how it was doing with the banks. I met with 29 regional banks through meetings and then I called on 4 shinkin banks and the Head of the Association of Shinkin Banks. And the tone for the product of Tsumitasu is very -- going very well for us. It's hard to tell exactly what the sales will be. But certainly, it is -- we can see in our numbers that we're writing a younger block of business through Tsumitasu, which allows us to tack on our supplemental or third sector products with it over a period of time. And we thought we might do as high as 40% of our -- of the people would be what I would call in the 30s and 40s in terms of age. It's actually run over 50%. So 40% is to 50%, 25% better. So it's doing very well with us and bringing on a younger block of business that I think will play well in the long term for us. So I do like that. The other thing is, I'm really impressed with our Miraito product and what's going on there. I mean the idea of the percentage increase we've had is spectacular this year, and I credit what's going on with our sales organization there to continue to grow it. So I agree totally with Yoshizumi. Also, I got Virgil to go over 2 times during the quarter and also pump up everyone and try to just talk about what we can do and pat them on the back because Yoshizumi joined us about the worst time you could join, which was during COVID. And so this has really been a good year for him and enjoying it. And so we're enjoying productivity and feel it will carry through the year. Operator: The next question comes from Tom Gallagher of Evercore ISI. Thomas Gallagher: My first question is just a follow-up on the repricing of the policies in September. Did you say that was Miraito? And how did -- what was the difference between -- because I think you launched that in June. And so what was actually repriced in September? Did you lower pricing? Can you just elaborate a bit more? Max Broden: Tom, the repricing related to Tsumitasu. And what we did was as yields have increased throughout the year, we increased the assumed interest rate on the product and moved that up. And that relates both to the underlying rate, but also the discounted advanced premium rate that we moved up from 25 basis points to 1%. And that's a pretty meaningful move that we did. Daniel Amos: But nothing with cancer. Thomas Gallagher: Got you. So cancer is just playing out as you expected? Max Broden: Yes. No repricing on cancer. Thomas Gallagher: Got you. And just for my follow-up, so I guess I'm thinking about your launch of medical in Japan next year. And I'm not asking for specific numbers per se, but I guess it's a broader question. If I think about you now have 2 products selling simultaneously doing pretty well. And wondering, as you add a third, how do we think about your ability to support 3 products at once? Because I think historically, Aflac was really a one product at a time company and now you have 2 going, doing pretty well. How do you think about the launch of a third product? And do you think that can translate into over JPY 80 billion in sales from a ballpark perspective to where we could get to overall premium growth flattening or even maybe beginning to grow? Masatoshi Koide: [Interpreted] This is Koide speaking from Aflac Japan. We have just gone through the marketing and sales transformation this January and the new structure is now applied to the cancer medical asset formation and nursing care. And organization was function-based when it comes to product development and marketing. But we changed the organization to be more cross-functional and the product development and marketing are conducted in parallel across all the 3 brands. The purpose of having this transformation is for us to launch the 3 brands or 3 products concurrently and support them directly. So with this new organization or transformation, we saw a positive result even by launching Miraito and Tsumitasu at the same time. And we're planning to launch a new medical insurance in the end of December, but I am confident that under this new transformation or organization, we will be able to run all the 3 brands in parallel and separately. And now that the sales teams have witnessed the success of the sales of Miraito and Tsumitasu and the team is now looking forward to make a similar success by launching the new medical insurance. That's all from me. Daniel Amos: Comment about what was just covered. And that is, the Miraito will be influenced to some degree when we go to medical. An agent has so much time in a day to sell. And when they're making the call on the count or whatever, they generally -- if they've been pushing cancer insurance for a year or so, then the opportunity to bring a new product like medical always works to the advantage, whereas in the case of Tsumitasu, it's totally different and a different way of approaching consumers that we normally have not been approaching. So I just want to make sure that was picked up that there always is some decline in sales of an older product that's been out there a few years than -- when we go to a brand-new product because that's the whole idea of sales is to have bells and whistles and excite people to go push and sell more. And so that does happen. So I want to be clear on that for you, Tom. I think it was Tom that asked question. Masatoshi Koide: [Interpreted] May I add one more thing? This is speaking. By the way, our alliance partner sells cancer reinsurance only. So this partner will not be impacted by the new launch of medical insurance. And just to mention one thing about the 3 brands new structure, the teams are not working in silos. They are working concurrently and to support other products as well. We expect that with the launch of an attractive new medical insurance, there will be a positive impact to Tsumitasu and other products within our company. Operator: The next question comes from John Barnidge of Piper Sandler. John Barnidge: My questions are focused on the U.S. business. With the success and the growth of the buy-to-build initiatives, have we crossed over the period of investment and are now starting to yield some earnings from those efforts? Virgil Miller: Thanks, John. It's Virgil. Let me say this that we're not at scale. However, though, we are seeing some -- with the growth that we're seeing, I'll be specific on the lab, there are quarters where we have realized being to the good. However, though, we've got to get more scale to make that consistent. So I'm not ready yet to claim that. I would say on the dental, no, we've got to get more growth. So we were able to get stabilized. I am very pleased with what we're seeing operationally. Those challenges have pretty much subsided. And as I mentioned before, the first 9 months, we've got 40% growth, but we're going to need more sales and to really drive earned premium to get to that scale. The trajectory is there, but we're not at a point of arrival. Max, anything you want to add to that? Daniel Amos: I want to add something. I'm very pleased with what's going on. When I look at it last year and look where we are this year, we're running way ahead, and it's nice to see that. And so Virgil is correct. We need more, but it's come a long way, and I am very pleased with what I've seen them accomplish. Max Broden: Well, I would say that you got one of the businesses is running -- have turned to profitability this year and 2 are not. That being said, it will still be some time until we reach target profitability. One thing is just to breakeven, but we want to get these businesses to adequate profitability overall, and that will still take a few years. John Barnidge: And my follow-up question on the U.S. Given the comments about more of the broker distribution going into group products, how do you get larger in that? Can you talk about maybe efforts organically and potentially inorganically? Virgil Miller: I would say 2 things to that, John. The first is that we had to make sure we got the right product set available to them and are making sure that we are giving what we call a unified experience. So the trajectory you're seeing and the positivity we're seeing in our lab products, the brokers are accepting that. We are giving a level of service that is top notch. As I mentioned before, our brand is very strong in that area now, and we're winning cases. What we are now focused on going into 2026 is to now take those products and bundle them with our other VB products. We've used the term halo in the past, but we need to have those products bundled together so that the brokers can make a unified solution out there. And it's not just about making it as an underwriting offer, it is being able to provide the technology and the process to support that. That is our extreme area of focus. And then you go and you add the dental products -- as I mentioned earlier, the dental is growing. It's mainly still driven by our agents. So we are open for business and asking the brokers now to move it in some of their larger cases. When you put that together, we believe that we will continue to grow consistently strong in the group space, and that has been our focus really with those buyer deals. And John, let me make sure -- there was a second part. What was the second part of your question? John Barnidge: Yes. I think you covered the first part from the organic. I was asking is the inorganic opportunity for good scale there. Virgil Miller: Thank you for that, John. I will tell you that as I've taken over now my role as President of the corporation, I've worked behind the scenes with all our leadership teams, primarily Max and I were making sure that we've got a strong corporate development arm. My point on that is that we're going to make sure we've got the right rigor and discipline to be looking out in the market for any opportunity. We're going to be very deliberate, though. So we are preparing to make sure that we have that discipline, that rigor to be looking. But at the same time, though, we have not seen anything become available that has attracted us that can really move our operations. So we're not going to just make a move to make a move, but the discipline that we have, we're making sure that we're ready if and when there is an opportunity. Operator: The next question comes from Ryan Krueger of KBW. Ryan Krueger: I guess I had a follow-up on that last question on inorganic. I think last year at your investor conference, I think your views were you wanted to build out the newer U.S. capabilities and give it a few years to see if it was working before you'd really consider anything larger from an M&A standpoint. It sounds like things are going better than you expected when it comes to the progress in the U.S. So I just wanted to follow up and maybe can kind of circle back to what you had said last year. When it comes to inorganic, are you mostly looking at smaller things that would add capabilities? Or would you actually consider something more meaningful? Virgil Miller: I think first, the point we were making last year is the focus. It's hard to go out and do something and then look at any type of opportunity when huge opportunity is sitting right in front of us with our life and [indiscernible] and disability platform is our first focus to get that to scale. And we are actually exceeding the trajectory that we have put forth. So very pleased with that. And to your point also, but when we had our dental operations not stable, that became our definite focus also. It's just a huge opportunity in both of those markets. Those products continue to be desired out there for consumers. And so therefore, that is our focus. Now having said that, when you mentioned the word small, if there are opportunities that could really enhance our technology, we are very, very aware of what's happening in the world of AI. We've set up a clear framework. We will be active in making sure that we're able to be efficient and effective in how we manage our business and technology is a great part of that. So we're always looking at how we can advance and move our technology. But when it comes to looking at blocks of business or other opportunities out there, our focus will stay here, but we will have the discipline to make sure though that we are always looking at what's going to happen in the market. What got Aflac to the dance that we're at right now, though, is a history of being innovative. We're the pioneers of the supplemental space. We're the pioneers of the cancer insurance. And we will make sure, though, that we're going to be innovators, and we will continue to be innovative going forward. Max Broden: I would just add that I don't think that our views have changed on M&A. We think that right now, we -- the things that we are building out are working for us, and we're making very good progress there. And we have a core business that is doing very, very well. So we are in a position where we don't have to do anything. We obviously have the flexibility and opportunity. But that being said, we also recognize that we operate generally in niche businesses where it's very difficult to either, a, find complementing businesses; and b, sometimes very difficult to integrate them as well, given the -- how sort of niche operated we are, both in terms of distribution administration, et cetera. So recognizing all of that, I would say that I don't think necessarily that our views or opinions have really changed. Ryan Krueger: And then you had a 64% to 66% Japan benefit ratio target over the next few years coming into this year. Following the assumption review in Japan, do you think that's still a good range? I know there's some ongoing benefits from that. Max Broden: So Ryan, if you look at our underlying benefit ratio for the quarter, it came in at 65.9%. So I think that's a reasonably good range going forward. Keep in mind that when we give guidance, we generally do not include any further unlock assumptions in those ranges. So the long-term range of 64% to 69%, we feel pretty good with. Obviously, we get a little bit of a tailwind from the 130 basis points lower net premium ratio. We also get a little bit of a tailwind from mix overall as we grow -- continue to grow contribution of our in-force from the third sector block, predominantly cancer. So when you take all of that together, we said a year ago, that in the range of 64% to 66%, we will start at the high end of that range and trend lower throughout the forecast period. And I think that as we sit here today post the current unlocking and given the experience that we have, that still holds. Operator: The next question comes from Wilma Burdis of Raymond James. Wilma Jackson Burdis: Could you talk a little bit about why the Japan cash earnings have been so high over the last few years and how long this could persist? Max Broden: Thank you, Wilma. The 2 main drivers of the high FSA earnings and therefore, ultimately dividends from Aflac Japan to Aflac Inc. over the last couple of years has really been driven by 2 factors. The first one is actually the weakening yen. And the way the FSA accounting works is that on U.S. dollar assets held on the Japanese balance sheet, you recognize the full impact from FX movements at the maturity of those bonds. And we obviously generally buy a lot of 5-year and 10-year tenors. And that means that you have to go back and look at what the yen was 5 years ago and 10 years ago. In particular, if you look at where the yen was 10 years ago, it was significantly stronger than what you have today. That means that as those bonds mature, you realize a very significant FX gain. As an example, 10 years ago, you roughly had a yen at JPY 1.05 relative to the dollar. If those bonds mature today at 1.50, that is close to a 45% appreciation of that asset that gets recognized at the time of maturity. So this boosts the FSA earnings in the near term. The other impact that you've seen since 2022 is that we have executed a series of reinsurance transactions between Aflac Japan and Aflac Bermuda. When we do that, there's also a release of reserves in the Japan segment, and that is boosting the FSA earnings as well. So I would say that those 2 components have been the main driver of the very high FSA earnings that you have seen. Wilma Jackson Burdis: And just a follow-up. It sounds like that could persist for at least a couple more years. And then along the same lines, can you just talk about the higher share repurchases in the quarter? And if that's something that you expect to see as more of a run rate? Max Broden: So as long as you have a yen that is weakening, you would continue to have a tailwind from maturing U.S. dollar assets. If you have a yen strengthening, you could have the opposite. So I do want to caution you that this goes both ways. The other factor, we do continue to evaluate further reinsurance transactions. And if we were to execute any in the future, that is also likely to create FSA earnings and therefore, higher cash coming through. But if you look at the underlying FSA earnings, that has generally been on a core basis, a little bit over JPY 200 billion per year. And then the way I would think about it is that, that's sort of a core underlying base. And then on top of that, you have the FX gains and any sort of gains coming through as it relates to reinsurance on top of that as well. In terms of buybacks, our philosophy have not changed. It is a function of our capital ratios that we have, the cash levels that we have at the holding company as well as the capital formation that we see going forward. And then obviously, we evaluate all the different kinds of deployment opportunities that we have throughout the company and the enterprise. And where we see good returns, that's where we have the capital allocated to. In the quarter, we obviously saw good levels and attractive IRRs on the capital that we deployed into share repurchase. And that's the reason why you saw that being a little bit higher than what you've seen in previous quarters. Operator: The next question comes from Suneet Kamath of Jefferies. Suneet Kamath: I wanted to come back to John Barnidge's line of questioning on Aflac U.S. And this comment that you made about the brokers pivoting back to, I guess, true group product and you sort of reinvigorating Aflac Nation. Is this a new development? I don't remember you talking about this in the past. And the reason I ask is, fourth quarter is traditionally your big group broker quarter in terms of U.S. sales. And I'm just wondering if it's a new development, should we start thinking about how that could impact fourth quarter of '25 sales? Virgil Miller: Suneet, Virgil here. I would tell you that our pipeline for fourth quarter looks strong. I am confident and optimistic that we were going to finish our sales here within our ranges that we set forth. The pipeline I'm looking at will give us consistent expectations for the quarter. So for fourth quarter, the pipeline was good. No, I wouldn't say anything has changed. What I would say is that with the -- our growth in the large case space and with our life in absence and disability products is actually a positive that we are growing faster than what we had anticipated. And we are also continuing to forge those broker relationships. We're also now looking to bundle, as I mentioned before, those life in absence and disability products alongside our core group VB products. What you're hearing me say though, is that what you're seeing in this in the fab documents, there is a weaker -- average weaker producer number that we have currently today. And with the weaker -- average weaker producer they're currently mostly driving our individual products. And that's why you're seeing an overperformance in our group and really underperformance in our individual. And we have to focus on making sure that we get the Aflac Nation built back up and looking forward to a stronger recruiting year. But again, it's not just about recruiting, we have to convert. I'm pleased with our 8% conversion. And then I'm also pleased with our productivity at 16%. Now I want you to know that, that is a focus of ours, though, is to grow producers because they are the ones that sell more of the individual business. Suneet Kamath: Okay. All right. That makes sense. And then maybe a follow-up on the U.S., Virgil, if I could. So if I look at annual sales, they've been sort of traveling around $1.5 billion and it looks like this year might be pretty close to that as well. And I know you're focused on earned premium growth of 3% to 5%, but obviously, sales is pretty important. And a few years ago, we talked about a $1.8 billion kind of target. Just wondering what needs to happen to get to some level of sales like that? Virgil Miller: Yes. So if you go back to -- I'll start with the buy-to-bills because it started with our lack of performance with the dental product. So if you look at what we had expected, we're really about 2 years behind from where we are today. So while I'm being positive, the fact that we recovered operations, I'm very pleased with the 40% growth we've seen in the first 9 months, but that is really a year or 2 behind. So when we projected those original numbers, we would expect it to have been higher on an annual sales production from dental right now. My goal is to recover that, pick that back up, finish strong this year and then going into 2026, getting closer to those numbers that we had originally predicted years ago. The second part I would tell you is it's the bundling. We mentioned that it's not trying to be best in dental. It is the ability to bundle dental with our VB products. As I look at my numbers in the third quarter, about $0.85 to $1. So every time we sell a $1 of dental, $0.85 worth of VB was sold. That is exactly what we're looking for. So the more dental we will get to sell as we recover that business, you're going to also see it pull up that individual block. And so that is part of the reason why we're lagging behind. And then the last thing I'll say though, it does get back to the number of producing agents. That is what we're addressing right now also. Daniel Amos: Yes. This is Dan. Let me add one other thing. I've always talked about evolution, not revolution. We're making some changes internally that are evolving that are good decisions. I'll give you an example. We write according to these classifications, 5s and 6s, which are high turnover areas, nursing homes, for example, the employment there. It's -- writing that business didn't make any sense because, number one, is there was too much turnover to the point where our claims were low. Another thing that made it, there was no profit because the expenses were too high. So if you go back a few years ago and say, well, what did you make in your forecast? We didn't forecast we were going to stop selling it. And yet now we've stopped selling it because it's not good for anybody. It's not good for the company. It's -- it's not good for the consumer after we see the loss ratio. And so we've moved on. So there are things that we're evolving and doing. And that's what I've seen about cleaning things up and making them more profitable, too, with the buy-to-bills. They've done a good job with that, and we're not where we want to be. Let me be clear on that. But we are moving in the right direction. And I'm talking about a major move. I'm talking about better than I thought they've done. And so I'm very positive about that and what Virgil saying is exactly right. Suneet Kamath: Just a quick follow-up. I'm not sure what you meant by 5s and 6s, but in any event, how big of a headwind is that issue? Daniel Amos: Well, what I mean by 5s and 6s is the classifications. Certain areas like if you're working in a lumber mill, that's the highest rating you can get because accidents occur more. So the higher the number, the higher the probability you're going to have claims or whatever it might be, if it's a high persistency. But the best would be a white collar worker in an air conditioned room working day-to-day and just counting numbers. That's the safest one we can give the best rate to. And a lot of people were not writing or what I'll just call less poor persistency business and less profitable business. Max Broden: Suneet, we have basically gone through a project to basically classify all our different accounts by profitability, and we're tiering them between 1 and 6. And then we have essentially adjusted to some extent, the commission schedules accordingly to make sure that we capture more of the more profitable business and less of the less profitable business. Daniel Amos: He said it better than me. Operator: The next question comes from Jimmy Bhullar of JPMorgan. Jamminder Bhullar: I had a couple of questions on the U.S. business as well. So first, just in terms of claims trends, it seems like your benefits ratio has been going up if we adjust for the actuarial reviews and remeasurement gains and stuff. And I'm not sure to what extent experience -- claims experience and supplemental products has gotten back to normal? Or has it gotten worse than normal because obviously, it was favorable? Or is it just the mix of business and growth in the group insurance products or per group that's driving the uptick? So the question is just on what you're seeing in terms of claims trends in supplemental policies? Max Broden: Jimmy, let me kick it off on the benefit ratio. So there are essentially 3 factors that's been pushing up our underlying benefit ratio to the higher levels now into the 50s. First of all, we went through actively a round of endorsements and benefit enhancements of our underlying policies. This applies to our cancer product. This applies to our accident product. This applies to our hospital product because simply, they were too low, especially coming out of the pandemic. So part of it is that we have pushed that through. Then you also have the cyclical component that because claims were very low, there's also an element of catching up impact that you are seeing now as well coming out of the pandemic, especially as it relates to cancer claims. During the pandemic, there was a significant amount of undetected cancers that post-pandemic as more people go for their regular annual checkups, these are now being detected. So we see, therefore, a little bit of a catching up impact on that line of business. And the last piece to the benefit ratio is mix. So a greater proportion of our in-force are now gradually sitting in higher benefit ratio product categories like life and disability and also dental and vision. And as sales grow of those product categories, they will become a greater proportion of our overall in-force. And therefore, when you look at the total U.S. benefit ratio, that will structurally move up over time. Jamminder Bhullar: Okay. But nothing alarming in terms of claims in supplemental going up beyond what you would have assumed? Max Broden: No, I wouldn't say so. Jamminder Bhullar: And then just on -- and there's been a number of questions on this already. But if you think about the growth potential -- or what do you think about the growth potential of the U.S. business over the long term? Because I realize dental was a weak spot, but it's been recovering. And if I think about your sales the past couple of years, you had, I think, 5% growth in '23. It was a slight decline in '24. This year, you're going to grow, but it seems like it will be low single-digit growth again. But I would have assumed that the business would grow a lot faster than that, just given the sort of underpenetration of supplemental policies, a fairly high medical care inflation. But do you think what you've seen recently is representative of what you'd expect longer term? Or is this a business that over time should be growing faster than what it's been growing at? Virgil Miller: Jimmy, I would say that this is exactly what we expected. It's actually a little bit faster than we expected this year because we had to regain confidence. And what I'm looking at is the number of agents and then, as I mentioned, now get into the broker market that are actually coming to sell it. And so we are getting higher numbers than we anticipated. It's going to be a gradual grind to get really to where we want to get to. I can tell you, though, consistency matters here. So as you mentioned before, that 5% -- and then we had the negative year. And so you're coming on a smaller base. So when I talk about a 40%, what you're really talking about, I don't have the exact numbers in front of me, but you're probably talking about -- I think it's about a $12 million increase for the quarter. So these numbers need to get larger and larger and larger, but I am seeing that happen quarter-over-quarter as more and more are seeing that the operations work. This is something we have to prove out in the market. We've also, though, now started to get cases with the broker, and I expect that to grow. So I expect this trend to continue in the fourth quarter and then see an additional trend increase going into next year. Operator: The next question comes from Jack Matten of BMO Capital Markets. Francis Matten: Just one on your margins in Japan. To what degree are you now like assuming future improvement in cancer and hospitalization trends, I guess, versus maybe your prior assumption and how you've seen recent experience trends? Max Broden: So in our unlocked assumptions, that incorporates our up-to-date experience. It also assumes a little bit of further improvement in that as we have seen a very, very long-term trend of favorable development. So we do incorporate a slight improvement going forward, but I would put it as fairly limited. So I want you to be aware of that it's not -- there's not no improvement whatsoever, but there is a very small improvement incorporated in our future actuarial assumptions for cancer. Francis Matten: Got it. And then a follow-up, just wondering about your perspective around private credit, given it's been in the headlines lately. I guess can you just talk about your outlook for that asset class and what kind of experience Aflac is being in its portfolio? Max Broden: Sure. Thank you for the question, Jack. Private credit is not something that's new to us or to the industry by any means. We're very comfortable with our current strategy as it relates to private credit. To state the obvious, there's 2 risks you need to understand and you need to underwrite. This is a credit asset. You need to have very strong credit management capabilities, and it needs to focus on bottoms-up security level underwriting with a disciplined top-down portfolio management approach. And then the second obvious risk factor is liquidity and making sure you're stressing to make sure that you've got the liquidity you need to meet obligations across the organization. And we obviously do both of those. As it relates to the credit cycle and things we're seeing there, nothing systemic that would suggest we're at the beginnings of a serious credit cycle. Corporate balance sheets remain strong. We've not seen a discernible trend in downgrades or credit deterioration across our portfolio. In our structured private credit space, all of our holdings are performing in line with expectations. I'm very confident that if we do get a turn, our portfolio is going to perform well. Defaults and downgrades generally are isolated in below investment-grade portfolios. We have been very cautious in how we've built that exposure. So we feel very good about our overall private credit and aren't too concerned. We didn't have any exposure to the names that have been in the news lately, and we think our disciplined underwriting is going to allow us to do very well if and when the cycle does turn. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Young for any closing remarks. David Young: Thank you, Andrea, and thank you all for joining us here today. If you have any follow-up questions, please reach out to Investor and Rating Agency Relations, and we look forward to speaking to you soon. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good day, and welcome to the PPL Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Andy Ludwig, Vice President of Investor Relations. Please go ahead. Andy Ludwig: Good morning, everyone, and thank you for joining the PPL Corporation conference call on third quarter 2025 financial results. We provided slides for this presentation on the Investors section of our website. We'll begin today's call with updates from Vince Sorgi, PPL President and CEO; and Joe Bergstein, Chief Financial Officer. And we'll conclude with a Q&A session following our prepared remarks. Before we get started, I'll draw your attention to Slide 2 and a brief cautionary statement. Our presentation today contains forward-looking statements about future operating results or other future events. Actual results may differ materially from these forward-looking statements. Please refer to the appendix of this presentation and PPL's SEC filings for a discussion of some of the factors that could cause actual results to differ from the forward-looking statements. We will also refer to non-GAAP measures, including earnings from ongoing operations or ongoing earnings on this call. For reconciliations to the comparable GAAP measures, please refer to the appendix. I'll now turn the call over to Vince. Vincent Sorgi: Thanks, Andy, and good morning, everyone. Welcome to our third quarter investor update. Let's begin with highlights from our third quarter financial performance on Slide 4. Today, we reported third quarter GAAP earnings of $0.43 per share. Adjusting for special items, third quarter earnings from ongoing operations were $0.48 per share. Building on this strong performance, we've narrowed our 2025 ongoing earnings forecast range to $1.78 to $1.84 per share, maintaining our midpoint of $1.81 per share. We remain confident in our ability to achieve at least this midpoint, supported by our continued operational discipline and strategic execution. Throughout the quarter, we continued to advance our utility of the future strategy, delivering meaningful progress across our operations. We're on track to complete approximately $4.3 billion in infrastructure improvements this year, critical investments that support reliable, resilient, affordable and cleaner energy networks for our customers now and in the future. Our continued focus on innovation and technology has us on pace to achieve our annual O&M savings target of at least $150 million compared to our 2021 baseline. Looking ahead, we continue to project $20 billion in infrastructure investments from 2025 through 2028, driving average annual rate base growth of 9.8%. We also remain well positioned to deliver 6% to 8% annual EPS and dividend growth through at least 2028, with EPS growth expected to be in the top half of that range. Importantly, we expect to maintain our strong credit profile with an FFO to debt ratio of 16% to 18% and a holding company to total debt ratio below 25%. As is customary, we'll provide an updated business plan on our year-end call, including our formal 2026 earnings forecast and roll forward of our longer-term outlook. Turning to some regulatory updates beginning on Slide 5. In Kentucky, LG&E and KU have reached a proposed settlement agreement with the majority of the intervenors in their base rate case proceedings. The agreement filed with the commission on October 20 includes a revised aggregate increase of approximately $235 million in annual revenues and an authorized ROE of 9.9%. The agreement also features a base rate stay-out provision through August 1, 2028, providing stability for our customers and our business. In connection with this stay out, the settlement introduces 2 new rate mechanisms designed to balance customer affordability with the need for continued investment in Kentucky's energy infrastructure. The first, a generation cost recovery adjustment clause or a GCR will provide recovery of and a return on investments associated with new generation and energy storage assets already approved by the commission but not yet in service. This would include the Mill Creek Unit 5 NGCC, the Marion and Mercer County solar generating facilities and the E.W. Brown Energy Storage facility approved in our 2022 CPCN as well as the recently approved E.W. Brown Unit 12 NGCC from our 2025 CPCN proceeding. The GCR does not cover Mill Creek Unit 6 as that unit's recovery was considered separately in our CPCN stipulation with intervenors. I'll cover the commission's CPCN order in a few moments. The second rate mechanism agreed to in our rate case stipulation is a sharing mechanism adjustment clause. This mechanism would help to mitigate regulatory lag while protecting customers from potential overearning during the final 13 months of the stay-out period, ensuring an ROE of no less than 9.4% and no more than 10.15%. The stipulation also includes support of a new tariff designed for customers with large demands and very high load factors such as data centers. The tariff helps to attract these customers and continues to drive economic growth in our service territories while ensuring adequate safeguards are in place for all customers. While the stipulation agreement remains subject to commission approval, we believe it represents a balanced result and again, underscores the collaborative approach we take with key stakeholders in Kentucky to achieve fair and constructive outcomes. New rates are expected to take effect no earlier than January 1, 2026. Official hearings began earlier this week, and we anticipate a decision from the KPSC by the end of the year. Turning to Slide 6 for a few additional regulatory updates. I'm also pleased to report that LG&E and KU received approval in a KPSC order for much of the company's July 2025 CPCN stipulation agreement. This decision marks a significant milestone in our long-term generation investment strategy, and it again reflects our ability to work collaboratively with stakeholders to deliver reliable, cost-effective energy solutions. With this approval, LG&E and KU will construct 2 new 645-megawatt natural gas combined cycle units, around 12 and Mill Creek 6. These units will be similar to the Mill Creek 5 combined cycle unit currently under construction. In addition, LG&E, KU will install an SCR to mitigate NOx emissions at Unit 2 of the generating station. These investments will ensure we continue to meet Kentucky's growing energy needs, driven by record-breaking economic development and data center expansion, all while maintaining reliability and affordability for our customers. The approval also supports requests regarding regulatory asset treatment for AFUDC and recovery of the Ghent 2 SCR costs through the existing environmental cost recovery mechanism. The KPSC decided not to approve 2 proposed cost recovery mechanisms for the recovery of Mill Creek 6 and the recovery of costs associated with keeping Mill Creek 2 open beyond its original retirement date in 2027. However, the KPSC encouraged LG&E and KU to provide additional evidence on such matters in separate proceedings, including the open rate case proceedings. We have decided to address the recovery of the Mill Creek 2 stay open costs in the pending rate case proceedings, and we'll address the Mill Creek 6 recovery in a future proceeding since that unit is not expected to come online until 2031. We appreciate the commission's constructive feedback and remain confident in our ability to present compelling evidence in upcoming proceedings. Our team is committed to securing cost recovery that supports continued investment in reliable energy infrastructure to meet the growing needs in the Commonwealth. In other updates, on September 30, PPL Electric Utilities filed a request with the Pennsylvania Public Utility Commission to increase annual base distribution revenues, which would represent its first distribution base rate change in more than a decade. The requested increase supports our need to build and maintain a stronger, smarter and more resilient electric grid to better withstand increasingly severe weather, prevent outages and improve service to our customers. Over the past 10 years, we've been successful in avoiding base rate increases while creating one of the nation's most sophisticated and efficient grids. In fact, PPL Electric's operating and maintenance expenses have increased by only 7.4% nominally since 2015 compared to 32% inflation over that same period. We are requesting a net revenue increase of just over $300 million or 8.6% as more than $50 million of the base rate request includes revenue that is already reflected in customer bills through riders like the DSIC. Also as part of this base rate case, the amount of rate base included in the DSIC mechanism will reset to 0 and the cap on the DSIC revenue would also reset back to 5% of base distribution revenues. Our rate case application is supported by a fully forecasted test year that begins July 1, 2026, and a requested ROE of 11.3%. We anticipate a decision from the PUC on our case in the second quarter of next year with new rates effective on July 1, 2026. And finally, in our last regulatory update, we continue to expect Rhode Island Energy to file a distribution base rate request before the end of this year. Now let's turn to Slide 7 and our data center updates in Pennsylvania. There's a lot to unpack in this quarter's update, as shown on this slide. First, momentum continues to build in PPL Electric Utilities service territory in terms of interconnection requests to our transmission network. Since our last update, the number of data center projects in advanced stages of planning, those projects that have either a signed electric service agreement or an ESA or a signed letter of agreement, LOA, have jumped more than 40% from 14.4 gigawatts to 20.5 gigawatts. This marks yet another increase in our PA data center pipeline since we initially announced about 3 gigawatts in advanced stages in the first quarter of 2024. Both of these agreements require significant financial support from the counterparties. LOAs carry significant financial burden for counterparties as they agree to pay for all the engineering and long lead time materials, which could easily run into the tens of millions of dollars. The ESAs include all the commitments in the LOAs plus customer commitments around additional credit support and require the counterparty to pay a minimum load requirement based on 80% of their load forecast. Over 11 gigawatts of the 20.5 gigawatts under signed agreements have been publicly announced, including about 5 gigawatts that have already begun construction. So overall, we're very confident that at least 20.5 gigawatts of demand is real, especially given we have an additional 70 gigawatts of demand in the queue. I know there's a lot of discussion in the market about the quality of utility load forecasts related to these large loads. And I have a few thoughts on this issue as well. First, we know that load forecasting is a critical component of system planning, and it's also a fundamental part of the PJM capacity auction process. So we are very supportive of efforts to ensure that load forecasts are reasonable and generally prepared in a consistent manner. We are actively engaged with PJM and the other PJM utilities to review and potentially improve the load forecasting process given the amount and pace of interconnection requests. I will also point out that PJM discounts the load forecast it receives from the utilities by as much as 30%. So the load forecast that the utilities provide PJM are not the final forecast used in the capacity auctions. And while reviewing this process is an important step, I want to be clear that these load additions are real, they are coming fast and furious and focusing on load forecast alone does not obviate the need to start building new generation now. Forecasts will continue to be refined as they always are, but the near-term risk of overbuilding generation simply does not exist. The bottom line is that we need to start building new generation as soon as possible. And as you know, that is exactly why we continue to support state solutions like long-term contracting for generation and a utility ownership backstop, while we are also active in PJM's large load customer collaboration and market reforms. We support the continued focus by Governor Shapiro to mitigate supply price increases for our customers and encourage new generation development in the state. A recent proposal to incentivize large loads to bring their own generation and bifurcate the capacity auctions between existing generation and new build are things that we think could have merit. We'll be involved in helping to shape details to advance workable proposals that protect reliability, accelerate economic development and support affordable electricity for our customers. That also includes leveraging our joint venture with Blackstone Infrastructure, which is prepared to build new generation to directly support data center demand under long-term energy supply agreements. At the end of the day, our strategy and the solutions we've proposed are geared towards ensuring reliability, affordability and resilience as we navigate this unprecedented wave of demand growth. And finally, we've updated our CapEx estimates related to the 20.5 gigawatts to be at least $1 billion or an incremental $600 million to what is in our current capital plan. Given the number of projects we have in their locations, we are seeing that some of the upgrades required for these data center projects were already included in our transmission capital plan. So the prior sensitivity of 1 gigawatt representing $50 million to $150 million of capital additions no longer holds true. But we will continue to define the potential upside with each quarterly update. And of course, we'll provide full details on the business plan refresh during our year-end call. Turning to Kentucky Economic Development on Slide 8. The economic development pipeline continues to grow, fueled in large part by access to the reliable, affordable electricity that LG&E and KU provide and most recently with the CPCN approval to build new generation resources. The economic development pipeline now totals just under 10 gigawatts of electricity demand. This includes data center requests totaling about 8.7 gigawatts, an increase of 3 gigawatts from our second quarter update. About 4 gigawatts of these data center requests are considered highly active with another 500 megawatts that are under construction. While we saw a decrease in our non-data center demand due to a few large projects that were canceled or were reclassified into the data center category, the number of project requests continues to be robust and has increased quarter-over-quarter. With these updates, our refreshed probability weighted demand growth projections now total about 2.8 gigawatts, a 300-megawatt increase from our Q2 estimate. If this potential growth continues to materialize, additional generation resources will be required. As a result, we continue to monitor the progress of these projects very closely as our recent CPCN only included about 1.8 gigawatts of new demand growth. Our success in supporting this growth was once again recognized in September when LG&E and KU were named a Top Utility in Economic Development by Site Selection magazine, the 12th time they earned this distinction since 2012. Turning to Slide 9. Let's talk about affordability, one of our core commitments here at PPL. We know that affordability matters to our customers, and we're focused on keeping bills as low as possible while continuing to invest in reliability, resiliency and economic growth. Success begins with a culture of continuous improvement and innovation across our organization. Through disciplined cost management and smart investments, we have delivered on initiatives that keep us on track to reduce O&M costs by an average of 2.5% per year from 2021 through 2026. These savings come from deploying smart grid technologies on our transmission and distribution networks, optimizing planned generation outages and centralizing shared service functions to improve efficiency. We're also incorporating new technologies across PPL, including the use of artificial intelligence in all aspects of our business, from predictive maintenance to customer service to back-office functions to deliver better results for our customers at lower costs. We expect these technologies will enable us to achieve the next wave of future cost efficiencies. At the same time, we're supporting robust data center growth while protecting our other customers and ensuring rates remain fair. In Pennsylvania, connecting data centers to our grid lowers the transmission portion of the customer bill for the existing customer base as these large load customers will pay a larger portion of the fixed transmission costs. In addition, our electric service agreements in Pennsylvania require data center customers to pay a minimum amount, generally 80% of their requested load forecast even if they use less electricity until the costs incurred to extend service are fully recovered. And we've proposed a new tariff in our rate case to memorialize these terms within our tariff structure. In Kentucky, as I mentioned earlier, we've also proposed a new tariff for large load customers requiring them to make a 15-year commitment to pay for at least 80% of the forecasted demand for the entire term. These measures ensure that large load customers pay their fair share and that our existing customers in Pennsylvania and Kentucky do not end up subsidizing the large load customers. We're also finding other creative ways to save customers' money. In Rhode Island, we've agreed to credit customers a total of nearly $155 million in January, February and March of 2026 and 2027 when winter bills tend to be the highest. This arrangement is net present value neutral for PPL but provides our customers with some much needed near-term bill support with the average electricity customer receiving $20 to $25 a month and the average gas customer receiving $40 to $45 a month. These credits were approved by the Rhode Island Division of Public Utilities and Carriers or the division, to satisfy a deferred tax hold-harmless commitment tied to our acquisition of Rhode Island Energy. The division is a separate organization from the Rhode Island Public Utility Commission, and it was the division that approved our acquisition of Rhode Island Energy, and it was the division that we made the hold-harmless commitment to. The settlement is currently in front of the Rhode Island Public Utility Commission for final implementation approval. While we cannot predict the outcome of that proceeding, given our collaborative approach in the division's prior approval, we are optimistic about a positive outcome and look forward to delivering meaningful bill credits to our Rhode Island customers. And in Pennsylvania, we're supporting legislation that would incentivize new generation build in the state, helping to address resource adequacy needs and lower wholesale capacity prices. Our joint venture with Blackstone Infrastructure is another prime example as it intends to build new generation to serve data center load, mitigating rising prices for customers and delivering value for shareholders. Affordability isn't just a talking point. It's embedded in everything we do. By combining innovation, disciplined cost control and strategic partnerships, we're ensuring that customers benefit from a reliable, resilient and affordable energy future. As you have heard countless times from us, every dollar of O&M savings achieved can be reinvested as about $8 of capital without impacting customer bills. That's the power of disciplined cost management and operating efficiency, creating room for critical investments while keeping affordability front and center. That concludes my business update. I'll now turn the call over to Joe for the financial update. Joe Bergstein: Thank you, Vince, and good morning, everyone. Let's turn to Slide 11. PPL's third quarter GAAP earnings were $0.43 per share compared to $0.29 per share in Q3 2024. We recorded special items of $0.05 per share during the third quarter of 2025, primarily due to IT transformation costs and certain costs related to the integration of Rhode Island Energy. Adjusting for these special items, third quarter earnings from ongoing operations were $0.48 per share, a $0.06 per share increase compared to Q3 2024. The increase was primarily due to several favorable factors, including higher revenues from formula rates and rider recovery mechanisms as well as lower operating costs, which were partially offset by higher interest expense. As Vince mentioned in his remarks, with the strong quarterly results, we've narrowed our 2025 ongoing earnings forecast range and remain confident in achieving at least the midpoint of $1.81 per share. During the third quarter, we took the opportunity to derisk a sizable portion of our equity financing needs as we fund our substantial growth. In August, we entered into forward contracts to sell approximately $1 billion of equity. We completed these transactions under the ATM, which minimized fees and enabled efficient execution. This brings the total amount of equity executed under the forward agreements to approximately $1.4 billion of the $2.5 billion forecasted equity needs through 2028. Approximately $400 million will settle at the end of this year, with another $500 million to settle at the end of 2026 and the remaining $500 million settling in mid-2027. Turning to the ongoing segment drivers for the third quarter on Slide 12. Our Kentucky segment results increased by $0.02 per share compared to the third quarter of 2024. This increase was driven by higher sales volumes, largely due to favorable weather in Q3 2025, lower operating costs and higher earnings from additional capital investments, partially offset by higher interest expense. Our Pennsylvania regulated segment results also increased by $0.02 per share compared to the same period a year ago. The increase was primarily driven by higher transmission revenue from additional capital investments and higher distribution rider recovery, partially offset by higher interest expense. Our Rhode Island segment results increased by $0.01 per share compared to the same period a year ago. Primary driver of this increase was lower operating costs. Finally, results at Corporate and Other increased by $0.01 per share compared to the prior period due to several factors that were not individually significant. We are pleased with our performance through 3 quarters of the year and remain well positioned to deliver on our commitments to shareowners in 2025 and beyond. Our focus on providing real value to our customers underpins our robust business plan and our confidence in our long-term financial targets. And we continue to make excellent progress on derisking that plan through constructive regulatory outcomes and financial discipline while driving initiatives that can support future growth. This concludes my prepared remarks. I'll now turn the call back over to Vince. Vincent Sorgi: Thank you, Joe. In closing, PPL is delivering strong results today, and we're building a strong foundation for tomorrow. We've narrowed our earnings guidance. We remain confident in achieving at least the midpoint of that guidance, supported by disciplined execution and a clear vision. We're advancing our utility of the future strategy, investing in infrastructure, deploying technology and driving innovation, all while maintaining affordability for our customers. PPL's disciplined execution and strategic investments, coupled with our focus on innovation, data center expansion and operational efficiency sets us apart in the utility sector, and that focus creates value for both our customers and our shareholders alike. Thank you for your continued confidence in PPL and our team. And with that, operator, let's open it up for questions. Operator: [Operator Instructions] Vincent Sorgi: Operator, while you're compiling the roster, I just want to take a moment to acknowledge the UPS plane crash that occurred yesterday in Louisville. Our hearts go out to the families of those who lost their lives and those who have been injured. Fortunately, our employees are all accounted for and safe. Yesterday, we supported the emergency responders. We ended up de-energizing transmission lines that were going into a nearby substation, and we ended up cutting off some nearby gas lines to ensure the safety of those first responders. The impact to our customers was minimal, but we are working to get everyone back online, but to do so as safely as we can. We also had team members embedded in the Louisville operator center to assist as needed, and we remain committed to supporting the community and first responders any way that we can. It is certainly a sad day for our entire Louisville community. Operator, who has our first question? Operator: Our first question comes from Shar Pourreza with Wells Fargo. Shahriar Pourreza: Vince, just on the Kentucky CPCN case that obviously mentioned the tracking mechanism for Mill Creek 2 stay open cost and Mill Creek 6 were rejected. You highlighted denied without prejudice. I guess what information was missing for them to decide. Why the denial and any sort of near-term EPS impact there we should be thinking about? Vincent Sorgi: Sure, Shar. So not concerned from an earnings perspective per se. I'll kind of take Mill Creek 2 separate from Mill Creek. So for Mill Creek 6, the commission did approve AFUDC treatment. So that project will be in construction through 2031 when it goes into service. So really no earnings impact there. The new mechanism would not have gone into effect until the in-service date. So we have plenty of time to address Mill Creek 6. And as you said, they were -- those mechanisms were designed without prejudice. So not only do we have the ability to refile for those, but the commission actually encouraged us to refile those mechanisms in either a future proceeding or even the current open proceeding for the rate cases to which we are dealing with this week in hearings. For Mill Creek 2, we want to get that one addressed sooner, obviously, because we are actively spending money a little bit this year but going forward to enable us to continue to operate that plant beyond 2027. And we really need to get recovery of any of those costs before we would agree to continue to operate that plant beyond 2027. We would be incurring about $30 million of additional O&M, about $40 million of additional CapEx from now until 2030 in addition to what was filed in the base rate case request for Mill Creek 2. So we would want to see recovery of that. And so we updated the testimony last Friday to address Mill Creek 2, and that's part of the hearings this week. So as I said, Mill Creek 2, we're addressing that now. Mill Creek 6, we'll deal with that in a future proceeding. You asked what was missing. I'm not sure that a whole lot was missing necessarily, although I think it's safe to assume that the commission felt it was -- that the CPCN proceeding was not the proper arena to deal with rate mechanisms, and they would rather deal with that in a rate proceeding. Shahriar Pourreza: Got it. Okay. No, that's perfect. And then just on the resource adequacy topic in Pennsylvania specifically, there's obviously 2 bills sitting at the House and Senate. I think they'll reconvene in November. I guess thoughts there, Vince. And more importantly, can sort of the wires companies strike a middle ground with the IPPs maybe around a long-term resource adequacy agreement structure that's also being proposed in the legislation versus this kind of push-pull around rate basing generation. So I guess how are discussions going. And can you guys strike a deal there? Vincent Sorgi: Yes, sure. So maybe just broadly what's happening with the legislation, right? So I think we need to see a couple of things before you'll really see movement on this proposed legislation, but really any meaningful movement of legislation. And the first is just the state budget. Obviously, the budget impasse is negatively impacting broader discussions around legislation. I would throw REGI into the mix as well. That seems to be a gating issue for energy policy discussions. Both of those, I think, could be resolved by the end of the year, probably more imminent for the budget, REGI maybe before the end of the year. So that's kind of, I would say, the background on not a whole lot of movement with those 2 bills that you had referenced. But clearly, there's a lot of legislative support in the state to find ways to spur new generation particularly in light of the data center load that we're seeing and just the 2 cost increases that we saw in the last 2 capacity auctions. Of course, our governor has been extremely engaged with PJM on this. So it's great to see that there is focus on the issue. I would expect the next steps we would see really, Shar, I would say, more so in the beginning of the year would be the debating of the issues -- sorry, of the legislation in the respective committees. And of course, they are still debating, I would say, within the legislature whether or not to permit regulated generation to be part of the solution. In terms of discussions with the IPPs are coming up with some middle ground with the IPPs, look, we said all along that the goal here is to incentivize new generation and ultimately get steel in the ground to ensure that we have enough electricity to supply all this load that we're connecting, but also to stabilize capacity prices in the wholesale markets. If there's a way that we could do that where the utilities and the IPPs can agree to a solution certainly, we would be open to that. Operator: Our next question comes from Jeremy Tonet with JPMorgan. Jeremy Tonet: Just want to echo your sentiment there on condolences to those impacted and our prayers go out to them. Just want to start off maybe as far as the pipeline in Pennsylvania, the 20.5 gigawatts there. I was wondering if you might be able to peel back a little bit more, I guess, what that looks like sizing there? And really just wanted to get a better feeling for how you think the cadence could come together for formalizing parts of that pipeline here. Vincent Sorgi: Sure. So in the appendix of the deck, we actually have the ramp rates for that 20.5 gigawatts. I'll get you the slide number in a second here. Slide #25. So that's the old chart that we used to show. What I did want to show this time was just how much we've seen that the ramp of each quarterly addition to the pipeline in advanced stages since Q1 of last year, starting with the 3 gigawatts. So the amount of growth has been phenomenal. And again, I go back to just the quality of the backbone of our transmission grid and our ability to connect these large loads very quickly, which provides speed to market for the hyperscalers, but also to be able to do it very cost competitively. So given kind of where we are with our transmission grid, we feel very comfortable that we can connect this 20.5 gigawatts. And every one of these projects, Jeremy, does require some level of upgrade and some are more than others. And each time we make those upgrades, it kind of keeps us in front of the demand in terms of our starting point of having a strong grid. So even at the 20.5 gigawatts [indiscernible] to connect that or even to connect additional capacity beyond that, which is good because, as I mentioned, we have 70 gigawatts above what's in the 20, that's still in the queue. But the 20 are those projects that either have an ESA signed or an LOA signed, which brings with it significant financial commitments on the part of the counterparties to either fund long lead time purchase of materials or engineering and development work. Obviously, the ESAs go a step further. They provide us with commitments around credit support for 100% of the cost of construction for anything that would be socialized in the formula rate as well as generally an 80% minimum load against their forecasted load. So a lot in there, but we feel really good about at least the 20.5 gigawatts in our pipeline, and that would likely continue to grow based on what we've been seeing. Jeremy Tonet: Got it. And just want to pivot to the Blackstone JV, if we could. Just wondering any incremental thoughts with regards to when we could see news flow, more developments on that side? Vincent Sorgi: Sure. So obviously, we don't have an announcement that we're making. Otherwise, I would have done that, but I can assure you that there is a lot of activity going on between the PPL team and the Blackstone team. We're extremely focused with the hyperscalers, with other data center developers, with landowners, pipeline companies, et cetera. So while there's no announcement today, tons of activity, I would say, going on there. Hard to say timing-wise, Jeremy, when we would have an announcement there. As you can appreciate, these are very complex deals. They take a long time to negotiate to make sure that we're structuring an agreement that's got the proper risk profile for our customers and our shareholders and ultimately is meeting the needs that we're trying to do with this JV. I will say, though, with the amount of new connections or new requests in the advanced stages, so up to this 20.5 gigawatts, we are starting to see a lot more interest and the discussions are moving a lot more towards data center companies wanting to shore up generation, not just shore up their interconnection on the transmission grid, which we've been talking about, as you know, for a while. I think one of the pluses and minuses of our grid is we've been able to connect customers very quickly to the transmission grid, and that has been their primary focus, and they've been able to wait a little bit longer on worrying about the generation part of the equation. I think we're starting to see them shift to the gen part of the equation and the JV, I think, is situated nicely to take advantage of that. Jeremy Tonet: Got it. That's very helpful. And just one last quick one, just to clarify, if I could, with regards to Mill Creek 2, the O&M number you quoted before, if that was an annualized number? I just wanted to get the context there. Vincent Sorgi: No, those are the total increases between now and 2030. So $30 million of incremental O&M over that time period and $40 million of incremental CapEx. Operator: Our next question comes from Paul Zimbardo with Jefferies. Paul Zimbardo: The first one I wanted to ask about just after the Kentucky rate case stipulation, the Pennsylvania rate case filing. Could you comment a little bit on the linearity of the growth rate in the plan? It just seems like with Kentucky stepping up in '26, Pennsylvania stepping up in '27, the growth would be a little bit more front-end loaded in the plan. So I was curious what your perspectives are there. Joe Bergstein: Yes, Paul, it's Joe. No, I don't necessarily think it's front-end loaded. Obviously, you're right on the timing of those rate cases and when they're coming into the plan, but we have significant capital investment that runs through the plan. We have the riders in the jurisdictions that we'll get recovery of that spend. So no, I don't necessarily see it front-end loaded. Vincent Sorgi: Yes, PA is coming in midyear too. Paul Zimbardo: Okay. And follow-up on the Kentucky load side. Is there a good amount of megawatts to think about you would include in that new capital plan roll forward? Should we think about the full gigawatt? I know that's through 2032. But just any color you can provide there would be helpful. Joe Bergstein: You're referencing the gigawatt above the 1.8 gigawatts that was in the CPCN. Is that what you... Paul Zimbardo: Correct. Yes, the 2.8 gigawatts versus the 1.8 gigawatts, yes? Joe Bergstein: Yes. Yes -- I mean we continue to assess that additional load, Paul, and based on our conversations with developers and others in the state that are driving that. And so we'll continue to assess the probability of that, and we'll make the determination of how much we would put in the plan. Really, the -- what that would drive is additional generation investment beyond what we have, perhaps some smaller amounts on the T&D side, but really, the larger numbers would come from generation. So we'll continue to look at that and assess the need as we're going through this planning process and future plan updates and IRPs. Vincent Sorgi: Yes, Paul, I would just say the team is really keeping a very close eye on that pipeline. So that 2.8 gigawatts is a probability weighted forecast. So we're just keeping a very close eye on how and when those projects are materializing so that we can get in front of this additional generation need as soon as we would need to. I would say likely if we determine we need additional gen that likely the battery project that we delayed might be the first project to come back into play, but the team is really watching this, as I said, very closely so that we can stay in front of it. But the battery is one that we can build very quickly and provide that peaking support that we might need, again, depending on the types of load that come in. So no decision on it yet but watching it very closely. Operator: Our next question comes from Steve Fleishman with Wolfe Research. Steven Fleishman: The 11 gigawatts of publicly announced data centers, could you give us a little more color on the details of that? Just what those are? I mean we obviously, we know Talen, Susquehanna with AWS, and we know the Homer City and stuff. But just -- I mean, is there -- can you give us the pieces of that? Vincent Sorgi: Yes. So for confidentiality reasons, we don't provide who those hyperscalers or data centers are or where they're located. Obviously, that could have implications on other data center activity. So we're very careful not to do that, Steve. I would say, as we kind of think about the amount of investment needed to support those, it's about $800 million of capital for the 11.3 gigs and about $400 million of capital for the 5 gigs under construction. Steven Fleishman: So just when you're defining these as publicly announced, like is that -- what is the definition of that? Vincent Sorgi: So some of that is what was announced during the summit that we had in Pittsburgh and then there have been other public announcements following that, that some of the customers would have made, but those are -- I think those are for them to discuss, not us. Steven Fleishman: Yes. Okay. And just this profile of the data center growth, how does that compare to what is in the kind of in whatever latest load forecast you gave to PJM? I don't know if they've been updated since the beginning of the year, but is it -- has this -- has your -- at least your zone gone way up relative to what you had forecasted previously? Vincent Sorgi: Yes. So the latest we have with PJM is about 16 gigawatts, Steve. Steven Fleishman: Okay. And I guess, what is the customer savings that you used to give a ratio of how much T&D rates maybe would be saved, customer reductions. Could you give us some sense based on what -- I don't know which number you want to use, like what the customer savings are from sharing the transmission grid? Yes. Vincent Sorgi: Yes. In the early pieces, it's about 10% savings on the transmission component per gig. That was about $3. But the more you add, that gets diluted a little bit. Joe and Andy, maybe we can provide that. We'll provide that, Steve. Steven Fleishman: But there's still savings each time more gets added. Vincent Sorgi: Yes. Yes. Operator: Our next question comes from Angie Storozynski with Seaport. Agnieszka Storozynski: I have no complaints about earnings. So I just wanted to make it clear because I've been picking over the last couple of quarters, but nothing to pick on this time. So the -- my question -- 2 questions. One is you mentioned that as the data center pipeline grows, the rule of thumb about how much transmission spending is needed for every gigawatt of load added no longer holds. And I just wanted just to give me a little bit more on that. And then secondly, on the joint venture with Blackstone. So we're seeing a number of secondary gas plants in your zone changing hands. And again, we'll see if any of them go to your joint venture. I'm just wondering if that -- is that all part of the plan to acquire existing sites and to expand them? Or is this just a brand new build that you would consider only once you have secured long-term contracts? Vincent Sorgi: Sure. Maybe I'll take the second one first. So on the JV with the gas plants, we created the JV, Angie, to really help deal with the resource adequacy concerns that we were seeing in PJM. And obviously, with our territory and PPL sitting right on top of Marcellus Shale, we felt and continue to believe that we can provide a very competitive solution to a data center that is looking to contract and basically procure generation. Buying existing assets don't necessarily support additional resource adequacy unless we can expand them like you described. However, there could be some benefit in procuring -- in buying existing generation if for instance, it's an old asset that we need for 5 or 6 years until we can get the new asset up and running and the data -- and the hyperscaler wants to have an asset-backed deal, maybe there's a scenario where it would make sense for us to buy existing gen, but that's not the core part of the strategy, but I wouldn't preclude it. So kind of my thoughts there. And then on the $50 million to $150 million, so what I would say on that is, look, generally, that $50 million to $150 million per gigawatt is a good rule of thumb. The only caution that we are providing with this update is in our 5-year CapEx plan or 4- or 5-year CapEx plan for transmission, some of the upgrades that we may have had in that plan are starting to overlap with the upgrades that would be required for a particular data center project. So the $50 million to $150 million to serve the data center may still hold, but that may not be incremental to what's in the plan. Does that make sense? Operator: Our next question comes from Anthony Crowdell with Mizuho. Anthony Crowdell: I just have one quick follow-up, I guess. I appreciate the update. You mentioned the growth in Kentucky and Pennsylvania is quite impressive. Just the company has done a great job in the regulatory arena as we see more and more data centers connecting. Is there a concern of maybe an unhealthy revenue concentration that potentially could offset the solid regulatory balance you guys have achieved over the past several years. Just it looks like more and more load is coming from one sector. Wondering if that could create an unhealthy regulatory balance going forward. Vincent Sorgi: Yes. Look, I think that's a really good question. I don't necessarily think that we're feeling concerned about an overconcentration of risk to the data centers because of the protections that we're building into the tariff structures and the ESAs that folks are signing for these large loads. So really, I think the issue becomes, Anthony, you build all this stuff, it's in rate base and then for whatever reason, the customers aren't using as much power, and those costs are being defrayed to our existing customer base. So we built the protections in for that. I would say in Pennsylvania, they -- the PUC is proposing their large load tariff this week. And I think what we have in our proposed tariff in the rate case, those protections will be in that tariff and that tariff may go even further than what we have proposed. So overall, I think as long as we have these proper protections in place, not overly concerned about concentration risk. The other broader, I would say, aspect to this is certainly in the early stages, which we are. I don't see these hyperscalers not needing the amount of power that they're signing up for. In fact, they're probably going to need even more. So as you think about the advancements in the chips themselves, those advancements basically enable more compute power in the same physical space that the prior generation was, well, compute power equals electricity. So if anything, I think we're going to need to continue to support these data centers with additional power needs, not less. Anthony Crowdell: Great. And then just one follow-up. I'm not sure if you were leading this way, and that's my question. I don't know if it was Angie's question or to the person before. But you talked about maybe the haircuts of the load forecast when the utilities submit to PJM, PJM haircuts even more. You're seeing greater load growth in your areas. Are you trying to highlight that the potential that the regions PPL serves is a candidate for breaking out in the next auction? Or that's not what you were trying to say, just overall, the resource adequacy has an issue? Vincent Sorgi: Yes. I was not suggesting that the PPL zone would necessarily break out. And so the load forecast that we provide PJM or the projects that we're including in that are consistent with the projects that we're including in the 20.5 gigawatts. There are just timing differences between when we update the intervals on when we're updating the PJM and when we're having our investor updates on our quarterly calls. So the last time we updated was about, like I said, 16 gigawatts, but that would represent those projects at that time that we had ESAs and LOAs signed by customers. So the next update for PJM would be this 20.5 gigawatts and then PJM would go through their process to haircut that 20%, 30%, whatever they deem appropriate. But no... Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Vince Sorgi, President and CEO, for any closing remarks. Vincent Sorgi: Yes. Thanks for joining us this quarter. Again, continue to execute third quarter strong results sets us up really nicely for finishing strong in 2025. Look forward to providing our full update on the year-end call. And of course, we will see many, if not all of you next week at the EEI Financial Conference. Thanks, everybody. Operator: The conference has now concluded. You may now disconnect.
Operator: Greetings, and welcome to the Wolverine Worldwide Third Quarter Fiscal 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jared Filippone, Head of Investor Relations. Jared, you may begin. Jared Filippone: Good morning, and welcome to our third quarter fiscal 2025 conference call. On the call today are Chris Hufnagel, President and Chief Executive Officer; and Taryn Miller, Chief Financial Officer. Earlier this morning, we issued a press release announcing our financial results for the third quarter of 2025 and guidance for fiscal year 2025. The press release is available on many news sites and can be viewed on our corporate website at wolverineworldwide.com. This morning's press release and comments made during today's earnings call include non-GAAP financial measures. These non-GAAP financial measures, including references to the ongoing business, were reconciled to the most comparable GAAP financial measures and attached tables within the body of the release or on our Investor Relations page on our website, wolverineworldwide.com. I'd also like to remind you that statements describing the company's expectations, plans, predictions and projections, such as those regarding the company's outlook for fiscal year 2025, growth opportunities and trends expected to affect the company's future performance made during today's conference call are forward-looking statements under U.S. securities laws. As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in the forward-looking statements. These important risk factors are identified in the company's SEC filings and in our press releases. Additionally, during the quarter, we elected to change our accounting policy for certain inventory from LIFO to FIFO. The majority of our distribution warehouse inventory was already accounted for using FIFO, and this change aligns all warehouse inventory under a consistent policy. The financial statements in today's release and the numbers referenced on the call reflect the impact of this accounting change for both the current and prior year periods, which have been retrospectively adjusted. With that, I will now turn the call over to Chris Hufnagel. Christopher Hufnagel: Thanks, Jared. Good morning, everyone, and thanks for joining us on today's call. In the third quarter, we exceeded our expectations on both the top and bottom line. Revenue grew approximately 7%, in line with our long-term target of mid- to high single-digit growth and was again driven by our two largest brands, Merrell and Saucony. Healthy revenue growth, coupled with another quarter of record gross margin and strong execution, delivered adjusted earnings per share of $0.36. Adjusted EPS grew at more than triple the rate of top line growth as we continue to prudently manage the business, balancing needed an important investment into the business while expanding profitability. Our strategy and disciplined execution continues to deliver solid results, and our team remains focused on executing our brand-building model with distinction, centered squarely on building awesome products, telling amazing stories and driving the business. As I reflect on where our portfolio is today and where we need to go tomorrow, it's clear our brands are at three different stages of development. First, Merrell and Saucony are moving at pace, taking market share and generating consistent revenue growth around the world. Our aim here is to continue to thoughtfully manage these brands to sustainably scale them to their fullest potential. We've made real progress in elevating design and innovation within their product pipeline as well as in strengthening their brand positioning through impactful marketing activations. For 2025, these two brands are expected to represent nearly 2/3 of the company's total revenue and record mid-teens year-over-year growth combined. Second, we believe Sweaty Betty has begun to turn the corner, the result of a lot of hard work in developing a new strategy and beginning to execute it over the past 6 months. The brand has delivered on the milestones that we believe are critical at this point in its evolution, which started with margin expansion and has transitioned to sequential improvement of year-over-year revenue trends. And finally, the Wolverine brand and our Work Group have not made the progress we anticipated. While I'm disappointed in our performance here, I believe we have a firm handle on the work that's necessary to get this business back on track. And importantly, we have new leadership in place. As of Monday, following a thorough search process, I'm pleased to announce Justin Cupps as our new Work Group President. Justin is a veteran leader with deep experience across a host of great footwear, apparel and accessory brands. He's a strong addition to our leadership team. And for some context, Work Group revenue represents less than 1/4 of the company's consolidated revenue and is now expected to finish the year down high single digits compared to 2024. In aggregate, I'm encouraged by the progress we've made and continue to make as a company. This year, we've elevated our teams and talent by adding excellent leadership like Justin, as well as new product design, merchandising, marketing and sales talent across our brands. We've improved our processes, including our integrated business planning approach for more efficient demand and inventory management. We successfully completed the integration of Sweaty Betty's tools and processes into the company's ecosystem, advanced the adoption and use of AI across the business and develop plans to further elevate and modernize our e-commerce tools and platform next year. We've developed new muscles to drive impact in the global marketplace with our key city strategy, and we fostered a new culture centered around growth and winning together. In addition to the above, we expect to deliver solid financial results for the year. The midpoint of our guidance reflects revenue growth of approximately 6%, an increase in adjusted earnings per share of approximately 50% compared to 2024. Before I turn the call over to Taryn Miller to provide greater detail on our third quarter results and outlook for the year, I'd like to share some additional insights on our brands and their continued progress. I'll start with Saucony, which grew 27% in the third quarter. Saucony is uniquely positioned as a disruptive challenger brand at the intersection of two of the fastest-growing categories in the market, performance and lifestyle running, and the brand continues to win in these highly competitive arenas. In the third quarter, Saucony grew performance run revenue by strong double digits globally compared to last year and again took market share in the important U.S. run specialty channel, powered in part by the brand's core 4 franchises, the Ride, Guide, Hurricane and Triumph, which target its movemaker consumer. While the brand successfully tapped into this broader market opportunity, it continues to maintain a strong focus on pinnacle innovation for elite runners with its Endorphin franchise. The collection includes the Endorphin Speed for serious training, the Endorphin Pro for race day and the Endorphin Elite super shoe for ultimate performance. In 2026, the brand plan to introduce the all-new Endorphin Azura, a premium non-plated trainer, targeting a larger consumer segment and growing opportunity within the market. In addition to further elevating franchises within the core 4 with innovation incubated within the aforementioned Endorphin series. On the lifestyle side, Saucony drove strong revenue growth globally and took significant market share here in the U.S. as we continue to focus on prudently growing this segment of the business around the world. The brand's deep product archive enables it to authentically capitalize on a variety of different trends. So ProGrid Omni 9 and Ride Millennium, two of the brand's retro tech silhouettes, again drove significant growth in Q3. While classics like the Jazz Original and Shadow 5000 are encouragingly beginning to spark interest for 2026 with influential Tier 0 and Tier 1 retailers. Saucony continues to fuel brand heat with culturally relevant collabs, releasing new drops over the past few months, including 3sixteen, Keith Haring, Jae Tips and Engineered Garments. Saucony collaborated with METAGIRL on a release last quarter as well, which successfully lead in the brand's significant opportunity with women, the beginning of a deeper anticipated partnership with the influential designer going forward. In addition, the brand plans on dropping its first collaboration with prominent creator Westside Gunn in December with an expanded relationship and more drops expected next year. Saucony's brand is strong around the world, and we continue to invest in the brand in the last quarter, in part through our key city strategy. Saucony continued to leverage Tokyo in the Asia Pacific region with the flagship store opened in Harajuku earlier this year and is on track to open a host of new stores more broadly in China with our partner there. We expect that APAC will be the fastest-growing region in the world for the brand this year. In Europe, Saucony took over Central London as the title sponsor of the London 10K in July, as I detailed on our last call, and followed this up with the sponsorship of the Shoreditch 10K in September, bookends to a powerful quarter for the brand in London and more broadly in the EMEA region, which as a whole is on track to deliver strong double-digit revenue growth this year with momentum heading into 2026. Looking ahead, Saucony plans to expand its key city strategy to Paris, sponsoring the Eifel Tower 10K next month and opening our next pioneer store there in 2026. Brand interest continues to ramp up globally and affinity for the brand continues to increase with runners and more specifically, the younger consumer. While we continue to have success here in our home market, I'm equally excited about the global potential of the brand. Saucony's positioning within the fast-growing run lifestyle market is unique and a compelling combination of heritage and authenticity, coupled with best-in-class innovation and developing cultural relevance and the brand is setting the pace. 2025 is proving to be a great year for Saucony, which is on track to deliver all-time record revenue and profit as a brand. Moving to Merrell, which grew revenue 5% in the third quarter, driving increases in most regions and in both the performance and lifestyle sides of this business. Merrell, the category leader in hike, remains focused on modernizing the trail as an authentic outdoor lifestyle brand with more athletic and more versatile product design and innovation. In the third quarter, the brand accelerated its long-running market share gains in its core Hike category in the U.S., having taken share in 11 of the last 12 quarters, a category which encouragingly again improved sequentially to flat year-over-year. The Moab Speed 2, which is becoming a force on the trail and the world's #1 hiker, the Moab 3, both continue to drive growth at U.S. retail. The Agility Peak 5 drove strong growth on the trail running side. Looking ahead to the next spring, Merrell plans to introduce the new Agility Peak 6, combining plush FloatPro foam cushioning with aggressive Vibram Megagrip traction. Merrell's lifestyle business grew strong double digits in the third quarter, driven by a strong ramp-up of its disruptive Wrapt Collection, along with steady growth from the iconic easy on, easy off Jungle Moc at U.S. retail. In 2026, we anticipate the brand's lifestyle product pipeline will take a meaningful step forward. We're introducing trend-right low-profile silhouettes with the Relay, modern iterations on the Jungle Moc, lifestyle materializations of the SpeedARC collection and a consistent flow of energy-enhancing collaborations. While we're further distancing ourselves from the competition hike, we know a significant global opportunity exists in outdoor-inspired footwear, apparel and accessories. In the third quarter, Merrell drove increases in brand interest in affinity, particularly with women, and the brand's key city strategy continues to fuel momentum for the brand around the world as it has done for Saucony. Merrell's urban hike guide (sic) [ Urban Hiking Guide ] activation, which included media events, collabs and influencers drove brand heat in Paris and contributed to another quarter of solid growth in broader EMEA. Turning to Sweaty Betty, which outpaced our expectations in the third quarter with revenue down 4% versus the prior year. The team is aligned around a clear strategy and is executing with a high level of conviction and increased confidence as we reinvigorate Sweaty Betty as one of the original activewear brands focused on empowering women through fitness and beyond. Our efforts started with reestablishing Sweaty Betty's premium brand positioning, which underpins our entire strategy. Bold and distinctive storytelling behind the Wear the Damn Shorts campaign in the second quarter and the Weather Whatever campaign last quarter have continued to reinforce the brand's uniquely Sweaty Betty female-focused positioning. As a result, brand awareness and affinity continued to increase in the quarter with noteworthy gains among younger consumers and more premium buyers. At the same time, gross margins expanded once again as the brand continues strengthen both its product pipeline and positioning in the marketplace. Along with the improved business results, we're also making meaningful progress against the three pillars of our brand's new strategy. First, we are delivering growth within our DTC business in Sweaty Betty's home market with both e-commerce and stores growing in the third quarter. We started to elevate the brand's product line by introducing more newness, enabling a fresher offering with trend-right design and more thoughtful assortments, diversifying the brand's leadership in bottoms and expanding outerwear. This effort has produced some encouraging results with pants and outerwear both up very strong double digits across our DTC business in the quarter. Within our digital channels, we remain focused on enhancing the consumer experience. One example is the new Sweaty Betty app, which we launched last quarter, where consumers are converting at a higher rate and spending more per transaction. In brick-and-mortar, we've taken action over the past few months to further optimize our retail footprint, relocating 3 stores, opening 1 new store and closing a store. The new locations are performing well, and before the year is done, we plan to open 5 more new stores. Second, we're making early progress in expanding distribution in certain key markets. We launched the brand's new partnership in China and opened a pop-up store in Shanghai, opened a second store with our partner in New Zealand and develop plans to open additional stores in Australia and India next year. In the third quarter, the brand's international third-party business was up meaningfully, along with the EMEA wholesale business, albeit both still on a small basis. Third, we're resetting our U.S. operations focused on a full price, more premium online DTC business. We anticipate this transition will take some time and put some pressure on the brand's global growth numbers in the near term, but we believe it's necessary. This pivot is in motion with the business mix already shifting to more full price premium selling. We're making progress in resetting the overall Sweaty Betty business, and we believe the brand product marketing team are strong. We've seen improvement in the year-over-year top line trends and expect this to continue in the brand's critical final quarter of the year. And now finishing with Wolverine, which was down 8% in the quarter with the broader Work Group down 3%. Wolverine's performance remains inconsistent. Our return to running a better brand and business is taking longer than we initially anticipated. This said, we believe we have diagnosed the challenges. And effectively using our proven playbook and return the brand to steady growth in the future. The addition of Justin Cupps to the team is a win for the company, and I anticipate he'll accelerate the needed progress here. We're already well on the way to strengthen Wolverine's product pipeline, enabling more thoughtful segmentation in the marketplace and bolstering trend-right products and premium price point offerings with collections like the Rancher Pro, the USA-built Workshop Wedge and the all-new Infinity System, the brand's pinnacle expression of its performance comfort technology. Wolverine is in the process of amplifying its storytelling as well. The brand has partnered with Country Music star, Jordan Davis this year in a variety of activations, featuring both in-line and dedicated products. I'm excited to announce this morning that Wolverine will be an exclusive presenting partner for Season 2 of the Paramount+ series Landman, with the premiere in just a couple of weeks on November 16. Both of these partnerships align well with the Wolverine brand and extend its reach significantly with consumers. As the product and marketing improvements begin to take root, we plan to focus on recalibrating the marketplace, better balancing inventories and aligning distribution with the brand's category leadership role, more premium positioning and go-forward strategy. More to come on this as we enter the new year. I'd like to hand the call over to Taryn Miller to take you through our third quarter results and outlook for the remainder of 2025 in greater detail. Taryn? Taryn Miller: Thank you, Chris, and welcome, everyone. We delivered another quarter of strong results, exceeding expectations on both revenue and profitability. Our third quarter performance reflects disciplined execution of our strategy and the dedication of our teams. Our focus remains on implementing our brand-building growth model across the portfolio, starting with our two largest brands, Merrell and Saucony. Prioritizing investments in these brands has led to improved performance and market share gains in key categories. We are also seeing encouraging signs of progress in other areas, including another quarter of sequential improvement for Sweaty Betty. While there's still more work to do, particularly in the Work Group, we remain confident in our strategy and the path forward. I'll now take you through the key highlights from our third quarter. Revenue was $470 million, ahead of the $455 million midpoint of our guidance range. The over-delivery was driven by stronger-than-expected performance in the Active Group, along with an approximate $3 million benefit from favorable foreign currency. Revenue increased 7% compared to the prior year. And on a constant currency basis, revenue increased 6% as favorable foreign currency provided a $6 million benefit. Revenue growth in the third quarter was led by global wholesale, which increased 11% compared to the prior year, with international wholesale up mid-teens and U.S. wholesale up mid-single digits. DTC declined 5% compared to the prior year, primarily due to lower promotional activity in the U.S., partially offset by international growth, mainly in EMEA. Active Group revenue in the third quarter grew 11% compared to the prior year, ahead of our guidance of mid-single-digit growth. Saucony revenue increased 27% in the quarter, driven by broad-based growth across channels and markets. The brand saw solid growth in both the performance run and lifestyle categories from continued positive sell-through trends at retail and expanded distribution. Merrell revenue increased 5% in the quarter, driven by low double-digit growth in wholesale. This growth was supported by another quarter of market share gains in the hike category and strong sell-through at key accounts. This was partially offset by the DTC channel as the brand continues to lap elevated promotional activity from the prior year. Merrell has been implementing targeted initiatives to strengthen its DTC foundation, including refining its promotional strategy, elevating marketing to reinforce premium positioning, and enhancing digital capabilities to drive higher quality engagement and conversion. These efforts contributed to an improvement in the mix of full price sales and gross margin expansion in the quarter. Sweaty Betty revenue declined 4% in the quarter, which was better than expected. As Chris mentioned, the brand is now executing on a clear strategy to reset the Sweaty Betty business, which aided in delivering growth in its core EMEA market across both wholesale and DTC. Group revenue declined 3% compared to the prior year and was slightly below the midpoint of our guidance range. Performance in the quarter was largely driven by lower-than-expected sell-through that impacted replenishment orders. Consolidated gross margin for the third quarter was 47.5%, an increase of 240 basis points compared to the prior year and 50 basis points above our expectations. The year-over-year improvement reflects product cost savings, lower promotional activity and a timing benefit from our tariff mitigation efforts, net of incremental tariff costs. Adjusted operating margin was 9.1%, an increase of 150 basis points compared to the prior year and 80 basis points above our expectations. This performance reflects gross margin expansion, continued investment in our brands, talent and key capabilities, as well as the net timing benefit from our tariff mitigation efforts. Top line growth and operating margin expansion led to 29% increase in adjusted diluted earnings per share to $0.36 compared to $0.28 in the prior year and our outlook of $0.28 to $0.32. Net debt at the end of the third quarter was $543 million, down $20 million or 4% compared to the same time last year. Before moving to our outlook, I want to provide an update on the impact of tariffs. This has been a dynamic situation with rate changes and evolving clarity around the timing of when the new tariffs took effect. On our last call, we shared that we expected to offset the majority of the unmitigated impact in 2025, which we estimated to be approximately $20 million. We also noted that the majority of the impact was anticipated to occur in the fourth quarter. We now expect the unmitigated impact in 2025 to be approximately $10 million. The reduction in the estimated impact reflects a timing shift between 2025 and 2026. We took quick and decisive action when trade policy changed in the second quarter of this year. As a result of those actions and the timing shift, we now expect to more than offset the $10 million impact in 2025. On an annualized basis, we estimate the unmitigated impact from tariffs to be approximately $65 million, representing an incremental $55 million impact on 2026. We're encouraged by the progress we've made in navigating these cost headwinds and remain focused on delivering gross margin within our aspirational value creation framework of 45% to 47%. While we are not providing formal guidance for 2026 at this time, based on what we know today, we expect gross margin to be between the lower end and midpoint of our aspirational range next year as we work to offset the tariff-related headwinds over time. Turning to our outlook. Fiscal year 2025 revenue is expected to be in the range of $1.855 billion to $1.87 billion, an increase of approximately 6.4% at the midpoint, and 5.6% on a constant currency basis compared to 2024 ongoing business. The impact of the 53rd week in fiscal 2025 is expected to provide a 60 basis point benefit to revenue growth. At the midpoint of the range, we expect Active Group revenue to grow low double digits on a constant currency basis, fueled by the momentum we built in our two largest brands, Merrell and Saucony. New products are resonating with consumers. Our key city strategy is driving focused international growth, and we're seeing continued success in expanding our lifestyle offering. We expect the Work Group revenue to decline high single digits on a constant currency basis. As Chris shared, we haven't made the progress we expected in Work Group. While we're encouraged by recent steps in product innovation and marketing, the path to stronger, more consistent growth is taking longer than originally anticipated. We're excited to have Justin join the team, and we remain focused on improving execution across the 4 pillars of our strategy. Gross margin is expected to be approximately 47.1% at the midpoint of the range, up 280 basis points compared to the prior year. The majority of the improvement is driven by product cost savings, a healthier mix of full price sales and a timing benefit from our tariff mitigation efforts, net of incremental tariff costs, reflecting the pace of our actions relative to the phasing of the cost increases. Adjusted operating margin is expected to be approximately 8.9% at the midpoint of the guidance range, up 160 basis points from the prior year. The year-over-year improvement reflects strategic reinvestment of a portion of gross margin gains to support our brand-building model, including marketing, talent and key capabilities. Interest and other expenses are projected to be approximately $27 million, down from $39 million in 2024 due to the reduction in net debt. The effective tax rate is projected to be approximately 16%. As a result, adjusted diluted earnings per share is expected to be in the range of $1.29 to $1.34, including a $0.02 foreign currency benefit versus prior year. At the midpoint, this represents constant currency growth of 50% compared to last year. Operating free cash flow is expected in the range of $85 million to $95 million, with approximately $25 million of capital expenditures. Moving to our fourth quarter guidance. Revenue is expected to be in the range of $498 million to $513 million, a year-over-year increase of approximately 2.2% at the midpoint and 0.5% on a constant currency basis. At the midpoint of the range and on a constant currency basis, we anticipate the Active Group revenue to grow high single digits and Work Group revenue to decline by low double digits compared to the prior year. Gross margin in the fourth quarter is expected to be approximately 46.3%, an increase of 270 basis points compared to last year. A portion of the improvement reflects a timing benefit from our tariff mitigation efforts, net of incremental tariff costs. Adjusted operating margin is expected to be approximately 10.5%, an increase of 60 basis points compared to last year. As a result, adjusted diluted earnings per share for the fourth quarter is expected to be in the range of $0.39 to $0.44 compared to $0.40 in the prior year. To summarize, we're encouraged by our third quarter and year-to-date 2025 performance as well as the expected continued momentum in the Active Group, which reflects the strength of our strategy and the discipline of our execution. At the same time, we recognize there's more work to do. We remain focused on driving consistency across the portfolio, sharpening our operational rigor and continuing to invest in areas that will fuel long-term growth. We're staying responsive and resilient as we manage through a dynamic macro backdrop, including evolving consumer environment and tariff-related margin pressures. With that, let me hand the call back to Chris before we open it up for questions. Christopher Hufnagel: Thanks, Taryn. The company has made significant strides in becoming a builder of great global brands over the course of the past 2 years. We're squarely focused on our consumers. We're investing in our brands through enhanced product innovation and elevated marketing. And critically, we're prioritizing responsible brand management in the marketplace, focused on consistent brand experiences, thoughtful distribution decisions, reduced promotional activity, rigorous brand protection and driving sell-through. We believe Wolverine Worldwide is well positioned in the global marketplace and well positioned to navigate the dynamic and uncertain macro environment. We're executing our brand-building playbook with pace and urgency, all focused on making every day better for our consumers, our teams, our communities and our shareholders. With that, thank you to all of you for taking the time to be with us this morning, and we're happy to take your questions. Operator? Operator: [Operator Instructions] It looks like our first question today comes from the line of Peter McGoldrick with Stifel. Peter McGoldrick: I was curious on the Saucony opportunity. Within the 25% constant currency growth, can you help parse the contribution from new distribution and like-for-like growth? Christopher Hufnagel: Yes. Thanks, Peter. We're really pleased with Saucony's performance in the quarter and certainly the performance year-to-date. We describe it really as broad-based categories and channels and regions, which we're encouraged by. I think if we had to put a number on the new distribution contribution for the quarter, about 1/3. Peter McGoldrick: Okay. That's really helpful. And then as we think of the split between lifestyle and performance, I was curious if you can help us think about how that splits within your footwear categories. And then as you plan the business going forward, how should we think of the balance between lifestyle footwear, every day running and then the high-performance running footwear? Christopher Hufnagel: Yes. Great question. I think you're hitting on something that was really important to us as we began to build a new strategy for Saucony several years ago. And thinking about both the elite performance run segment, the more casual everyday lifestyle runner and then certainly the lifestyle piece. And I think that reset of strategy has really helped us gain traction and certainly helped propel Saucony forward. Lifestyle piece is growing faster than the performance piece, but performance is also growing. And we're gaining share in both lifestyle accounts as well as the critical run specialty channel. So I'd say that we are encouraged that growth is coming from both parts. Certainly, our new entry into lifestyle coming off of a smaller base is helping to accentuate those year-over-year gains. Operator: And our next question comes from the line of Mauricio Serna with UBS Financial. Mauricio Serna Vega: Maybe just on Saucony to elaborate. It seems that you've had pretty good success with the expansion in lifestyle. I think you had alluded to 1,300 doors for fall '25. Any thoughts on where do you see that door count going into spring '26? Christopher Hufnagel: Yes. Good question. And certainly, we've been encouraged by the receptivity to the moves we've made in Saucony and certainly by that door expansion. We have opened doors in Saucony lifestyle. We've talked about that. We still believe that we're less than 1/4 of the full door potential. And I would say that we're sort of maniacally looking at sell-throughs. One of the things that we're committed to is responsible brand management. And we want to make sure that where we open new distribution, where we go put ideas, we're really moving towards a pull model versus a push model. And so as we open new doors, we said early on that this would be a test and learn. And I would say that our doors, some doors are overperforming what we anticipated. A lot are performing at what we hoped and anticipated. And frankly, some doors are underperforming. And we need to react to that change where the consumer is, learn from where we have momentum and how do we capitalize on that responsibly. At the same time, where we aren't generating the sell-throughs that we want, we'll look to pivot away from that and diagnose what the issue is. I think the doors where we are underperforming on sell-through rates, we largely attribute to low brand awareness, which is something we're working on simultaneously with the brand as we invest more in marketing dollars. So something we're keenly watching. Every single week, we look at sell-throughs. We're staying very close to our customers and our consumers and making sure that as we drive this growth for the brand, we're doing it responsibly and managing for the long term. Operator: And our next question comes from the line of Laurent Vasilescu with BNP Paribas. Laurent Vasilescu: I just wanted to ask with regards to fourth quarter, the active, high single-digit growth. Can you maybe -- Chris, can you unpack that a little bit more in terms of expectations for Saucony? And then I have a follow-up with regards to -- for 2026. Christopher Hufnagel: Yes. I think for the fourth quarter for the Active Group, we remain and continue to be encouraged by the progress we've made, the momentum that they've generated. Saucony, we anticipate it will be a little better than Merrell in the fourth quarter. At the same time, Saucony's comparisons are a little easier, given that Merrell is comping growth from 2024. So -- but still encouraged. Again, I think if you think about how we've talked about the business, our long-term value creation model, our aspirations, this company does extraordinarily well at mid- to high single-digit revenue growth in the consolidated. And our goal is to get all brands working at that pace and hopefully, certainly some better than that pace. Laurent Vasilescu: Okay. Very helpful, Chris. And then I think in the beginning of the year, it was about 900 doors, then for the second half, it was about 400 doors. You mentioned right before that you're still under 25% penetration rate. What kind of numbers should we think about high level in terms of number of doors for spring 2026? And I'd love to hear more about unpacking what you're seeing in terms of the underperforming doors. I think you mentioned brand awareness, but can you just give us a little bit more color on what you're seeing, what measures you're going to put in place for those underperforming doors? Christopher Hufnagel: Yes. Good question, Laurent. I appreciate that. We do anticipate first half of '26, the door count to be higher than the first half of '25. That's how we're thinking about the business. And then obviously, we continue to manage really week-to-week with these accounts. And in the doors that we have not met our sell-through expectations or our partner sell-through expectations, we are working to diagnose, and what performed better, men's or women's? How are the assortments? How are we merchandise? What was the consumer feedback? And then trying to triangulate that with our own data, our own e-commerce metrics, where our files are, what sort of demographics and ZIP codes do we do better with. And I think these are things that brands are going through a growth curve like this we have to manage, and we have to manage. I mean that is just a reality situation. The good news is that stock, we believe, is going to achieve all-time record revenue and all-time record profit this year and carry that momentum into 2026. So there is work to do. And I would say, as with any business, if you're not swinging and missing a few times, you're probably not thinking about the business critically enough. And I would say where doors that we have underperformed that's a thing that we can learn and then move from. Operator: And our next question comes from the line of Jonathan Komp with Baird. Jonathan Komp: Chris, if I could follow up, could you just maybe more directly talk to some of the sell-throughs you're seeing on more of a near-term basis? And as you think about heading into 2026, can you give a little more comfort or color on the indications you see for the Active Group into 2026 in terms of growth potential there? And then, Taryn, just to follow up, I appreciate the gross margin commentary for 2026. Should we think that you're at a near-term peak for margin here? Or given the timing of some of the tariff impacts, are there areas you can leverage to continue to drive operating margin expansion just at an initial level here as we look forward given the goal to get back to much higher multiyear operating margins? Christopher Hufnagel: I'll answer the first one. And I think the question really is premised on sort of expectations for Merrell and Saucony. And I would say, again, and I tried to outline this in prepared remarks, I would bucket our brands in different stages of evolution. And I would say that Merrell and Saucony, our two biggest brands are moving at pace. And I would say that was where we applied a tremendous amount of effort in the early days of the turnaround to get our biggest brands moving. And I'm encouraged by the rigorous deployment of that playbook, how we've built the product pipeline, how we're working to create demand and then frankly, how the Wolverine Worldwide team is driving the business each day, I'm encouraged by. We've talked about market share gains. Saucony gained share in the run specialty channel, has gained share in lifestyle. I think Merrell has 11 of 12 consecutive quarters of gaining share at a rate that's actually accelerating. Performance and lifestyle for Saucony grew in the quarter. Performance and lifestyle for Merrell grew in the quarter. And I'm encouraged by some of the work that we're doing with that new Merrell team to think about the broader outdoor lifestyle opportunity beyond the trail. So it is not certainly easy days out there. We're -- obviously, with everyone thinking about where the consumer is, how we had in the holiday, how we think about 2026. But I think for the things that we can control with our own team, I think we've got a lot of things going in the right direction. And where we do have some challenges and opportunities to do better, I think we've diagnosed those issues, and we're going to quickly get after them. Taryn Miller: And Jonathan, to your question on gross margins, we are pleased with the performance that we have made to date in terms of expanding our gross margin. And at the full year of our guide, we're at around 47.1% for gross margin on the year. That's up 280 basis points year-on-year. And the primary drivers of that are what we have been talking about for some time of the product cost savings that we've been driving with our supply chain organization as well as more full price sales as we're building that brand-building model across the brands and channels, we're able to get more full price sales. We're able to get the more premium price points. So that's the primary driver. The tariff timing piece that I spoke to in the prepared remarks, for the full year, that's providing 40 bps of -- basis points of improvement year-on-year. So you can see the vast majority of that 280 improvement is really the sustainable part of our business. I think in terms of the tariffs, why is it providing a net benefit this year? Let me explain that one a little bit. While the trade policy continues to evolve, we did start taking actions early in the year to mitigate those headwinds in the second quarter. So for 2025, the benefit of our actions started to materialize in the third quarter. However, we aren't seeing the full impact of the higher tariffs until the fourth quarter. And even then, I would note that a lot of the inventory sold in our U.S. channels reflects product that was imported when the incremental tariffs for most of our sourcing countries were at the 10% rate, not the current 20%. Therefore, as a result of that timing, then you can see that our mitigation actions are ahead of the incremental costs hitting the P&L. And -- but like I said, the majority of that 280 on this year is really the sustainable piece. The timing piece would be that 40 basis point impact from tariffs. Jonathan Komp: Okay. And sorry, just to be more clear, I guess, thinking about operating margin, the 8.9% guide for this year, significant progress, still well below your mid-teens aspiration. So should we think that 2026 might be a step back on operating margin? Or are there other areas you could drive leverage to help manage through the tariff headwinds? Taryn Miller: Yes. It's too early to talk details on 2026. We'll do that in February. We want to -- the reason we gave the gross margin is we were just trying to put some context around how we were looking at the broader tariff impact in '26 and our plans to mitigate. I mean we continue to find opportunity -- look for and find opportunities to expand growth and operating margin. We're obviously going to be doing that now in the face of a larger tariff impact, but our value creation model stays intact. It's just the timing of the tariffs is what we're looking at offsetting. We'll have more to share on '26 in a few months. Operator: All right. Our next question comes from the line of Sam Poser with Williams Trading. Samuel Poser: I'd just like to dig into Saucony a little bit more on the lifestyle side. Can you give us some idea of what's the breakdown between -- like between sell-in and sell-through on the lifestyle product? And then you mentioned, Chris, that you were seeing some changes between men's, women's and kids and so on. Can you give us some color on the sell-through rates on the rates you're seeing between them and how that may be balanced and you know where I'm going on this. Christopher Hufnagel: Yes. I mean I think -- thanks, Sam. I appreciate the question. Like I said in an answer to a previous question, I think I break down our performance in the early days in these lifestyles accounts. In some places, it's well outpacing what our expectations were. In a lot of cases, it's in the range of what we need it to be. And then in some places, it's at a slower rate. And so I think for us, as we try to create a really strong pull model, manage the inventory, manage the brand, manage the marketplace really well, we'll look to responsibly grow in doors where we've overperformed. And then frankly, we'll pull back in doors where we've underperformed. And I think that is incumbent upon companies that want to run good brands. I think historically, we may have tried to force product in and not be responsible and really focus on sell-in and not sell-through. And we're trying to pivot to really obsess about the sell-through. Encouragingly, though, we are pleased with the progress that we've made in fairly short order. We're pleased with the growth rates. And then I'm encouraged by what I see for the product pipeline for '26. And then even as trends emerge and evolve with the consumer, I'm thankful that I've got a century-old archive in Saucony that I can pull from. And some early indications are maybe a move back to some classifications where Saucony has historically been very good. So we remain encouraged by the progress in lifestyle. We're watching it very closely. We talk about it every single week. And it's something that is -- as I think about how we want to responsibly grow Saucony in the long term, responsibly growing that lifestyle business is paramount. Samuel Poser: I really wanted to talk about the genders, the men, women and kids, not the lifestyle. I really wanted to get the breakdown on, is men's performing better -- in overall, men's are better, women's better, kids better and so on? Because I mean, historically, a long time ago, Saucony has been more appealing to women more than almost any other brand out there. And it seems like a lot of -- it may have been sort of the sell-in on men's may have been higher than it may have should have been, and women's may have bigger opportunity and so on. That's what I'm really -- that's where I'm going. Christopher Hufnagel: That's a good question. I wasn't trying to be elusive. I totally forgot that you asked about the gender split down, so I apologize, Sam. Sell-in, like we talked about, men's and women's, I would say women's has performed really good, really well for us, along with kids, kids has done very well for us. So we're seeing a very strong reception to the women's piece and certainly the kids piece. Interestingly enough, the way we do sizing for the lifestyle piece is a lot of unisex. So unisex numbers actually growing very high, which we assume a lot of those are buying smaller sizes for the female consumer. So I'd say we've made really nice progress with her. We just did a collaboration with METAGIRL, which we think will deepen the connection her. She's a very influential creator who we're fortunate to partner with. And I think that product sold out before lunch -- the day of launch. So we are very focused on her, and we think there's a great opportunity with her. Samuel Poser: And on the men's side, I mean, is the men's side living up to the expectation or is the women's side exceeding? That's where I'm going here. Christopher Hufnagel: That's a good question. I think men's, again, in lifestyle in total, we're very pleased with the progress. Pleased with the sell-throughs, pleased with the receptivity, pleased about what we believe that it's doing for the brand. I think we're really happy with the pickup we've seen with her. Operator: And our next question comes from the line of Anna Andreeva with Piper Sandler. Noah Helfstein: This is Noah on for Anna. So I just wanted to touch on Merrell. You had mentioned that the brand was in the early stages of evolving its distribution. Should it follow the same playbook as Saucony with additional new door step-up in specialty into the next year? And then have you quantified what that new door opportunity could look like? And then just a quick follow-up on Saucony. Can you remind us what brand awareness is now versus a few years ago? Christopher Hufnagel: Sure. As it relates to Merrell, the new door expansion isn't as great for Merrell as it is for Saucony. Saucony is a very well-distributed brand. For me, it's more talk about the evolution of that distribution. And what other doors could we possibly target, especially with her. So while I do think there is door count opportunity expansion, it probably won't be at the pace in which we are able to do for Saucony. I think for us, the biggest opportunity in Merrell is moving beyond the trail, making both the trail lighter and faster, more modern at the same time, I think a much broader outdoor lifestyle opportunity for the brand, specifically for her, which is why we're encouraged by the receptivity of some of our new product launches and the ability for us to sell the Moab Speed 2, the SpeedARC and where those products are showing up are really encouraging. And then I think we're equally excited about what we can do next year, especially with the low profile with the Relay and what that can mean from a fashion trend standpoint. And then certainly, cold and wet weather boots, we think, is an opportunity. So I think the door count expansion for Merrell isn't as great as it was for Saucony. At the same time, I think chasing the bigger outdoor lifestyle opportunities is a giant opportunity for Merrell. And then as it relates to awareness, we see awareness slightly up sort of quarter-on-quarter. We measure it twice a year, we do brand health surveys. We see awareness slightly up. But importantly, we see bigger movements in affinity and heat for the brand, which we're really encouraged by. So I think that really is driven by a shift in how we've chosen to invest our marketing dollars. I think we've really consciously tried to make a bigger play in upper funnel advertising and launch meaningful campaigns behind these brands to certainly raise awareness. But then obviously, it's important for us to build strong brand affinity and importantly, brand heat. And I think specifically, the places -- the cohorts that we've seen pickups are with core runners and then encouraging that younger consumer. Operator: And our next question comes from the line of Mitch Kummetz with Seaport Research. Mitchel Kummetz: First one is, I'm just curious, was there any pull forward that occurred in the quarter that might explain some of the upside, the over-delivery in the quarter as well as why the fourth quarter growth rate maybe doesn't look as strong as 3Q? And then I also have a follow-up. Taryn Miller: Yes, Mitch, no, there was -- I wouldn't call out any pull forward or timing shifts in the third quarter relative to the fourth quarter. Mitchel Kummetz: Okay. And then on Saucony, Chris, I think your comment around door count was that first half of '26 will be higher than the first half of '25. You added doors in the back half of '25. So I'm curious if 1H '26 is going to be above 2H '25 in terms of door count? And then also with some of these new doors that you've opened, I would imagine that the assortment going into those new doors wasn't a full assortment. And I'm curious with the doors that you recently added, let's say, for 1H '26, if you think that the doors that you've added in the last 12 months will have more product than what they had the prior year when you added those stores. Hopefully, that question makes sense. Christopher Hufnagel: No, it makes perfect sense. And I think that part of it is part of our test and learn, and how do we optimize the new doors that we've opened. And that part of it is where we put assortments in, how do that assortment resonate, men's, women's, kids, how is it shown? How is it presented? Is there opportunities for adding SKUs to those assortments. And that part of the optimization work. At the same time, it's also making sure that doors where we did underperform, we're quickly moving past those doors and finding new places to grow. It's too early to call a door count second half of '26 versus the second half of '25. Obviously, those plans are still in development. And we're looking at both at a U.S. store count as well as a global door count. So just to reiterate, first half '26 stores will be an increase over first half of '25 doors, and we're still working on the back half of '26 into '27. Mitchel Kummetz: I guess maybe you misunderstood my question. I'm wondering if door count for first half of '26 will be above second half of '25? Christopher Hufnagel: No, sorry, that was the thing was embedded in our remarks. I think first half of '26 will be fewer doors than second half of '25 because we're working to rationalize that door count in places that we've underperformed, move past those doors and go look for new growth opportunities. Operator: And we have a follow-up question from Mauricio Serna. Mauricio Serna Vega: Maybe could you elaborate on the DTC growth that you've seen for the Saucony brand in the quarter? How does that look? And then on SG&A, like it sounds like you're continuing to invest in demand creation and other long-term enablers. How should we think about that growth rate going into '26? Because I think part of the algorithm is to get some leverage to get to that aspirational mid-teens EBIT margin. Christopher Hufnagel: I'll talk about the DTC performance first and then hand it over to Taryn. I think just let me talk about broader DTC in total. The quarter was generally in line with our expectations. And I think in '25, we're really trying to prioritize for our DTC operations a couple of things. First, running a brand-accretive DTC business. How do the stores and e-commerce sites that we run do more than just drive revenue? How do they also help build brand? How are they positive brand experiences for our consumers? How do they deepen emotional connections? At the same time, be a profitable channel for us. We worked hard this year to become less promotional on our e-commerce sites. In '24, we certainly were promotional as we're working through some obsolete inventory and working to turn the organization around. And we made the choice this year to really try to become less promotional across the entire portfolio. And I'm encouraged by the progress we've made. I think in the quarter, we're at 430 basis points in gross margin because we are becoming less promotional. And at the same time, also drive more full price, more premium selling and then importantly, have better and more consistent storytelling across all of our experiences. As it relates to Saucony, Saucony was a bright spot in the quarter, up mid-teens in their e-commerce business, which we are certainly encouraged by. And clearly, brands that have managed the marketplace well, have compelling product, new and fresh innovation, those brands are winning. I'll also say that Sweaty Betty U.K., the U.K. portion of that e-commerce business was positive in the quarter, too, which is really encouraging to see that brand begin to turn the corner for us. So that's how we approach the DTC business. Obviously, everyone is very focused on the few weeks remaining in the year, driving a successful holiday season and a successful conclusion to '25 and then carrying on to '26. Taryn Miller: And to your second question, Mauricio, in terms of our value creation model, the revenue growth combined with our disciplined SG&A management and cost management overall, frankly, are key to our growth algorithm, as you pointed out. And we are -- I'd say how I would describe it is we're working to balance the importance of making sure that we continue to expand margins in this inflationary environment as well as making those key strategic investments that we need to make. And this year, in 2025, as I identified earlier, we have grown gross margins with sustainable solutions. And we are reinvesting a portion of those gains in those key areas we're talking about, about driving that fuel for the growth so that we can get that leverage in the upcoming years. Those investments are in areas like marketing, like Chris has talked about the key cities. We've talked about the ground game, our talent and product development as well as key processes that Chris called out as well in terms of integrated business planning. So we've made a lot of progress as we've been trying to balance that growing margins as well as investing for the future. Too soon, as I said earlier, to talk about 2026, but that core discipline of driving revenue growth and being disciplined with our SG&A remains true. Operator: And that does conclude our Q&A session today as well as today's conference call. Thank you all for joining today, and you may now disconnect. Have a great day, everyone.
Operator: Ladies and gentlemen, welcome to the Vonovia SE Interim Results for the 9 Months 2025 Analyst and Investor Call. I'm [ Moritz ], the Chorus Call operator [Operator Instructions] The conference is being recorded [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rene. Please go ahead. Rene Hoffmann: Thank you, [ Moritz ], and welcome, everybody, to our 9 months 2025 earnings call. Speakers today are once again, CEO, Rolf Buch; and CFO, Philip Grosse. They will be happy to lead through today's presentation and then answer your questions. With that, over to you, Rolf. Rolf Buch: Thank you, Rene, and welcome to everybody also from my side. Today, it's earning call #50, so 5-0 for me, but also for the company. And as you are well aware, it is my last one. I want to take this opportunity to remind everybody of what drives Vonovia and what makes this company different. That is why before Philip dives into the 9 months results, I will share a few slides that are more fundamental and general, but very instrumental for understanding how Vonovia approaches the business. But let me start with a brief summary on Page 3 to get us started. 9 months into the year, we are fully on track towards achieving the upper end of the guidance. Total EBITDA is up 6.4%. EBT is up even slightly higher with 6.8% and post minorities EBITDA, the most important figure for you, as I know, is up like EBITDA by 6.4%. As you will see on the guidance page, our growth momentum carries over into next year and will gain full momentum towards '28. We are well on track for our ambitious EBITDA targets. And most importantly, organic rent growth will increase to around 5% by '28. Personally, I think with higher investments and the strong underlying market rental growth, Vonovia may well see rent growth above 5% by then. The market in which we operate continues to normalize and move in the right direction. Organic value growth is happening, and we will probably see a bit more in H2 than what we have seen in H1. The transaction market remains somewhat below the levels we have seen in the ultra-low interest rate period, but it is back to the normal level that we have seen before that period. On Page 4, let me summarize our fundamental beliefs, what our fundamental beliefs are and why I think Vonovia is different. First, a mantra that I keep repeating because it is so fundamental. Our business is built on and followed certain megatrends that provide stability and safeguard Vonovia's long-term earnings and value growth. Imbalance of supply and demand in urban areas, the focus on CO2 reduction and the positive impact of demographic change on our business will not go away for the next 20 to 30 years. Against this backdrop, there are 3 guiding principles that we believe in. First, it is a low-risk business and a low-margin business because the underlying business is regulated and very low risk, the incremental yields are comparatively low. The consequences for us is that cost leadership is crucial, and we achieved this by building scale and rigorously pursuing standardization and industrialization. Second, -- our business is a B2C business. The long-term nature of rental contracts and the relation with our customers makes us a subscription-based business based on real estate. The consequences for us is that we pursue deep vertical and horizontal integration, maximum control over our value chain through in-sourcing and rolling out ancillary services to increase our share of wallets of our tenants. And third, location and portfolio quality matters. Even though it's a subscription-based business, it is still real estate. And there, location matters. There is not the one initial yield for German resi. Supply/demand imbalance is very different in different locations and housing market in urban areas simply have different fundamentals compared to the countryside. And when you are in the right location, you can unlock additional earnings and value growth through investments in the long run. The consequence for us is that we have worked hard through acquisition and disposal to focus our portfolio in the right locations. And second, we have developed the know-how and the capacity to run a large-scale and industrialized investment program. I mentioned the low risk in the underlying business in the markets in which we operate. The beautiful thing about that is obviously that our operating performance does not produce negative surprises. Rents keep going up, tenants pay their rent in full and vacancy only exists in cases where we do modernization work in the apartment. What may be a surprise to some people, even though it should build into -- it is built in the system and actually should not be a surprise is the acceleration of rent growth. We have spent a lot of time and effort in trying to explain the catch-up effect in rent from higher inflation of the past years. It is becoming more and more evident now. As you see on the guidance page later, we are continuing to move upwards to around 5% organic rent growth and above, which will, of course, have very positive implications for both earnings and value growth. Go to Page 6. One of the consequences of running a B2C end consumer business is the need for scale. The size we have reached is impossible to replicate and clearly gives us an advantage on the cost side that cannot be copied by other players who are smaller and in most cases, are a lot smaller. The chart on the bottom shows for Germany how the increase in the portfolio volume led to an expansion of the margins and the reduction of the cost per unit. What is also noteworthy here is that our customer satisfaction increased sustainable from an index 100 at the IPO to 125 today. The cost per unit number is maybe a bit complex and more difficult to compare. So let me make my point about the scale and efficiency very simple and transparent. Let's have a look on Page 7 for gross yields and adjusted net yields. Gross yields are rental income divided by fair value. Gross yields differ within the peer group, which is, of course, no surprise given the very different portfolio locations and quality. If you then look at the adjusted net yields, so EBITDA operations adjusted for maintenance because maintenance spending is clearly not a sign of efficiency, but capitalization policy, we see that the cost leakage with German resi is very different. Vonovia loses 0.4 percentage points between gross and net. And if you look only at the German portfolio, it is just 0.2% versus almost a full percentage point of the peer group. This is the result of our superior scale and efficiency that we have reached since the IPO when our spread was as high as 1.5 percentage points. Of course, at this time, we had a much smaller portfolio. In a business with low initial yield, this gap is huge. It means that we are uniquely positioned to succeed in low-yielding markets, which, of course, have higher growth potential. And it means that we generate more than EUR 400 million additional EBITDA with our platform and our way to do business, then we would have the average peer group leakage. And it means that we are extremely well positioned for a successful second Vonovia strategy. I have mentioned our platform a couple of times, so let me give you a better understanding of what I mean by that. This is Page 8. We have developed a fully integrated one-stop shop that covers the entire value chain in our business from the acquisition and development of new units to the asset and property management to the value-add and facility management to the disposal expertise. We cover the full range of the asset life cycle. And we do it an operating system that is SAP head to toe, which clearly defined interfaces between operating entities and central support functions and the seamless integration between local and central responsibilities. Today, this platform services most of our own portfolio. Owning and operating European's largest residential asset base, including being one of the largest homebuilders, safeguards unparalleled experience and a unique data pool that forms a strong backbone of the platform. Page 9. We are all aware of our activities to increase non-rental EBITDA. The general effort to do that so is not new. We have been ramping up for nonrental EBITDA since the IPO to as much as 20% of total EBITDA by '21. The sudden change in interest rate environment and our focus on liquidity generation over profitability resulted in lower non-rental EBITDAs for good reasons. Going forward, however, there is absolutely no reason why we should not be able to grow outside the rental segment. Of course, the absolute amounts are bigger than in '21, thanks to the successful integration of Deutsche Wohnen. But the underlying strategy of doing more than just collecting rent has been in Vonovia's DNA since the IPO, and there is no reason why this should not be a key element of Vonovia's strategy going forward because it makes all sense of the world. The objective for '28 to reach a level of non-rental EBITDA that we have achieved before Deutsche Wohnen is really not a stretch. Let's go to Page 10 to talk about more about locations. Again, this seems to be misunderstood by the market sometimes. Germany is not the same all across the country. Fundamentals and yields are very different in different locations. The general distinction I would make is that there are urban markets, which tend to come with lower initial yields and there are rural markets, which tend to come with higher initial yield. In both cases, this is obviously a function of the different long-term growth potential of these markets. The strong convictions about the different quality of local markets within Germany prompted a laser focus to make sure that we are in the right location. The large acquisition to grow our portfolios are well known. But what is sometimes forgotten is that we sold more than 100,000 units in what we consider rural and therefore, weaker market. Between the IPO and today, we cut the number of locations in half, and that led to not just better portfolio quality, but also to higher efficiency. And why it is so important to be in the right locations, let's go to Page 11. Most of you will have seen this analysis in previous earnings calls. The appeal of our business, as we see it, is that the annual rent growth may not always be as high as in other sectors, but it is as robust as it can get and allows us to predict our rental growth for many years to come. The gap between the market reality rent levels and our rent level ensures many years of attractive risk-adjusted rent growth. Of course, this does not apply to all markets, but only to the ones where you have a structural supply and demand imbalance. And that's why vacancy is not a concern for us. Doing modernization and charging a higher rent for a better product is not a concern for us and reletting an apartment in line with the regulation at a higher rent is not a concern for us. Affordability to make it short, is not our problem and not the problem for our tenants. As I said earlier, not only the right location matters when it comes to asset management, investments are key to unlocking further earnings and value growth. As consequences, comprehensive investment programs have been a cornerstone of Vonovia's strategy since the IPO. And the peer group comparison clearly shows that we have invested more. I know that the return of these investments cannot be easily extrapolated from the financial results because there is no immediate link between the investment amount of 1 year and the return in the next year as many of these investments take more than 1 year to be completed. That is why we looked at all investments that we have made and fully completed between 2014 and 2024. The aggregate investment amount was EUR 7.4 billion, and the average operating yield we have achieved was 7.1%. So to us, it makes all the sense in the world to continue with these investments and to increase them to EUR 2 billion per year as planned by '28. They make economic sense, and they also make sense from a sustainability point of view. So it's a win-win situation. We talked about locations. We talked about buying and selling to be in the right markets, and we talked about investments to deliver additional growth. Let me put this into context on Page 13. Because of the dynamic in our local markets and because of the comprehensive investment we have been making, we have been able to deliver best-in-class rental growth. As I said earlier, I'm personally convinced that this gap will widen in the future from superior market rent growth and superior investment driven rent growth. And this rent growth, combined with the investment and the portfolio focus has delivered a higher CAGR for value growth based on the development of fair value per square meter since the IPO. The market focus seems to be very much on earning these days, and that is fine. But let's not forget that you have 2 types of returns, earnings and value. I learned this by you 13 years ago where I joined the industry. This is a good segue into the last page of this chapter before I hand over to Philip. When you invest in Vonovia, you do not buy into an initial yield portfolio. That is why I refuse to accept the argument that we are a bond proxy and that it is all about the spread between bond yields and the net initial yield of our portfolio. Rather one should look at the total shareholder return, so earnings and organic value growth and compare that to other equity investments on a risk-adjusted basis, of course. And while it is entirely up to the investors and the market in general, what they make out of it, I consider 13% total return based on the current share price and an attractive from a risk return point of view, and that is why I look forward to remaining a Vonovia shareholder long beyond my tenure here at Vonovia. And with this, over to Philip. Philip Grosse: Thank you, Rolf, and welcome also from my side. I will start with Page 16. I think it actually speaks for itself. So no need to go into too much detail here. But let me allow to make one important point. Our Rental segment is still impacted by the smaller portfolio. Year-on-year, we have 9,000 fewer units, and that, of course, weighs on the top line. Nonetheless, nominal growth in our Rental segment alone, so excluding the non-rental EBITDA contributions overcompensated the increase in the net financial result in the first 9 months, and that is exactly the logic we have been talking about and the consequence of our long-term and very balanced maturity profile. Yes, our interest expenses are going up as expected, but rents are going up more. And combined with the non-rental growth, we will continue to be able to deliver attractive risk-adjusted earnings growth. Let's go through the 4 segments one by one and start with the Rental segment on Page 17. Rental revenue, as you can see, was almost up 3%, only held back by losing some of our top line as explained. Maintenance was a touch higher as expected and operating expenses were very much in line with last year. All in all, we basically managed to preserve the top line growth on the EBITDA level for a year-on-year increase of 2.5%. Organic rent growth remained very robust with 4.2% overall and 2.8% from market rent growth. Like in previous quarters, no need to deep dive on occupancy and collection rates as they both remain exceptionally high and are expected to remain at that superior level for the foreseeable future. On value add, that is Page 18. As you can see, the internal revenues grew by more than 15%, and that is largely a result of our increased investment and our higher in-sourcing ratio. The year-on-year comparison is skewed in so far as that the prior year includes EUR 58 million nonrecurring adjusted EBITDA from the coax network lease agreement we have made with Vodafone. Adjusting for this onetime benefit last year, value-add EBITDA were actually up 11% equally as expected. In spite of this onetime effect, we expect the value-add EBITDA for the full year to be considerably higher than last year, and that's mainly driven by higher investments and value creation in our craftsman organization as well as rising contributions from our energy business. So here, we are well on track towards further expanding the EBITDA contribution from our value-add segment as we have been guiding for. Recurring sales on Page 19, we sold 1,553 units to be precise, in the first 9 months, up 2.4% compared to last year, revenue growth of almost 12% and the higher fair value step-up far exceeded the growth in units and resulted in EUR 300 million for the 9 months 2025. And it's the combination of higher revenue and higher gross profit plus stable selling costs that drove the EBITDA contribution to almost EUR 57 million, which is 45% above the prior year. For recurring sales, we remain, again, very much on track towards further expanding EBITDA contribution. Finally, development on Page 20. We have explained in previous calls the development EBITDA was positively impacted by a larger land sale that closed early this year, hence, the extraordinary and not sustainable gross margin. If we adjust for this land sale, however, the gross margin comes down to 19%, which I consider a very normalized developer margin we are targeting that is yes, as we have been expecting for. Either way, our development business is a valuable contributor to the overall EBITDA. And here too, the increasing EBITDA contribution is very much on track. That much about the segments. On EPRA NTA, that is Page 21. The main point for the NTA really is that to a new law that will bring a reduction in corporate income tax, we saw a shift of roughly EUR 2.3 billion from deferred tax liabilities to IFRS equity. So on a net basis, more or less flat, but the composition somewhat changed. Page 22 for the debt KPIs. There isn't much change from one quarter to the other. And the bottom line on the leverage side remains that we consider it well under control. The yardstick for that is mainly with what the rating agencies expect from us to be safe on our BBB+ rating with a stable outlook. As I said last time, different points in the cycle require a stronger focus on some debt KPIs more than on others, and we are at a point where our main attention is on the ICR. There are 2 ways to look at the ICR. The numerator is the same in both cases, adjusted EBITDA total of the last 12 months, but the denominator is different. One definition, and that is the one used in bond covenants uses net cash interest and the denominator. This can be a bit volatile from time to time, depending on the interest payment dates. The bond covenant threshold is 1.8x. So I hope we can all agree that this is somewhat irrelevant from a risk point of view. To allow for a more normalized measurement of ICR, we are using the net financial result that we also use in getting from adjusted EBITDA to adjusted EBT. The ICR threshold we have set to ourselves internally is, as you know, 3.5x. Let me reiterate. Our focus is to make sure our debt KPIs are in line with the BBB+ rating criteria and a stable outlook. This is now essentially an organic development as we expect values and EBITDA to grow and therefore, to further move the debt KPIs in the right territory or even further. On the guidance, this is on Page 23. We have fine-tuned 2025 guidance and moved to the upper end of the range for both rental income and adjusted EBITDA total. As we usually do in the third quarter, we are also giving an initial guidance for the next year. No need to read all individual line items now, but do allow me to zoom in on the organic rent growth. You may recall the concept of the additional irrevocable rent increase claim that we introduced a few quarters back. We are showing it here again to demonstrate that the rent growth is coming. It is actually already there, apartment by apartment. But because of the Kappungsgrenze, it cannot be implemented just yet. Kappungsgrenze, as a reminder, is the cap that allows you not to increase rents by more than 15% for selling tenants over a 3-year time horizon in tight markets. We explained the underlying concept on Page 30 of the presentation in more detail. Let me say this, for 2026, we have a net increase of another 0.4 percentage points to a total of 3% that is already booked onto the underlying apartments, but can only be implemented once the rental cap has lapsed in subsequent years. I can put it differently, if the 0.4 percentage points net buildup would be harvested already next year, 2026 organic rent growth would be around 4.6%. So you can actually see that the acceleration is coming through as promised. Without any rental cap, by the way, 2026 organic rent growth would be north of 7%. We did the math on how much net buildup and net use of this additional irrevocable rent increase claim we will have on our way to 2028. And based on our probably rather conservative assumptions for future rent indices, we will see a net use that will take the actual organic rent growth to around 5%, also supported by higher investments. So what we are moving towards is a step change in rental growth that surpasses historic rent growth numbers, which should not come as a surprise actually because at the end of the day, this is higher inflation finding its way over time into organic rent growth like we have always said. And referring back to the commentary Rolf made, this higher level of rent growth will have a positive impact on both types of shareholder return, and that is earnings growth and value growth. Final comment on the guidance page. Some of you are asking for more clarity on minorities and taxes. EBT minorities are expected to be around 10% of adjusted EBT. And cash taxes, and that obviously includes taxes for our disposal segments are expected to be inside 10% of the adjusted EBITDA total for 2025 and same applies for 2026. The CEO handover process is underway, and Luka will be joining at the end of this month before he will officially assume his new role as CEO starting in January. We will miss Rolf, but we are equally excited about Luka joining and with that commentary, for the last time, Rolf, back to you. Rolf Buch: And for the last time -- thank you, Philip. Before we go to the Q&A, allow me briefly summarize the relevant point of today's presentation. As we laid out, the way Vonovia approaches the business is different, and it has led to operational outperformance that we expect to continue. This puts the company in an excellent position for the future earnings and value growth. Our market environment and operating business remains rock solid, and we are well on track towards achieving our ambitious targets, both for rental and non-rental growth. We have put the company into a tremendous stable footing, and we have -- and we leave it well positioned for further earnings and value growth. We have built a platform that is second to none and will prove to be the cornerstone in the company's effort to build a second Vonovia. All this will be in great hands with Luka. I wish him and the entire Vonovia team all the best and have no doubt that together, they will write a new and very successful chapter in the history of Vonovia. But more important, I would like to thank you all for your support in the last 12 years. Without the support and the willingness to invest, it would not have been possible to build this Vonovia, this great platform. With this, thank you very much. And back to Rene for the Q&A. Rene Hoffmann: Thank you, Rolf. Thank you, Philip. I hand it back to [ Moritz ] for the Q&A. And just as a reminder, everybody, let's keep it to 2 questions per person, please. [ Moritz ], can you start the Q&A part? Operator: [Operator Instructions] And the first question comes from Charles Bossier from UBS. Charles Boissier: I have 2 questions. The first one is on the change in the organic rent growth guidance for 2028 from 4% plus to now 5%. What exactly has changed, I would say, versus the initial guidance that you had set up, whether in the market or in terms of your ability to capture that rental growth? Philip Grosse: Charles, answer is very, very simple. We've been telling you before above 4%. I think now we have become more precise. If we look at the underlying data, and we have done a very comprehensive analysis, we can see that historic inflation is coming through over time to the extent allowed by the Kappungsgrenze, the rental caps, and you will see also going forward numbers in between 2.5% to 3%, non-investment driven and the other bit is investment driven. That is currently 1.4%, but with us more or less doubling the investments vis-a-vis what we have seen last year, we will see also an acceleration in rental growth, in the investment-driven bit. And here, as a reminder, cash-on-cash is 6% to 7% with the vast majority ending up in the rental EBITDA and a portion of that ending up because of the value creation of our craftsman organization in the value-add EBITDA. Charles Boissier: Okay. Very clear. And on the transaction market, you present quite a positive story of normalization and you're also pointing to H2 valuation accelerating versus H1. Still in Q3, it seems rather slow in terms of transaction activity. Of course, there were some small deals here and there, 850 apartments at long transaction. But what are you seeing in the transaction market that makes you confident that it has normalized and you would be able to sell assets at book values? Rolf Buch: So first of all, even in the bad times where the transaction market was much worse, we sold assets for book value. So it's probably quality of assets, which is relevant. But to be very clear, what you see and what is seen in the public is the big transactions. In reality, there is an underlying transaction market of smaller players. And this I mentioned in my speech is actually back to the level where it has been before the ultra-low investment rate environment. So -- what we see here in the listed sector is just a small part of the big transactions. But the market really is consisting out of a lot of smaller transactions. And there, we see a very stable thing, and we see the demand and we see supply coming to the market. So I can confirm that the market is pretty stable and going in the right direction. And as Philip said, we will expect a higher valuation in H2 than what uplift than we have seen in H1. Operator: Then the next question comes from Valerie Jacob from Bernstein. Valerie Jacob Guezi: I've just got a follow-up question, a clarification on the comment that you made that you expect organic growth in asset values to be higher in H2. I think part of it is mechanically driven by you spending more CapEx. So I was wondering, is this comment is also valid if we exclude the CapEx from your asset value growth? That's my first question. I've got a second question. Philip Grosse: You have that acceleration on both sides on a gross as well as on a net basis. And in H1, you have seen net value growth of 70 basis points, and that number will be exceeded in H2. Valerie Jacob Guezi: Okay. That's clear. My second question is on your ICR. I mean I'm not sure this is helpful that you're changing a definition again. So I was just wondering, going forward, are you still going to publish the definition on the bond definition? Or are you only going to publish your own definition? Philip Grosse: Valerie, I think what we just wanted to make clear is that we internally manage our business in a different way and not by bond covenants. That, by the way, is no different if you look at LTV metrics. Because if you look at the covenants that the LTV is not a concept in the bond covenants. But here, you more look at capital -- more broader capital ratios. The flip side, if you will, on the bond definition is, as I said, there's a bit more volatility. It very much depends point in time where you actually pay interest. Over time, if you don't make the quarter-by-quarter comparison, the 2 are very, very similar to each other. So typically, a difference of 10 basis points. And more specifically, we will disclose both. Operator: And the next question comes from Bart Gysens from Morgan Stanley. Bart Gysens: My first question is also on the ICR actually. You talk about moving that into better territory. But I just wanted to understand how you can do that for the ICR. I mean the average cost of debt is running at 1.9%. You managed to keep that flat. You have to refi about EUR 4 billion to EUR 5 billion a year medium term. Now even if reported EBITDA grows by 7% per annum as you're guiding, that suggests that actually if you finance at the current marginal cost of debt, interest cover will not improve on the contrary. So how do you look at that? And are you considering more alternative solutions like convertible bonds or preferred equity? Philip Grosse: No, Bart, to be very precise, where we are moving in the right direction is in terms of LTV and is in terms of net debt to EBITDA. LTV because I have conviction as we have seen this in the running here that the rental increase, net of the investment required to achieve that rental increase will translate itself into value growth. And if I look at net debt to EBITDA, we have, as you know, a number of initiatives which are running very well to, in particular, increase also the nonrental EBITDA and that will move that metric further down. The ICR is really our intention to keep that somewhat stable at current level. And that is going to be the major focus. And here, yes, we probably need some positive backdrop in market in terms of refinancing costs. Our assumption is that this somewhat remains at current level of 4%. And it's also no secret that I think that convertible product as part of the capital structure is a good addition. You should not overplay it. So it should be a moderate portion of your capital structure in terms of liquidity and the underlying stock, plus in terms of the overall debt burden. But with that having said, I think there is capacity for more. And to be crystal clear, convertible is for us, no ambiguity, 100% debt. And the assumption always is that it will never come to the dilution, but that if the convertible is in the money and at maturity is going to be refinanced by a new convertible [indiscernible] was at a higher stock price and that is essentially, if you do the math, reducing contingent dilution. But again, the focus, and that is what is driving the capital structure going forward is going to be the ICR. Bart Gysens: Great. And then my other question is on recurring sales on Slide 19. So you've sold more or less the same amount of units as a year ago, but at a different price point, right, around 10% higher per unit. Have you started selling a different type or quality or location? Should we read anything into this? Rolf Buch: No, I think the biggest -- there might be a small different mixture, but I think what you should read is that what we have announced, we have sold also this product in the period where liquidity was for us important actually with less focus on price. As we announced in October or November last year, we said now we will come back to normal. And what you see is that the margin is actually coming back what we have expected. So this, of course, comes together with the recovery of the market. So you see here that the market obviously is ready to pay the well-known premium, which was paid before the crisis for individual apartments versus blocks. So the retail and wholesale margin is back to normal, which is also, I think, an additional answer to the question about what -- why the market is coming back. You can see it in this figure. Operator: . And the next question comes from Thomas Neuhold from Kepler Cheuvreux. Thomas Neuhold: My first question would be on the non-rental business. Can you please provide us an update on the new expanded business areas such as stranded assets, occupancy rights and third-party business? Did you manage to strike already some interesting deals there? Rolf Buch: Yes. I think to what we call managed to green assets, which is a former called undeveloped assets, but I think managed to green is a much better and more precise definition. As you know, we have signed the first deal. We are in a round to -- in the final round and actually exclusive negotiation with others with more potential. It took us a little bit longer to get this started than originally we expected. But now I think we are on the full run. So I don't see anything else. This is the same for the occupancy rights. And actually, to be very clear, we manage all these additional activities in total, the 10 where we see -- we are in line with our expectation. We are in line with the guidance which we have given you to '28. So there is no reason to do any -- to be nervous actually or the opposite. Some of them are getting better and especially for the second Vonovia, as you know, we will not talk about potential deals there. But I can tell you that in the last 2 months, which are remaining for me here, there is still a lot of opportunity where we are in discussions. Thomas Neuhold: And my second question is for Philip. Can you please give us an indication what impact the lowered corporate tax rate in Germany will have on your cash tax rate going forward once it's going to be implemented? Philip Grosse: I mean, still some time out. It's starting 2028. So this is now asking for a very long-term guidance. This is, as I said, for now, predominantly impacting deferred tax liabilities, which because of the embedded reduction in corporate tax rate is resulting in that one-off gain of EUR 2.3 billion. In terms of more broader picture, I think let me tell you that much. I mean, by us significantly increasing our investments, our rental and value-add business is not hugely impacted by tax payments because most of the investments we undertake according to German GAAP are actually reducing our taxable income, and that you will see in lower tax rates actually for our rental and value-add business going forward. That, however, is somewhat compensated by higher tax rates because we do more disposal business, and that is for development to sell equally as for our recurring sales business. And yes, here, you may have some small benefits in the long run on the lowering of the tax rate. I think what is, however, even more important, and that is in particular for development to sell in global assets is about structuring and the way how you sell it essentially, which allows you to optimize the tax line. Operator: The next question comes from Andrew McCreath from Green Street. Andrew McCreath: I also have 2. Firstly, on development. Looking at your numbers, 3Q doesn't suggest much acceleration in activity. Could you please just provide some color on the dynamics there? Are you seeing any improvement in sales pace? That would be the first question. And the second would be on construction. For the initial projects in Berlin and Dresden, you've guided to an all-in cost of EUR 3,600 per square meter. What sort of yield on costs are you underwriting for these developments? Philip Grosse: On your first question, Andrew, on the development, as I said, if you look at the profitability, that was really much driven by the sale of a land plot we closed in Q1. And that is essentially also the somewhat overriding story for this year because we have sold essentially all project developments we had in our pipeline in the last 2 years in order to generate cash. And because of the crisis did not start new projects, we first need to have building up a platform on the basis of which we can earn the targeted gross margins of 15% to 20%. You will see a kind of more steady development already next year but only partially because also next year is going to be a mix between first completions and selling of those completions or started projects, which we sell based on POC method. But you will also see the disposal of land plots in the coming year. And I think the kind of ramp-up as we have been budgeting for is really to come through as of 2027 and beyond. Rolf Buch: And for the new construction, I think this is one topic which is not only important for Vonovia, but for the whole German market. I think with the about turbo and with [indiscernible] the most recent new legislation, it will provide us with the possibility to reduce the construction cost by 30%. So this famous EUR 3,500, all including, which is actually comparable to the lateral letting. And we are targeting a initial yield of roughly 5%. And then, of course, these buildings come with in the first years, no maintenance and an increase of rent, which is often very indexed. So that's why the initial yield is low, but then the yield will go up over time. And that's why it's a good investment. And this is either for us on our own balance sheet or if it's for sale, it's for others who are ready to invest 5% yield. Philip Grosse: Let me be very clear and add one thing. What you see in the development EBITDA is only development to sell. And development to sell, as I said, we are targeting gross margins of 15% to 20%, and we are essentially targeting IRRs north of 10%. And that is what you will see in that profitability line. So it's not yield on cost driven how we manage that business. It's IRR driven. Operator: The next question comes from Paul May from Barclays. Paul May: Just a couple of questions from my side. Thanks for the analysis on the return on investment, I think 7.1% you highlight over multiple years. I think as you know, we calculate close to 5% based on reported numbers. I think you said that's not possible to make that calculation. So thank you for providing that color. Just wondered why is that below the 8% to 10% return on investment that you've previously and multiple times guided to? That is the first question. And the second question, I think you highlighted through the presentation how you're better than other listed peers based on your NOI yields. But I think on our numbers, where a lot of your cost comes is through your admin cost line versus others. And if you look at it more on an EBIT yield or EBIT margin basis, you're either lower or similar to peers, and therefore, you obviously your yield much lower. And also, are you penalizing certain peers by including land in their gross asset value and not including, say, housing profits or housing sale profits in the EBITDA or in the NOI? Just wondering if you're sort of overly penalizing certain peers. Rolf Buch: No, I think the last one we are not doing. This is all public information, and I think Rene can guide you through. To be very clear, we are operating a little bit different in a different platform. That's why I added the site of the platform that our way to do central and noncentral is a little different. That's why this is the reason for efficiency. So I think the only way how you can really compare it is to do the net yield and the gross yield, and we can guide you through this, but this is based on public information. The other question was about... Philip Grosse: One was on the yield of the investment program. Paul, we've been, I think, explaining for quite some time that the mix of our various investment programs, and that is the energetic modernization of the building that are the reletting investments when we have tenant churn, that is also our develop to hold business are averaging out with cash-on-cash yields of 6% to 7% and that we, at least historically, are more at the upper end of the range that calculation is demonstrating. What we are benefiting here and that is probably a bit different for Vonovia than for the broader sector is that we are able to compensate for some of the maintenance spend, which, by definition, is a part of broader investments by putting our own craftsman organization into play because here, again, we can earn some extra money. So that yield is actually vast majority ending up in the rental EBITDA, but part also in the value-add EBITDA. And it's only for that very reason that we can achieve these high numbers. Operator: The next question comes from Thomas Rothaeusler from Deutsche Bank. Thomas Rothaeusler: Two questions. The first one is on the value-add business. Operating profit was only flat despite the pickup of investments. Actually, we see the same pattern for rental growth, which even came down if you look at modernization-driven rent adjustments. You basically say that investment returns come with a time lag of more than 1 year. Just wondering by when we should see a meaningful -- more meaningful pickup here. Rolf Buch: I think what you're doing is now you're comparing quarter-by-quarter, right? Thomas Rothaeusler: Actually, year-on-year, if I look at the investments year-on-year and look at the performance of the value-add business and look at the performance from rental growth out of monetization measures. Philip Grosse: What is -- if you look, Thomas, at the profitability line of value-add, what is distorting a year-by-year comparison is a very big onetime benefit we have seen last year by the conclusion of a finance lease agreement with Vodafone, and that resulted in an EBITDA, which is not repeating itself this year of more than EUR 50 million. Now if I look at the composition of the various profitability streams, which are adding up to the value add is really very much the craftsman organization where we have seen a very nice turnaround story. Craftsman organization, a, benefiting from higher investment volumes; b, benefiting from higher in-sourcing ratio that, by the way, is also why you see that change in terms of revenues in favor of internal versus external. And what you can equally see is that we are seeing a nice ramp-up in our energy business, and that is thanks to the investments we undertaken photovoltaic. All the other businesses really flattish with the exception of multimedia, where we have year-on-year a decline, I think, of 60%, and that is because of that onetime impact, which is not repeating itself. Is that sufficiently answering your question? Thomas Rothaeusler: Perfect. On the second point is actually on disposals. I mean you referred to improved investment markets. Should we expect this to allow you to speed up noncore disposals maybe? Rolf Buch: Yes. I think we are now back on the normal level. So we are doing noncore disposals as it is accretive and attractive for the pricing. So we are not pushing so much for volume, but we are pushing a little bit also related to the price. Yes, but it is becoming easier also for the noncore disposal. Operator: The next question comes from Marc Mozzi from Bank of America. Marc Louis Mozzi: My first question is around your number of shares. How should we assume the number of shares you're going to use for the calculation of your dividend and EPS for this year at the end of the year because there are some changes here. And I'm just wondering if you can help us having some clarity on that number. I'm talking about the weighted average, not the total. Philip Grosse: I think there is no change whatsoever. It's always the same if we look at profitability numbers, we take the weighted average of the past 4 quarters. By way of reference, little change. I mean, what you have seen in terms of increase in share count is, a, the scrip dividend, which has seen a take-up of slightly above 30%; and b, I think in total, 12 million shares as a result of the domination and profit loss transfer agreement with Deutsche Wohnen, so people accepting the exchange offer, but that is really marginal. When we look at balance sheet numbers, and that is EPRA NTA, we look at the year-end number in terms of share count, but also no change. And the dividend is always end of period. Marc Louis Mozzi: Fair enough. And the other question is around the dividend. And I would like to understand how we should think about the dividend per share for the year because we know that it's 50% of the EBT. So that's roughly EUR 950 million plus surplus liquidity, which I understand is very subjective. I guess you would like to show some dividend growth, what sort of growth on which basis, how are you going to assess your dividend proposal to the shareholder and to the Board? Philip Grosse: Look, Mark, no change here. I mean, for now, I think our dividend policy is what our dividend policy is. It's 50% of EBT plus liquidity, and that is based on the operating free cash flow. And as usual, we will discuss that at the appropriate time and make a proposal to the shareholder meeting, which I think is in May next year. Marc Louis Mozzi: Are you comfortable with the current market forecast of your dividend for this year? Philip Grosse: [indiscernible] what that is actually. Marc Louis Mozzi: Fair enough. That's exactly what I thought. It's EUR 126 million, EUR 125 million... Rolf Buch: So we should not come even not indirect to dividend guidance. This is not the time we will come with a dividend proposal and not we, but the new management team will come with a dividend proposal if it's appropriate and this is next year. Marc Louis Mozzi: Fair enough. I totally understand. Well, Rolf, I would like to congratulate you for running Vonovia for the past 12 years and all the best for what's next for you. Operator: The next question comes from Simon Stippig from Warburg Research. Simon Stippig: First one is on Page 7, you showed your gross to net yield translation. And you mentioned that here in Germany, it's only 20 basis points. So in Sweden and Austria, I think you're holding only 11% based on units of your portfolio. So could you explain me the reasoning of why holding on to the portfolios in Austria and Sweden? And second one would be -- in regard to your operating free cash flow, Q3 was the lowest compared to previous quarters. I know it's mainly due to net working capital movements that comes obviously from your development to sell pipeline. But could you explain or indicate what we can expect here for the last quarter? And then also more importantly, what you see here for the next year. And by that, I mean items that are not so well explained, not like the minorities, for example, I think you were very clear in previous conference calls. But maybe the capitalization rate, does it stay the same and also your capital commitment to development to sell? And lastly, I, Rolf, stay in good health and best of luck for the next challenge. Rolf Buch: Okay. For example, the first time -- the first question I take, I think Austria in this respect is probably less relevant. It's all about Sweden. And you know in Sweden, this is a warm rent, so it includes the energy. So that's why the gap, which is actually energy is counted here as cost to operate. That's why technically it is higher, and that's why we are coming to 0.4% in total. But this -- then you have to compare the Swedish business with other Swedish players, which, of course, we have done, and we could provide you the same, for example, comparison with Heimstaden and we are more efficient with Heimstaden. That's why I mentioned the 0.2% because in the end, this slide is more relevant if you compare it to the German peers, you would compare it more with 0.2% and not the 0.4%, which is in the -- in the notes. But because you cannot directly extract from our reported figures, the 0.4%, you can report from the figures that we -- I think we showed the 0.4%. But the difference between 0.4% and 0.2% is because of the different nature in the Swedish market where everybody has to cover the cost as a part of cost and not of a pass-through item. Philip Grosse: Then, Simon, on your second question, a bit more specific on the operating free cash flow. I mean, you know that we are not guiding on that. What we have been guiding for is excluding changes in the net working capital, why is it that we have done that? Because there's, by definition, some volatility, in particular, if you look on a quarter-by-quarter comparison because it largely depends on the point in time when we have the cash in, for instance, for bigger global exits in the development to sell business. So please don't get nervous on the quarter-by-quarter comparison, but that's not really the picture to draw. More long term, how I would look at it without guiding, if I were you, is that if you start with the depreciation line, that is impacted by, in particular, our investments in photovoltaic, which I think is around EUR 100 million per annum, depreciation 20 years. And given that we do invest in photovoltaic quite significantly, you will see that line gradually going up, which is positive for the cash flow. I think as in the past, net working capital is very difficult. And as a reminder, there are 2 elements in it. It's development to sell, where my intention is to manage the business in a way that it's at least more or less flattish in terms of the net working capital movements, not on a quarter-by-quarter comparison, but on a rolling 12-month basis. What, however, is also in there is the managed to green business, Rolf was mentioning, and that will require an initial capital buildup. So that kind of portion will be negative and how negative depends on how much we are actually able to acquire. But we will give details on that, and we will also give details on the split of those 2 elements going forward, how it affects the net working capital. And the rest, I think, is straightforward. Capitalized maintenance, I would kind of monitor vis-a-vis inflation because this is what's driving that line item. Dividends and minorities, I think we talked about in length. So you should have all the details, including the additional disclosure we put on our web page. And income taxes, I think the guidance somewhat remains also longer term, and I was making that point previously that I expect that to be slightly inside 10% of total EBITDA. Simon Stippig: Great. Second question was very clear. Maybe I can ask a follow-up on the first one. Is that possible? Philip Grosse: Yes. Simon Stippig: Great. I think it's more profound because you made the case that you want to get to scale and scale brings your cost ratio down. So I just wonder in Austria, you're not building up the portfolio. And then Sweden also, I'm sure things have changed since you acquired BUWOG and also since you expanded into geographies in the North. But is it really that you want to build that up? Or is it more a hold case? Or is it really also the potential that you could sell it and then reallocate the cash towards your own business in Germany or even buying back shares? Rolf Buch: So first of all, and really Austria and Sweden is actually 2 types of story. First of all, the Austrian platform is partly because of language, because of very similar rental systems is partly integrated into or has a higher overlap between the German platform. So -- and then, of course, Austria is also linked to the development business because in Austria, they are running a development to sell business. So you're building a part, you're taking it on your platform for 10 years and then you are selling it with a high margin. So that's why the Austrian part is probably more linked to the development business than to the rental business. For the Swedish business, actually, the same applies. We have bought -- the only 2 listed companies. So we have consolidated the listed market there. We have superior cost in comparison to the other listed -- other Swedish operators are nonlisted by definition because they're not listed left, but we know this data. So it's the same. It's the same opportunity then in Germany, we have in Sweden for the second Vonovia. So I see actually in both in Germany and in Sweden, the chance for playing this platform and making money out of doing just services based on the better cost structure in comparison to people who own assets and want to get rid of the expensive platform where they operate or buy new assets with a very attractive platform. So I see the possibility in both and also you cannot compare Sweden to Germany. You have to compare Sweden to Swedish and you have to compare Germany to Germany. So that's why I think it's 2 different markets. And in those markets, the presentation we have shown you on Page 7 is applicable also -- is applicable. Operator: The next question comes from Pierre-Emmanuel Clouard from Jefferies. Pierre-Emmanuel Clouard: Actually, I have a quick follow-up question on Simon's question about Sweden. Is this something that has been discussed with Board members about potential sale of the Swedish portfolio? Or is it up to the new CEO, especially in light of a rebound of the investment market? Is it an open question? Or is it not a case today and Sweden will be there among Vonovia's portfolio for many, many years. Rolf Buch: So to be very clear, it was discussed in the period of '22 where we talked about disposal. And this was a question where we ended up with alternative structures, which are more attractive at this time. In the moment, it is not part of the discussion which the Management Board is doing with the Supervisory Board, and it's not a discussion inside the Management Board, but also to be clear. So I personally think -- and I think this is not coming to a surprise for you. I personally think that if you are talking about second Vonovia, it is better if you cover more jurisdictions than less. So I think this is important for the second Vonovia strategy, but I'm also here only 2 months left. So I think the new management team under the lead of Luka has also to think about it. But at the moment, there's no indication that there is a thinking, but I should not predict what happens in the future. Pierre-Emmanuel Clouard: Okay. That's clear. And my second question is on the value-add business and Vonovia in general. With the expected increase in minimum wage in Germany, is there any impact to expect on the -- on margins on your value-add business segment from 2027? Rolf Buch: No. Very simple question, no. Pierre-Emmanuel Clouard: Right. Why that? Rolf Buch: Because the business where we operate, so the craftsmen are much above the minimum salary anyway because this is a different general agreement with the unions. So there is no impact. And the people in some parts of the gardeners are close to the minimum salary, but these are pass-through items to the tenants. Operator: The next question comes from Manuel Martin from ODDO BHF. Manuel Martin: The first question, it's a bit kind of accounting question. We saw the effect of the change in legislation on deferred taxes in the P&L and also in the EPRA NTA calculation. When it comes to the EPRA NTA calculation, the EPRA NTA seems to have nevertheless decreased marginally in 3Q versus H1. Is there a special reason behind that? Or is this also kind of effects in the deferred tax? Maybe you can give us a hint there, please? Philip Grosse: This is predominantly driven by the liabilities we had to account for, for the guaranteed dividend in the context of the exchange offer we made to Deutsche Wohnen minority shareholders. Roughly EUR 400 million. Manuel Martin: EUR 400 million. All right. Second question is a bit more broader question on the market. I mean the rental increases in the market and which Vonovia is showing and will show in the future, is this something which is also monitored by government and politicians? And what do you hear from politicians? Might that be an issue in the future? Rolf Buch: No, I think you have to distinguish between sitting tenants and new letting. So for the sitting tenants, it's very simple. I just showed it in the political debate here in Germany. Our increase in sitting tenant between '22 and '24 was 4.8% for sitting tenants without investment. So just having the apartment with no increase. And the increase in salary was more than 10%. So the affordability is going up and not down. So we have no affordability gap. For the new letting, of course, there is an issue because especially if you refer to the gray market. So the market which is outside the mid-price from the partly illegal, of course, where the situation is extreme, where we really have an affordability issue for gray market rents, EUR 20 for Berlin. This is beyond the affordability of normal people. And that's why you have to distinguish this. I think it's getting more and more understood by the politicians, that this is 2 things. But the gray market, even with the mid-price premise, you cannot stop it. So there is only one solution to work on the imbalance of supply and demand to do more products. That's why we have the [indiscernible] where I think this will help. But as you see me in the press, we also now have to work on the rental regulation because the existing rental regulation with mid-price premise with Kappungsgrenze and with the EUR 2 and EUR 3 will not make it happen that there will be more investment in housing. And this means that the situation of high gray rents will be coming worse and not better. And I am positive that one day the politicians will get it. Manuel Martin: Okay. I see. And Rolf, all the best for you in your future positions or plans. Operator: The next question comes from Neil Green from JPMorgan. Neil Green: Just one, please, and it goes back to kind of one of the earlier comments about marginal debt costs. I think you said around 4% was in the guidance. I think your long-term unsecured bonds are trading within that 4% at the moment. And I think it's fair to say then that the secured debt would also probably be within 4% as well. So I'm just wondering whether that 4% assumption you have is kind of conservative or if there's something that I'm perhaps missing, please? Philip Grosse: I think we will see later today the actual proof point where our cost of debt are currently because we are in the market with a bigger bond issuance, 7, 11 and 15 years. Look, I mean, if you do a midterm planning, I think it is overly aggressive if you were to assume a decrease in rates. And the 4% I've been mentioning actually in our internal planning, I'm even putting kind of a safety margin on top of it because you never know whether there is a slight shift up or down vis-a-vis spot rates. I feel comfortable with the assumption of kind of a stable financing environment. As I said before, that obviously is very paramount for us on how aggressively we need to manage the ICR. But again, my baseline is that 4%. Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Rene for any closing remarks. Rene Hoffmann: Thank you, [ Moritz ], and especially thanks, everybody, for dialing in and joining this call. As always, if you have any follow-ups, you know where to find me and also my colleagues, feel free to ask. We're looking forward to connecting with you in the days and weeks ahead. And that concludes today's call. As always, stay safe, happy and healthy. Bye now. Rolf Buch: Bye-bye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Radian Group 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 speaker today, Dan Kobell, EVP Finance. Please go ahead. Dan Kobell: Thank you, and welcome to Radian's Third Quarter 2025 Conference Call. Our press release, which contains Radian's financial results for the quarter, was issued yesterday evening and is posted to the Investors section of our website at radian.com. This press release includes certain non-GAAP measures that may be discussed during today's call, including adjusted pretax operating income, adjusted diluted net operating income per share and adjusted net operating return on equity. A complete description of all of our non-GAAP measures may be found in press release Exhibit F and reconciliations of these measures to the most comparable GAAP measures may be found in press release Exhibit G. These exhibits are on the Investors section of our website. Today, you will hear from Rick Thornberry, Radian's Chief Executive Officer; and Sumita Pandit, President and Chief Financial Officer. Before we begin, I would like to remind you that comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and the risk factors included in our 2024 Form 10-K and subsequent reports filed with the SEC. These are also available on our website. Now I would like to turn the call over to Rick. Richard Thornberry: Good morning, and thank you all for joining us today. I am pleased to report another quarter of strong performance for Radian. Our mortgage insurance business continues to deliver excellent results, fueled by our large, high-quality in-force portfolio with strong persistency and credit performance. The performance of our portfolio reflects the excellent credit characteristics of the new business we are writing, leveraging our proprietary RADAR Rates platform. In addition to the strong performance of our Mortgage Insurance business, we continue to deploy capital with discipline and strategic focus. We have a long track record of consistently maintaining strong holding company liquidity, efficiently distributing capital from Radian Guaranty to Radian Group, and delivering value back to stockholders, including the highest yielding dividend in the industry. Since 2017, we have returned nearly $3 billion of capital to stockholders through dividends and share repurchases, while continuing to explore opportunities for long-term growth that meet our return objectives, including our planned acquisition of Inigo. Sumita will cover the highlights of our financial results, including the impact of our September announcement regarding the divestiture plan for our mortgage conduit, title and real estate services businesses. The process is well underway, and has attracted interest from numerous potential buyers for each of the 3 businesses. We have engaged Citizens JMP to lead the sale of the title and real estate services businesses and Piper Sandler to lead the sale of the mortgage conduit. As we noted in September, we expect to complete the divestiture process by the third quarter of next year. During this time, we have strengthened our capital and liquidity position, grown our high-quality mortgage insurance portfolio, invested in our proprietary data and analytics platforms and leveraged the deep experience of our exceptional team. As part of our ongoing commitment to long-term growth and value creation, we have spent considerable time evaluating different paths to strategically diversify our business. We concluded that the highest value path was to position our company for continued growth as a global multiline specialty insurer. This led to our decision to acquire Inigo. The purchase price of $1.7 billion will be cash funded from available liquidity sources and excess capital with no equity raised. Along with liquidity at holdco, the funding for the deal includes a unique and creative financing structure of $600 million that will be provided by Radian Guaranty to Radian Group through an intercompany note with a 10-year term. We believe the valuation for the deal is attractive at 1.5x projected 2025 tangible equity. This acquisition, along with the divestiture plan I mentioned earlier, provides us with a clear strategic path for the future as we transform from a leading U.S. mortgage insurer to a global multiline specialty insurer. There are several reasons we were attracted to Inigo. The company was founded by highly respected industry veterans with decades of experience in the Lloyd's market who turned their deep industry experience into a successful and scaled business. They have attracted an exceptional team who share the founder's entrepreneurial spirit and a shared commitment to radical simplicity and disciplined underwriting. As we've spent time with the team, we continue to be impressed by the people and the business they have built. We are excited to partner with this group of highly experienced leaders with a strong track record of building and managing successful specialty insurance and reinsurance businesses. This highly talented team will continue to lead Inigo post close. The Inigo team aligns well with our core strengths and the cultural match is strong. This makes them a natural fit that complements Radian's Mortgage Insurance business. And similar to Radian, Inigo is driven by data science. It shapes everything they do, how they make decisions and how they think about risk. We share this data-first mindset as well as an unwavering focus on disciplined underwriting. Our team is working closely with the Inigo team to complete this transaction, which is on track to close in the first quarter of 2026. As we look to the future, we are excited about what we can accomplish together. Radian's transformation from a leading U.S. mortgage insurer into a global multiline specialty insurer is expected to increase our addressable market for continuing operations by a factor of 12, providing flexibility to deploy capital across multiple insurance lines through various business cycles. We believe this combination also offers meaningful capital synergies as we go forward. By allocating our capital across strong and uncorrelated businesses, we can focus on putting our capital to work where we see the greatest opportunity for economic value and profitable growth. We look forward to updating you on the Inigo transaction, our divestiture progress and the execution of our go-forward strategy. Sumita will now cover the details of our financial and capital positions. Sumita Pandit: Thanks, Rick, and good morning to you all. As Rick mentioned in his opening remarks, Radian is committed to long-term growth and value creation, and we have spent considerable time evaluating different strategic paths. Our objective is to build on our foundation and core strengths. With this objective in mind, we determined that the right strategic path was to build Radian into the future as a global multiline specialty insurer by acquiring Inigo. As a result of the strategic change in the third quarter of 2025, we've also announced a divestiture plan for our mortgage conduit, title and real estate service businesses. We've reclassified these businesses as held for sale on our balance sheet and now reflect their results as discontinued operations in our income statement. All prior periods have been revised for these changes and the impact of the accounting changes are presented on Slide 38 of our earnings presentation. Now let's discuss results of our continuing operations, which demonstrate another strong quarter of performance. In the third quarter, we achieved net income from continuing operations of $153 million or $1.11 per diluted share, the same as the second quarter. Net income inclusive of discontinued operations was $141 million in the third quarter. We generated a return on equity of 12.4%, including discontinued operations. The ROE for our continuing operations is 100 basis points higher at 13.4%. We grew book value per share 9% year-over-year to $34.34. This book value per share growth is in addition to our regular stockholder dividends, which were $35 million during the quarter. Turning now to the key drivers of our results, which highlight the consistency, balance and resiliency of our Mortgage Insurance business model. Our total revenues continued to be strong in the third quarter at $303 million. Slides 15 through 17 in our presentation include details on our mortgage insurance in-force portfolio as well as other key factors impacting our net premiums earned. We generated $237 million in net premiums earned in the quarter, which is the highest level in over 3 years. Our large high-quality mortgage insurance in-force portfolio grew to another all-time high of $281 billion. We wrote $15.5 billion of new insurance written in the third quarter of 2025, a 15% increase compared to the same period last year. As shown on Slide 15, our persistency rate remained strong at 84% this quarter. We remain focused on writing NIW that we believe will generate future earnings and economic value while effectively maintaining the portfolio's health, balance and profitability. As of the end of the third quarter, approximately half of our insurance in-force portfolio had a mortgage rate of 5% or lower. Given current mortgage interest rates, these policies are less likely to cancel due to refinancing in the near term, and we, therefore, continue to expect our persistency rate to remain strong. As shown on Slide 17, the in-force premium yield for our mortgage insurance portfolio remained stable as expected at 38 basis points. With strong persistency rates and the current industry pricing environment, we expect the in-force premium yield generally remain stable for the remainder of the year as well. As shown on Slide 18, our investment portfolio of $6 billion consists of well-diversified, highly rated securities and other high-quality assets. For the quarter, we generated net investment income of $63 million. Our provision for losses and related credit trends continue to be positive with strong cure activity and very low claim levels. On Slide 21, we provide trends for our primary default inventory. The number of new defaults in the third quarter was approximately 13,400, a decline of 2% from the same period a year ago. As expected, the number of total defaults increased in the third quarter to approximately 24,000 loans at quarter end, resulting in a portfolio default rate of 2.42%. This increase in total defaults reflects normal seasonal trends and the expected continued seasoning of our large insurance in-force portfolio. As we noted in the past, our new defaults continue to contain significant embedded equity, which has been a key driver of recent favorable credit trends, including higher cure rates and reduced severity for policies that result in claim submission. As shown on Slide 22, our cure trends have been very consistent and positive in recent periods, meaningfully exceeding our initial default to claim expectations. Cure rates in the third quarter exhibited typical seasonal trends in line with similar periods from prior years. We continue to closely monitor the recent news and stress seen in different credit asset classes like credit cards and subprime auto. However, the loans in our portfolio and loans in the broader conventional mortgage segment continue to perform well. Our outlook on the Mortgage Insurance business remains positive, and we will continue to monitor and make any adjustments to pricing as needed. Let's turn to Slide 23. We maintained our initial default to claim rate of 7.5%, which resulted in $53 million of loss provision for new defaults in the third quarter. Positive reserve development on prior period defaults of $35 million partially offset this provision for new defaults. As a result, we recognized a net expense of $18 million in the third quarter compared to $12 million in the second quarter. Now turning to our other expenses where we continue to seek additional operating efficiencies. For the third quarter, our other operating expenses totaled $62 million, down from $69 million in the second quarter. Expenses in the third quarter included $9 million of nonoperating costs related to the Inigo acquisition. Excluding this acquisition-related expense, total operating expense was $54 million, a $16 million decline from the prior quarter as reflected on Exhibit E. We are revising our previous expense run rate guidance for Radian, which was $320 million and included expenses related to discontinued operations. We anticipate operating expenses for continuing operations to be approximately $250 million for the full year 2025. We expect this to represent our annual expense run rate as we move into 2026. Moving to our capital, available liquidity and related strategic actions. Radian Guaranty's financial position remains strong. It paid a $200 million dividend to Radian Group in the third quarter, while maintaining a PMIERs cushion of $1.9 billion. In addition, we expect that Radian Guaranty will pay a $195 million dividend in the fourth quarter, bringing total distributions to Radian Group during 2025 to $795 million. We expect to close the Inigo transaction in the first quarter of 2026, funding the $1.7 billion purchase price with our existing resources. Our available holding company liquidity grew to $995 million as of quarter end. We expect a $195 million dividend to be paid to our holding company in the fourth quarter, as I just noted, and expect $600 million to be paid from Radian Guaranty to Radian Group in the form of a 10-year intercompany note. With these payments, we expect our holding company liquidity to be approximately $1.8 billion at the beginning of 2026. In addition, we expect dividends of at least $600 million from Radian Guaranty to Group during 2026. With these resources, we expect to fund the Inigo acquisition in the first quarter of the year and maintain sufficient liquidity at our holding company after the transaction closes. We also just expanded our credit facility to $500 million. The facility is currently undrawn and is available for general corporate purposes. However, we expect that any draw of the facility will be repaid during 2026. Our leverage ratio declined to 18.7% this quarter, and we expect it to remain below 20% by year-end 2026. We expect Inigo will continue to operate as a stand-alone business, complementing Radian's mortgage insurance business, and we do not expect Inigo to have any funding needs from Radian Group or Radian Guaranty to achieve its 2026 business plan. As Rick mentioned, this is an exciting time for Radian. This acquisition is expected to double our earned premiums in a market that is expected to grow at 8%, and expand the total addressable market by 12x. This will enable Radian to strategically allocate capital across diverse insurance lines and focus on areas with the greatest potential for profitable growth. Lastly, as shown on Slide 7, by combining Radian and Inigo, we expect to deliver mid-teen operating earnings per share accretion and approximately 200 basis points of ROE accretion starting in year 1. I will now turn the call back over to Rick. Richard Thornberry: Thank you, Sumita. Our results in the quarter continue to reflect the balance and resiliency of our company as well as the strength and flexibility of our capital and liquidity positions. They also reflect the resilience of our Mortgage Insurance business model. Over the years, our industry has helped millions of families purchase their home or refinance their mortgage and is well positioned to continue promoting affordable, sustainable homeownership through various economic cycles. We are proud of the important role we play in the housing finance system and in building strong communities. We look forward to updating you on our progress as we transform from a leading U.S. mortgage insurer to a global multiline specialty insurer. And finally, I want to recognize and thank our team for the outstanding work they do every day. And now operator, we would be happy to take questions. Operator: [Operator Instructions] And our first question comes from Bose George with KBW. Bose George: Actually, first, I just wanted to ask, when you talk about the mid-teens accretion for 2026, should we add that 200 basis points to your current run rate ROE, which is a little over 13%. So I guess that would be a little over 15% in terms of the ROE and then your book value going into 2026, it looks like it will be about $35. So does that seem reasonable 15% on that $35? Sumita Pandit: Thanks for the question, Bose. So I think if you look at our ROE this quarter, on an operating basis, our ROE was 13.9%. That excludes the impact of some onetime items related to the Inigo transaction where we paid and will be paying advisory fees. I think from an accretion perspective, I think assuming a 200 basis points increase on top of that would be fair. I mean, I think the 13.9% is comparable to also what we had last year and is a good run rate for us to think about for our stand-alone MI business. Keep in mind also that because we are currently -- we paused our share repurchases. So our denominator is a little bit more bloated as we accrue capital to pay for Inigo. I think the 13.9% ROE is probably a little lower than where we may be once that excess capital gets paid out to purchase Inigo. And so the 200 basis points increase can be added to the 13.9% on operating ROE that we have presented in this quarter. Bose George: Okay. Great. That's very helpful. And then can you walk through the potential capital benefit from using the unearned premiums at Radian as capital at Inigo? Is that something that eventually could be a source of incremental accretion over the 200 basis points that you've discussed? Sumita Pandit: So I think in the future, we will be giving you more details, Bose, on exactly what are those opportunities that we see present to ourselves between the MI business as well as Inigo. I think as we mentioned in our presentation, at this stage, I think what we have discussed is that we do see potential synergies between the MI business and Inigo going forward, including some reinsurance that we could do between the 2 businesses. I think post close of Inigo, we plan to do an Investor Day early next year. And I think we'll be sharing more details about potential reinsurance opportunities that could potentially improve the accretion numbers further. I think the numbers that we have presented to you last month and now again in this earnings presentation assumes base case run rate assumptions and really is an addition of Inigo as it is operated today to Radian's numbers. We've not assumed these additional capital and operating efficiencies that we will discuss further with all of you as we close the transaction next year. Operator: And our next question comes from Doug Harter of UBS. Douglas Harter: As you look at divesting the noncore businesses, is there -- how should we think about capital that could be freed up from those businesses in addition to kind of the cost saves that you've already kind of highlighted in discontinued operations? Sumita Pandit: Yes. So I think as I mentioned, as of now, as of Q3, what we have done is we've reclassified discontinued operations as held for sale. If you look at our balance sheet and the carrying values for these 3 businesses, we carry these businesses at about $170 million or so as of the third quarter. We do not expect to have either like a huge gain or a huge loss versus those levels. I think the held for sale number is based on our best accounting estimate today of the true value of those businesses. I think we have given some indications to you in terms of what could be additional expenses that we incur in selling the businesses. I think Rick mentioned we've hired 2 banks. We've estimated a $7 million expense in selling the businesses today. There could be more or less going forward. But we think that the carrying value of $170 million is our best estimate as of today of the true value of those 3 businesses. Douglas Harter: Great. I appreciate that. And then how are you thinking about the key steps that need to happen in order to kind of return -- start returning buyback -- or return to the buyback program? What are the key steps that we should be looking for in that? Sumita Pandit: Yes. So I think that's a good question. I think maybe just like walking you through our liquidity position and how to think through that math. So if you think about our Q3 ending liquidity, we ended the quarter with $995 million this quarter. We are expecting to pay another $195 million in the fourth quarter as dividends from Guaranty to Group. And our best estimate as of today is an additional $100 million of dividends in Q1 of next year. When you add all of that, that gets you to $1.29 billion liquidity number for holdco. We also will be drawing down on the intercompany note of $600 million at close -- when we close Inigo. For next year, the estimate and guidance that we've given is that we expect at least a $600 million minimum dividend from RGI to Group. So I think the best way to maybe think about our share repurchase and our liquidity overall is that within a few quarters of the Inigo purchase, we will again be in an excess liquidity position in group. As and when that happens, I think we'll revisit our share repurchase strategy. But I think, assuming that it will happen pretty quickly, given that we will be paying at least $600 million of dividends next year, that is a good run rate for you to assume as you think about when next year would we be in that excess capital position in holdco for us to revisit our share repurchase strategy, which, as you know, we have paused right now because we are paying for the full $1.7 billion purchase price through internal resources and are not raising any new equity. Operator: And our next question comes from Mihir Bhatia of Bank of America. Mihir Bhatia: Maybe just one quick one. Just any update on the timing of the divestitures and where you are with that process? I think you had said Q3 2026 earlier? Richard Thornberry: Yes. Mihir, this is Rick. Yes, we're -- I think we're still sticking to the -- to be completed by third quarter of next year. But just to give you an update on the process, as we mentioned, we've hired the 2 banks to kind of facilitate the process. I actually had a tremendous amount of inbound interest expressed across all 3 businesses, and that process is initiating as we speak, both in kind of sharing information with a broad group of potential interested parties. So we expect the process to move quickly over the coming months and look forward to keeping you up to date as we go through this process. As we get into early next year, I think we'll have more of an update. But one of the things that I -- as we watch this process go, the one thing I'm proud of is our teams have stayed laser-focused on running the business and continuing to serve our customers. And I think that positions each of those businesses well for the outcome that we're working towards. So -- but yes, we'll keep you posted as we go quarter-to-quarter. But right now, it's a fully engaged process with the bankers and the teams, and I think working very well. Mihir Bhatia: Got it. And then maybe just staying -- maybe turning to the business itself. I guess one question I was curious on was what would it take for you to move that claim rate below the 7.5% you're at? And the reason I ask is, I mean, I think you have the slide with the claim triangles, the cure triangles, if you will. And as you note on the slide, 90% get cure within a year and like your cure rates are running in the high 90s. So just curious on like what you actually need to see happen to change that claim rate? Sumita Pandit: Yes. I think Mihir, as you're aware, we made a change to that assumption in maybe 2 or 3 quarters back when we were at 8% default to claim rate and now are at 7.5%. I think when we look at that assumption, we do want to make sure that we are making that assumption through the cycle. You're right that when you look at our cure trends and the cure triangles that we show you on Slide 22, we do have almost 97% to 98% of our defaults curing within 12 quarters. But when we think about our through-the-cycle assumption, we think that these are more favorable than where we would expect this to play out in the long run. And therefore, the 7.5% is our best estimate of that through-the-cycle performance. As of now, we feel really good about that assumption given the fact that we just updated this a few quarters back, and we don't expect to make changes to it in the near future. But again, it's a through-the-cycle assumption. And we think it's the right way for us to run the business is prudent and has a view that's through the cycle. Mihir Bhatia: Sure. Maybe just one question on that though. Has something changed post-COVID? I don't know if it's like the policies and people just being more willing to do forbearance than before? Or are these claim rate trends pretty similar to what you were seeing in, let's say, 2018, 2019? I guess what I'm trying to understand is, is -- has something changed in the housing -- the mortgage servicing backdrop, which has enabled these cure rates to be so strong? Richard Thornberry: Yes. Mihir, that's a great question. And Sumita and I can tag team that one because that's something we ask ourselves each quarter, too. Are we seeing something fundamentally different than what has occurred in the past? I think since COVID, obviously, we've had a tremendous amount of home equity growth, which provides borrowers with a variety of different avenues to solve some sort of financial hardship, right? And I think it also helps servicers counsel borrowers how to navigate that hardship. Combined with the fact that we -- through COVID, there's muscle memory in terms of assisting the borrower through that hardship through forbearance programs and other things. So I do think, to your point, pre-COVID, post-COVID, the combination of home value increases and also kind of the muscle memory from some of the forbearance programs has proven to be positive. I would say as we go further away from that home equity kind of accelerated growth rate we saw in '20 and '21, we get the more normalized kind of home appreciation maybe with different regional downturns. That part will normalize. But I do think as an industry, the GSEs, servicers fundamentally have altered processes that are working to kind of get borrowers back on their feet. And from a reserving point of view, we spend time each quarter kind of assessing how we think that will impact the go forward. And what Sumita said is how we think about it, which is we really -- on day 1, we have to take a multiyear view through the cycle. And I would just add to Sumita's comments that today, we also continue to evaluate some of the uncertainty in the marketplace that's playing out currently to kind of influence that through-the-cycle view. So I think definitely seeing positives over the last 4 or 5 years. Some of that is probably sustainable. Some of it will normalize over time, and that's what we're really trying to evaluate. Operator: Thank you. I'm showing no further questions at this time. I'd like to turn it back to Rick Thornberry for closing remarks. Richard Thornberry: Thank you. I appreciate everybody joining us today and for the questions. And as you can tell, we're excited about the path going forward with the acquisition of Inigo in the -- hopefully, in the new year. And we look forward to seeing as many of you and talking to as many of you as we can over the coming weeks. But we appreciate your time and your support. Take care. Enjoy the holidays, if we don't get a chance to see you before then, and we'll talk soon. Take care. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Angi Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Andrew Russakoff, Chief Financial Officer. Please go ahead, sir. Andrew Russakoff: Good morning, everyone. Rusty here, CFO of Angi Inc., and welcome to the Angi Inc. Third quarter earnings call. Joining me today is Jeff Kip, CEO of Angi. Angi has also published a shareholder letter, which is currently available on the Investor Relations section of Angi's website. We will not be reading the shareholder letter on this call. I'll soon pass it over to Jeff for a few introductory remarks and then open it to Q&A. Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include statements related to our outlook, strategy and future performance, and are based on our current expectations and on information currently available to us. Actual outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q, our most recent annual report on Form 10-K, and in the subsequent reports that we filed with the SEC. The information provided on this conference call should be considered in light of such risks. We'll also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our earnings release shareholder letter, our public filings with the SEC, and again, to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. Now I'll pass it off to Jeff. Jeffrey Kip: Thanks, Rusty. Good morning, everybody. We know you're all exceptionally busy and working very hard in this earnings season, and we very much appreciate you taking the time to join us this morning. As you know, our mission at Angi is to deliver more jobs done well to our customers, our commitment to our shareholders to return to growth in 2026 and beyond, and generate more value. In the third quarter, we again posted the key markers for both. The most important metrics we look at to judge our customer experience are: one, our hire rate, the rate at which a homeowners submitting a service request on our platform Angi pro paying for that lead on our platform. A pro win rate, which is the rate at which pro wins the leads they pay for on our platform. Three, our homeowner Net Promoter Score, which we survey on a rolling basis. And four our pro retention. We again delivered improvement across these metrics in the third quarter as we have all year. Our estimated hire rate is up double digits. Our estimated win rate is up nearly 30%. Our Net Promoter Score is up nearly 10 points year-over-year and nearly 30 over the last 2 years. The pro retention continues to improve with overall churn better by 7% in the last 12 months year-over-year and up 26% versus 2 years ago. And we're not done yet. We're continuing to invest to get the better, better in customer experience. We also continue to post the key markers for our return to profitable revenue growth. Proprietary service request growth accelerated in the third quarter to positive 11%, and with proprietary lead growth at 16% and revenue per lead growth at 11%, the blue line to growth in 2027 is clearer and clear to us and hopefully to all of you. Our network channel has gone from nearly 40% of our leads a year ago to less than 10% this year, third quarter over third quarter, making the rate of growth or decline there, and impact on our overall growth. But that will change trajectory as we start to compare next year. Our strong proprietary growth is mathematically the key marker for 2026 growth. We'll likely talk about this a little bit more in response to questions later. We're also generating materially more value for the business with our sales channel in Pro acquisition. We have only about half the sales head count we had a year ago, but we're actually producing more overall lifetime margins, meaning the margin for pro and the lifetime capacity for pro and materially up. So with the step change that we've delivered in our sales effectiveness and our recent launch, and now ramp up of online enroll, we have the key pieces to grow our overall growth capacity in 2026, and we expect returned to nominal active pro growth by the end of the year and the beginning of 2027. So with all these key markers in place, we're accelerating our platform transformation. Today, we operate on 4 platforms, bringing the United States to 1 internationally. U.S. platforms, in particular, have significant tech debt in legacy code, which has materially slowed the speed and efficiency of our product innovation and the business in the U.S. And with the rate of change in the landscape increasing with the rapidly growing presence of AI, we have to move forward and get on to a modern technology stack and get off pieces of software, which are in some cases is 20 years old. We've been progressively already rebuilding key pieces of our architecture over the last couple of years, but we're now leaning in with the target of getting to a single modern global and AI-first platform by 2027. We've been and will be delivering new AI first and AI-enabled software and improving the customer experience with it and our business efficiency as well as we go. So this is going to be a progressive improvement. There's no big bang here. And this effort isn't going to hinder our trajectory. It's all built into our outlook. And if anything, the platform work will allow us to accelerate our efforts in the business as we go forward and hit our milestones. Again, with all of this in place, we are looking forward very optimistically to 2026 and beyond. We're never going to be happy with everything, but we do feel very good about where Angi is, and we have even higher confidence that we're going to deliver against our mission and goals going forward. So with that, I think, operator, we're ready to take questions. Operator: [Operator Instructions] Today's first question comes from Dan Kurnos with The Benchmark Company. Daniel Kurnos: Nice to see progress on the prop lead side. But Jeff, last quarter, you suggested -- you expected mid-single-digit growth in '26. So given that we're seeing much stronger trends in proprietary and obviously, the weaker in network, plus all the migration work you're doing, has anything changed with regards to your 2026 outlook? And then I have a follow-up. Jeffrey Kip: Daniel, let's go past. But we are tracking the same target for 2026 revenue growth, as we discussed on the last call. You referenced the mid-single-digit target and that's about right. We expect modest overall service growth with the strong performance in proprietary being offset by the network comparisons. I think you made the right comment that the proprietary looks a little stronger and the network looks a little weaker, and we probably net out around the same. We are delivering this all through very strong paid proprietary channel execution, and we're going to reinvest in branded advertising next year. We expect to double-ish our TV spend given what we've seen on the strength of our branded traffic and our TV performance this year. If you look at overall brand search metrics, which is something some of the larger companies out there are looking at to gauge their overall campaigns, we were only down in the low to mid-single digits in the third quarter versus the prior year, despite year-to-date cutting our TV spend by 70%, which is not, I think, from relationship you often see, that will bolster our growth. And we think our significantly improved customer experience and the solid ROI there is, I think, attributing to that. I think revenue growth rates will likely vary through the year, likely a little lower in the first half of the year as we compare to higher network service request volume, and evening out over the course of the year. I think it's also just worth mentioning what we said on the last call that we expect a little leverage from revenue to EBITDA growth as we keep our strong fixed cost discipline next year. Daniel Kurnos: That's super helpful. And then just, look, second, there's a lot of moving pieces on EBITDA in Q3 and Q4, including the shift to CapEx along with what you guys called out the resolution of two matters that could result in some slippage into '26. Can you just talk through those pieces and also how we should think about CapEx running in Q4, and next year? Andrew Russakoff: Yes. Sure. Dan, this is Rusty. Yes. So our believe versus the guidance, it was a mix of a couple of different things, partly some contribution margin outperformance, partly less expense from less hiring, and then partly some timing of expenses. You'll notice -- I think you're referencing that our international EBITDA bumped up quarter-over-quarter, mostly due to changes in the product organization that Jeff mentioned in the shareholder letter. So we combined domestic and international into one team, so that we can focus on consolidating onto one unified technology platform, which is an initiative that we have been orchestrating for a while. What this meant in Q3 was that the international folks shifted their work towards building out the new platform, which due to the accounting rules resulted in less expense being allocated to the International segment and more capitalized wages these financial dynamics were in line with what we've anticipated with this. Expectations going forward are that capitalization rates in Q4 should be a little bit higher than in Q3 as we continue to ramp up the platform work, and then we'll continue at a similar run rate through the first half of 2026 before it tapers off as we start to complete some of that platform work in the back half of next year. What that looks like on a full year basis, it will be around $60 million of CapEx this year, around a similar amount next year, but will be front-loaded next year as opposed to backloaded this year. Daniel Kurnos: Got it. And just, Rusty, I just -- could you just clarify what the two matters were? I know it's just timing stuff, but just helpful color on EBITDA, maybe some shift there? Andrew Russakoff: Sure. So we have two vendor-related matters that are from prior years that we had high confidence would resolve much earlier in the year. Both remain under discussion and thus, we're not really at liberty to give more detail on them. There's a chance either or both of them might resolve in Q4, but we're obviously running up against the end of the year. So at this point, that seeming less likely. But we still expect to prevail ultimately, which might be the impact will slide into 2026. Operator: Our next question is from Andrew Watts with JPMorgan. Unknown Analyst: First, could you give us an update on what the response has been from service pros to the ads migration? And second, could you expand on what you saw in the network channel this quarter, and how that impacts your outlook going forward? Jeffrey Kip: Sure. I'll take those. So first of all, the ads migration is more than half done this morning. It consists of 2 30-day rolling migrations. We're doing them over 30 days because we want to match the contract renewal date. It just makes a lot more sense to the business and the customer. We'll be about 3/4 done on November 15 and then start a second 30 day. We've had zero disruptions or problems so far. We've got good feedback from our customers. As you probably recall that ad pros really have no choice as to which tests within a category they received, and no choice beyond their initial allocation, ZIP codes. So it's positive. It will make life better for them, and it will also improve our matching because you'll have pros actually receiving the things they specifically want. So we're getting good feedback. The migration is one of the planks to this all progressive global platform work that we've embarked on. We'll power down the legacy ads platform following the migration, saving money and allowing us to put resources elsewhere. There hasn't been any disruption of any kind of materiality in the P&L. And we really expect that on all of this work, given the way we're working and given our experience. This is our fifth migration. We did 5 in the European business. And so this is kind of a continuation of the work we've been doing for a while now. I would just say that having something like this come off seamlessly is still impressive that the teams that have been working on this thing tirelessly for over a year deserve a real tip of the hat on the effort and the quality work they've done. Eden, [ Yugo ], Dave, Joe and everyone else. Thank you very much and if you're listening, tip of the hat to you guys. Let me go to the network channel. A year ago, just recall, our network channel was almost 40% of our leads. It also had in the range of half the win rate of the rest of our channels. Today, the channel is less than 10% of our leads and the win rates materially increase to be in the same range as the other channels. All of this was planned. We made a conscious decision to implement homeowner choice in January, which means that the affiliate homeowners were previously auto matched to available pros are now choosing each pro. Our data internally has said that homeowners who choose a pro were 60% more likely to hire a Pro. And indeed, we've seen that kind of lift in the affiliate hire rates. So it has been a win for our homeowners and our Pros. We also anticipated as a result that the volume of our leads would come down quite a bit, both because homeowners are going to choose fewer pros than they were automatched to and because there's less revenue for SR to spend on acquiring more SRs. So we expected that. It was in our guidance. We're kind of on track there with a little bump here in the third quarter. We also expected volatility in the ecosystem. When we launched into this, we weren't sure exactly if everything would play out. I think net over the course of the year, we've gotten a bit less volume and a bit more profit than we expected. In the third quarter, we had three of our larger affiliates have bumps down in volume. One of them had to do with quality of SRs in their affiliate network. A second one told us they had operational issues. The volume came down. And in the third one, we just didn't have as much volume available. Now we've gotten back, a chunk in this volume, but not all of it. So we are at a lower run rate. Again, we didn't expect these things, and we also still expect that there will be some bumping up and down as we add network partners and some drop off. So at the end of the day, as we look forward, our current view is that we've kind of come back off our bumps. We're at our new run rate. We're constantly farming and looking for appropriate partners. And we think that, again, we're stable. We could go up. We could bump down. We'll see. It's now less than 10% of our traffic. It's not a strategic channel. We're going to take the right traffic that we can match the right Pros and get jobs done well. But this is not something that we bank on as a source of future growth in particular. We're happy to have it and make it work and keep deploying there. Operator: Next question is from Ms. Sergio Segura with KeyBanc. Sergio Segura: Maybe starting with AI helper. I thought it was interesting that statistic you gave that it converts at a 2.7x higher level than the traditional flow. Now that's the default experience. Just how should we think about modeling the impact? And I guess, is that informing your view of maybe investing even more into marketing for 2026? And then I have a follow-up. Jeffrey Kip: So let me step back. Let's just talk about our approach with AI generally. So first of all, we commented in the letter that we made the move to AI first. And what we're doing is we're looking to implement AI across our customer workflows and our team workflows as well. And we are looking to, as we build new software build an AI data. The AI helper is really sort of one of the first prototypes where we are taking an LLM off the shelf. And our approach is to produce a fine-tuned LLM in each case. So this is the first application. We're fine-tuned LLM means that we have a set of proprietary knowledge, which is structured in a certain way. In this case, it's our conditional set of service request questions by a task, which we can use to feed and change the way the LLM flows and the conversation with the customer. Secondly, we have a bunch of proprietary data on customer behavior through the product. And in terms of the interaction between the homeowner pros that we can also feed. And then as we deploy these products, we get new data. And through all of this, we've created a learning loop, which differentiates our experience from what somebody might get on an LLM with our proprietary knowledge, or proprietary data. So this is our core approach. What we've done with the AI helper is we first deployed it as an open box that effectively said, how can we help you on the side? Or tell us in your own words? And when people enter that, and that's ultimately 1/3 of the customers who post service requests with us. They're more likely to convert. They're more likely to choose a pro, and thus, they're more likely to get a job done well. This started as a deprecation in conversion and the learning loop is sped up and now it looks accretive, and we believe we're seeing some of this in our proprietary growth. I think when you go to the next step, which is, [ gee ] how much work can this be? We don't actually expect that the other 2/3 of traffic will triple in conversion because there's a causation and causality. So you've got to do a split test to actually see what the shift is. But we do believe there's upside in getting more customers through the AI helper. And we do believe that, that's important going forward. We don't have a big win baked into our numbers because we've actually just gotten the next phase in this test into play. And so the core of this is when you look at LLM technology, we think it's a huge opportunity for us because we can take an application like the SR path, which is fundamentally a conversation between Angi and the homeowner. And we can deploy the LLM to have more effective natural language conversations against a larger body of data than our previously somewhat rigid conditional path. And we could end up delivering a better match on our core asset, which is the 100,000 Pros who are ready to get jobs done well for the homeowner. Because at the end of the day, we have always taken this conversation with a homeowner in the conversation with the pro, turned it into a conversation between the two of them because we have the largest supplier for us, and delivered the offline experience that people want. Done this on Google. We've done it on social, and now we're going to do it on LLM. And we're doing it within our product as well. Operator: The next question comes from Stephen Ju with UBS. Stephen Ju: So Jeff, Rusty, I think I'll ask the AI question in a slightly different way. And I guess, Angi's relationship with the broader world, I suppose. So I think we're all looking at shifting traffic patterns because the usage of LLMs has taken up across the globe. So how does this change your traffic acquisition strategy? What's working? What's not working as you think about customer acquisition and service grow acquisition? And narrowing down the scope of the question a little bit. I think as we've gone through the restructuring over the last couple of years, I think you've taken a pretty conscious effort to walk away from the traffic that was lower ROI. I would have thought that in the third quarter, we be bouncing off the bottom, but I think there's sort of a directional quarter-on-quarter decline here that we're noticing in terms of the overall activity. So I'm just wondering if you can kind of walk us through what you're seeing in the third quarter? Jeffrey Kip: So the first question on traffic shifting. There are some indicators out there, the traffic is moving around, statistically getting produced. There's also, what I would call the walking around research of everybody you talk to doing searches in places that sound a lot like LLMs, or actually our LLMs. Look, our view on this is, again, what I said earlier, we think this is a great opportunity. We're in the middle of building our own proprietary app, deploy by the end of the year on one of the major LLMs, and we're in discussions with a couple of the others about deploying our current and then new technology there. So we think it's a great opportunity because we think that our domain knowledge and our proprietary data and the context we have is going to allow us to enter the chat, midstream in the LLM and read the context from the customer and get them more accurately and with more expertise to the pro they want. So we think it's a great opportunity. Obviously, there's a bunch of cards. It's very early in the Texas Hold'em hand. So there's a bunch of cards left to come on to the table. But between our development capabilities, our AI team and the ongoing conversations we're having in the nature of our product, we think that we are very well positioned there. We're also, at the same time, kind of rebuilding our content approach, the structure of content that gets serviced in AI is a bit different, although there's a lot of correlations to the way it gets surfaced in Google SEO, but we're actively looking at what we do and how we do it to make sure we're in play there. And at a minimum, we get the brand impressions. I think then finally, we're actively working with Google on everything they're doing in terms of how they deploy ad space and AI mode and elsewhere. The AI MAX product, which is meant to sort of focus on getting to the right spot against the AI is now over 10% of our spend. So we're literally -- we're literally trying to stay on the cutting edge of everything about where traffic is, where it is going and keep our team and our technology deployed in the right way there. And we see this as opportunity, not as something bad. We see this is actually very good. Your next question was about third quarter trends. And thinking maybe we should have been bouncing off the bottom. I think what we said is we get sequentially some improvement. We were minus 12% in the second quarter on revenue, and we said minus 8% to 11% on the third, and we came in at minus 10.5%. We had these bumps in the affiliate network, which its a nonstrategic channel. Our core strategic channels are growing incredibly healthily. I think all of our proprietary -- SRs are going 11%, our leads are growing 16% and then our revenue per lead is plus 11%. So if affiliate wasn't there, you had the lead growth and the revenue per lead, you have very healthy growth. So I think in some ways, you argue that our core business, the best part of our business is growing very healthily. It is well up off the bottom. I think the network channel is a quirky channel. It's a group of affiliates who we're working with to try and buy homeowners traffic that's going to match into our network and work well. It's not a big canvas. It's not quite a sort of algorithmically approachable as Google is. It's not as big as the social channels are. And so we got a couple of surprises at once. This will continue to be a theme. We do think we're going to offset it with this incredibly strong proprietary execution that you've seen growing every quarter. We do think that our TV is now performing better than it was, so we're ready to lean in. And we also think that our branded social organic is contributing to what we think is an incredibly strong performance in overall Google brand searches. So I think we feel pretty good about all the good parts. We've got a little bit of noise in affiliate. We got a little bit of noise in SEO. And again, nobody can bank on either of these as the key to their business anymore, I think, and they're both less than 10% of our traffic. And look, we're pretty optimistic. We actually feel very good despite a little bump. I take my family skiing every year at Christmas, and we have to connect because we're going to Idaho. And sometimes there's a delay. We've missed the connection, but we always get to Idaho and have a great time skiing and put on the matching pajamas that my wife buys, and have a family picture. So we are feeling pretty good right now. Operator: Next question is from Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe one, if I can, against all of the investments you're making across the business. We noticed you also increased the authorization around the buyback. How should we be thinking about capital allocation back into the return profile for shareholders on either a linear level, or elements of you being more opportunistic against the stock price in deploying that authorization? Andrew Russakoff: Great. Yes. Thanks, Eric. So since Q2 earnings, you saw we bought back the remaining shares in the authorization that was outstanding. That amounted to 1.3 million shares at about $20 million. So year-to-date, that takes us to $111 million representing just under 15% of the company. And then in mid-September, the board authorized us to repurchase another 3.2 million shares. We haven't yet repurchased any shares out of that authorization, and we'll utilize that as Board deems. That's an appropriate use of capital. Importantly, as we've mentioned previously, there are limits related to the amount of share repurchases in the 2 years following a tax-free spin-off. And so if we repurchase all of the shares under the current authorization, that would take us just under that limit. Operator: And our next question is from Youssef Squali with Truist. Youssef Squali: So maybe, Jeff, just stepping back a little bit, can you just talk about the broader picture, the health of the consumer right now, maybe just given the current macro? Has it changed at all on the margin? Maybe any difference between lower DMA versus higher DMA type of customers? And then on the... Jeffrey Kip: Sorry, can you just tell me what -- I apologize, DMA? Youssef Squali: DMA, just like higher -- I guess, various ZIP codes, like higher-income ZIP codes versus maybe lower income ZIP codes? . Jeffrey Kip: Okay. Thanks. Youssef Squali: And then just on going back to the need to consolidate from 4 platforms into one. Maybe can you double-click on that a little bit? How heavy a lift is it? And how much of the turnaround in the business and the growth starting in Q1 of 2026 is predicated on that move to the single platform. Just trying to see what potentially could go wrong could delay that inflection? Jeffrey Kip: On the overall macro, I think our view is there's a big disruption in April connected to macro events. And that kind of hung a little bit through May. We saw a pickup in June, and we feel like we've been kind of steady since then. Not a runaway homeowner demand like we had in COVID, but not a falling off homeowner demand like we had in the financial crises. So we think it's kind of stable. We can't say we pull anything different in trends on different ZIP codes. There are ZIP codes where we perform better, and ZIP codes where we don't. But we can't say that there's been some kind of step change there. So that's, I think, the macro. I think things look steady as she goes right now. I think secondly, on your platform question, as I said, we don't have any wins from platform integration, particularly built in. And we don't particularly expect disruptions. We're in the middle of our fifth migration of a significant pro network. And for the fifth time, we see it the same, and I think we've seen less post in other migrations. So we think this improves the customer experience, and it's also going to improve the efficiency of our commercial engine. You can already see the improved efficiency in our consolidation, the sales force to sell only the new product which is a result, which has been part of the success of selling significantly more capacity for pro and generating a lot more value. Could we see some lift, yes? There are progressively going to be rollout. You're seeing the first one in this migration. We're going to see some impacts on our homeowner- facing side, which we think will be net improvements over the course of the first half of the year, and we will progressively be delivering platform pieces, which both have the chance to improve conversion and the customer experience, and will allow our team to test, develop and deploy faster and iterate faster. I think we've been very much held back on our ability to move the speed across the product and the customer experience for multiple years here by the legacy technology and tech debt. So I think we are -- the way we look at this is we kind of roll forward our run rate and build in our knowns. And then we go execute, and we're always anticipating what we know versus what we might not know and handicap. And I think right now, we've got a pretty even outlook over the course of next year. And we don't expect -- we're not building in a massive lift from some piece of new technology, and we're not expecting because we haven't -- in now 6 -- we're on our 6 migrations to date. We haven't had a major disruption in any of them. And we've got some -- we have some pros working on this. So our own internal technology pros, not our external construction, specialty construction and home services pros. Operator: The next question is from Matt Condon with Citizens. Matthew Condon: My first one is just -- can you just talk about the sustainability and the acceleration of service requests. I believe the acceleration is partly due to the transition and spend away from the network channel into the proprietary channel. Is there an upper bound on marketing efficiency and your ability to drive growth through that channel? And then my second question is just on competitive intensity. Just what are we seeing... Jeffrey Kip: Can you just hold on -- can you just -- can you back up, I apologize. There's something about the sound where I didn't fully grasp your whole first question. Matthew Condon: Yes. I can repeat. I'm just talking about just the acceleration service requests and if it's sustainable from here? And specifically, just as you transition spend from the network channel into the proprietary channel. Is there an upward balance just on marketing efficiency? Like can you continue to push on spend there to drive that service request volume? And then just the second question is just on competitive intensity and if that's changed here over the past several months? Jeffrey Kip: Okay. So we may get accelerated a bit in the fourth quarter, maybe even in the first quarter. We're not necessarily predicting that on our proprietary growth. But we're actually -- what I said earlier is we're going to have tougher compares as we go into the second, third and fourth on the proprietary. So we're actually thinking that if you have mid-single-digit revenue growth and you have -- we expect maybe modest net SR growth across all the channels next year and a little bit of variability around the mean through the quarters because of different compares. And then we also expect to continue to get revenue or service request growth and we'll see how the mix of leads per service request and revenue per lead comes in, depending on the allocation of leads between our paper lead and our subscriber pros. But we basically think modest service request growth, modest revenue per service request growth. And so we're not actually saying we're going to accelerate through next year. Now what I will say is that the team -- again, sorry about the standout team, the online performance marketing team has had a couple of great years, dramatically improving profit growth in 2023 and really turning it on with volume growth this year. So I'll tip my hat to them, too. But they have a list of initiatives and their product and technology partners have a list of initiatives. By the way, they've been a big part of that acceleration and win as part of the new platform work effectively over the last couple of years. So there's a list of initiatives. There's a level of execution, and we think we can continue to grow. I think the other key point is growing pro capacity which we're going to be back doing next year. If you look at what we've been able to do in terms of growing the lifetime value per Pro acquired, we expect to be able to continue to drive up lifetime value per Pro acquired as we shift from smaller Pro to larger Pro acquisition with our sales because we've gotten much better at prospect segmenting and targeting. We just added more talent to that team. We're pretty excited about it. We think there's a pretty big opportunity in larger Pros. We think we're 3 to 4x the penetration in Pros with 10 or less employees as we are with Pros with 10 or more. And so we have a big opportunity to keep shifting and getting that capacity for Pro up. And I think you roll out online enrollment, that gets you another whole pool of Pro capacity. And the more pros I have, the more revenue that's available if I can buy the SRs. So I think we have our online execution. I mentioned the TV coming in earlier, and then we have the ability to grow our network and have more demand in order to buy into. So yes, I think we can growing -- keep growing. And I think there's new tools available. We have to hit all of the major platform channels and the LLM channels, our real potential new area of opportunity for us that, again, we're working right now on proprietary technology that plays directly into our core strength. So we're very optimistic there, too. So we do think we can continue to grow SRs. We have net modest expectations next year. And in an ideal world, we beat that soundly, but I can't predict that right now. So in terms of the competitive set, we have some strong competitors out there. We continue to think that on a revenue basis, we're probably the size of the next 2 combined, but we don't have exact data. And the largest competitor is probably Google with their direct-to-pro advertising, and they've been probably the most formidable because when you own the highways, you can decide who drives on it, over the last several years for us. We do think our competitors are real. We're watching carefully what they're doing. We want to -- at the end of the day, we want to present the best solution to our homeowners and our Pros, and differentiate ourselves by providing the highest quality of experience. And I think by doing that, we can continue to grow and stay keep our competitive position and be the top choice. Our key assets are, number one, our network and the quality and skill of our network. Number two, our brand, which has been built over 30 years from the ground up by our Founder, Angie Hicks and everybody else. So we've had 30 years of successfully connecting homeowners to Pros for jobs done well. That's not an asset that any of our competitors have. And then finally, I do think we have a commercial machine and a reach between our online marketing expertise and our ability to call and sell Pros that we've got to the scale we have that others don't have. And I think -- we have these advantages. We've got to keep improving our customer experience. We think we're very well positioned with our team. We're going to pivot our technology. And I think we feel very good about where we are and our opportunities going forward. We have any other questions operator? Operator: There are no -- there is one more question that is queued up, if you'd like to take it? Jeffrey Kip: Sure. Let's go. Operator: The last question is from Ygal Arounian with Citi. Unknown Analyst: This is Max on for Ygal. Just one maybe on the 2026 EBITDA. I think the language maybe shifted a little better from similar to modest to that more modest higher end from last quarter. So just curious what's driving that? Is that some of the expected efficiencies from the platform migration, or some of those AI efficiencies from the internal tools you're using that you called out in the letter. Jeffrey Kip: So I don't have our transcript from last quarter in front of me. I think we said mid-single-digit revenue growth and a little bit of margin leverage. I'm not sure if you said a modest, similar or what we said. I think when we look at our margins next year, we're not predicting contribution margin leverage because we're going to invest up in the branded area. We think we get our leverage by holding our fixed cost discipline, which I think if you look at the P&L over the last couple of years. Rusty and the team have done a very nice job with. So we do think we're able to get efficiency by being AI first. We think you put a multiplier on human productivity, whether it's coding, or processing sales scripts or doing customer research. So we think we're going to be able to hold our head count and keep our fixed costs down and realize the leverage at the fixed cost line as a baseline. Operator: And at this time, there are no further questioners in the queue. This does end today's Q&A session and as well as today's conference. Thank you for attending today's presentation, and you may now disconnect your lines. Jeffrey Kip: Thank you very much, everybody. We're very optimistic looking forward. Thanks for coming this morning, and thanks for listening to us. We'll talk to you all soon.
Operator: Good morning, ladies and gentlemen, and welcome to the Intact Financial Corporation Q3 2025 Results Conference Call. [Operator Instructions] Also note that this call is being recorded on November 5, 2025. And I now would like to turn the conference over to Geoff Kwan, Chief Investor Relations Officer. Please go ahead, sir. Geoff Kwan: Thank you, Sylvie. Hello, everyone, and thank you for joining the call to discuss our third quarter financial results. A link to our live webcast and materials for this call have been posted on our website at intactfc.com under the Investors tab. Before we start, please refer to Slide 2 for a disclaimer regarding the use of forward-looking statements, which form part of this morning's remarks and Slide 3 for a note on the use of non-GAAP financial measures and other terms used in this presentation. To discuss the results today, I have with me our CEO, Charles Brindamour; our CFO, Ken Anderson, Patrick Barbeau, our Chief Operating Officer; and Guillaume Lamy, Senior Vice President, Personal Lines. We will begin with prepared remarks followed by Q&A. And with that, I will turn the call over to Charles. Charles Brindamour: Well, good morning, everyone. Thank you for joining us today. I'm very pleased with the quarterly results we reported yesterday evening. Net operating income per share of $4.46 was the result of strong underwriting performance across all geographies and lines of business. Top line growth increased 6% in the quarter, while we delivered another sub-90 combined ratio. This highlights our ability to grow, while not compromising our margins. Our operating ROE is outperforming across all regions and has improved in the last year by 4 points to 20%. The industry environment is constructive in every market where we operate. We're gaining market share in personal lines. In commercial and specialty lines, we benefit from being predominantly exposed to the SME and mid-market space. In large accounts where we continue to see elevated competition our sophistication in pricing and risk selection as well as more than 20 specialty verticals enable us to choose where we play. This environment really plays to our strengths. The quality of this quarter's performance gives me a lot of confidence about the future, whether it's next quarter, next year or next decade. Now let me provide some color on the results and outlook by line of business, starting with Canada. In Canada, our business is firing on all cylinders. Our outperformance has never been stronger. We closed 2 points on growth and 10 points on combined ratio. And keep in mind, this is 2/3 of our business globally. Personal auto premiums grew 11% in the quarter, including a 3% increase in units. As profitability for the industry remains challenged, we expect hard market conditions to persist. Our underlying loss ratio improved 1.6 points year-over-year, contributing to an overall combined ratio of 91.5%, this is a strong result. We're positioned to continue to deliver a sub-95 combined ratio, in line with our objective. Moving to personal property. Premium growth was 10% in the quarter, supported by a 2% increase in units. Given the elevated level of weather and climate-related claims over the past few years, we expect current hard market conditions to persist. The combined ratio was healthy at 92.4% and we're well positioned to maintain a sub-95% combined ratio even with severe weather. Overall, in Personal Lines, which is nearly half of our business, we continue to see industry growth in the high single-digit to low double-digit range over the next 12 months. With strong absolute and relative performance in the first half of the year, we're really well placed to sustain growth and combined ratios going forward. In Commercial Lines, premium growth increased to 3% in the quarter, a clear sign that our growth initiatives are gaining traction. We see overall market conditions as constructed with industry premium growth in the mid-single-digit range over the next 12 months. With 85% of our business in SME and mid-market where pricing is favorable, there's significant opportunity for us to further improve top line growth. That's in addition to our ability to choose where we grow for large accounts and in specialty lines. Profitability remains very strong with a combined ratio of 82.8%, reflecting continued underwriting discipline, emerging AI benefits and prudent reserving. We remain well positioned to deliver a low 90s or better combined ratio going forward. Moving now to our UK&I business. Premium in the quarter were 5% lower year-over-year. Remediation efforts within the DLG portfolio continue to temper top line growth by driving improvement in the combined ratio. As remediation tapers off towards the end of '25, I expect growth to move in positive territory. Our teams in the U.K. are focused on integrating our products, raising the bar on service and expanding our distribution relationships. The fruits of their efforts will become more visible in the new year. When it comes to the industry, we see premium growth in the U.K. in the low to mid-single-digit range over the next 12 months. The combined ratio of 95.5% was solid as it included 3 points of excess cash. Our pricing and risk selection actions are gaining traction and we remain focused on evolving our UK&I combined ratio towards 90% by the end of '26. In the U.S. premiums were up 8% year-over-year with our growth initiatives leading to higher new business and improved retention. And this growth is driven by our strategy to grow in our most profitable lines. Indeed, the fastest-growing segments or those that grew by more than 20% are the ones that have sustainable low 80s combined ratio. That's the beauty of specialty lines. You can choose where you grow, regardless of the environment in which you operate. In the U.S., we see industry premium growth in the mid-single digits over the next 12 months. The combined ratio of 83.6% in the quarter improved by 4 points year-over-year. Our steady deployment of predictive models and pricing and underwriting allows us to grow, while not compromising our margin. This was the ninth quarter in a row with a sub-90% combined issue, and the business is built to maintain this performance going forward. Our team also continued to execute on our strategic priorities in the quarter. Let me highlight a few achievements. In the overall Specialty Lines, our team is making good progress on our growth agenda. We're both expanding our distribution footprint and deepening our existing broker relationships. Additionally, our teams are collaborating to export product expertise and verticals across geographies. On the back of our technology and entertainment products having successfully grown in Canada from the U.S., we've recently added Life Sciences in Canada. There are many of these growth opportunities that we're pursuing: Marine; renewable energy; surety; and trade credit are all examples across-border opportunities that we've launched or are working on. The sandbox we play is 10x larger than it was a decade ago. There's a lot of opportunities for growth. The investments we've made in AI over the past decade are currently generating more than $150 million in annual recurring benefits. We've accomplished this primarily from optimizing our pricing, risk selection and how we leverage data. Recently, we completed the rollout of our third-generation machine learning models and personal property and commercial fee. Our AI investments are also helping us to grow our top line faster. The recent expansion of our underwriting adviser from Canadian Commercial into one of our specialty lines has already resulted in our ability to quote 20% more than before due to faster data ingestion and processing. We expect this level to significantly increase over time. This quarter, we officially rebranded RSA, NIG and FarmWeb to Intact Insurance across the U.K., Ireland and Europe. This unites our global operations under one brand, a significant milestone for Intact 15 years after its birth. The reaction of brokers, partners and employees across our markets was exceptional. And so when combined with raising the bar on service, broadening our product range, and expanding our distribution relationships, this will drive profitable commercial growth and support our ambition of becoming the leading commercial and specialty lines insurer in the U.K. Our most recent employee engagement survey has again placed our Canadian and U.S. businesses as best employers for the tenth and seventh year in a row with, respectively. We've also made huge gains in the U.K. and Europe, placing in the top quartile of employers within short distance of best employer status. No doubt, this is where our teams are going in both U.K. and Europe. Engaged employees are crucial to delivering superior experiences for our customers and brokers. The strong performance we're posting again this quarter is a result of their contributions. And I want to thank all of our employees for that. I also want to highlight the tremendous efforts our people have made supporting communities in Atlantic Canada that were impacted by wildfires this quarter. It really was impressive to watch many regions mobilize together, including our teams at on-site. Intact's responsiveness is a demonstration of our values being put into action and the strong employee engagement we foster as an organization. The engines driving our outperformance have never been better. Operating ROE has clearly shifted into a higher zone and has been above 16% for the past 4 quarters. We view this shift as sustainable as it is underpinned by our competitive advantages in pricing, risk action and claims, but it's also supported by our mix shift towards commercial and specialty lines and our growth in distribution, coupled with very strong capital management. As we look ahead, we're well positioned to achieve both our key financial objectives of outperforming the industry ROE by at least 500 basis points every year, but also delivering NOIPS growth of 10% annually. On that, I'll turn the call over to our CFO, Ken Anderson. Kenneth Anderson: Thanks, Charles, and good morning, everyone. This quarter again underscored the earnings power of our business. Net operating income per share for the third quarter reached $4.46, which was $3.45 higher than last year, both our top line growth and our bottom line underwriting performance were strong. We delivered double-digit earnings growth in our distribution business and our investment portfolio continued to provide healthy and consistent returns. Our operating ROE at 20% highlights our ability to successfully navigate market cycles and continue to compound earnings growth. Let me add some color on the third quarter results. We reported a strong underlying loss ratio of 54%, 1 point better than last year, with improvement in all regions and lines of business. This is a testament to our rigorous focus on growing our competitive advantages in pricing, risk selection and claims. Catastrophes in the quarter totaled $394 million, primarily due to the wildfires in Newfoundland, weather events in Canada and some large commercial fires in both the U.S. and the UK&I. While this quarter wasn't as heavily impacted as last year, catastrophe losses were broadly in line with third quarter expectations. Favorable prior year development was solid at 5.2% in the quarter. This aligns with our near-term expectation of being around the upper end of the 2% to 4% range and continues to reflect prudent reserving across all segments. The consolidated expense ratio was 34.2% for the quarter, a 1.7 point increase versus last year. This was largely driven by increases in variable broker commissions and employee incentive compensation, reflecting our improved profitability and increased outperformance versus the industry. Overall, the year-to-date expense ratio at 34% remains in line with full year expectations. Operating net investment income increased 2% to $402 million in the quarter. This reflected higher invested assets. Our reinvestment yields are broadly in line with book yields and we remain on track to deliver approximately $1.6 billion of net investment income for the full year. Distribution income continues to grow at a healthy pace, increasing 11% to $147 million. This reflected higher variable commissions as well as the benefits from our continued capital deployment. On that note, I'm proud to highlight that BrokerLink outpaced its year-end goal by reaching $5 billion in annual premiums during the third quarter. With over 200 locations nationwide, BrokerLink continues to build scale and distribution through both organic and inorganic growth in personal and commercial lines. This positions us to grow distribution income by 10% on an annual basis. Nonoperating gains totaled $83 million in the quarter, and our ROE increased to 17.3% in the 12 months to September 30. This fueled a 5% sequential growth and a 14% year-over-year growth in our book value per share to $103.16. Over the last decade, our book value per share has compounded at an annualized rate of 11%. Our financial position continues to be strong with total capital margin of $3.3 billion and solid regulatory capital ratios in all jurisdictions. Our capital management framework is robust. We have positioned our balance sheet to deal with any external shocks that may arise, while also maintaining significant capacity to capture growth opportunities. Our profitability profile means capital generation is also very strong, and this will continue to provide fuel for M&A, be it distribution or manufacturing. Given the level of capital generation, we will utilize our open share buyback program opportunistically when we see our shares are significantly undervalued. This past quarter, we deployed $145 million to repurchase 535,000 shares. Even after these repurchases, our debt-to-capital ratio was 17.9%, well below our 20% target. We're positioned to continue to pursue inorganic growth opportunities. In conclusion, Charles mentioned that our operating ROE has moved into a higher zone. This will support us maintaining or even beating our impressive track record of 650 basis points of annual ROE outperformance over the past decade. It will also support our delivery on our other key financial objectives to compound net operating income per share growth by 10% annually over time and the pillars of NOIPS growth are strong. Our top line initiatives across personal, commercial and specialty lines platforms are gaining traction. We continue to invest in our competitive advantages in data, AI and claims, and this will drive further margin expansion. And strong capital generation will continue to provide fuel for growth opportunities. We are in a great position to deliver on both financial objectives for our stakeholders in the years ahead. With that, I'll give it back to Geoff. Geoff Kwan: [Operator Instructions] So Sylvie, we're ready to take questions now. Operator: [Operator Instructions] First, we will hear from Bart Dziarski at RBC Capital Markets. Bart Dziarski: I wanted to ask around the core loss ratio. So I'm thinking current accident year plus PYD, it's come in really strong. It's sub-49%. And when I look at the LTM kind of run rate, like there's been sequential improvement in that number for 8 quarters running. So wondering sort of at the top of that, what are some of the key drivers there in terms of that strong performance? And then how are you thinking about the sustainability of that? Charles Brindamour: Yes. So broadly speaking, because I think your question is on the overall performance. I think the first order of business, Bart, for us is to make sure that we stay on top of inflation. We do that in -- we're very focused on that and tend to move before the market moves. Second, Ken talked about the ROE outperformance track record. This is not something we take for granted. And at all times, we have multiple initiatives to expand the outperformance. And that goes straight to the underlying loss ratio, whether it is AI, whether it is in-sourcing, claims management and so on. And so that feeds straight into that in my mind. Thirdly, it is about footprint. And so we have a sophisticated view of where margins are beyond cost of capital. We equip the field with that affirmation and our growth is over-indexed towards areas where we feel that we're more than well rewarded for the risk. And I'd say, Bart, this is the sum of those 3 things that lead us to see an improvement in the underlying performance. It's not even across the board. But certainly a very deliberate game plan to continue to grind out performance and hopefully, absolutely important. And on the footprint point, I want to point out that if you look at the shift in mix of business over the past 5, 6 years, there is a bigger portion of our business that is in a sustainable low 90s, sub-90 zone than it was before. So when you look at our overall performance in aggregate, the growth in those segments will also lead to an overall improvement in performance. Bart Dziarski: Great. That's very helpful. And then just one other one for me is we're hearing lots on this sort of AI infrastructure thematic around the required CapEx that's needed. Is there an opportunity for insurance to play a role here? Like could you guys -- could this be a new source of sort of premium growth opportunities as we see the build-out in other sectors? Charles Brindamour: Yes. It is, and it's primarily true our specialty lines segment in the construction and engineering segments, in particular. There are opportunities in the energy segments. We have very strong verticals, whether it's traditional or renewable energy. And our teams in those verticals are focused on finding opportunities where we feel that we can achieve strong performance, and that's clearly an area of growth. Operator: Next question will be from Doug Young at Desjardins Capital Markets. Doug Young: Wanted to dig a little bit into the pricing cycle and the deacceleration that we're kind of seeing. And I get your comments around commercial and that you're more SME focused and personal is hardening. Hoping to dig a little bit further into what you're seeing, why is this time potentially different? And I know it's been a long time since we've seen a turn in the cycle, but why would it be different this time around versus the last time? And I guess, specifically on the personal side, we're seeing softening in the U.S., and I know the U.S. market is very different than Canada on the personal property and auto. But why wouldn't we start to see some softening after many years of really hardening pricing in personal auto and personal property. So I know it's a big question. I know there's lots in there, and I promise this will be my only question, but I was just hoping to get a little more detail. Charles Brindamour: Yes, sure. Let's see how we take your four questions. Seriously, I think we're not seeing this cycle in commercial lines will be different than previous cycles. I mean all cycles are different. But Doug, you've been following our story for a long time. You know that we're pretty stable throughout cycles actually, and that includes in commercial lines. And I don't see this being very different this time around, just to put things in perspective. And I think we're highlighting that more than 70% globally of our portfolio in CL NSL is in the SME and mid-market space. It tends to be a more stable space, and that's an advantage we have as a firm, not just because of the cycle, but because the law of large numbers works in the small, midsized business. And therefore, our pricing acumen can be put to work. That makes it even better to navigate those cycles. We've been flagging for well over a year that large accounts -- initially, we said cyber and financial lines were softer. And that's been true for the last year, 1.5 years, we've seen earlier this year an acceleration in large property schedule that is still true. It hasn't changed this quarter, but it certainly took place this spring and we're just watching where that's going. But it's really happening more at the tough end of the market in larger accounts than at the bottom end of the market. And so our job here is to basically make sure that we grow in the SME and mid-market space where conditions are quite constructive and then use our toolbox in pricing risk selection, our broad product range that we can export from market to market to basically find ways to grow even in large accounts, where I think we've got an excellent value proposition compared to many of our competitors. So we're not calling a different cycle or this time, it will be different. The difference between now and, say, 10, 15 years ago, is we have way more tools to navigate the environment in which we operate. With regards to PL, which is in a whole different zone in a hard market. I'll ask Guillaume to give a perspective on the market. But I think your question is also about why is it different? Or is it different than what's happening in the U.S. We think it is. So go ahead, Guillaume. Guillaume Lamy: Yes. So in personal auto, yes, there's been lots of rates. But when we look at the industry, it remains unprofitable with a combined ratio above 100%, both last year and this year. So the industry needs to take -- continue to take rates. So we expect our market conditions to persist and our growth momentum to flow into '26. As we pointed out, it's a contrast with the U.S. where the industry has reached profitability with key player posting pretty strong year-to-date results. We need to understand there's key differences between Canadian and U.S. market and personal auto. So Canada product is more heavily weighted towards liability coverage, so the cost equation is quite different. Secondly, regulatory framework in Canada and the U.S. are different with Canada generally being more stringent. So both those factors are driving very different competitive dynamics. Maybe coming back to Canada, we're really at that point in the cycle where we're outperforming on both top line and bottom line, and that's currently true in every region. So our growth was in the double digit for the 8 quarters in a row at 11%. That's fueled by 3 points of unit growth, an increase over Q2. And really, every metric is painting a positive picture. Retention is the highest it's been in 2 years. Quotes are up double digit from increased marketing investments. Our competitive position is improving with competitors still catching up. So the net result is that our new business sales are up 15% year-over-year. Think you were also touching on personal property. We do expect hard market conditions to persist in property as the industry is pricing in the weather trends. So despite 2025 being a milder year so far, CAT activity was well in excess of expectations in the last 2 years. So when it comes to pricing, CATs are expected to be volatile from one year to the next, and it's crucial to look at really deeper and longer-term trends. So the market in Canada is behaving quite rationally. So we expect industry to continue to reflect those long-term trends in pricing and the market to remain constructive even if we were to have a few good CAT years in a row. So here again, I'd say both our absolute and relative performance is strong, and we maintain a positive outlook on this product. Charles Brindamour: And Doug, if we go back to Bart's earlier question, which is how do you grind an improvement here. The first thing I said was to stay on top of inflation. And I think in first line, let alone that were on third-generation machine learning models in the field, us dealing with inflation, both from a pricing and a supply chain management has made a huge difference here. And I'll take you back just 2 years, where we shrank our units in personal automobile by 0.5%, thinking that the industry was not seeing the inflation that was coming. Fast forward today, outperformance, massive in personal lines. From a bottom line point of view, we're making the most from a top line point of view in this environment. And I think it really plays to our strength and kudos to Guillaume and his team to have navigated this so well. Operator: Question will be from Jaeme Gloyn at National Bank Capital Markets. Jaeme Gloyn: First question related to Canada Commercial Lines and the commentary that some of the growth initiatives are starting to take hold, but growth at 3% is still below the industry. And so I look at some of the commentary in the MD&A around AI and machine learning and the new broker platform. Is the view that these new initiatives, which are maybe gaining traction now will allow Intact to outperform the mid-single-digit industry growth rate that you're expecting? Charles Brindamour: I think nearly all these initiatives help us outperform from a bottom line point of view by a big margin. I'd say one portion of the headwind is mixed. If you look at our growth in commercial lines in Canada, 3% in Q3, you -- right there, you had a point drag of mix, and this has fluctuated this year between 1 and 3 points, and it's a function of uneven competition across the board. So I -- look, I'm -- we're not forecasting outperformance on growth on a 12-month horizon compared to the industry. But we have lots in the toolbox to generate more growth without compromising margins, just leveraging specialty lines across our distribution channel, it's one of those initiatives. The other one is we're in the process of deploying our technology, the broadest technology from a product and from a transaction point of view, to brokers in the field in addition to working on the funnel, which shows that we're also growing in units at the moment. It's hard to tell whether it will outperform from a growth point of view, the Canadian industry. I don't know, Ken, do you have anything additional you want to... Kenneth Anderson: Just to add a bit of context, I guess, at an industry level, when we look at MSA, the data at Q2, we have seen at an industry level growth tempering in the second quarter relative to the first quarter in commercial P&C. I think that's in line with the large account pressure at an industry level. At the same time, we've moved the 3% growth from a 1% growth in -- from Q2 to Q3. And that's where our trajectory is moving in a different direction to the industry overall. And that's what we've observed at the second quarter. Charles Brindamour: Purely. And we're using all the tools we have in the toolbox. We don't do that at the expense of margin. Jaeme Gloyn: Okay. Understood. And then in the U.S., obviously, a good result, up 8%, and it sounds like there are certain segments that are really driving that growth at plus 20%. Can you give us a little bit more color as to what segments those are that are driving that extra or excess growth rates? And then in terms of winning new business, what are some of the factors that are allowing Intact to win that new business? Is it just new products? Or is it something else within existing lines? Charles Brindamour: I think in the U.S., we have a very good business. It's outperforming, but it's small in relationship with the opportunities that exist in this market. And so distribution management is one big lever of growth. Investing in the lines that are most profitable is another big lever of growth, whether it's people or technology. In a number of our segments, we're adding products and that is making a difference. We're big push on, for instance, cargo in our marine units. And there's lots of levers we're pulling at the moment to make sure that we're capturing the growth opportunities that exist in this market. Patrick, do you want to highlight maybe some of the areas of growth in the U.S.? Patrick Barbeau: Yes. And it will also highlight what you were describing, Charles, earlier on how the mix in specialty in particular, help us with the bottom line. But if you take the top 3 or 4 lines that are growing the fastest right now in the U.S., and examples of that would be Surety, Cyber and some of the Accident and Health. Overall, that's about 40% of the book of business. It's growing north of 20% in the quarter, and it has produced a combined ratio in the 80% to 82% range over the past 3 years on average. So good for momentum on growth, while also sustaining very good profitability on the book overall due to mix change. Jaeme Gloyn: And just on how you're winning new business is -- just a quick comment on that. Charles Brindamour: Yes. How we're winning new business? First is we're expanding the reach to the number of brokers we're dealing with. Second, we're leveraging more verticals for brokers within their operation. Third, we're adding products on the shelves. And fourth, we've also bought a number of MGAs and you know, we're interested in deploying capital in the U.S., and that expands, so to speak, the shelf on which we can put our products. And that's really how we're winning new business in the U.S. Operator: Next question comes from John Aiken at Jefferies. John Aiken: I just wanted to drill down a little bit more on the U.S. If you take a look at the reported claims ratio, where the underlying current year loss ratio for the quarter exceptional. And I get the commentary that you're talking about product mix. But was there anything unusual that was driving the lower combined claims ratio this quarter. I guess the flip to that is, how sustainable is this moving forward in terms of do you think that you're going to be able to continue to outpace growth in these higher profitable lines? Charles Brindamour: Well, that's certainly the plan, but let's just keep in mind that when growth was a little more tepid in the U.S., it's because we were into meaningful remediation efforts. And as I said last quarter, I expected that the tempering effect of this remediation would slow down in the second half of this year, and that's what we're seeing in Q3, and I expect that to continue into next year. Remediation to keep in mind, is something that you continually should do, but sometimes there's more than others. And I think in the last year, 1.5 years, there was, and therefore, we're seeing now the potential of the business emerge more peerie without that noise. John Aiken: And when we talk about remediation, are you as excited about the prospects with remediation flowing off in the U.K. as what we saw this quarter in the U.S.? Charles Brindamour: Yes. I think the U.K. is a different ball game from the perspective that we're integrating the NIG portfolio, which we've acquired in '24 and what it means in practice is we're trying to improve its performance, which we have. We're bringing segmentation as well. And I do expect that the impact of the integration, which is almost a full 5 points this quarter will taper off as we enter into 2026 and towards the end of this year and as we enter into 2026. In the U.K., we're investing massively in technology in our regional presence. We're broadening our footprint. And I do expect that this will be a growth engine for us over time. But it's a meaningful transformation at the moment. Operator: Next question will be from Paul Holden at CIBC. Paul Holden: Maybe sort of a follow-up to that, Charles, on the U.K. business. So some good color around the DLG integration. Maybe you can talk about the business ex the DLG and how that's growing and the profitability there. Charles Brindamour: So the business ex DLG is doing well, I would say the area that's still in remediation in the U.K. is what we call the delegated authority business where we're shrinking that footprint a bit to make sure that it's our price, our product and our claims that we're using for the greatest extent possible in that segment of the market. That is creating a bit of a drag. Otherwise, the rest of the business would be in the low single-digit range. And we haven't really seen the impact of expanded distribution. That takes a while and I'm confident we'll start seeing that in 2026. And we haven't really seen the full impact of broadening our product range specialties, in particular, across a much broader distribution channel in the U.K. than we had before the NIG transaction. In the U.K., if I take you back 3, 4 years, RSA was focused on tens of brokers. Only the NIG integration, we're dealing with over 1,000 brokers. We're deepening the relationship by about 100 brokers a year. Anyway, this year, the idea is to deepen the relationship with 100 brokers with whom we didn't have a deep relationship before. You just get a sense of the scale of opportunity that this can bring. And you layer over that, a broader range of products, whether it is distributing marine, financial lines, et cetera, across those distributions. So there's a fair bit of upside there. I don't know, Patrick, if there's anything you want to add. Patrick Barbeau: No. There's some good momentum also in specialty lines and the combination of the DLG and the existing RSA products, to your point, as we get into Q4 and early Q1 will also expand the offer through the broker. So RSA getting -- RSA broker getting some of the offers that were only offered by DLG and vice versa. Paul Holden: And I guess the second part of that question was also with respect to margin. So if you suggest the DLG is roughly a 5-point drag on margin. It suggests you're getting your low 90s in that RSA book. Correct? Charles Brindamour: Ken? Kenneth Anderson: Well, yes, I think if you look at the quarter performance at 95.5%, firstly, you would -- there's 3 points of excess CAT losses in their 8 points of CATs in the quarter. So if you strip out the 3, I think you're back to a low 90s performance, which right now, that's where we would expect to be. I think the continued -- if that remediation tapers off, it will start to earn through into '26 and '27 and that's the further improvement that you'll see emerging in the, if you like, underlying combined ratio for the UK&I over the next 12 to 18 months. Paul Holden: Got it. And then the second question for me is just going back to Canada and personal auto. So good growth in written insured risks. It seems like you are building some momentum there. We can see it quarter-over-quarter-over-quarter. What should we expect over the next few quarters? Like it's my impression is you're saying competitors are still catching up to where you are on pricing. So that would suggest, if anything -- and you seem to like the margins. So if anything, maybe we can assume that written insured risk growth accelerates from here? Is that a reasonable expectation? Guillaume Lamy: Yes. So I think when we look at personal auto and our rates, inflation is stabilizing in the mid-single digit. Our rates are also stabilizing, I would say, just below 7% and we expect to stay in that range in the foreseeable future. As we're pricing for the inflation that we're observing. So when you look at the industry that still has some catch-up to do, I think we're very comfortable in our competitive position. We've seen that improve. We're seeing our retention improve. So we expect to stay in kind of market share growth going forward. So will it keep increasing from 3%? I think time will tell, but we're certainly expecting the current momentum to continue into the next 12 months. Charles Brindamour: Yes. And I think, Paul, the direct channel, the digital channel, these are all levers that we're pushing really hard in this environment. Nothing to do with rates, everything to do with building on those margins to gain market share where we can. Operator: Next question will be from Tom MacKinnon at BMO Capital Markets. Tom MacKinnon: Charles, when we look back at your Investor Day, you talked about how you could accelerate your NOIPS growth without any strategic capital deployment, and that was 2%. NOIPS CAGR and with DJ Capital deployment, we get up to 4%. But what's interesting is sort of without any M&A, it would have just been 1% through distribution income, which I assume just augmenting that with some bolt-on distribution acquisitions, smaller ones. And then it also said 1% through share buyback capacity. The last 10 years, you added 1% growth to NOIPS through share buybacks. If I annualize what you did in the quarter, 0.3% of your shares you bought back in the quarter, so that's over 1% annualized right there. Is this sort of the base case? Or should we sort of think about, hey, if you don't see anything major on the M&A front? That a 1% share buyback that you've demonstrated in this quarter would kind of be -- I mean, it seems to be consistent with what you laid out in your Investor Day earlier this year and consistent with what you've done in the past. So any comments around that? Charles Brindamour: Thanks, Tom. I'll ask Ken maybe to share some perspective on that. Kenneth Anderson: Yes. Well, I would say, firstly, Tom, in relation to the capital deployment component of the NOIPS growth compounding ambition. When it comes to distribution, yes, certainly, we feel with regular ongoing distribution capital deployment that will generate 1 point. I would say in an adverse if you like, scenario where we didn't do M&A, that was the scenario where we were just, I think, demonstrating that share buybacks are a tool in the toolbox to deliver a 1% NOIPS growth. But to be clear, that's been a scenario where there are no M&A opportunities. And that's not the scenario we're in today, to be clear. The earnings power and earnings growth is really strong. I think what we did this quarter was we're opportunistic in deploying $145 million to buy back a little over 0.5 million shares. But you will have seen that the capital margin has grown from $3.1 billion to $3.3 billion. The debt-to-capital ratio has come down. The dry powder has increased in the quarter in terms of what's available to deploy on M&A opportunities. And it's in that context that we're very happy to have the dry powder that we do. Charles Brindamour: Yes. And I think the point I made at the Investors Day was that the denominator is much bigger than it was a decade ago. So we proved to ourselves that we have the earnings power to grow at that clip prospectively. I think the point we made is, organically, we get in the zone. But then when you look at capital deployment opportunities, we would comfortably, we think, be north of 10%. And so when you look at the landscape from an M&A point of view, the first thing that matters to us as a firm is where do you outperform. And frankly, today, we outperform everywhere we operate. What therefore means that the sandbox for capital deployment is 10x bigger than what it was a decade ago. And within that, there are manufacturing opportunities in Canada, global specialty lines and in the U.K. and our distribution investment opportunities, in particular, in North America. And so for me, the M&A landscape is actually quite good. The sandbox is much bigger. But timing matters. We have very clear financial objectives, and that drives timing for us. Operator: Next question will be from Mario Mendonca at TD Securities. Mario Mendonca: This might be a request that you put a finer point on some of the things you've already said on this call. Charles and Ken, you talked about this higher new level of ROE. Now this quarter was special in some respects, the trailing 12 month increased significantly because the Q3 '24 CATs fell off and a more modest level of CATs fell into the trailing 12 months. So what I'm asking is, when you say this higher level of ROE is sustainable. Are you talking about the 19% nearly 20% plus this quarter? Or are you referring more to that what you've historically referred to around the 17% range? Kenneth Anderson: Well, I think what we're saying -- what we are saying, Mario, is that we've moved into a zone above mid-teens. Yes, Q3 was close to 20%. But as Charles mentioned in his remarks, it's been above 16% for the last 4 quarters. And I think that's what we were referring to. And we view that as sustainable in the context of the continued investments that we're making in the competitive advantages, pricing, risk selection and claims. And as Charles has also pointed out, the tilt of our business towards commercial and specialty lines gives us more room and coupled with the potential growth now, not just from manufacturing, but also from distribution, we feel we're very well positioned to sustain above mid-teens. Charles Brindamour: So beyond the drive to expand the ROE outperformance in the business in which we operate, you've got 2 structural changes. If you look forward 10 years compared to the last decade. The first one is distribution income is bigger, more stable and contributes positively to our forward ROE. And second, and that's very important, is the mix of business has pushed us in zones where we can earn meaningfully higher ROE than what we were able to earn a decade ago. So as you know, Mario, I never pinpoint a specific ROE. This is an industry with a certain degree of volatility. But what's clear to me is that we're in a different zone. And in a decade from now, when we look back 10 years, it will be a better ROE than when we look back 10 years today. Mario Mendonca: But that sort of brings me to the next question. You've -- when you're talking mix, I suspect you're talking about global specialty markets. It sounds to me like this business really suits you looking forward. Is there something about the business that makes growth through acquisition more challenging? Is it such a relationship-driven business that acquisitions generally don't work and this has to be done organically? Or can this business grow through acquisition? Charles Brindamour: This business can grow through acquisition, Mario. We've entered the U.S. in specialty lines through an acquisition. We've kept all our teams, all of our people, but we've taken the combined ratio from 100% to something that starts with an 8%. And how we done that? Well, that's the old recipe. Define success well, make sure the values are in place and then it's about pricing, sophistication, strong governance in the field, in-sourcing of claims and good capital management. We then, in 2021, did the same exact thing as we acquired RSA, which had a pretty big specialty lines business, both in Canada and London market as well as in Europe. We've taken the playbook, and we've done the same thing. I think there are meaningful M&A opportunities in global specialty lines, whether it is manufacturing or distribution, and we're very focused on those. But you know how we define success when it comes to an acquisition, this needs to generate at least 15% IRR at the long-term capital structure and it's an area that we're active in finding opportunities. Mario Mendonca: My last question is about the 10% annual NOIPS growth that you've described over the years. What I'm trying to figure out here is whether that actually applies to 2026. And I'm asking about 2026, specifically because there are a couple of reasons why it wouldn't apply. There are potential declines in reserve development, potentially higher CAT losses against a rather low year. So the question is this, does the 10% apply each year? And does it apply to 2026? Or is that more of a medium-term objective? Kenneth Anderson: So to be clear, the objective is to grow at a compound of 10% annually over time. It will -- by virtue of catastrophe losses, et cetera, there will be some lumpiness also M&A when it comes, can tend to shift your ROE into a new zone. But over time -- the objective be clear is over time. I think if you look at 2025 specifically, Mario, obviously, we'll see where the year end. At the 9 months, the CAT losses are a little below our expectation on a year-to-date basis. So I think that would be the one item that would contextualize how you would think about 2026. Operator: Question will be from Stephen Boland at Raymond James. Stephen Boland: Just one question, I don't want to delay this. Have you had any preliminary conversations with your reinsurance partners with renewal coming up? I'm just curious the outlook that pricing is going to be rational as there's going to be softness. Kenneth Anderson: Yes. So I would say, in relation to the [ 1/1 ] renewal reinsurers have had strong profitability in 2022 when the market hardened and that was a result of some structural changes and seasons taken higher retentions and pricing levels have gone up since then. But we would expect reinsurer capacity will exceed demand across the business as we head into the renewal. So I would say favorable conditions from our perspective as we head into the renewal season. Charles Brindamour: Yes, I think it should be a favorable renewal cycle. We manage our risk very tightly. This gives us an edge when it comes to buying reinsurance. We're not huge buyers of reinsurance also. We do that pretty much for tail risk purposes, but this should be a good renewal season for us. Stephen Boland: Okay. And Charles, just I'll sneak one in. I know I'm a bit late. But have you ever considered a stock split, the price has been elevated now for a while. I don't think you've ever done one. Is that something you could consider? Kenneth Anderson: Yes. I would say it does hit the radar from time to time, we evaluate it, but we haven't acted on it to date on the basis that. In substance, it's not really changing anything in substance and I think that was the conclusion that we've reached. Charles Brindamour: Yes. It's abated from time to time. I mean if you guys think this is something we should seriously consider. We'll look at it. I'm of the view that I don't know if it's a needle mover and therefore, we concentrate on other things, but we're open to feedback. Operator: Ladies and gentlemen, this is all the time we have today. I would now like to turn the call back over to Geoff Kwan. Geoff Kwan: Thank you, everyone, for joining us today. Following the call, a telephone replay will be available for 1 week, and the webcast will be archived on our website for 1 year. A transcript will also be available on our website in the Financial Reports section, and of note, our 2025 fourth quarter results are scheduled to be released after market close on Tuesday, February 10, 2026, with the earnings call starting at 11 Eastern Time the following day. Thank you again, and this concludes our call. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
Operator: Good morning, and welcome to the Limbach Holdings Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to your host, Lisa Fortuna of Financial Profiles. You may proceed. Lisa Fortuna: Good morning, and thank you for joining us today to discuss Limbach Holdings' financial results for the third quarter of 2025. Yesterday, Limbach issued its earnings release and filed its Form 10-Q for the period ended September 30, 2025. Both documents as well as an updated investor presentation are available on the Investor Relations section of the company's website at limbachinc.com. Management may refer to select slides during today's call and encourages investors to review the presentation in its entirety. On today's call are Michael McCann, President and Chief Executive Officer; and Jayme Brooks, Executive Vice President and Chief Financial Officer. We will begin with prepared remarks and then open the call to questions. 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 those 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 the company's results compared to these forward-looking statements is contained in Limbach's SEC filings, including reports on Form 10-K and 10-Q. Please note that on today's call, we will be referring to non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our third quarter 2025 earnings release and in our investor presentation, both of which can be found on Limbach's Investor Relations website and have been furnished in the Form 8-K filed with the SEC. With that, I'll now turn the call over to President and CEO, Mike McCann. Michael McCann: Good morning, and welcome, everyone. Thank you for joining us today. At Limbach, we play a critical role as an enterprise provider of building system solutions, ensuring the reliability and continuity of mission-critical infrastructure across our customers' facilities. We're focused on industries with long-term durable demand where facility assets simply cannot fail. We believe our distinct capabilities position us to deliver sustained growth and attractive risk-adjusted returns. As a reminder, our growth strategy is underpinned by three core pillars. The first pillar is scaling our owner-direct relationships or ODR business. Here, we're focused on working in partnership with owners of mission-critical facilities in existing building environments. This work consists mostly of routine maintenance, emergency repairs, small capital projects, and larger retrofit and renovation projects. Some of this work is contractual and some is predictable given the age and complexity of mechanical systems. The second pillar is enhancing profitability and increasing wallet share through the introduction of expanded product and service offerings. We have strong and growing relationships with our owner-direct customers built on daily performance, trust and our vast knowledge of their critical building systems. As a result, there is a win-win opportunity for us to expand our service offerings to these customers by introducing new capabilities to solve a greater breadth of issues for owners. As our capability expand over time, we can deliver more value to both the owner and Limbach. Unlike traditional E&C firms that rely on reactive bidding in response to a project, we're seeing these facilities every day providing solutions. By working directly with owners, we have a better grasp of risk and value. In order to further leverage these relationships, we're formalizing a scalable structure by building a proactive sales team that positions Limbach as a building system solutions provider. The third pillar is strategic M&A aimed at extending the reach of the Limbach brand, strengthening our market presence and expanding our capabilities. Through targeted acquisitions, we seek to diversify our vertical market exposure and broaden our geographic footprint while adding new products and offerings that align well with our ODR value proposition. Over the past couple of months, we received a number of questions from investors who want to better understand our various revenue streams, particularly in the ODR segment. So let me walk through the ODR business and break down the sources of our revenue. There are three quick burning revenue streams, maintenance contracts, work orders, and time and material or T&M work. Maintenance contracts generate predictable recurring revenues that are usually smaller in nature, but which have strong margins. Our maintenance contracts run 1 to 3 years in length prior to renewal and are built around routine service for specific equipment at customer sites. Work orders and T&M work often results from problems identified during scheduled maintenance or for emergency repairs or opportunistic upgrades of system components. In some parts of the market, this is referred to as break-fix work. Any one individual work order may not be predictable, but in a large complex facility, there's generally an estimable amount of this kind of work in any given year. It's usually quick burning and completed an on-demand basis or as directed basis. It can be priced based on labor rates and material markups that are prenegotiated with customers and anticipating -- anticipation of needing to act fast when the work happens or a small fixed price jobs less than $10,000. For example, large industrial customers usually schedule seasonable shutdowns when their facility reduces production and output of repairs and maintenance. This provides us the opportunity to execute a high volume of this type of small work in a short period of time. Because T&M work is performed on what's essentially a cost-plus basis, the risk profile is different than, say, a large fixed price project. Taken together, all these work streams account for approximately 1/3 of the ODR revenue for year-to-date 2025. Irrespective of the specific structure of the revenue, when executing this kind of work, Limbach most often becomes an extension of the facility staff regardless of the contractual relationship. Fixed-price projects greater than $10,000 in our ODR segment can range from quick burning work that is booked and executed in the same month or quarter to projects that typically last less than a year. They're usually performed within existing facilities are typically tied in some way to an existing customer relationship and often a maintenance and service relationship. This means we're operating in an environment where we know the systems, the sites and the customers. This preexisting knowledge reduces uncertainty and enhances our ability to manage outcomes. As a result, the risk profile of these ODR projects is very different than GCR projects. Additionally, the average ODR project size is approximately $245,000 as compared to the average GCR project size of approximately $2.9 million. Both of those are year-to-date 2025 data points. This ODR project work accounts for approximately 2/3 of our ODR revenue. So at a high level, our intentional pivot towards owner-direct relationship has reshaped our revenue mix to become a more diversified and lower risk with more margin consistency. We believe this mix should provide a greater resilience through economic cycles and reflects our focus on stability, predictability, and long-term value creation. On a consolidated basis, ODR revenue as a percentage of total revenue has steadily increased since 2019. We began to shift our strategy. ODR represents [ 76.6% ] of total revenue in the third quarter of 2025 and 74.1% on a year-to-date basis, in line with our targeted goal between 70% to 80% for the year. Going forward, the strategy continues to be focused on ODR growth and a reduction in GCR revenue. Keeping in mind, businesses we acquired at the time of acquisition typically do not have an evolved ODR strategy as Limbach. However, whether we're speaking about an acquired business or a legacy business, this strategy is driving margin expansion and earnings growth over time, while we -- while also, we believe reducing our overall risk profile. Turning to backlog. The strategic shift from GCR to ODR means that a larger percentage of our revenue is now generated from quick burning shorter-term projects that can be booked and completed within the same quarter, and therefore, it's not captured in backlog at quarter end. As a result, backlog alone is no longer as predictable, a leading indicator of future revenue as it was in 2018 or even 2022 with a heavy GCR focus, which is typical for E&C companies. Occasionally, we will book projects with building owners that span multiple quarters. This work is captured in the backlog. However, it's a smaller portion of the overall revenue mix and it can experience quarter-to-quarter fluctuations. So today, looking only at backlog, we'll miss a large percentage of our current revenue streams. Earlier I described our work order and T&M revenue streams and highlighted the industrial shutdown work we engage in. Most of these revenue streams never get captured and included in the quarterly backlog number, and they represent a far larger number than they did several years ago. Instead of the large high-risk multiyear projects that were a core element of our legacy business model, we're now focused on building a diversified business with multiple revenue streams and what we think is durable demand. Selective M&A remains a cornerstone of our growth strategy, enabling us to expand both our geographic footprint and deepen market share within existing regions and to expand our product and service offerings. Over the last couple of years, our focus has been broadening on our footprint in ways that enhance diversity and position us to serve national customers. Our approach has always been conservative, and we've remained disciplined and selective in what we pursue even when the M&A market has gotten overheated. To date, we've acquired six high-quality cash flow generating businesses at fair values and have used risk-mitigating structures where possible. We believe the Limbach brand and our unique business model positions us to engage with great companies that over time, we can reposition to align with our owner-focused vision. After closing, our goal is to improve margins further by implementing our value creation processes. Our main focus in every deal is to expand the quality of gross profit through benchmarking, building a proactive sales team and leveraging operational standards, using the same tools that transformed our business units over the last 6 years and led to much higher margins at lower risk. We believe we can expect better results at acquired companies than what we underwrote at the time of the closing of these transactions. At Pioneer Power, our most recent acquisition, we're actively executing the first phase of our value creation strategy. During diligence, we identified improving Pioneer Power's lower EBITDA and gross margins as a great opportunity for the intermediate term. We are now transitioning Pioneer Power to Limbach's accounting system and operating systems. Once complete, we can start to focus on improving the quality of gross profit and providing access to other parts of the Limbach operating platform. We've got a talented team in the Twin Cities. We want to make sure that we deploy all the tools at our disposal to support them and to allow the business unit to flourish. We evaluate a large volume of acquisition opportunities each year and intentionally walk away from the majority of them. Under my leadership, we will never buy a business just to do a deal. Our track record reflects disciplined underwriting, strategic fit and a focus on asymmetrical returns. There is a meaningful upside to our company if we're right and limited downside if we're wrong. There are times we lose competitors willing to pay higher multiples, and we're perfectly comfortable with that. Next, I'll provide an overview of the environment in our core vertical markets. Healthcare has long been one of our strongest, most strategic end markets across all operating regions. Given the mission-critical nature of the healthcare facilities, customers can defer repairs briefly, but delays in capital spending rarely extend beyond a single quarter. While some customers experienced temporary delays during the summer months in funding both operating and capital expenditures, we're now seeing spending patterns normalize as the year progresses. Our sales teams have engaged with core customers and emphasize the importance of long-term planning. Increasingly, we're hearing that cost certainty is more important to our customers than simply achieving the lowest cost. This can be achieved by implementing proactive programs, which help avoid reactionary spending and minimize risk to business operations caused by building system downtime. On our latest earnings call, we shared that a national healthcare owner engaged us to conduct facility assessments across 20 locations. In Q3, this initiative has already translated into $12 million in capital projects at four sites. We'll serve as a design builder for these MEP infrastructure projects, three of which are outside our current geographic footprint. For those out-of-market projects, we'll lead budgeting, design and procurement and utilize a network of subcontractor partners where necessary. In industrial manufacturing markets, our customers continue to execute seasonal shutdowns and facility upgrades in order to optimize the production of their plants and facilities. During the quarter, both Pioneer Power and Consolidated Mechanical benefit from this type of activity, which is a core element of their local business models. In the data center market, Limbach remains focused on supporting hyperscale operators through existing building projects and specialized services, primarily in the Columbus, Ohio market. In Q3, we provided specialty fabrication services to one of our customers, enabling on-site contractors to concentrate on their core workloads while we offered supplemental support. That arrangement provided Limbach with what we think is the optimal balance of risk return and resource allocation. While our current footprint and risk profile limits the scale of data center work, we see meaningful growth potential through our national sales efforts and future geographic expansion through strategic acquisitions. In the life science and higher education market, some of our higher education clients have adopted a cautious approach to spending during ongoing policy uncertainty in Washington, D.C. While the need for our services remains essential to maintaining mission-critical facilities, many temporary pause capital projects. Encouragingly, these clients have begun communicating anticipated spending needs for the coming year, and we are proactively aligning the resources in preparation for ramp-up. One major client has already requested full-time technician support beginning in January. In the culture and entertainment vertical, we continue to see consistent spending from our key customers. Our recent involvement in capital planning discussions provided valuable insight into some clients' 2026 budgets. Notably, our largest customer in this segment has shared plans for significantly expanding capital and operating budgets next year. They've invited us to review their respective project list and provide input on the work we'd like to pursue, allowing us to proactive plan and allocate resources for 2026. Next, I'll provide an update on sales and marketing initiatives. For the past 3 years, we've made deliberate investments in building our sales team, which has resulted in a higher SG&A relative to many of our E&C peers. Our training efforts are focused on equipping the team to anticipate owner challenges and craft solutions that are difficult to commoditize. We believe this investment will soon begin to yield measured results, both by leveraging SG&A more effectively and by enhancing the quality and consistency of gross profit. As we head into Q4, our priority is to deepen sales training to ensure a strong start to 2026. In many cases, we're not competing against local contractors. Instead, we're working directly for owners in a proactive capacity, helping them anticipate issues and plan their budgets accordingly. A recent example from Florida illustrates this approach well. Over the past 2 years, we've supported a $25 billion annual revenue healthcare customer with emergency repairs and small capital upgrades. During a routine inspection of the main cooling feed, our on-site account manager identified signs of deterioration. We conducted non-destructive testing and the piping was on the verge of failure. In response, we developed a proposal that clearly outlined the ROI and presented it to the facility manager who was then escalated to the CFO and the Chief Medical Officer. In Q3, the project was funded and we were awarded Phase 1 of the repair. This is a prime example of a capital project where we weren't competing for the work. Instead, we earned it by identifying the issue early and presenting a compelling data back justification for the investment. One of our key differentiators is our ability to offer professional services, including MEP engineering, facility assessments, program management and commissioning. These services are particularly attractive to national customers who can leverage our domain experience even in markets where we might not have field execution capabilities. These services, along with program management are a key driver of margin expansion. During the quarter, we had one of our national healthcare customers engage us to analyze a hospital in New Mexico, both from a cost and engineering perspective as they're considering making a substantial investment in the facility. This initial research has the potential to become a design build infrastructure project. We find that customers appreciate our ability to provide an engineered solution that we can also build. While currently, our professional service resources are dedicated to national healthcare owners, in the future, we're looking to expand these capabilities into our data center and industrial manufacturing vertical markets. As we broaden our services portfolio, which includes the expansion of our professional services and solutions-based selling, we see a path to achieving long-term gross margins in the 35% to 40% range, driven by two key dynamics: First, our ability to deepen customer relationships by shifting from reactive transactional sales to proactive consultative solution sales. This approach enables us to build long-term operating and capital programs that are tailored to solving our customers' needs rather than competing solely on price. Second, our ability to bundle offerings creates margin layering opportunities. For example, an infrastructure project may include a rental component, allowing us to mark up both individual elements and the overall project cost. These strategies position us well to deliver sustainable growth at attractive margins. Moving to guidance. We are reaffirming our 2025 guidance of total revenue in the range of $650 million to $680 million and adjusted EBITDA of $80 million to $86 million. Of note, we have made some updates to our underlying assumptions used to model 2025 guidance to better reflect current market conditions, project timing, and operational performance trends. These updates influence our outlook and are incorporated into the public issued guidance ranges for total revenue and adjusted EBITDA. As I mentioned earlier, we are on track for total ODR revenue to be 70% to 80% of total revenue. Total ODR revenue growth is expected to be 40% to 50% with ODR organic revenue growth of 20% to 25% Total organic revenue growth is expected in the range of 7% to 10% from 10% to 15% previously discussed, as we originally anticipated a more positive mix shift towards ODR and GCR. Pioneer Power's revenue performance this quarter exceeded our initial expectations. While Pioneer Power's current margin profile differs from Limbach's consolidated performance, we're actively integrating Pioneer into Limbach's platform, and we have a path to implement operational and commercial enhancements that we expect to expand margins over time. Because of the higher revenue contribution of Pioneer, total gross margin is expected to be 25.5% to 26.5% from 28% to 29%. Additionally, SG&A as a percentage of total revenue is expected to be between 15% to 17% from 18% to 19%, primarily due to the higher revenue contribution. Now I'll turn it over to Jayme to walk through the financials. Jayme Brooks: Our Form 10-Q and earnings press release filed yesterday provide comprehensive details of our financial results, so I will focus on the highlights for the third quarter. All comparisons are third quarter 2025 versus third quarter 2024, unless otherwise noted. We generated total revenue of $184.6 million compared to $133.9 million in 2024. Total revenue growth was 37.8%, while ODR revenue grew 52% to $141.4 million. Of the total ODR revenue growth of 52%, 39.8% was from acquisitions and 12.2% was organic. GCR revenue increased 5.6% to $43.2 million, of which 25.1% was growth from acquisitions, offset by an organic revenue decrease of 19.5%, which is as designed as we continue our mix shift towards ODR. ODR revenue accounted for 76.6% of total revenue for the third quarter, up from 69.4% in Q3 2024. Total gross profit for the quarter increased 23.7% from $36.1 million to $44.7 million, reflecting the ongoing growth of our ODR segment. Total gross margin on a consolidated basis for the quarter was 24.2%, down from 27% in 2024, driven by the lower gross margin profile of Pioneer Power revenue. Our strategy with acquisitions is focused on improving the acquired company's gross margin to align with our broader operating model over time. ODR gross profit comprised approximately 80% of the total gross profit dollars or $35.7 million. ODR gross profit increased $6 million or 20.3%, driven by higher sales volume, partially offset by lower ODR segment margins of 25.2% compared to 31.9% in the year ago period. The decrease in segment margin was primarily attributable to Pioneer Power's lower gross margin profile. GCR gross profit increased $2.5 million or 39.3% due to higher margins of 20.8% compared to 15.8%, driven by our ongoing focus on higher quality projects. SG&A expense for the third quarter was $28.3 million, an increase of approximately 19.3% from $23.7 million. This increase includes SG&A associated with Pioneer Power, Kent Island and Consolidated Mechanical, where Kent Island was part of the company for only 1 month in the third quarter last year and Pioneer and Consolidated Mechanical were not part of the company during the entire of the third quarter last year. As a percentage of revenue, SG&A expense decreased 15.3% as compared to 17.7%, primarily due to the increased revenue in the third quarter of 2025 provided by Pioneer Power. Adjusted EBITDA for the quarter was $21.8 million, up 25.6% from $17.3 million in Q3 '24. Adjusted EBITDA margin was 11.8% compared to 12.9% in Q3 last year. Net income for the quarter increased 17.4% from $7.5 million to $8.8 million, and earnings per diluted share grew 17.7% from $0.62 to $0.73. Adjusted net income grew 16.4% from $10.9 million to $12.7 million and adjusted earnings per diluted share grew 15.4% from $0.91 to $1.05. Turning to cash flow. Our operating cash inflow during the third quarter was $13.3 million compared to $4.9 million during the third quarter last year, primarily due to the timing of accrued expenses, offset by the timing of billings that impacted changes in working capital. Free cash flow, defined as cash flow from operating activities, excluding changes in working capital, minus capital expenditures, excluding our investment in additional rental equipment, was $17.9 million in the third quarter compared to $13 million in Q3 last year, representing a $4.8 million increase. The free cash flow conversion of adjusted EBITDA for the quarter was 82% versus 75.3% last year. For full year 2025, we currently continue to target a free cash flow conversion rate of at least 75% and expect CapEx to have a run rate of approximately $3 million. This amount excludes an additional investment of $3.5 million in rental equipment for 2025, of which $2.1 million occurred in the first 9 months of the year. Turning to our balance sheet. As of September 30, we had $9.8 million in cash and cash equivalents and total debt of $61.9 million, which includes $34.5 million borrowed on our revolving credit facility, of which $10 million is at a hedge rate of an applicable margin plus 3.12%. As a reminder, at the end of June, we expanded our revolving credit facility from $50 million to $100 million. On July 1, we used a combination of cash and an additional drawdown of approximately $40 million to fund the Pioneer Power acquisition. During the quarter, we paid down the revolving credit facility $17.3 million. And as of September 30, our total liquidity, defined as cash and availability on our revolving credit facility is $70.3 million. Additionally, we intend to deploy free cash flow to continue to reduce our borrowings under the revolving credit facility. With this expanded facility and our expected cash generation from the business, we believe our balance sheet remains strong, and we believe we are well-positioned to support our continued growth initiatives and strategic M&A transactions. That concludes our prepared remarks. I'll now ask the operator to begin Q&A. Operator: [Operator Instructions] Our first question comes from the line of Chris Moore with CJS Securities. Christopher Moore: So it looks like $47.3 million of Q3 revenue was acquisition-related, $37 million of that ODR, $10.3 million GCR. Can you give us a sense in terms of how much revenue Pioneer contributed to that $47 million and the split between ODR and GCR within Pioneer? Michael McCann: Yes. The Pioneer Power, they continue to produce, I think, even better than we thought they would produce. So we're thinking by year-end, the contribution for the second half of 2025 is closer to actually $60 million, heavily weighted from an owner direct side as well, too. And I think a lot of that strong contribution is from the Industrial segment as well, too, some shutdown work, strong customers and brand, which is always nice to validate after we've had the acquisition as well, too. I think the other thing, too, even from a margin perspective that we're really looking forward to from a Pioneer perspective is the opportunity. We see a lot of good solid foundation from a Pioneer Power perspective. But at the same time, I think as we've -- right now, we're in the process of transitioning their finance and operating systems, but we already see signs of our ability to not only benchmark their gross profit, but to look for opportunities as well, too. Christopher Moore: Got it. So the $60 million you're talking about for the second half, it looks like the bulk of that is in ODR. Am I looking at that correctly? Michael McCann: Yes. Yes, you are. Christopher Moore: Okay. And so just -- I got it that the gross margins are -- should be coming up there. Why are they -- within their ODR segment, why are they lower at this point in time? Do they do different work for clients? Are they focused on a different vertical? Just any thoughts there? Michael McCann: Yes, it's very interesting. We've seen -- one of the main opportunities we look at with all their acquisitions is increase of margin. So this is the common playbook that we see. And a lot of times, it comes down to they run a really good business. They have relationships. And it's a matter of understanding benchmarking as much as anything now that we've got -- even from an industrial base or even from other contracts that we purchased, we always take a look at it from a margin perspective. A lot of times, that's eye-opening as well, too. I think the other piece of it, too, is how they go to market. They're going to market from a branding reputation perspective. But one of the key elements that we add to is a proactive sales team. And a lot of times, that makes a difference. So at the end of the day, it's a matter of taking great customer relationships and a brand, understanding there's 4 or 5 triggers that allow us to expand margins over time. So even -- and we've looked at it not just from Pioneer Power. Pioneer Power obviously is a bigger contributor. But even from the other acquisitions, it's always the same elements over time. It takes time, but I would say it's still the same playbook, and we see lots of opportunity. Christopher Moore: Got it. Very helpful. Maybe just the last one. Just SG&A as a percentage of revenue, 15.3% versus 18.7% in Q2. The target range is coming down. Is it reasonable to think that SG&A as a percentage of revenue would tick up a bit in '26 versus the 15% to 17% that we're talking about in '25? Michael McCann: Yes. The big piece of that SG&A reduction was due to the different profile from Pioneer of lower gross profit, but also lower of SG&A as well, too. There's some investments that we're going to need to make going into 2026. And that's not only from a Pioneer and other acquisitions, but also from an overall business as well, too. Jayme, anything you want to comment on that? Jayme Brooks: Yes, because part of it to get -- I mean, we have a lower rate this period for the fiscal year. But going into next year, too, as Mike said, looking at specifically around Pioneer that proactive sales force piece of it. So we've not given the guidance yet for the next year. Operator: Our next question comes from the line of Brian Brophy with Stifel. Brian Brophy: I appreciate all the additional disclosure here. When I try to, I guess, back out PPI from ODR, it looks like gross margins kind of on the core business were down a little bit from a year ago. Is that correct? And can you give us, I guess, a sense of the magnitude and what the driver was? Michael McCann: From a margin perspective, I'll let Jayme answer from the financial exact number perspective. But our margins do end up fluctuating from a quarter-to-quarter basis. And I think it just depends on the mix of work that may be within the quarter. And one thing that you pointed out even as we mentioned in the script, is that combination of 1/3, 2/3 essentially goes through the business as well, too, where 1/3 is that quick burning work and 2/3 of the owner direct revenue is fixed price projects that are of average size year-to-date of $245,000. So at the end of the day, nothing different from -- it's more of that dynamic of the quarter-to-quarter mix of whether it's that quick burning or it's fixed-price projects. Jayme Brooks: Yes, I was just going to reiterate that. Yes, definitely in line -- it will fluctuate quarter-to-quarter based on the mix, and it's really the impact of the PPI margin for this quarter. Brian Brophy: Okay. And then can you give us a sense on ODR organic growth in the first half of the year? I guess the 20% to 25% guidance for 2025 seems to imply an acceleration in the fourth quarter. I just want to understand if that is accurate and what's driving that acceleration? Michael McCann: Yes. Year-to-date, we're 14.4% organic ODR, and we've talked about a range of 20% to 25% for a full year. So that does imply some acceleration. A couple of things that we're really looking at even from a Q4 perspective, continuing quick burning work from a revenue perspective, budgets that need to be spent by year-end. A lot of people have delayed that OpEx spend and they're in a position right now where they have to spend those dollars, small projects that are churning. And I think that's also a result of that sales team. The last 3 years, we've invested in the sales team. The recent sales team investment that we hired in Q4 and early Q1, it's been about 9 or 12 months. We've been in position with customers, and that allows us to give visibility kind of looking into Q4 from that perspective. Brian Brophy: Okay. That's very helpful. And then in your opening comments, you mentioned the $12 million of capital projects that were awarded from this facility assessment award that you talked about last quarter. Do you anticipate that potentially driving further awards? Or do you think that's kind of the extent of the opportunity and additional follow-on awards from these facility assessments? Michael McCann: Yes. This is really exciting. So a couple of things that we've learned through our evolution. A lot of times on local relationships, the relationships will start with a maintenance project or really quick turning work. On the national side of things, we really started with healthcare. We're thinking about data centers and industrial as we kind of expand going forward. A lot of times, that work starts with professional services. Facility assessment, engineering, it's a repositioning of that ultimate entry point. And those customers are very much from a cost certainty, quality, consistency type perspective. So we've got a lot of these national relationships that we've started to. And they typically do start with that facility assessment ultimately, and then we come up with a pro forma. So that particular opportunity, those 20 assessments turned into $12 million of projects over four different sites, three of which were outside of a geography, that's in. So I think I look going forward, we're excited about the opportunity for multiple customers from multiple assessments of that being kind of a runway for us to have another avenue of work that comes in. I think another interesting thing as well, too, is it's kind of we're going to be a cross-section of having those local maintenance and service type agreements as quick project agreements as well as kind of -- as well as the national relationships. And the two of those meeting together are also a big opportunity for us as well, too. Brian Brophy: Appreciate the color there. Last one for me. Past 3 years, you've talked about hiring about 40 salespeople a year. Curious how you're thinking about investing in the sales staff this year relative to kind of the prior pace. Michael McCann: Yes. So it's interesting. I think we're definitely looking at -- as we go into every year like we've done in the last 3 years from a sales staff perspective. I think we've made a lot of hires over about 120 hires over that period of time. I think we're continuing to make sure that we're supporting our sales staff. I think that's going to be a big piece of next year from a sales enablement perspective as well, too. What resources can we give them to make them successful? How can we connect dots for them? I think that will be a big focus going into next year as well, too. So it's almost as much sales enablement next year as much as traditional sales staff. We also are looking forward to production as well, too. It takes a long time to get sales staff up and running. But whether it's professional services, whether it's data analysis, whether it's financial analysis that we do for customers, those are the sort of things going into next year that we're really excited to make sure that we're making our sales staff as successful as possible. Operator: Our next question comes from the line of Rob Brown with Lake Street Capital. Robert Brown: Congrats on the progress. Kind of back to the organic growth, how do you think about the longer-term organic growth? It was the guidance tweaked it down a little bit this quarter. But what do you sort of think of as the long-term organic growth and what needs to happen to kind of get there? Michael McCann: Yes. So from an organic growth perspective, and of course, that -- it's what we're doing from a GCR perspective, but also from an owner-direct perspective. So let me touch on GCR real quick. Our goal is to be as selective as possible. So sometimes there will be periods where GCR declines like in this period. And that's a result of being super diligent to quality of work. And we're going to continue to push towards owner direct and be very opportunistic from that perspective. From an owner-direct side of things, we're building a long-term sales team, and we're building a long-term model to have success over multiple quarters and multiple years as well, too. So we haven't given a target out beyond this year. We hope that the insight of the 20% to 25% owner-direct organic will provide some insight to investors. But we're investing for the future. I will say that as well, too. Robert Brown: Okay. And then on kind of the opportunity for margin improvement overall, and I guess at Pioneer, how -- what's sort of the time line of that? And maybe what's -- can you get gross margins back to sort of where they've been? Is that the goal? Michael McCann: Yes. For Pioneer specifically, a lot of the work that we've done is transitioning to the accounting and operating system, which is important to us. It's not always the most exciting, but it's really important because it allows us to have visibility and to get on a common platform. So that first phase -- we talked about that first phase, including structure and gross profit benchmarking can almost take almost up to a year. But that doesn't mean we're not doing things along the way. And I think the first thing that we look at is the gross profit benchmarking. Is there opportunity? Is there a low-hanging fruit? There has been on the other deals. We can't see why this wouldn't be any different. But I think as we look into next year, definitely from an opportunity from that perspective as well, too. I think from an overall business, it's a matter of our ability to sell in a proactive nature. We've been -- we've had great success over the last couple of years of working with OpEx type work, understanding what customers' needs are. And I'm going to point to a specific example that we talked about in the prepared remarks was we had a customer in Florida. And we've been -- for the last 2 or 3 years, we've been really working from an OpEx perspective, taking care of all their problems. That's been high-margin work as well, too. They get to the point, though, where they're thinking, that's a lot of money that we're spending. And they end up in this quick period of pause. And it's our job at that point to say, listen, I know you're spending a lot from an OpEx perspective. You're going to have to spend a lot from an OpEx perspective. But there's a reason that you're having that spend. And that developed ultimately into a capital project where we saw deterioration in the cooling system, and built something to get an important capital project with multiple phases to fix their long-term problem. So that's the type of relationship where we have that OpEx recurring spend. A lot of times that OpEx spend will turn into capital projects. And those capital projects are not projects that we're competing against multiple people. We're working on creating a pro forma, giving them cost certainty. And there's also an opportunity on -- a particular opportunity like that to earn really high margin as well, too. So it's a combination of continued improvement from Pioneer Power, running our playbook as well as this dynamic between OpEx, taking care of reactive relationships as well as developing proactive programs and projects as well, too. That's where we see kind of our key components going into next year. Operator: Our next question comes from the line of Gerry Sweeney with ROTH Capital Partners. Gerard Sweeney: I want to talk about -- it wouldn't be at the conference call if everybody didn't ask about gross margins -- or I'm sorry, about the organic growth. So obviously, there were some questions about hitting your range on organic growth. And you mentioned fourth quarter being relatively strong. For lack of a better term, are you anticipating a budget flush? And I've gone back and looked at a couple of fourth quarters versus 3Q and not every year, but there's been several years when you see a significant uptick in revenue. So I want to get your thoughts on how that's going to occur. Michael McCann: I don't know if I would characterize it as budget flush, but I would characterize it as -- it's a cross-section of two things that go on from our customer relationships, ensuring that they're properly spending their budgets as they exit the year. So there are opportunities where there's a lot of times [Technical Difficulty]. We're also thinking about what they're going to re-up next year as well, too. So it's a dynamic of completing budgets for '25 and even some of the budgets that have been delayed as well as what do I need to do in 2026. So it depends on the vertical. I think from a healthcare perspective, we have lots of conversations with customers from that perspective as well, too. It could be from a higher ed. Industrial manufacturing, those customers have been pretty consistent from a spend perspective as well, too. So it's really the dynamic between the two versus '25 versus '26. But the key nature of our work is being in a mission-critical facility. Then maybe they'll pause it for, but inevitably, they're going to have to spend, and it's our job to make sure that they spend it as well too. And so we're trying to manage that dynamic with them. Gerard Sweeney: Got it. How much visibility do you have in ODR? Like as of today, can you see out to the end of the year? Obviously, there could be some emergency work, et cetera. But what does visibility in ODR really look like? Michael McCann: Yes. We gave some additional information and color of this dynamic between 1/3 of the work being quick burning work and then 2/3 being smaller projects as well, too. And we hope that, that provides some additional color as well, too. The 1/3 work you traditionally know when it comes, there are some avenues of things that needs to happen, but there's relative consistency from that perspective as well, too. The 2/3 is fixed price project work, but it is relatively small in nature as well, too. So if we really look at where the customers are at, we focus on a core group of customers, understanding what their spend profiles as well, too. I think the other thing, too, that's part of the dynamic of the owner direct revenue is our ability that we have sales staff. The sales staff with certain pipelines dynamic with customers as well, too. So it really comes down to the 1/3, 2/3 as well as the dynamic of where the customers are from a budget perspective. As we -- I feel like we move into future years, we're going to continue to increase visibility from that perspective as well, too. Gerard Sweeney: Got it. Switching gears, you talked a little bit about local growth or developing relationships on the local level, which certainly has its benefits, but also looking to develop national relationships. How far along are you on the ladder on the sort of national relationship in terms of sales, building that out? There are different animals, local and national. Michael McCann: It's interesting. We've probably been -- when we first started out, we thought that this would go super quick. And we probably started with 4 or 5 years ago. And you realize like it takes time and you're cracking in different levels from a customer perspective. Big customers, it may not be C-suite or may be a couple of levels down. We've been at it for probably 4 or 5 years now. But this year, I think more than others, we've finally been in a position where they trust us, they've given us that pilot work project. And by the way, this work consists of running a facility program over multiple facilities. It could be project work, engineering work, staff augmentation we've done. So we've put all that hard work in there. And that's allowed us to say, okay, I'm going to give you a bigger piece of the budget. As an example, that $12 million of projects that came out of those facility assessments, we couldn't have got that 2 years ago. They wouldn't have trusted us at that point. A lot of times they're in a position where they've got to spend the dollars, they've gone through the work, and it's not really a matter of competition at that point. So we're starting to see a blueprint with healthcare. And we feel like we can apply that same blueprint to some of our other verticals as well, too, whether it's industrial manufacturing or data center and tech, we feel like there's a blueprint. So we're looking at those as well, too. And hopefully, we're looking at it as not taking as long because we're going to apply the same blueprint. But the key is that's acting as a trusted advisor through a professional service type offering and allowing us to make long-term decisions with them and being in a position when they have that spend that needs to happen. Operator: There are no further questions at this time. I'd like to pass the floor back over to Mike McCann for closing remarks. Michael McCann: In closing, our priorities as we close out 2025 are as following: continuing to drive top line growth, further expanding our customer relationships to turn technical sales into financial sales, ongoing successful integration of Pioneer in building our M&A pipeline. At Limbach, we're building a long-term business model designed to deliver durable demand over time. We're making strategic investments where others may not, and we bring a unique combination of an account focused, engineering expertise and the ability to execute those solutions directly with building owners. These relationships are rooted in a long-term partnership, where through consultative engagement, we're helping our clients develop multiyear capital plans that go beyond traditional backlog. We believe this differentiated business model positions us for sustained growth and risk-adjusted returns. We look forward to meeting and speaking with many of you before the end of the year. On December 2, we're attending the UBS Global Industrials and Transportation Conference in Florida. We hope to see some of you there. Thank you again for your interest in Limbach, and have a great rest of your day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Hello, and welcome to Snam's 9 Months 2025 Consolidated Results Conference Call. My name is Zach, and I will be your operator on today's call. Please note this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Francesca Pezzoli, Director of Investor Relations, to begin today's presentation. Please go ahead. Francesca Pezzoli: Good afternoon, ladies and gentlemen. Welcome to the presentation of Snam consolidated results for the first 9 months of 2025, which were approved by the Board earlier today. I'm here today with Luca Passa, Snam Chief Financial Officer. Luca will walk you through the key market trends, the latest regulatory developments and the main industrial and financial achievements of the period. He will then provide a detailed review of our financial results, and update of our full year guidance and a few closing remarks. After that, we will open the floor for your questions. With that, I'm pleased to hand over to Luca. Luca Passa: Thank you, Francesca. Good afternoon, everyone. Let me start with the key trends in the Italian gas market during the first 9 months of 2025 at Page #2. Gas demand in Italy was above 44 billion cubic meters, a 2% increase compared to the same period last year. Residential and commercial sector was up 2%, largely due to slightly colder weather condition, while industrial demand was broadly stable. The thermoelectric sector grew by more than 2%, driven by lower electricity imports and reduced hydroelectric output due to the lower rainfall compared to the same period in 2024, partially offset by weaker power demand. This confirms the critical role of gas-fired power generation in balancing the energy system, especially as we integrate an increasing share of renewable energy. Exports have also risen sharply, growing roughly 5x compared to the previous year, mainly through outflows from Tarvisio also driven by a decreasing TTF PSV spread differential becoming negative during September and October. Storage levels at 92%, well above the European average. Looking at supply flows, we have seen a notable shift. Pipeline imports decreased by 2.8 billion cubic meters, more than offset by liquefied natural gas imports, which rose by 4.2 billion cubic meters, a significant 38% increase year-on-year. This growth was supported by the full return to operation of the OLT terminal in Livorno and the start-up of the new terminal in Ravenna. As a result, LNG accounted for over 30% of Italy's gas imports. This contributes significantly to the enhancing both the country energy security and the diversification of supply sources, which is crucial in today's complex geopolitical environment. These dynamics highlight the relevance of a flexible and diversified infrastructure to ensure energy stability and system resilience in an increasingly volatile and interconnected environment. Let's move to the key financial highlights on Slide #3. We have delivered sound 9-month results despite persisting volatility. Adjusted EBITDA of EUR 2.227 billion is up 6.6% year-on-year, driven by growth in regulatory revenues. Adjusted net income at EUR 1.096 billion grows double digit year-on-year, thanks to higher EBITDA and greater contribution from the associates, only partially offset by higher depreciation and financial charges. Investment at EUR 1.767 billion were broadly in line with the same period of the previous year. Net debt stood at EUR 17.4 billion, down 1% versus first half 2025 after the investment activity carried out during the period and the dividend payment. The average cost of debt remained broadly stable at 2.6%. The Board of Directors also approved the distribution of an interim dividend for 2025 of EUR 0.1208 per share, representing a 4% increase compared to the previous year, in line with our dividend policy. As for regulatory updates and as already disclosed, the regulator has changed the RAB indexation for 2025 to the normalized index of consumer price for the European Union countries relating to Italy, IPCA Italy. At the same time, the for 2024 was updated to 7.9% from 5.3% to recover past adjustments. Therefore, 2025 tariff RAB was lifted to EUR 26.2 billion from EUR 25.8 billion. On the 6th of August, ARERA published a resolution for the progressive implementation of the full ROSS by 2028 with a transition period for 2026, 2027. The observation period for the 2026 WACC up date ended in September. The calculation is very close to the figure level, but the final outcome remains uncertain, and it will ultimately depend on the final inflation figure for 2026 and other components of the formula. The Council of Minister approved on June 30, a draft law for the definition of legislative framework for carbon capture and storage, hydrogen and methane emission reduction that needs parliament approval. Last week, on the 27th of October, the technical rules for CCS were issued jointly by the competent ministries. Several progress also on the financing front. We have successfully issued our first U.S. dollar multi-branch sustainability-linked bond totaling $2 billion and EUR 1 billion of EU Green bond. Moreover, in October, we have cash in EUR 121 million of Adriatic line grants. Moving now to our associates portfolio. The stake in ADNOC Gas Pipeline was sold to Lunate for EUR 233 million in March, while our 2% stake in ITM Power was disposed at the end of July. With regards to OGE acquisition in Germany, the foreign direct investment clearance is still ongoing, and this is one condition present for the closing of the deal. The long stop date is now November 17. In addition, we have signed an exclusive agreement for the acquisition of Higas, which has the rights for the conversion of its Oristano LNG coastal storage facility in the Sardinia region into an FSRU terminal. In 9 months, we have accelerated our strategy delivery. I'm now on Page #4. Let me remind the key highlights on gas infrastructure. We have more than 850 construction sites open, which represent a 19% increase versus 9 months 2024. Works on Phase 1 of the red decline are moving forward steadily with an overall completion at 43%. It was 35% at June 30. The BW Singapore regasification unit, moored offshore Ravenna began operations in May and 13 vessels arrived so far. In the 9 months, Italy received 165 LNG tankers, half of which coming from the U.S. for a total volume of about 15 billion cubic meters. At the end of September, storage level was 92%, as mentioned, 10% higher than the European average. At the moment, we have improved at around 95%, well ahead of the rest of Europe to be fully prepared for the winter season. Moving to our energy transition platform on Page #5. The first phase of the CCS project in Ravenna has delivered solid technical results. On the industrial phase, permitting for the pipeline is at an advanced stage and the process for storage has recently begun. We have submitted an application for the Connect European facility grants in excess of EUR 300 million, and we look forward to additional regulatory instruments to move ahead. As mentioned, the Ministry of Environment has just published the Ministerial Decree on CCS technical regulation issued jointly by the competent ministries. On biomethane, we have 72 megawatts already in operation, authorized or under construction, and our mission is to speed the ramp-up and maximize the value of these assets. Renovit backlog is broadly stable at EUR 1.4 billion. With regard to the H2 backbone, we have been awarded EUR 24 million contribution by the Connect European facility to cover approximately half of the feasibility studies, and we are progressing with them. Looking at sustainability and innovation, 35% of CapEx aligns with the EU taxonomy and 57% with SDGs, while sustainable finance is stable at 86% of the total. We expect 2025 Scope 1 and 2 CO2 emission down at least 25% versus 2022, which is our baseline. This is an improvement versus initial expectation of 20% reduction, mainly thanks to the new dispatching optimization tool supported by AI and a better performance on methane in this transition year of application of the new European rules. Furthermore, for the fifth consecutive year, Snam received a gold standard recognition from the United Nations Environment Program, UNEP, for methane emission reduction, confirming the group high standard of transparency and accuracy in methane emission reporting and concrete commitment on emission reduction. Our first employee share ownership plan has had an outstanding participation rate of 55% of the total workforce even more relevant as the first window only allowed for subscription through own capital, tangible signs of employees' alignment with the corporate objectives and their active participation is Snam long-term value creation journey. I would like to take this opportunity to express personally my sincere gratitude to all colleagues who joined and supported this initiative. Moving to Slide #6. Out of the total EUR 1.8 billion of investment broadly in line with the previous year, 35% is EU taxonomy aligned and includes. With regard to gas infrastructure, H2-ready replacements, dual fuel compressor station, biomethane plants connection. As for the energy transition businesses, H2 and CCS, a large part of biomethane CapEx depending on the plant's technical standards and energy efficiency, excluding cogeneration. SDG alignment is at 57%, of which the majority goes towards SDG 7, 9 and 13, respectively, affordable and clean energy, industry innovation and infrastructure and climate action. More than 50% of the CapEx are development investment, reflecting the company industrial growth phase. Let's now move to the 9-month 2025 EBITDA analysis on Slide #7. EBITDA for the period was EUR 2.227 billion, plus 6.6% compared to last year or plus EUR 138 million. Regulatory items were broadly neutral as the recognition of the 2024 deflator update for EUR 52 million and the adoption of Italian IPCA for RAB revaluation starting in 2025 for around EUR 23 million were counterbalanced by the WACC decrease for around EUR 77 million. The growth is mainly attributable to regulatory revenues increased for around EUR 119 million, Stogit Adriatica entered into the perimeter for -- from the 3rd of March 2025 and positively contributed by EUR 30 million. Ravenna FSRU that started operation from May and contributed by EUR 18 million. In details, the regulated revenues growth breaks down as follows: Transport and storage revenue increased by around EUR 122 million linked to the investment plan execution. Fast money effect amount to around EUR 16 million, higher allowed OpEx mainly due to inflation recognition, positive volume effect. These items were partially counterbalanced by the absence of LNG extra revenue recognized in the second quarter of 2024 for around EUR 40 million, lower output-based incentives by EUR 60 million versus last year, mainly attributable to the storage reverse flow service and the expected phaseout of input-based incentives. The increase in gas infrastructure operating costs, about EUR 29 million is mainly attributable to labor cost in large part due to the inflation recognition under the collective labor contract and new hires. With regard to the energy transition business, the plus EUR 5 million EBITDA contribution versus 9 months 2024 is mainly driven by biomethane supported by higher volumes. As for the full year guidance, we update our guidance to EUR 2.950 billion EBITDA, which reflects the positive impact of the 2024 deflator update accounting for around EUR 52 million and the switch to the Italian IPCA index for RAB revaluation starting in 2025, worth approximately EUR 40 million for the full year. I'm now on Page #8 on the associates. Their contribution to group net income was EUR 290 million, a plus EUR 57 million increase compared to the same period of the previous year. Out of the total contribution, EUR 197 million come from our international associates and the remaining EUR 93 million from the Italian associates. Let's now dive into the performance of each one. TAP slightly higher year-on-year contribution is mainly driven by inflation adjusted tariff and lower net financial expenses. With 16% of Italian imports, TAP is the second largest pipeline import route and will be further reinforced by the start of commercial operation of the 1.2 bcm yearly expansion from January 2026. SeaCorridor operating performance is slightly higher, thanks to lower OpEx incurred in the first 9 months, expected to normalize by year-end and lower D&A due to some investment postponement. With approximately 15 bcm imported, it represents the first Italian import route. Terega contribution is substantially in line, thanks to cost savings, we partially offset the higher financial charges due to 2024 refinancing. Moving to Austria. In 2025, TAG benefited from the new regulatory framework, which eliminates volume risk, bringing net income contribution to positive. Also GCA's performance benefited from the new regulatory framework, however, offset by a worsening in the bookings, which will be recovered in T+2 tariff. Worth mentioning the significant increase of exports from Italy to Austria underlying the strategic relevance of this route. Desfa lower contribution was due to extraordinary auction premium on LNG imports and export to Bulgaria in 2024. However, the market outlook remains positive. Greek gas demand rose by nearly 17% year-on-year, driven by higher power generation needs and a colder winter. LNG remains key, covering over 40% of imports and the Alexandroupolis FSRU is now back in operation. Desfa ambitious CapEx plan underpins this strategy. And just yesterday, the Komotini compressor station starts of operations marked the interconnection strengthening with Bulgaria and the wider region. Interconnectors contribution remains in line since we are reaching the yearly regulatory cap, thanks to capacity of almost 50% booked until 2026. EMG contribution is substantially in line compared to the same period of 2024. Regarding ADNOC, as already explained in March, we have completed the stake disposal. On the Italian associates, the growth is mainly driven by Italgas overperformance and by the higher contribution from Adriatic LNG following the increase of Snam participation in the company from last December. For the full year, we expect approximately EUR 365 million contribution from associates, excluding OGE potential contribution. Let's now move to the 9 months 2025 net income analysis on Slide #9. Adjusted net income for the period was EUR 1.096 billion or plus 10% compared to 9 months 2024 due to higher EBITDA by EUR 138 million, as previously commented, partially counterbalanced by higher D&A by EUR 77 million following rising investment and the enter into perimeter of Stogit Adriatica from March and Ravenna FSRU from May, higher net financial expenses by EUR 16 million, mainly driven by a slight increase in financial expenses related to debt, reflecting higher average net debt with an average cost broadly stable at approximately 2.6%. Contribution from associates is positive for EUR 57 million, as already commented as a result of higher international associates for EUR 33 million and higher Italian associates for EUR 24 million. Lower taxes reflect higher contribution from associates to EBT as well as tax credit adjustment related to 2024 income taxes. As for the full year, we update our guidance to EUR 1.420 billion net income adjusted, which reflects the positive impact net of taxes of the 2024 deflator update and the switch to Italian IPCA index for RAB revaluation starting in 2025 with a tax rate for the full year expected to be around 25%. Turning now to the cash flow on Slide #10. Cash flow from operation for the period amount to around EUR 2.063 billion and was the result of EUR 1.717 billion of funds from operation and EUR 346 million of working capital cash generation. The change in working capital was mainly driven by regulatory working capital with around plus EUR 170 million due to tariff-related items, mainly driven by tariff receivable decrease, around minus EUR 110 million absorption due to balancing activities and default service, about plus EUR 130 million of cash generation, mainly driven by the super bonus fiscal credit decrease and around plus EUR 160 million of temporary cash generation due to a reduction in receivable from the compensation energy clearinghouse related to flexibility service to be reserved by year-end. Net investment for the period amount to EUR 2.237 billion, including EUR 564 million of cash out related to Stogit Adriatica and around EUR 23 million of ADNOC disposal cash-in. Other outflows were mainly related to the payment of the dividend for EUR 969 million, resulting in a change in net debt of about EUR 1.188 billion. Moving to Slide #11. Net debt amounted to around EUR 17.4 billion at the end of September 2025. Net cost of debt, which is calculated as financial charges net of liquidity incomes on average net debt for the period was broadly stable at 2.6%, while the fixed/floating mix stood at 89% / 11%. Sustainable finance ratio is at 86%, well on track to reach our long-term target of 90% by 2029. Following the publication of a new sustainable finance framework, we successfully placed in May our first U.S. dollar multi-tranche sustainability-linked bond totaling $2 billion, which was the first sustainability-linked transaction globally with a net zero emission reduction target across Scope 1, 2 and 3. Moreover, in June, we have published a European bond fact sheet and issued our first European green bond of about EUR 1 billion, which so far is the largest senior single tranche by a European corporate. Following this transaction, the funding for the year is completed, leaving remaining part of the year for further opportunistic prefunding activities. Credit ratings were confirmed by Moody's and Fitch following OGE acquisition announcement, while Standard & Poor raised Snam positioning to A- following the upgrade of the sovereign, providing the strength of our credit metrics and business profile. As for the full year guidance, we reduced our net debt guidance to EUR 18 billion, thanks to higher cash conversion, a neutral net working capital effect, greater cash in from associates and an increase in investment-related payables. Net cost of debt is expected to remain stable at 2.6% with net financial expenses at around EUR 340 million. I am now on Slide #12 to wrap up the full year 2025 guidance, where we confirm EUR 2.9 billion of CapEx for the year, of which EUR 2.5 billion on gas infrastructure and EUR 0.4 billion on energy transition. As well as tariff RAB for EUR 26.2 billion, already reflecting the effects of the ARERA Resolution 130 as discussed earlier. We upgrade our full year guidance with respect to an EBITDA of EUR 2.950 billion versus the previous guidance of EUR 2.850 billion, mainly to reflect the effects of the above-mentioned resolution for a total impact of approximately EUR 90 million. Adjusted net income guidance moved to approximately EUR 1.420 billion from EUR 1.350 billion, mainly to reflect the above-mentioned resolution net of taxes. Net debt guidance significantly improves to EUR 18 billion, thanks to higher cash conversion, the neutral net working capital effect, greater cash in from associates and increased investment related payables. This outlook incorporates the expectation that the 24.99% OGE stake acquisition, if completed by 2025 year-end will be financed through either asset rotation or the issuance of a dedicated hybrid instrument. Finally, the Board has approved the distribution of an interim dividend for 2025 amounting to EUR 0.1208 per share with a payment due starting from January 21, 2026. This is up 4% versus the previous year, in line with the guidance and represent a 71.4% payout. To close on Page #13, the current energy scenario continues to highlight the crucial role of gas in ensuring system stability and resilience within an increasingly volatile and interconnected environment. We remain fully committed to support Italy's security of supply as shown by the high storage levels and the significant increase in LNG volumes injected into the network, demonstrating the country's role as a strategic energy gateaway for Europe. We are also accelerating the execution of our strategy with over 850 construction sites currently active across the country, the commission of the Ravenna terminal and the city progress on the Adriatic line. Our strong performance over the first 9 months with all key financial indicators improving reflects the solidity of our business model and operational excellence. This, together with greater financial flexibility, allow us to upgrade our 2025 guidance on EBITDA, net profit and net financial debt, supporting long-term sustainable value creation for all our stakeholders. We are now open to take your questions. Operator: [Operator Instructions] And the first question comes from the line of Javier Suarez of Mediobanca. Javier Suarez Hernandez: The first one is on the latest draft law on CCS and hydrogen. If you can elaborate for us your reading of this first draft and the possible implication for Snam and its business model? Then the second question is on the situation -- an update on the situation in Germany with OGE, which is -- the question is which is your best estimate for a decision for the conclusion or not of this deal and which in terms of deadline is the absolute maximum that you have to take a final decision in this operation. And then the third question is on the slide on energy transition. You are mentioning a EUR 1.4 billion backlog. If you can give us some details and granularity on this backlog. Luca Passa: Thanks, Javier, for the 3 questions. So when it comes to the draft law for CCS H2, this was already widely expected. It was proposed on the June 30, and we are waiting for parliament approval. We give basically the power to the regulator in order to regulate these 2 energy vectors, which currently are not part of the mandate of the regulator. Therefore, is, I think, a very important step when it comes to finalizing our investment decision around these 2 businesses. Now on CCS, on top of the draft law, as I mentioned during the presentation, also a technical specification last week were issued by the ministries and technical specification means security, how to handle, how to transport basically that type of molecule, basically CO2 molecule. So clearly, we are moving in the right direction and will allow us to basically give us, let me say, the way in which we are planning for CCS to take an FID on the industrial phase of the project by the beginning of 2027. When it comes to the German update on the potential acquisition, I can only mention that we currently are on the Phase 2 of the FTI procedures, which has been going since basically the end of April and that we have a long stop date with our counterpart on the contract that ends on the 17th of November. Therefore, our expectation is by then to have an answer one way or the other. And therefore, we will know shortly whether we can finalize and conclude acquisition because this is the only condition precedent for us to basically execute finally the contract. For the energy transition backlog, I can tell you that only 10% is now residential because it has gone down, as you probably remember, a lot of the works were related on the residential part of the Super Ecobonus tax allowances that was [indiscernible] in Italy up until 2023. 45% currently is on public administration, which has been the major focus of the company in the last couple of years and 45% on large industrial customers. So that is the split of the EUR 1.4 billion of backlog, which has a duration over 7 years currently. Operator: The next question comes from the line of James Brand of Deutsche Bank. James Brand: Congrats on the results. I just wanted to ask, I know you just kind of answered a little bit on CCS, but I was just kind of keen to understand the kind of time line there for getting more clarity and also what that opportunity could be worth for you if you're willing -- obviously, you haven't set anything out that's too concrete at the moment, but maybe just to delve into that a little bit. So you said you're hoping to start making decisions on projects in early 2027. Could you just tell us kind of what the next steps are on the regulatory side? Are we waiting for the law to pass and then the regulator to come out with some regulatory framework? Or if that's not the case, what else are we waiting for to be coming through, firstly? Secondly, I guess these investments are going to be outside the RAB, but maybe that's not clear yet. And thirdly, is there anything at all you can say about the scope of the investment opportunity here? It seems like it could be a very big one. And obviously, you haven't set anything out, but is there any kind of rough commentary you could give us or help us in kind of understanding how big an opportunity it would be? Luca Passa: Thanks, James, for your question. On CCS, clearly, the draft law needs to be converted into law by the parliament, and we expect that to happen, I would say, before year-end or just in and around year-end. That will give the powers to ARERA to start formally work on a draft regulation. Now we expect this business to be fully regulated, therefore, contributing to our regulated asset base. I will tell you what we have already included in our business plan presented last January, which is EUR 500 million of CapEx, of which EUR 300 million on transport and EUR 200 million, which is our share in the JV for the storage business together with Eni. The assumption for us is that clearly this EUR 500 million of investment will translate into RAB fully by the end of 2029. And the expected remuneration, at least what we assume so far is to have a remuneration which is similar to the one of gas for both transport and storage, but clearly at a premium. Our assumption is, on average, 100 basis point premium. Clearly, this is a discussion that we will have with the regulator once they are entitled formally to basically start drafting the regulation. But those are basically the expectation. In terms of investment, clearly, if we take an FID decision at the beginning of 2027, the amount of investment for both, I would say, transport is in the region of EUR 800 million more or less, and that will last even beyond clearly the business plan. When it comes to basically the JV, there is another EUR 1 billion, EUR 1.5 billion of investment on our side that will go even beyond those type of dates. But let me say that we will be more specific in terms of the scope of this investment in the business plan update that we will give to the market during the first quarter of next year. But as you pointed out, clearly, this will be a sizable investment. What I can tell you is it will be a fully regulated business and accreting to basically the regulated asset base of the company. Operator: And the next question comes from the line of Emanuele Oggioni of Kepler Cheuvreux. Emanuele Oggioni: The first is on the '26 allow WACC based on the official site of ARERA seems that they used the old ECB inflation parameter. So probably the trigger that will not be activated. I don't know if you can comment on this. We'll discover probably in a few hours or tomorrow. The second question is on LNG, the Oristano projects and the possible acquisition. I think probably before you will ask you try to get a higher level of protection for -- within the current regulatory framework for LNG. So basically, volumes warranted similar to the previous 2 vessels in Italy before to go ahead to the investments. And if we can expect investments in line with the previous 2 FSRU, so around EUR 400 million, EUR 450 million per vessel. And finally, when you can expect the update of the business plan will be in January or after along the year? Luca Passa: Thanks, Emanuele. We are finalizing -- my answer to the last question first. We are finalizing the date is going to be towards the end of February, beginning of March in terms of timing, but we have not finalized yet. When it comes to the first question, what I can comment is you all analysts have models in order to model whether the trigger gets triggered or not and what is the inflation assumption that you need to set into the model for it to trigger or not to trigger. So clearly, this is a decision that ARERA will take. And as you said, probably they already taken, but it will be public in the next few hours. So I cannot comment on that. I can only add that ARERA has always been a very reasonable regulator. Therefore, I expect them to take a reasonable decision also on this topic. When it comes to the Sardinia or Oristano project, first of all, this is going to be a virtual pipeline to the mainland. Therefore, also the LNG facility will be accounted into the transport regulation and nor the LNG regulation. So we will enjoy the same type of remuneration of a transport facility. The amount of investment that we are expecting to basically devote to both the LNG ship as well as the works that we need to do on site in terms of pipes is in the region of EUR 700 million will be fully detailed in the new business plan again that we presented between the end of February and the beginning of March of next year. Then on the broader question, whether we feel that LNG terminals need to be fully guaranteed in terms of volumes. Clearly, this is very important for us. You have seen from the numbers that LNG is becoming a key source of imports when it comes to gas. Therefore, we feel that this investment need to be fully regulated, and we should have guarantee on volume at 100% rather than the current 64%. Operator: The next question comes from the line of Sarah Lester of MS. Sarah Lester: Just a really quick one, please, on your latest disposals preference ranking. So I saw that you mentioned the possible asset rotation to fund the Open Grid Europe acquisition. So just wondering if you're able to please provide a bit more color around how you currently consider the pecking order for the potential candidates for disposal post ADNOC. And I suppose this is actually a broader question, too. It's not just within the Open Grid Europe context. Luca Passa: No. The asset rotation is not just in the context of the potential of the acquisition. It's part of the review of the portfolio that we are doing following clearly the strategic positioning of the company going forward across certain regions. Now what I can comment today is only on the public process that we currently have ongoing, which is the disposal of our biomethane platform. We have hired publicly all advisers, including financial advisers, and we will be in the market with that portfolio probably closely after year-end. The book value of that portfolio, just for you to remember, is in the region of EUR 560 million as of today. Operator: Okay. Next question is from the line of Marcin Wojtal of Bank of America. Marcin Wojtal: Just a couple of questions on the numbers, if you allow me. So firstly, you increased your guidance for EBITDA by about EUR 100 million. Can you just remind us what amount of that EUR 100 million actually flows mechanically into 2026? And my second question, could you just repeat the indication that you gave for associates for 2025? I didn't quite catch that decision, but if you could just clarify that guidance. Luca Passa: Yes. Marcin, the guidance for contribution of the associate portfolio for the full year expected today is EUR 365 million, which is slightly higher than what I said in the first half results call. And this EUR 365 million exclude any contribution from OGE because even if you go to closing, it will not be part of the contribution for this year. When it comes to what of the current guidance upgrade will translate into 2026, I can tell you that the same contribution on the [indiscernible] that we had in 2025, which is about EUR 40 million, we will also driven into 2026. So EUR 40 million is what we expect to have higher contribution from the new indexation in 2026. Operator: The next question comes from Davide Candela of Intesa Sanpaolo. Davide Candela: I have 2. First one is a clarification on net debt. You improved the guidance by EUR 400 million. I was wondering if that neutral working capital you're seeing is just temporary and as an effect for this year and will be reverted in the next year or it is actually a structural recovery you are seeing? Second question, in the Slide 5, you mentioned a contribution with regards to the reduction of methane emission from AI. I was wondering if with regards to this topic, you are also seeing some benefits on the cost side and your general operation in your company. Luca Passa: Thanks, David. When it comes to the working capital neutral expectation towards year-end, I mean, this is our job. I mean we need to plan on a working capital basis being neutral every year. Clearly, we had swings in the past 2 to 3 years, given that the market was either long or short with the relevant prices impact that affect clearly our working capital, especially towards year-end. But the expectation, if prices, let me say, stabilize across the numbers that we are seeing in the last -- in the recent months, we should have neutral working capital every year. And that's on this point. When it comes to the reduction of emissions, which is expected to be 25% vis-a-vis 2022, that is part of the work that we're doing on the way in which we dispatch basically our gas in the network. We fully digitalize our assets now is almost 18 months. And after clearly digitalizing our asset, we are using different type of algorithms also supported by AI intelligence in order to see what is the best dispatching method that allow us to consume less in terms of burning gas in order to pressure the gas into the pipes. Clearly, there are also some cost benefit, but those are part of the remuneration and in the numbers that already we are seeing when it comes to what is the cost of dispatching our gas transport. I can tell you that we are just seeing the first signs of a full digitalized network system that might even improve going forward, not only on emission reduction, but on general efficiency going forward. Operator: The next question comes from the line of Bartek Kubicki of Bernstein. Bartlomiej Kubicki: I would like to ask 3 questions. First of all, with regards to the slide on gas demand, you are pointing to higher gas demand from households. And my question is whether you see any reason to believe that the gas demand from households will structurally increase in the future? Or do you think it's rather going to be down trending and only impacted by weather? Second of all, on the energy efficiency order book you discussed before, I would like to ask you what do you see in terms of margins? Meaning do you see margins improving over time? Or do you think there's an increasing competition and consequently, margins are being squeezed? And the third question will be on your convertible bond on Italgas and the latest share price performance. If you can maybe explain a little bit how does it impact your financial costs and what it could do to your future cash outflows once the bond is redeemed? Luca Passa: Thanks, Bartek, for your 3 questions. So when it comes to gas demand, besides also the weather adjustment that you discussed, the expectation, and I don't think it's going to be driven mainly by residential, but both by industrial as well as thermoelectric production is for a stabilization of desire level of volumes. We expect this year to close basically with a full demand in the region of 64 basically bcm, which confirms the growth that we've seen in the first 9 months of the year. But let me also add that the expectation is to stay at this level up until 2030. Therefore, I think there is a structural shift when it comes to usage of gas and in particular, for thermoelectric production, which only started this year, but will be structural, and we will see it going forward also for the announcement of other countries to increase combined cycle generation when it comes to electricity. When it comes to the energy efficiency marginality, what I can tell you is that clearly, we have moved from a pure or, let me say, larger residential business to public administration and industrials. This business has always run in the region of 16% to 19% in terms of marginality. Currently, we are not seeing margin pressures, but the more the contracts are larger, the more sophisticated customers and all these customers, especially when it comes to public authority are public tenders, clearly, there is some kind of pressure on marginality, but it's not something that we are seeing because the book has been built over the last 24 months. When it comes to the Italgas exchangeable, what I can comment is it is an exchangeable currently is in the money in terms of where the share price is vis-a-vis the conversion premium. Therefore, we have optionality to convert if you want, starting from, I think, is September, October next year or wait for maturity. And in that case, we will decide whether to deliver share, cash or a mix of those. There is no impact in terms of cash flows in the sense that we have an underlying and we have set the terms to which the instruments will be reimbursed. Operator: The next question comes from the line of Charles Swabey of HSBC. Charles Swabey: I just have one on U.K. gas storage and your ambitions there through dCarbonX. Just I was wondering if you could provide any update on sort of the timing or size of the investment there? And if you're in conversation with government about any sort of potential regulatory framework that might underpin that investment. Luca Passa: What I can comment, Charles, on that is that current consultation, DCX is clearly working -- developing, let me say, a project in that respect. But as of now, in terms of where we stand and what could be, let me say, a pre-FID type of schedule, it's very difficult to say. Again, for us, our participation in DCX as a developer of these projects, then we will consider whether we want to invest in the project or not. So we have no commitment in that sense going forward. Operator: Thank you. As of now, there are no further questions. I will give it a moment in case there is any follow-up questions from the participants. There are no further questions. I will now hand you over back to your host, Francesca, for any closing remarks. Francesca Pezzoli: So thank you very much for listening. As usual, the Investor Relations team is available for any follow-up. Thank you. Bye-bye. Luca Passa: Thank you.
Operator: Hello, and welcome to the Q3 2025 Teva Pharmaceutical Industries Limited Earnings Conference Call. My name is Alex, and I'll be coordinating today's call. [Operator Instructions] I'll now hand over to Chris Stevo, SVP, Investor Relations. Please go ahead. Christopher Stevo: Thank you, Alex. Good morning and good afternoon, everyone. In a moment, I'll hand the call over to my CEO, Richard Francis. But before I do that, it is my duty and my honor to remind you of our forward-looking statements. Today on this call, we'll be making forward-looking statements, and we undertake no obligation to update those statements after today's call. If you have any questions regarding forward-looking statements, please feel free to see our SEC filings under Forms 10-Q and 10-K in the relevant sections. And with that, Richard Francis. Richard Francis: Thanks, Chris, and good morning, good afternoon, everybody. Thank you for joining the call today. On the call today, I will be joined by Dr. Eric Hughes, Head of R&D and Chief Medical Officer; and Eli Kalif, the CFO of Teva Pharmaceuticals. So starting with, as I always do, the pivot to growth strategy. This is a strategy that have guided Teva for the last 3 years, a strategy based on the 4 pillars: deliver on our growth engines, which is all about driving AUSTEDO, UZEDY and AJOVY, our innovative portfolio, stepping up innovation, which Eric will talk to you about, with the great progress we're making across our innovative pipeline, sustained generics powerhouse and the work we've done to stabilize our generics business and then focus the business, and I'll give you an update on where we are with our transformation of Teva, our $700 million cost savings programs as well as an update on TAPI. Now moving on to the actual results. Pleased to say this is our 11th quarter of consecutive growth, up 3% in revenue to $.5 billion, and adjusted EBITDA up 6% and our non-GAAP EPS up 14%. These all compared to Q3 2024. And our free cash flow is just above $0.5 billion. I'm really pleased to say that our net debt to EBITDA is now below 3x for the first time since 2016. Now moving on to the next slide, one of my favorite slides, I have to admit. This is our 11th quarter of consecutive growth after many years of sales decline. And it's worth noting that Q3 '24 was a particularly difficult comparison year where we had growth of 15%. And so to grow 3% over that comp, I think, is a testament to the work we've done on our portfolio and a testament to the teams. Now this puts us on track for our growth targets we set for 2027 to have mid-single-digit growth. So congratulations to the whole team that have made this happen over the last 11 quarters. Now going down a bit more detail, what's behind this $4.5 billion revenue and 3% growth. This growth was spearheaded by our innovative products, and I'm really pleased to say that they are now worth over $800 million for the quarter, and the growth is 33% year-on-year. AUSTEDO grew an impressive 38%, reaching $618 million. UZEDY performed strongly, up 24%, reaching $43 million and AJOVY performed well, up 19% to $168 million. Global generics revenues was up 2% and TAPI was down 4%, reflecting some seasonal volatility. So now I'm going to double-click and go into a bit more detail on all of these areas, starting with AUSTEDO. Now as you know, AUSTEDO was selected earlier this year for CMS for the 2027 price negotiation. And I'm pleased to say that agreement that we've concluded is consistent with our midterm expectations for AUSTEDO that we first laid out back in May 2023. And this means that we can confirm with confidence our 2027 revenue target of $2.5 billion and our peak sales target of over $3 billion. Now let's talk a bit more about AUSTEDO in Q3. It was another strong quarter for AUSTEDO, where the team continues to perform incredibly well. The U.S. reached $601 million in Q3 '25, growing at 38% year-over-year. And this is the first time we have passed $600 million. So congratulations to the team for all their hard work in making this happen, and it really reflects the understanding this team has of the market. We grew TRx 11%, and we continue to see the increasing penetration of AUSTEDO XR. And it's worth reminding everybody again that AUSTEDO XR requires fewer scripts compared to the original AUSTEDO, and that's why it's equally important to look at the milligrams dispensed. And as you can see, these were up 25%. Now as you see on this slide, we've highlighted that with 2026 approaching, we have a good sense of AUSTEDO's 2026 formulary position, and we continue to reflect the balance between preserving value and maintaining access. So based on these strong results in Q3, we can increase our revenue outlook for AUSTEDO to $2.05 billion to $2.15 billion for the year. Now moving on to UZEDY, another exciting member of our innovative family. UZEDY continues to perform well. Momentum remains strong as we continue to address the needs of the mild-to-moderate patients and those beyond who take risperidone. Revenues were up 24% year-over-year, and TRx was up a strong 119%. It is worth noting that revenue growth was partially impacted by a onetime Medicaid gross to net adjustment. Now this does not impact our long-term LAI franchise expectations, and we reiterate our peak sales target of $1.5 billion to $2 billion for the franchise. Now this confidence is rooted in the data. UZEDY's NBRx is significantly above the TRx. As you know, in Q3, we also had an expanded indication for bipolar I disorder. Now to give you more guidance on how to forecast UZEDY going forward, the Q4 implied guidance of $55 million to $65 million provides a cleaner run rate for forecasting going forward due to that gross to net adjustment in Q3. But I want to take a couple of slides just to talk about the excitement we have around our LAI, our long-acting franchise in schizophrenia. And why do we think this $1.5 billion and $2 billion is achievable? Well, it really comes down to the great work that's been done with UZEDY already. The team here has created great traction, as you can see, with 119% TRx growth. We have a great product profile with UZEDY, and we anticipate having a similar strong product profile with olanzapine. But more importantly, the capabilities and the knowledge that has been built here, we have the same people in front of key payers, the same people in front of these key physicians, these key nurse practitioners, health care providers, patient associations, the people who look after the formulary committees. That puts us in a very strong position. And we know and believe there's a significant unmet need in the olanzapine for long-acting treatment. And if you put those 2 together on this slide, we have the ability with UZEDY and our long-acting olanzapine to treat up to 80% of patients who suffer from schizophrenia, whether that's mild to moderate with UZEDY or moderate to severe with long-acting olanzapine. And just to highlight, unfortunately, 4.7 million people suffer from schizophrenia in the U.S. and Europe. So the opportunity for both brands is significant. That's hence the reason why our confidence in the $1.52 billion remains strong. Now moving on to AJOVY. I do love AJOVY. It continues to grow strongly across all regions in what is still a very competitive market. And there's some nice data points here. We are the #1 preventative CGRP injectable in new prescriptions among the top U.S. headache centers, and we are the #1 preventative CGRP injectable in 30 countries across Europe and international. And so we confirm our guidance of $630 million to $640 million. Now staying on innovation. I'm going to touch briefly upon the innovative pipeline, as I know Eric will talk to you about this later, but I'm super excited about this. Why? Because it's near term. These are late-stage assets. Olanzapine, I'll talk to you about the filing of that this year. DARI, the good recruitment that we're seeing to bring that to the market in '27. Duvakitug, starting our Phase III study. Emrusolmin, great recruitment there. But then I look across the right-hand side of the slide, and I see the potential of peak sales, and it's over $11 billion. And I'll remind you, that's just for the indications on this slide. We know that duvakitug and anti-IL-15 will be pursued in multiple indications. So we really have strong growth drivers for the future for Teva. Now moving on to our generics business. Our generics business grew 2% over 2024, and this is fueled by launches as well as the growth of our biosimilar and our OTC business. Now as I reminded you before, we tend to look at this business over a 2-year CAGR just because of the inherent timing of new launches that we have in this business. Now looking at the regions, we had a very strong quarter for the U.S. It grew 7% in Q3, and that was driven by several launches and particularly strong performance of biosimilars as well as some phasing patterns for our generic Revlimid, which I would like to point out, these will not be repeated to the same magnitude in Q4. Europe declined 5%, mainly due to some tough comparisons to the prior year where we had a number of launches and a number of tender wins, which are for 2-year periods. So it's a 1% CAGR for the 2 years. International markets grew at 3% or 12% on a 2-year CAGR. But now I'd like to talk to you a bit about our biosimilars because we're entering an exciting period for our biosimilars portfolio. We have -- now have 10 in-line assets globally and the potential to launch 6 more through 2027. So we're well on track to add another $400 million by 2027 as we forecasted back at the start of the year. And I want to remind you that today, we're growing strongly in biosimilars without substantial launches or revenues in Europe, which is the largest region in the biosimilar market. And our European pipeline will start to convert into launches and revenues and biosimilars will be a more significant driver for Teva overall after 2027. Now moving on to the fourth pillar, focus our business. We made significant progress with the Teva transformation program, and this is something we started at the start of this year. And we made a commitment to realize 2/3 of the $700 million by the end of 2026. And I can tell you we're on track to do that. The reason why I can tell you that is because we're on schedule to hit our 2025 goals, and that sets us up well for the start of next year. But I'll leave Eli to go into a bit more detail later on in this presentation. Now before I hand it over to Eric, I wanted to give you an update on how we're tracking for the 2027 targets, which we are reiterating today. So from a revenue point of view, with the IRA negotiations now finalized, our upcoming launches and the stabilization of our generic business, we estimate that 2025 will end the year with a 3% to 4% growth range, consistent with our '23 to '27 mid-single-digit average growth. On OP, because of the work we've done of driving our innovative portfolio, I remind you, up 33% as well as the progress we made on organizational effectiveness, we are on track to our 30% margin. And this year, we will end around the 27% margin overall. And the net debt-to-EBITDA dropped below 3x, as I mentioned earlier. By the end of this year, we should be around 2.8x, well on track to hit the 2x by 2027. And with that, I will hand over to my colleague, Eric Hughes. Eric Hughes: Thank you, Richard. Now as Richard said, we have a healthy late-stage development programs in our innovative medicines. And we're doubling down on our efforts to execute these studies on time and efficiently. Now beginning with olanzapine LAI, we're on track for our FDA submission later in this quarter. Our DARI program for both adults and pediatric patients is on target for enrollment by the end of this year. Our duvakitug program in partnership with Sanofi has now initiated both our ulcerative colitis and Crohn's disease Phase III studies. Our emrusolmin program has now enrolled the 100 patients that we'll need for our futility analysis by the end of next year, and then enrollment continues to do very well. And finally, our anti-IL-15 program, very exciting program with multiple potential indications in the future, where be reading out our celiac and our vitiligo studies, proof of concepts in the first half of next year. So exciting late-stage programs. But before I go on to those in more specific detail, I do want to have a celebration for the UZEDY team for bipolar I disorder. We had an approval and an expansion of our label, which we're very proud of. This is an innovative approach by the team using the known and well-characterized pharmacology of UZEDY plus the safety database that we have in conjunction with efficacy using a modeling and simulation approach to expand that label for patients suffering from bipolar I disorder. So a great innovative approach, very efficient execution and a great opportunity for patients to get treatment for their bipolar disease. Now on to olanzapine LAI. As we've mentioned, we've actually presented the data, both the safety and efficacy of the full program in Phase III at the 2025 Psych Congress Annual Meeting. It was very well received. Both the safety and efficacy was right where we expected it. And most importantly, we had no cases of PDSS. And that submission is planned for the late half of this quarter. So on track and exciting opportunity for patients in the future. Moving on to our dual action rescue inhaler program for asthma, our ICS/SABA Phase III program. This is the largest study we've run at Teva to date. Right now, we're on track for full enrollment of our adults and our pediatric patients at the end of this year. And remember, the real value here is the fact that in our label, we anticipate to get the pediatrics included, which is 25% of the market. And also, we'll have a dry powder inhaler, which is a simple device to use, simply open, inhale and close. This makes it much more convenient for both adults and particularly the pediatric patients. So a great program right on track. And as I mentioned before, we're very excited to announce that we have now initiated both the ulcerative colitis and Crohn's disease Phase III programs with our partner, Sanofi, for our duvakitug program. This is a very exciting program, very large effort by many people. The ulcerative colitis study is called SUNSCAPE and the Crohn's disease program is called STARSCAPE. And what we're really excited about with this program is the way we've designed Phase III. It includes an open label feeder arm that will enroll patients very rapidly since it's open label and they know they get treatment, but that gets to our safety numbers very rapidly in the maintenance. We have a favorable randomization ratio for the patients to active. We have a rerandomization design, which is really a more feasible or favorable design for multiple doses and is more reflective of clinical practice. And finally, but possibly most important of all, the entire program is based on subcutaneous injections. That's loading dose, induction rate and then maintenance throughout the entire program. So it's a really patient-friendly program, and it's designed to execute quickly. I would add, we were the fastest to transition this MOA from Phase II to Phase III. So it's all about execution now with a great program. So kudos to the team. And on to emrusolmin. I always like to start by saying emrusolmin is enrolling a patient population that is a real unmet medical need. This is multiple system atrophy. And our differentiated molecule is targeting the very beginning of the alpha-synuclein aggregates. We have a very efficient design. Here, you can see it's a 48-week design against placebo. And I mentioned enrollment is going very well, and we've already got the first 100 that will be involved in the futility analysis at the end of next year. So we're right on track, and it's going quickly. We're proud that this has received fast track designation, and we've already got the orphan designation. So more to come. And finally, I just want to touch base on the anti-IL-15 program. This is another great homegrown antibody and program from the Teva laboratories. Right now, we've got it in proof-of-concept studies in celiac disease and importantly, also in vitiligo, which will read out in the first half of next year. But the upside possibility here is multiple different indications. Remember, IL-15 is a key cytokine in the activation and proliferation of NK cells and T cells that's believed to be involved in many different indications that you can see here. So a lot to go with IL-15, but very exciting program, and that also received fast track designation. And with that, I'm going to pass it off to my colleague, Eli Kalif. Eliyahu Kalif: Thank you, Eric, and good morning and good afternoon to everyone. I would like to start today with the following key messages that demonstrate our consistent execution over the last few quarters, including in Q3. First, Q3 results were above solid, driven once again by our fast-growing innovative portfolio. As Richard said earlier, this was our 11th consecutive quarter of revenue growth. Second, we continue to strengthen our balance sheet and specifically reduced our net debt to below $15 billion and expanded our EBITDA, leading to the net debt-to-EBITDA of below 3x for the first time since Q3 2016. Third, we have made significant progress in our transformation programs with approximately half of our planned savings of $70 million for 2025 already achieved by Q3. We are on track to deliver approximately $700 million of net savings by 2027 and achieve our 30% operating margin targets. And lastly, the outcome of the IRA negotiation for AUSTEDO is largely in line with our model expectation and further emphasize our conviction in achieving our revenue target of $2.5 billion in 2027 and more than $3 billion at peak for AUSTEDO. Now moving to Slide 30 to review our Q3 2025 financial results, starting with our GAAP performance. Please note that throughout my remarks, I will refer to revenue growth in local currency terms unless otherwise specified. Similar to the last quarter, I will also refer to certain results from Q3 2024 that exclude any contribution from the Japan business venture, which we divested on March 31, 2025, to help you with the like-to-like comparison of our financial results. Our Q3 revenue were approximately $4.5 billion, growing 5% in U.S. dollars or 3% in local currency. Revenue growth was mainly driven by continued strong momentum in our key innovative products, AUSTEDO, AJOVY, and UZEDY as well as our generics products in the U.S., including biosimilars. This was partially offset by some softness in European generics as well as lower proceeds from the sale of certain product rights compared to Q3 2024. GAAP net income and EPS were $433 million and $0.37, respectively. FX movement during the quarter, including hedging effects positively impacted revenue by $106 million and operating income by $21 million compared to the third quarter of 2024. Now looking at our non-GAAP performance. Our non-GAAP gross margin increased by 120 basis points year-over-year to 55.3%. This increase was slightly higher than our expectation, driven mainly by strong growth in AUSTEDO leading to an ongoing positive shift in our portfolio mix. Gross margin also benefited, although to a lesser extent from a shift in ordering patterns for generics Revlimid in our U.S. generics business, leading to some volume shift from the second quarter to the third quarter as well favorable FX. This strong performance in non-GAAP gross margin largely carried through the non-GAAP operating margin, which increased by approximately 70 basis points year-over-year to 28.9%. This was partially offset by higher planned investment in OpEx and impact from foreign exchange movements. Overall, we ended the quarter with a non-GAAP earnings per share of $0.78, an increase of $0.10 or 14% year-over-year. Total non-GAAP adjustment in the third quarter of 2025 were $478 million. Our free cash flow in Q3 was $515 million compared to $922 million in Q3 2024. This decrease was mainly due to timing of sales and collection as well as higher legal settlement payments, which we have planned for this year and is reflected in our full year free cash flow guidance. Moving to Slide 31. We are making significant progress in our Teva transformation programs through a well-defined and targeted efforts to deliver sustainable margin improvements without compromising our ability to innovate and invest in our long-term growth. These programs are expected to deliver approximately $700 million of net savings between 2025 and 2027, with roughly 2/3 of these savings to be realized between 2025 and 2026. We are well on track to achieve approximately $70 million of initial savings in 2025 with half of it already achieved by end of Q3, demonstrating solid momentum and execution. It's important to remember that the transformation we are driving is not just about reducing the spend. It's part of the journey to transform and modernize Teva into an innovative biopharma company and prioritizing resources towards areas that drive growth and innovation. These transformation efforts, along with the ongoing portfolio shift towards high-growth and high-margin innovative products provide a clear and credible path to achieving our 30% operating margin target by 2027, even as we continue to invest in the business. In relation to these programs, we have recorded approximately $190 million year-to-date in restructuring costs and expected an overall cash outflow of $70 million to $100 million in 2025. Our guidance for 2025 already incorporated the impact of both expected savings and this cash outflow. Now moving to the next slide for an update regarding our strategic intent and the progress and the process to divest TAPI. As we have consistently and transparently shared with you all, we have been in exclusive discussions with a selected buyer for the sale of TAPI. At this time, we have decided not to move forward with those discussions as we were unable to reach an agreement aligned with Teva long-term priorities and interest of our shareholders. While this process did not result in a sale with this initial buyer, recent shift in the geopolitical environment and market conditions reinforce TAPI attractiveness for potential buyers. We continue to view TAPI as a valuable asset, but it's nonstrategic to our pivot to growth priorities. We are now initiating a renewed sale process to explore alternative options and maximize potential value creation. We will provide further updates pending a transaction or other determination. Moving on to our 2025 non-GAAP outlook in Slide 33. Our performance year-to-date reflects consistent execution across our pivot to growth priorities with a solid revenue growth, margin expansion and cash flow generation despite the tough prior year comparables in our generics business. Based on our year-to-date results and with the 2 months left in the year, we are tightening our 2025 outlook range for revenue, operating profit, adjusted EBITDA and EPS. Starting with revenue. Consistent with the direction we shared last quarter, we are tightening the full year guidance range to be between $16.8 billion and $17 billion. Our innovative portfolio continues to perform very well, specifically AUSTEDO, driven by strong demand and our commercial execution. With the strong year-to-date performance, we are increasing our full year outlook for AUSTEDO by $50 million to $100 million to a new range of $2.05 billion to $2.15 billion, reflecting a full year growth of 21% to 27% year-over-year. However, as we discussed last quarter, we expect our global generics revenue for the full year to be flat in local currency compared to 2024. This is mainly due to the tough year comparison deals in the timing of certain launches as well softness in certain markets. Moving to the other elements of our financial outlook. With a strong year-to-date performance, we now expect our non-GAAP gross margin to be at the higher end of our guidance range of 53% to 54%. This implies a slightly lower margin in Q4 compared to Q3, mainly due to generic Revlimid seasonality as the majority of our volume allocation was sold by the end of Q3. We're also increasing the lower end of our non-GAAP outlook range for adjusted EBITDA, operating income and EPS, consistent with our year-to-date results and expected ongoing strength in our innovation portfolio, along with the savings from our transformation programs. While we continue to wait for clarity around potential U.S. tariffs on pharmaceuticals, including the outcome of the ongoing 232 investigation, we are encouraged by the statement so far from the administration regarding possible generics exemptions. Our 2025 guidance continue to already reflect confirmed tariffs that are in place. We continue to expect our operating expenses to be between 27% and 28% of revenue. Our free cash flow guidance range remains the same between $1.6 billion to $1.9 billion. I would like to reiterate that our full year guidance does not include the development milestone related to the Phase III initiation of duvakitug UC and Crohn's indications. That said, to assist you with your modeling, we want to highlight that the expected contribution from this development milestone is dependent on the timing of each of these 2 studies. Based on the current time lines, we expect to earn one development milestone in Q4 2025, with the remainder expected in Q1 2026. For Q4 2025, we expect the first development milestone to contribute $250 million to revenue and approximately $200 million to EBITDA and free cash flow, net of certain transaction-related costs. This first development milestone is expected to contribute approximately $0.14 to the EPS. Now turning to the next slide on capital allocation. Our capital allocation approach remains disciplined and focused on supporting our pivot to growth strategy and strengthening our balance sheet. As I mentioned in the beginning, we are consistently reducing our debt while investing in our go-to-market capabilities and innovation. With the ongoing improvement in our free cash flow, we are on track to reach our net debt-to-EBITDA target of 2x by 2027 and then to sustain around that level thereafter. In addition to our ongoing deleveraging and progress towards an investment-grade ratings, our disciplined execution also position us well thoughtfully evaluate additional ways of returning capital to our shareholders. Finally, before I conclude my review of our third quarter performance, I would like to reaffirm our 2027 financial targets. The outcome of the IRA negotiation for AUSTEDO further emphasize our conviction and provides additional clarity to deliver on these midterm goals. With that, I will now hand it back to Richard for his closing remarks. Richard Francis: Thank you, Eli. Before I conclude, let me remind you of some of the growth drivers that we have here at Teva. As you -- as we expect our innovative portfolio to continue to drive growth beyond 2027, you can see that we have a significant amount of opportunity to do this. Currently anchored on AUSTEDO, which we reiterated our target of reaching more than $2.5 billion in '27 and greater than $3 billion in peak sales based on the conclusion of our IRA negotiations with CMS. Along with the innovative products UZEDY, AJOVY, we will continue to drive our product mix and profitability. But also to build on Eric's remarks, we are preparing for exciting innovative product launches in the next few years, which should set a foundation for growth in years to come. If you move on to my final slide, just some final thoughts. In Q3, in '25, we continue to deliver on our pivot to growth strategy with the 11th consecutive quarter of growth, growing our innovative franchise at 33%. We have a clear path towards our 30% operating margin and our other 2027 targets. We're advancing our innovative pipeline with near-term and long-term catalysts and Teva transformation is well on track to deliver the $700 million in savings we committed to. And with that, I would like to open the floor for the Q&A. Thank you. Christopher Stevo: Thank you, Richard. Alex, if you could -- sorry, Alex, if you could please go ahead with question queue and we ask if you could limit yourself to one question and one brief follow-up, and of course if there's additional time, we're happy to let you back in the queue for more questions. Go ahead, Alex. Thanks. Operator: [Operator Instructions] Our first question for today comes from Dennis Ding of Jefferies. Yuchen Ding: Maybe one on AUSTEDO and IRA. Thanks for the comment and glad to see that you're reiterating the long-term AUSTEDO guidance. I'm curious what additional color you can give in terms of your own internal expectations going into the negotiations and how the negotiated price relates to the current Medicare net price. Richard Francis: Dennis, thanks for the question. Well, as I mentioned on the call, how it met with our expectations, it was in line with what we had forecast when we set the forecast back in May 2023. So we had anticipated that we would be in the list, and we would be negotiating with CMS. And so because of that, that's why we remain very confident about hitting our $2.5 billion revenue. With regard to the latter part of your question about, I think it was net price, we're not going to comment on that, obviously, for competitive reasons. But I'll just reiterate the fact that we believe that we have the ability to hit our $2.5 billion in revenue, one because it's in line with what we forecasted, but I would also like to remind everybody that tardive dyskinesia remains a highly underdiagnosed and undertreated condition. 85% of patients who suffer from this condition are not on therapy. And so we see a great opportunity to help those patients and continue to keep growing AUSTEDO in '26 and beyond, hence, reiterating the $3 billion -- greater than $3 billion peak sales for AUSTEDO. And so I think those are the things I keep in mind as you think about the future for AUSTEDO. Thank you. Operator: Our next question comes from David Amsellem of Piper Sandler. David Amsellem: I had a question on AUSTEDO as well. So your competitor talked on its call about this dosing creep, if you will. In other words, the per milligram pricing structure and higher doses mean more revenue per patient. And what they've said is that health plans are essentially catching on to that and that there is a potential migration over to the competitor product. So I was just wondering if you can give us some color on the pricing structure of AUSTEDO XR and if that's having ramifications in terms of access to AUSTEDO XR. That's number one. And then secondly, how is that going to inform how you're thinking about commercial contracting for '26 and the extent to which you might make more concessions on price just to get into a better access position vis-a-vis your competitor? Richard Francis: Thanks, David. Thanks for the question. I'm not going to talk about what the competitors are saying. I'll focus on what we do here at Teva. And just to highlight, AUSTEDO's growth is much more about treating this underserved market, as I've said in the past, and our ability as a team to constantly execute. And I'll remind everybody, when we started this journey back in 2023, peak sales of AUSTEDO were forecast to be $1.4 billion. And as you see, we're going to exceed $2 billion this year. And that is down to what we've done as a company and the capability we have built. But when it goes to talking about the milligrams per dose, we've been very clear about the benefits of patients taking AUSTEDO XR and how that helps them with compliance and adherence. And this is very much in line with also what was put in our Phase III trial to allow physicians to have the flexibility to get to the patients on the optimal dose. So what we're seeing is just a natural progression from moving from BID to AUSTEDO XR and the physicians having that flexibility to get patients on the right dose. The final part of your question, I think, was about access. And I think I highlighted in my presentation the fact that we're always very thoughtful about how we manage access with value. We've continued to do that with AUSTEDO. We've done that very successfully, by the way, with our other brands in UZEDY and AJOVY. And I think we have a really strong capability for doing that. But I'll go back to what is driving our confidence in AUSTEDO is 2 things. The capability that we have within this team within Teva and the underserved market, 85% of patients who could be on therapy are not on therapy. And those are the 2 things that we focus on. But thank you for the question, David. Operator: Our next question comes from Jason Gerberry of Bank of America. Jason Gerberry: So my question is just on OpEx in 2026. And it looks like the consensus has combined R&D and SG&A kind of at around $4.8 billion, so pretty much flat on a year-on-year basis. Is that consistent with how you see the cost optimizations flowing through the P&L to navigate the Revlimid roll-off? And then my brief follow-up is just, can you comment at all if AUSTEDO XR was included or excluded in IRA? I know that there was a litigation tied to that. And so I'm just wondering if you can offer any clarity there. Richard Francis: So I'll hand the OpEx question -- so thank you, Jason, for the question. I'll hand that to Eli to answer. Eliyahu Kalif: Thanks, Jason, for the question. So the way to think about the development of the OpEx for '26, we always mentioned that from now onwards, as part of the $700 million savings, part of them will go into COGS and -- but the majority will go into the OpEx. And as much as we actually keep growing and able to fuel our profit, you will see us in the range between 27% to 28%. That will not change. But we will actually be able to expand our OP as well our EBITDA. So the way to think about it is that around 2/3 of the $700 million on savings we'll be able to accomplish by end of '26 already, but we will start to see also part of it impacting our COGS. But the main element that will move with the COGS will be actually in '27. But I can tell you that most of the savings we'll be able to accomplish by end of '26 and most of them related with OpEx. And therefore, you should think about the 27% to 28% as a run rate. Richard Francis: Thanks, Eli. And to answer your second question with regard to AUSTEDO XR being included in the IRA negotiations, the answer is yes. Operator: Our next question comes from Chris Schott of JPMorgan. Christopher Schott: Just to shift gears a little bit. Can you talk a little bit about your EU generic dynamics? I know you're facing some tougher comps there this year. But I was wondering if anything has changed in those underlying markets we should be thinking about as we think about kind of the growth going forward? And just a quick follow-up. I know the TAPI process. Just a little bit more color in terms of why restart the process here versus just deciding to keep the asset. Just maybe talk a little bit about just kind of the broader appetite for these API assets in the market right now. Richard Francis: Thanks, Chris. Thanks for the questions. So going to the EU Generics business. If I can take you back to when we started talking about Teva and our generics business back in '23, I can remember explain to everybody, this is a market leader of scale in Europe. And so the ability to grow this business, we should think of it growing around a 2% CAGR rate just because of its scale and size. Now obviously, I was proved wrong in the last 2 years as the business grew higher than that. But that was down to a couple of factors. One is we had more launches over those years as well as we had competitors struggling to supply and because of our manufacturing capability, we could step in. And so those 2 things happen. And I think what you're seeing versus this quarter versus the last year is sort of a similar theme. What we have is more launches that we had in 2023 -- sorry, in Q3 2024. We also had some tender wins, which are 2-year tender periods. And we also had supply issues from competitors. Those were no longer the case. So that's how I think about it. And that's why I go back to think about our generics business over a CAGR -- 2-year CAGR because if you think about a 2-year CAGR, these things smooth out, and that's how we think about it. And as we've had conversations, I always remind people that we think about our generics business going forward in that 2% CAGR period, one, because just of the scale we have. Now that said, one thing I do want to reiterate is our biosimilar business, while getting traction in the U.S., we will start now to launch and we have launched some products and biosimilars in the EU, and that will start to build momentum, more so post 2027, but we have a good pipeline coming through in Europe. And we know that's a mature biosimilar market. And so those are things that are going to start to maybe add to that growth in Europe going forward. But I hope that answers your question. With regard to TAPI, I'll give that question to Eli to talk about why restart it and not keep it. So over to you, Eli. Eliyahu Kalif: Yes. Chris, thanks for the question. So look, we were -- during all the process, we were very transparent, and as we mentioned, we actually decided not to progress with exclusive discussion that we had with a certain buyer. And the reason for that is that we see TAPI as a strategic going forward for Teva in terms of our ability to keep sourcing API when it's actually moving as a stand-alone. You need to remember, it's not just kind of a business that we have on the shelf and you divest it and you move forward, this is strategic for us going forward and our ability to make sure that we are providing additional value on short term and long term to our future progress and growth. It's super important. Turn out that certain elements in terms of the discussion didn't went according to the terms that we view how the deal should move on. And therefore, we made that decision. And also, we need to remember that the market condition now changed. Since we launched this sales process. Recent geopolitical development, as I mentioned, and some trade policies highlight some continued attractiveness for TAPI in terms of the landscape. So therefore, we decided to initiate revised strategic review and review the sales process. And as I mentioned, we'll keep all updated and provide further updates pending the transaction or any other determination around this process. Christopher Stevo: Maybe if I can add, just so Eli is not misunderstood there. When he says it's strategic, what he means is they're one of our largest API suppliers, and we need to ensure that any contract we have has the right terms, not just for the purchaser, but also for Teva going forward, both for our in-line products and our pipeline. Operator: Our next question comes from Ashwani of UBS. Ashwani Verma: Congratulations for the strong update. Maybe just like quickly on the 2026 revenue EBITDA, I wanted to understand like if you can continue to deliver growth on both these metrics just as a part of your long-term goals. We have Revlimid phasing out, but you have pretty meaningful cost savings outlined and also talked favorably about AUSTEDO formulary. And then just as a quick follow-up. So the 3Q AUSTEDO looks pretty strong. Is this primarily like regular way underlying demand? Or is there any type of a onetime benefit in this? Normally, you have like a pretty strong 4Q, but with this reiterated guide, it seems like it's indicating a down quarter in 4Q. Richard Francis: Ash, thanks for your question. So starting on the EBITDA, just to sort of remind you, and I think Eli touched upon this in his remarks, the EBITDA is driven by a couple of things next year. And I think it's important to understand this. One is our innovative portfolio has real momentum. As I said, it was up 33% in Q3. And these are products were all growing. So we continue to see great growth rates in those. And by the way, we've spoken about this in the past. These are very high gross margin products. So that really does help impact the EBITDA. So that's one. And then on the -- one of the slides that Eli and I both showed is on the transformation of Teva and the organizational effectiveness. We are on track to do exactly what we set out to do in '25, and that means that our guide to 2/3 of the $700 million net savings for 2026, we feel highly confident about. So if you just put those 2 things together, that really gives us confidence about our EBITDA. But I would probably take this opportunity to then talk about, well, we have some other things around our generics business where now we've lost generic Revlimid. There are 3 components which help us drive our generics business going forward, and that is our generics, our complex and our OTC. And as we've mentioned in the past, we have the ability to compensate for that generic Revlimid by the end of 2027 because we have those 3 different growth drivers and the scale we have in those 3 different businesses. So I think that answers that part of the question. With regard to the one on AUSTEDO, and I think you talked about the strong Q3 and how does that impact Q4? And was there anything behind that? I think there's just a couple of dynamics in that. Firstly, the fundamentals of AUSTEDO are really strong. It's really important to understand. So as you see with regard to our TRx, our milligrams, our growth rates, I think the team has continued to execute at a high level consistently. And I think we've seen that for quarter on quarter on quarter. Now one of the things I just would mention, and I think I mentioned on the last call, in Q3 2024 and Q2 2024, there was some channel stocking with regard to AUSTEDO XR. So that created a slightly different comparison as well as we had some slight gross to net adjustments in AUSTEDO, which are favorable in Q3 of this year. But if you take those out, it doesn't really change the directory much of AUSTEDO. And so I always think about looking at AUSTEDO over a yearly period, a multi-quarter period because I think we've been consistent in hitting our numbers and hitting our targets, and we're very accurate about that. So that's the way I think about it. So I don't anticipate anything very significant in quarter 4. The one thing that we always manage as well as we can, but it's not completely down to us is the channel. And we've been very disciplined in making sure the channel has the right stock, but obviously, that's something which we don't have complete control over, but we've shown good discipline there. So I hope that answers your questions, Ash, and thanks for the questions. Operator: Our next question comes from Les Sulewski of Truist Securities. Leszek Sulewski: So we saw the FDA propose new guidance around biosimilars to reduce comparative efficacy study and potentially speed up the approval process. So 3 questions on this for you. One, how will this updated guidance impact your long-term biosimilar strategy? And then two, on the opposing side, do you see a scenario of additional competition where we'll ultimately see biosimilar price erosion curves resemble traditional generics? And then third, what further investments do you think are needed to give you a more competitive edge? And I guess, ultimately, do you see a scenario where the U.S. reaches a point where the BLA process and the patient access becomes just as favorable versus the EU? Richard Francis: Okay. Yes, that was a multidimensional question. So thank you for that, Les. I think I'll start it off, but I'll also lead into my colleague, Eric here, who obviously is close to that because of the pipeline we have. So firstly, we're pleased with the FDA and that initiation of removing Phase III studies. I think that's the right thing to do. I think that helps. And that's based on data. We have a substantial amount of data now in the development of these biosimilars across many, many products as an industry, and I think this is the right thing to do. Does it change our strategy? Absolutely not. I think it reinforces the quality of the strategy we set out for biosimilars in 2023. And to remind you what that strategy was, our strategy was to have the largest -- one of the largest portfolios of biosimilars going forward, and we're going to do that through partnerships. We do that through partnerships because it allowed us to have the largest portfolio because it allowed an efficient allocation of capital. We also believe at the time that there was going to be uncertainty around what the future regulation was going to be. And so we didn't want to be initiating and allocating capital to things that may no longer be needed. An example is starting Phase IIIs, which are -- they're no longer needed going forward. So I think we sort of thought about where the puck was going. We made a strategy to where the puck was going, and I'm pleased to say I think we've been proven right on that. But ultimately, our strategy is about having a large portfolio. As I've just highlighted, we have 10 in the market. We have 6 we're going to launch by '27, and then we're going to have more going forward. With regard to price erosion, I think a good analog is to look at Europe. And Europe is a very mature biosimilar market and, one, I know particularly well. And what you see there is good penetration. You see that there is some price erosion, but it hits a steady state at a certain time, which allows a high level of profitability still within this category. What I'd also highlight in that market because you did talk a bit about whether the U.S. will replicate it, is you also see an expansion of these molecules and these biologics used in patient population because they are less expensive, they're used earlier in the treatment of these diseases. So you get an increase in volume and obviously offset some of the decrease in price. So those are just some of the dynamics. And I do believe the U.S. will catch up to that. But when you have a broad portfolio and we're launching more in Europe, we're not necessarily beholden to exactly when that happens because of the scale and the size. But maybe, Eric, you could give a bit more detail on your views on this. Eric Hughes: Yes, I can just give a few points to support what you just said. We work closely with the FDA and have frequent communications with regards to a pretty large biosimilars portfolio. We really anticipated the fact that they were going to be removing Phase III from the requirement for most programs and agree with this decision. The technical assessment really has been proven to be the most important thing when it comes to biosimilars, something we do very well. And this is going to decrease the cost of production and approval of biosimilars. It fits perfectly and facilitates the pivot to growth strategy that we put together in the past and really, it supports a lot of the good decisions we've made over the years about how we will do biosimilars at Teva. So it was a welcome decision. It was something we were looking forward to and really fits perfectly into the plan. Richard Francis: Thanks, Eric. And maybe one thing I'd just like to add on, and I forgot it obviously, removing the Phase III need reduces cost significantly. But I would also like to highlight the cost for developing a biosimilar are still high, a lot higher than any other generic, any other complex generic. So I just think that the capital allocation doesn't disappear and the cost of it doesn't disappear. So hence, the number of people coming into the market will I still think be restricted based on that. And the ultimate is not just can you develop it and manufacture it, do you have an efficient go-to-market capability. And I think what we're starting to show in the U.S. and we'll show in Europe is we do have that. And that front end is very important when maintaining a growth and profitability in your biosimilar portfolio. So thanks for the question, Les. Operator: Our next question comes from Umer Raffat of Evercore ISI. Umer Raffat: You said CMS agreement is in line with your modeling expectations. Is it reasonable to assume that's about 50% or so in the ballpark? And then secondly, to get to your 2027 $2.5 billion in sales, are you assuming volume gains because of this IRA cut versus Ingrezza to get to that number or not? And then finally, obviously, olanzapine, I feel like it's taking a bit longer than we all anticipated. But at this point, is there any possibility that you could get a commissioner voucher to accelerate that? Or should we not be thinking about that? Richard Francis: Umer, thanks for your questions. So with regard to CMS, it was in line with our expectations that we set out in 2023. You threw out a number there, which I'm not going to comment on because I think that was maybe trying to tease me out to give you a number, and I'm not going to do that. I'll just say it's in line, and that's why we remain very confident about our $2.5 billion in '27. And I remind people, greater than $3 billion peak sales. You did touch a bit about do we see volume gains within this. And this is not something we've -- without going into the detail of our forecasting model, we go back to capturing more patients, making patients more adherent and compliant and all of those fundamentals. I think what though you have touched upon is something that we're going to understand a bit more in January as the first wave of drugs that were negotiated and CMS start to come through and play out. And we'll see what are the dynamics that happen there, and we'll use that to adjust our modeling as we go forward. And I hope, you, as others will agree, we're very thoughtful about how we model and how we forecast. And at least over the last few years, I think we've been pretty accurate in what has been quite a dynamic environment. Now with regard to olanzapine, I'll hand that one to Eric to comment on whether we could get a Commissioner's voucher. Eric Hughes: Yes. Thank you for the question, Umer. And to start off with, we're right on track with what we plan for the submission of the olanzapine LAI in this quarter. With regard to your question on the Commissioner voucher, that's one of the things we've been reviewing within Teva. One of the great things about Teva is we have biosimilars, a whole portfolio of generics and innovative medicines. So the potential for where we could see a Commissioner voucher is broad. So we're reviewing that now and looking to see what the most optimal -- optimally timed and valuable program is that we seek one of those out for, but more to come on that in the future. Richard Francis: Thanks, Eric. Operator: Our next question comes from Matt Dellatorre of Goldman Sachs. Matthew Dellatorre: Congrats on the quarter and the AUSTEDO agreement. Maybe first on duvakitug, now that the Phase III IBD studies are up and running, how are you thinking about enrollment time lines and potential data readouts there? And then could you comment on any progress on the indication expansion strategy beyond IBD? For instance, could we see proof-of-concept studies announced over the near term? And then maybe just as my follow-up on capital allocation, could you talk about the key priorities in 2026? And as we think about the free cash flow inflection, what are the key points of focus to achieve that full year '27 guide? Richard Francis: Matt, thanks for the questions. I'll hand the first one straight over to Eric on the Phase III and the potential Phase IIs. Eric Hughes: Yes. So thank you for the question. This is one of the things I'm most excited about the design that we've put together with Sanofi. It's all about execution now. As I said it earlier in my comments, this has been the fastest transition from Phase II to Phase III with regards to this MOA of all the programs out there, which we're very proud of. So it speaks to our executional abilities in this partnership. The design itself is really designed to make sure that we maximize the enrollment with the feeder arm that it will get to our maintenance and increase our safety numbers in the program. It's a very convenient and patient-centric design with regards to subcutaneous treatment and the rerandomization. These are all things that will make it ideally suited for patients. And we're also putting a lot of effort in on how we execute the program with regards to the logistics and our vendors that we use. So it's been a really great collaboration with Sanofi. I think we're building upon a lot of momentum and success that we have going into a Phase III program with a Phase II program that was probably had the highest numbers with regards to its efficacy and it's the data set that we produce, these are all good signals of starting a Phase III program. So when it comes to execution, that's what we're going to focus on right now. And I think that we're set up very well to be in the horse race, if not in the middle of it, but hopefully coming up very close to the beginning of it. So that's very well suited. Now with regards to your question about other indications, it's great to see the excitement around this MOA. I mean one of the things about it is the fact that it could touch so many different pathway cytokine signaling pathways in multiple indications. You can see many different Phase II programs initiating now. We have a plan with Sanofi, and we'll let you know when those studies start. For now, we're going to keep it close to the chest. But that, in addition to the excitement around different combinations in the future is also something we've been thinking about heavily. But right now, to begin this discussion is all about the execution of the study, enrolling the study and making sure that we show the value in ulcerative colitis and Crohn's disease now. Richard Francis: Thank you, Eric. And now on the next 2 questions on capital allocation and free cash flow inflection. I'm going to hand those to Eli. Before I do, I do like the fact that you've highlighted our free cash flow inflection because that is something which we are starting to communicate and people are starting to see with the growth of the company, the growth of the innovative, the decrease of the debt, the growth of the EBITDA that this ultimately changes our free cash flow position. So thanks for highlighting the Matt and seeing that. But I'll hand on to -- hand over to Eli to talk about our capital allocation going forward. Eliyahu Kalif: Yes. Matt, thank you for the question. So first of all, I'll start with the free cash flow. You mentioned about how we should think about that trend that we mentioned beyond '27. There are 3 main dynamics there. First of all, it's the mix, right? If you look on the top line and how we're progressing with the top line and how it's going to flow through and convert both profit into free cash flow with the innovative, I would say, portfolio that we have, and we are keeping on investing in our growth driver. The fact that the $700 million of savings is going to actually enable us to drive more efficient COGS with high gross margin as well, I would say, to optimize our OpEx. Those 2 elements are already in progress. There are another 2 that we need to remember. One, we paid for our debt this quarter. From now until October 26, like 13 months, we don't have any maturities, there's $1.8 billion in October, and there is a $2.8 billion in March, May in '27, early '27. If you think about $4.5 billion, $4.6 billion with our current weighted cost of capital of our outstanding debt of 4.8% you get $200 million to $250 million that we're going to take out from a run rate, both from financial expenses going forward and pure free cash flow impact. And then on top of it, our progress on our working capital, you can actually see ourselves running below 4% going from '27 onwards on our revenue. All these actually enable us to convert high free cash flow. As far as related to next year capital allocation, we're actually looking on more, I would say, ability to be able to compete on certain opportunities related to business development that align strategically to our portfolio and to make sure that we are able to provide value to our shareholders. And as we move forward to make synergetic activities around that piece, we'll keep looking on, of course, reducing our debt. And as we move forward, we might also look on some -- certain other elements related to capital and shareholder returns. And we will, for sure, during '26, and we hope also in our next earnings calls, provide some more colors around that kind of capital returns to shareholders. Richard Francis: Thanks, Eli. Thanks, Matt, thanks for your question. Operator: At this time, we currently have no further questions. So I'll hand it back to Richard Francis for any further remarks. Richard Francis: So thank you, everybody, for participating in the call. We do appreciate your interest in Teva, and we look forward to giving you update on our full year results early next year. Thank you. Operator: Thank you all for joining today's call. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Fourth Quarter and Fiscal 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, November 5, 2025. Playback number for today's call is (877) 660-6853. International callers, please dial (201) 612-7415. The playback reservation number is 137-56092. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead. Mauricio Lopez-Hodoyan: Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Cristiano Amon and Akash Palkhiwala. In addition, Alex Rogers will join the question-and-answer session. You can access our earnings release and a slide presentation that accompany this call on our Investor Relations website. In addition, this call is being webcast on qualcomm.com, and a replay will be available on our website later today. During the call today, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business or industry trends or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements. Please refer to our SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. And now to comments from Qualcomm's President and Chief Executive Officer, Cristiano Amon. Cristiano Amon: Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q4, we delivered another strong quarter with revenues of $11.3 billion and non-GAAP earnings per share of $3, both of which exceeded the high end of our guidance range. QCT revenues of $9.8 billion, up 9% sequentially were driven by strong end customer demand for Snapdragon-powered premium tier Android handsets, continued traction for automotive Snapdragon Digital Chassis and strength in IoT across industrial, Wi-Fi 7 access point, 5G fixed wireless and smart glasses. In addition, all 3 QCT revenue streams exceeded our expectations including record automotive quarterly revenues in excess of $1 billion. Licensing business revenues were $1.4 billion. Fiscal '25 non-GAAP revenues of $44 billion were up 13% year-over-year, with record QCT annual revenues of $38.4 billion, up 16% year-over-year, including automotive and IoT revenue growth of 36% and 22% year-over-year, respectively. We delivered 18% year-over-year growth in total QCT non-Apple revenues above our prior estimates. We remain on track to achieve our fiscal '29 long-term revenue commitment as outlined at our 2024 Investor Day. I will now share some key highlights from the business. At Snapdragon Summit in September, we introduced our Snapdragon 8 Elite Gen 5 mobile platform for next-generation flagship AI smartphones. This platform is equipped with our custom-built third-generation Oryon CPU, the fastest mobile CPU ever, along with an upgraded NPU and GPU. With the Snapdragon 8 Elite Gen 5, we continue to set the pace of innovation in mobile processors. This year marked our 10th Snapdragon Summit with simultaneous events held in Maui and Beijing, validating the strength of our Snapdragon ecosystem. Leading China OEMs, including Xiaomi, Honor, Vivo and OnePlus announced their flagship phones at our event. More than 1,100 partners, analysts, tech influencers and press attended in person, and our keynotes capture over 26 million unique views across both events. Together with our announcement, Snapdragon Summit generated over 547 million social media impressions. In addition, our Snapdragon Insiders community of tech enthusiasts, developers and fans has grown to more than 20 million members worldwide. Our highly differentiated technology continues to drive increased brand visibility. And during the quarter, Qualcomm debuted at 39 on the Interbrand Top 100 Global Brands list for 2025, reflecting the strength of Snapdragon. And for the first time ever, Kantar's BrandZ most valuable Global Brands list included Snapdragon, where we ranked #38. Also at Summit, we unveiled our newest platforms for premium laptops, the Snapdragon X2 Elite and X2 Elite Extreme. Once again, our industry-leading processors continue to outperform competitors, surpassing Intel and AMD in both speed and power efficiency. Our latest NPU sets a new benchmark as the world's fastest AI engine for laptops, also exceeding Intel and AMD in performance. And with the new Oryon Gen 3, we have the world's first 5-gigahertz CPU for the ultra-mobile laptop category with extended battery life. We now expect approximately 150 designs to be commercialized through 2026 and remain optimistic about the continued momentum for Snapdragon-powered AI PCs. As AI transforms human computer interactions, intelligent wearables and specifically smart glasses are evolving into personal AI devices that can connect the user directly to an AI agent or model. This emerging category is growing at a remarkable pace and has reached an inflection point fueled by very strong demand for smart glasses from Meta. This quarter alone, Meta introduced several new Snapdragon-powered styles, including the Ray-Ban Meta second-generation glasses, the Oakley Meta Vanguard performance glasses and the Meta Ray-Ban display and neural band. In addition to Meta, our leadership in this space is reflected by the 30 designs in production or development with our global partners. They include Samsung, which recently launched Galaxy XR, a truly multimodal AI headset and the first device for Google's new AI native operating system, Android XR. We achieved a significant milestone in automotive with the launch of Snapdragon Ride Pilot, our first full system solution for L2+ automated driving. Developed in close collaboration with BMW, it debuted in the automakers' BMW iX3 EV SUV. Powered by our advanced self-driving software stack, Snapdragon Ride Pilot sets a new standard in automated driving, is designed for universal compatibility and seamless integration with automakers, unlocking L2+ driver assistant features like hands-free highway driving and urban navigation for vehicles worldwide. Snapdragon Ride Pilot is currently validated in 60 countries and extends to 100 in 2026. The broad interest from leading automakers globally is exceeding our expectations. At IAA Mobility, Qualcomm and Google announced an expanded partnership, including the integration of Google Gemini models to our suite of Snapdragon Digital Chassis solutions. Together, we will enable automakers to build and deploy personalized AI agents that act as an in-vehicle assistance, bringing multimodal edge-to-cloud AI to next-generation software-defined vehicles. In industrial IoT, we completed our acquisition of Arduino, a premier opensource hardware and software company with an IoT development ecosystem of more than 30 million users worldwide. This builds on our acquisitions of Edge Impulse and Foundries.io and accelerate our plans to provide a comprehensive edge AI development platform for a broad set of applications. With these new assets, we're expanding our portfolio to a wide range of customers and verticals, further cementing our position as the leader of AI for the edge. Additionally, we recently released the Arduino UNO Q single-board computer, powered by the Dragonwing processor. This full stack edge AI platform enables the rapid development of solutions for applications ranging from smart home automation to industrial robotics, drones and more. AI data center growth is moving from training to dedicated inference workloads, and this trend is expected to accelerate in the coming years. The mass adoption and continuous use of AI applications is driving the industry to look for competitive alternatives that prioritize power-efficient performance and cost. We announced our entry into this market and recently unveiled our AI inference optimized AI200 and AI250 SoCs and associated accelerator cards and racks. We are very pleased to have HUMAIN as our first customer for these solutions with a target deployment of 200 megawatts starting in 2026. Looking ahead, we're executing on a multi-generation road map with an annual cadence. I would like to share that we're looking forward to providing an update in the first half of 2026 on our data center plans, including our roadmap performance and differentiated memory and compute technology. We'll also highlight our progress in other areas, including advanced robotics, next-generation ADAS, industrial edge AI and 6G devices and AI-powered RAN. As we execute on our strategy and expand our IP and capabilities, we believe we are one of the best positioned companies to lead the expansion of AI to the edge, edge-to-cloud hybrid AI and develop a power-efficient cloud inferencing solution. I will now turn the call over to Akash. Akash Palkhiwala: Thank you, Cristiano, and good afternoon, everyone. Let me begin with our fourth fiscal quarter results. We are pleased with our strong non-GAAP performance with revenues of $11.3 billion and EPS of $3, both of which were above the high end of our guidance. QTL revenues of $1.4 billion and EBT margin of 72% were above the midpoint of our guidance, driven by slightly higher handset units. QCT delivered revenues of $9.8 billion and EBT of $2.9 billion with year-over-year growth of 13% and 17%, respectively. QCT EBT margin of 29% was at the high end of our guidance. QCT handset revenues of $7 billion increased 14% on a year-over-year basis, reflecting increased demand for premium Android handsets powered by our Snapdragon Elite Gen 5 platform. QCT IoT revenues of $1.8 billion grew 7% year-over-year, driven by strength across industrial and networking products and increased demand for AI smart glasses powered by our Snapdragon platform. In QCT Automotive, we surpassed $1 billion quarterly revenue milestone, delivering 17% year-over-year revenue growth as the adoption of our Snapdragon Digital Chassis platform continues to accelerate. With the recent enactment of the One Big Beautiful tax bill, we now expect our non-GAAP tax rate to remain in the 13% to 14% range going forward, and we anticipate lower cash tax payments relative to prior expectations. This new legislation resulted in a noncash charge of $5.7 billion in the fourth fiscal quarter to reduce the value of our deferred tax assets. This charge is excluded from non-GAAP metrics but impacts our GAAP results. Before turning to guidance, I'd like to take a moment to highlight our strong performance in fiscal '25. We are incredibly pleased with our execution with non-GAAP revenues of $44 billion and EPS of $12.03, representing year-over-year growth of 13% and 18%, respectively. In QCT, we achieved 16% year-over-year revenue growth, driven by double-digit increases across all revenue streams, with IoT up 22% and automotive growing 36%. We also delivered QCT operating margins of 30%, in line with our long-term target as we have previously outlined. Over the past 5 years, our non-Apple QCT revenues grew at a 15% compounded annual growth rate. Similarly, over the last 2 years, our non-Apple QCT revenues grew by 17% and 18%, respectively. Lastly, we generated record free cash flow of $12.8 billion. And consistent with our commitment, we returned nearly 100% to stockholders through repurchases and dividends through the year. Now turning to guidance. In the first fiscal quarter, we expect to deliver record results with revenues in the range of $11.8 billion to $12.6 billion and non-GAAP EPS of $3.30 to $3.50. In QTL, we estimate revenues of $1.4 billion to $1.6 billion and EBT margins of 74% to 78%. In QCT, we expect record revenues of $10.3 billion to $10.9 billion and EBT margins of 30% to 32%. We anticipate record QCT handset revenues with low teens percentage growth sequentially, primarily driven by new flagship Android handset launches powered by Snapdragon. Following our outperformance for QCT IoT revenues in the fourth quarter, we expect a sequential decline consistent with last year, driven by seasonality in consumer products. In QCT Automotive, following a record fourth quarter, we estimate revenues in the first fiscal quarter to remain flat to slightly up on a sequential basis. Lastly, we forecast non-GAAP operating expenses to be approximately $2.45 billion in the quarter. In closing, as we approach 1 year since outlining our growth strategy at Investor Day, I'd like to provide an update on the progress towards our $22 billion fiscal '29 revenue target across automotive and IoT. In automotive, we've established ourselves as the most strategic silicon partner for OEMs globally. The accelerating adoption of our Snapdragon Digital Chassis platform and 36% year-over-year revenue growth in fiscal '25 puts us on track to achieve our $8 billion revenue target. Across IoT, the increasing importance of artificial intelligence, high-performance, low-power computing and connectivity validated by our 22% year-over-year revenue growth in fiscal '25 reinforces our confidence in achieving our $14 billion revenue target. In Industrial, increasing customer engagement and growth in design win pipeline, combined with our recent acquisitions to unlock access to 30 million users, underlines our confidence in strong revenue growth through the end of the decade. In XR, we're exceeding prior expectations on strong demand for AI smart glasses, and we remain the platform of choice for smart glasses and mixed reality devices across leading global OEMs and ecosystems. In PCs, we extended our technology leadership with the recent launch of Snapdragon X2 Elite and X2 Elite Extreme platforms, which deliver multigenerational performance increases across CPU, GPU and AI. Given our strong pipeline of approximately 150 design wins, we're optimistic about the growth potential for Snapdragon-powered AI PCs as we expand our presence across global consumer and enterprise channels. In networking, our continued innovation and leadership in WiFi, 5G, edge processing and AI, combined with our integrated platform approach positions us to drive content growth and adoption globally. As Cristiano outlined, beyond our revenue target, we're also pursuing incremental opportunities across data center and robotics. Finally, I want to thank our employees for exceptional execution and continuing to deliver industry-leading technologies and products. This concludes our prepared remarks. Back to you, Mauricio. Mauricio Lopez-Hodoyan: Thank you, Akash. Operator, we are now ready for questions. Operator: [Operator Instructions] First question, which will come from the line of Joshua Buchalter with TD Cowen. Joshua Buchalter: Congrats on a stellar set of results in a bumpy backdrop. I wanted to start with the data center business. I realize you're going to provide more details in the first half of 2026, and my questions might get punted as a result. But maybe you could spend a few minutes talking about what you see as Qualcomm's right to win in the data center space? And any details you can provide on the specs of the AI200 and 250 beyond what you were able to offer in the press release when the HUMAIN engagement was announced. And then lastly, on this topic, last quarter, you called out, I believe, a hyperscale engagement. I assume that's distinct from the HUMAIN engagement and any details on timing there? Cristiano Amon: Josh, thanks for your question and thank you. Yes. Look, we're very excited. I think this is the next chapter of, I think, the process we have been in Qualcomm to changing the company, diversifying the company, expanding our IP. I think that's one of the reasons I think we made acquisitions such as Alphawave. We think there are 2 areas that we outlined that we can participate into the data center. We were incredibly excited about the size of the opportunity in the next phase, I think, of data center build-out where there's going to be real competition. We go from training to inference. We have been focused in 2 areas. One is we believe we have one very strategic asset in the industry, which is very competitive, power-efficient CPU. That is both for the head node of AI clusters as well as general purpose compute. And then we also have been building what we think is a new architecture dedicated for inference. I think the focus has been increased computer density and simplify the architecture for the data center in terms of increase, I think, performance per watt. I think it's all going to be about generating the most amount of tokens with the least amount of power, and that's our right to play. We're excited about what we're doing that has been in development. It's something that we're actually doing in a very disciplined manner. We spend a lot of time, I think, with our early experimentation with AI100 to develop the software. And then we're now building AI200, AI250, both the SoC, the card, direct solutions. And I think we're pleased with what we're seeing. We will provide more details on that as you outlined early next year. Specific to your questions, I think we were in discussion with a hyperscaler. We're very pleased with the outcome of that conversation, and that's going to be part of our update when we provide details on the road map, the performance, the KPI, we'll be able to show details of the solution as well as our customer engagement. We are in conversation with a lot of companies. It's clear the market wants competition for this. But in a typical Qualcomm way, we're just going to be focused on executing and show the products performing. Like I said, this is an exciting new chapter of our expansion. And alongside robotics, those are kind of new opportunities for us. Joshua Buchalter: I appreciate all the color there and looking forward to the updates. For my follow-up, I wanted to ask about the handset market. So you highlighted your ongoing momentum in the Android space as driving growth in the fourth quarter -- excuse me, calendar fourth quarter in your prepared remarks. There's been a lot of noise, I think, about your lead Android customer potentially looking to use an internal modem more than they have in recent years. Could you maybe just talk about your visibility into your share at that customer? And any sort of share that you would expect to -- how that you would expect that over the next year or so? Cristiano Amon: Look, thanks for the question. I'm actually -- I want to spend a little bit of time on this because I sense that there's potential for a lot of noise when noise is actually not required. I think, first of all, there is one thing that is happening with our Snapdragon and our premium tier, Snapdragon Android, which has been very consistent, and this is going to happen over the past few years. The premium tier is expanding. I think if you look at the overall market, we have this trend that is very healthy, and the premium tier is expanding and is adding more compute. That is the reason why our Android business, even on a market that is relatively flat, which is the handset market. We continue to grow our content, ASPs and earnings because we see premium tier expanding. A lot of the upside we have in the handsets is primarily driven by the Android premium tier. Second part is our relationship with Samsung. We have said for a number of years -- a number of reasons, and this has been true in the past, I think, several years that what used to be a normal relationship at a 50% share, the new baseline is about 75% share. And that is always going to be our financial assumption. When we out-execute, sometimes we get more than 75%, on Galaxy S25, we got 100%. Our assumption for any new Galaxy is always going to be 75%. That's our assumption for Galaxy S26. Operator: The next question comes from the line of Samik Chatterjee with JPMorgan. Samik Chatterjee: Cristiano, you mentioned the -- on the data center side, starting with that, you mentioned the price performance for the inferencing performance that you're trying to deliver. I mean most of the training clusters that we've sort of seen the other incumbents sort of talk about the ranges of installation cost is somewhere in the sort of $30 billion, $40 billion per gigawatt that we're hearing of. Can you just right size us in terms of when you're thinking about the deployment on a gigawatt basis, what kind of cost performance or price performance are you thinking of relative to these inferencing workloads that you can support on the AI 200 or AI 250? And I'm also trying to get to sort of what revenue implications are for HUMAIN when you sort of deploy 200 megawatts with them? And I have a follow-up, please. Cristiano Amon: Okay. I'm going to try to give as much color as I can without getting ahead of the update we're going to provide next year. So first, let's just have a broader discussion about revenue. What we said before that we expect data center products to start leading to a revenue ramp beginning in fiscal '28. I think as a result of the HUMAIN engagement and our progress on the AI accelerator, I think we're pulling this forward into fiscal '27. So you should expect now from what we said before, I think data center revenue is going to start to become material in fiscal '27. So I think that's the extent of what I can provide at this moment. It's about a 1-year pulling. The second thing is we are getting interest. You should assume that companies, they are having to deploy as much compute as they need in the data center for inference, especially now that you see the constraints that you have on power, the constraints that you have on the amount of computer density. I think we have a lot of folks interested. We were not having conversations if we didn't have a solution that is competitive. But we will show the KPIs of the platform, I think, when we have a road map update early next year. Samik Chatterjee: Okay. Okay. Got it. And maybe the second one, similar to Josh's question. I think, Akash, if I'm interpreting the market's reaction to your strong numbers, there seems to be that concern about what March looks like with the change in share at the primary Android customer. Typically, on the handset side, your quarter-over-quarter decline into March has been sort of this high single-digit pace. Is that still a good run rate with sort of the lower level of share? Or would you sort of guide us otherwise? Because I think that's really what the market seems to be sort of concerned about at this point. Akash Palkhiwala: Yes, Samik, thanks for the question. We're not guiding beyond first quarter at this point. But when you look at our strong business momentum exiting fiscal '25, you see the benefit of that showed up in our results also showing up in the December quarter guidance. And so that carries forward into the rest of the fiscal year. The only additional thing I'd note is just a reminder that we expect to close our Alphawave acquisition in the first calendar quarter of '26. But otherwise, I think the business momentum is strong and just a couple of factors that you outlined. Operator: The next question comes from the line of Timothy Arcuri with UBS. Timothy Arcuri: Akash, when you talked about September, you said that the beat was driven mostly by premium Android, but it seemed like it came a little more from your top customer because before you were saying to take like 30% of units out, and that was like $500 million roughly. But it seems like nowhere near that much came out from that customer. So -- I mean, it was kind of barely down year-over-year. So can you just square that? And then also as part of that, can you speak to how much that customer is as kind of a baseline assumption for December? I think we've seen that the model that has their modem and it's not really selling very well. So I would assume that that's a tailwind for you also in calendar Q4. And then I had a second question. Akash Palkhiwala: Sure, Tim. So as we had said earlier, we expected to be in 3 of the 4 models of the phone that was launched. And so that is exactly what happened. And share, of course, is based on what sell -- how sell-through plays out. Specifically on the September quarter question, we already had kind of demand from the customer that was factored into the guidance we gave. So the upside we saw was not from Apple. It was really driven by Android customers and primarily the premium tier with the launch of our new Snapdragon chip. When you look at the sequential trend as well, as I mentioned, the -- we are forecasting approximately low teens sequential revenue growth in the handset revenue stream for QCT and primarily driven by Android as well. So there is some benefit from Apple, but the primary driver for the growth quarter-over-quarter is actually Android premium tier shipments. Timothy Arcuri: Okay. And then is there any update on the negotiation with Huawei for a license? It seems like it's kind of dragging on a little bit. Can you just talk about that? Alexander Rogers: Yes. This is Alex. Thanks for the question. No, we actually don't have an update now. Discussions are still underway, really nothing substantive to say beyond that. Operator: The next question comes from the line of Stacy Rasgon with Bernstein Research. Stacy Rasgon: So you noted the non-Apple QCT revenue was up 18% year-over-year. And even if I take out the auto and the IoT, it's clear that the Android piece was up like pretty strong double digits year-over-year. So am I right in assuming that's all content or primarily content given I don't think units grew that much. And is that the right sort of pace of like further content increase that we ought to be thinking about as we go forward? Akash Palkhiwala: Yes. So Stacy, you're doing -- obviously doing the math right. There are 2 primary drivers on this. One is just the mix shift of units up. And so this is a trend that we've seen over the last several years, and it's -- sometimes it's thought of as a developed market trend, but that's not true. It's across all developing regions as well. The devices that are purchased continue to move up, and so that shows up in the benefit to our revenue stream. The second trend is within premium tier. Content continues to grow as we deliver more and more capable chips, and more capable handsets are being delivered as a result of it. And those are the 2 primary drivers of kind of the long-term trend of our handset business. Stacy Rasgon: Got it. And if I could have a quick follow-up. Just the Snapdragon Android strength in September and December, is that primarily China? And are there any concerns there? I mean, is that just the timing of the launches? Like any thoughts on pull forward or anything like that. Anything we ought to be thinking about there? Akash Palkhiwala: Yes. No, there's no pull forward there. I think what we've seen is all of our -- most of our China customers, actually, all the major customers have already launched devices and the initial reception to the devices have been very positive. We'll see a lot of our global customers launch devices as well later this quarter going into early next year. And so it's just a reflection of kind of normal purchase patterns around the launch of these devices and the great initial consumer reaction to the launches. Operator: The next question is from the line of Chris Caso with Wolfe Research. Christopher Caso: And a question again on AI data center. And I realize you're going to provide some details coming up, but there's some specs out there, so -- which is why we ask. But from what we've seen what was in the press release was perhaps a different architecture than what we've seen others attack the market with DDR memory, PCI Express in that. Should we interpret that as sort of a first approach by Qualcomm with more to come? Or is this rather a different sort of philosophy for attacking the market? You talked about being more efficient on power consumption. Is this sort of a different -- attacking the market differently than what's in the market today? Cristiano Amon: I think the answer to the question is yes. For us, I think we're approaching this thinking about what the future architecture should look like. We had said before, and I think that's -- we have thought about this for the edge as well, which means when we think about dedicated inferencing clusters and the goal is to actually have the highest possible computer density at the lowest possible cost and energy consumption to generate tokens, we thought that maybe an architecture that is beyond the GPU and what you've traditionally been doing with GPU and HBM is what we should be doing. That's we're developing and we have to execute, and that's the focus on the company right now. Christopher Caso: Got it. With -- just back on handsets. And you talked about a mix shift towards the premium tier. To what extent has the growth that you've seen in handsets been driven by Snapdragon ASPs? And obviously, wafer prices are going up as you go to finer geometries. Maybe talk about the impact of higher ASPs on handset growth, both now and going forward and how the industry absorbs those higher ASPs? Akash Palkhiwala: Yes. So I think there's a long-term trend that we've seen. This is a conversation that we have every year, but we continue to see just very strong demand for more capable chips, more capable processing in these premium tier chips. And so the competition between the OEMs drives it, the demand for consumers doing more activity on the phone drives it. And we know the next couple of chips that we are making, and we're already in discussions, advanced discussions with our customers. So we feel pretty confident that there are legs to this trend over the next several years. The second factor that I outlined is important to keep in mind as well is this very significant mix shift towards more premium devices. And that's not about content growth within the tier, but it's more about more capable devices being purchased by consumer. And that is a multiyear trend as well that we're continuing to see going forward. Operator: The next question is from the line of Tal Liani with Bank of America. Tal Liani: If I look at this quarter, you grew handsets by 14% and it looks like next quarter, you're guiding again 600 basis points of above market growth or above market expectations for QCT. When you look at next quarter, what are the components of this outperformance? Do you -- can you go over kind of IoT, autos and handsets? Where do you think you can perform better than you initially thought last quarter, et cetera? Can you give us a little bit of a color on how next quarter is behaving of the QCT breakdown? Akash Palkhiwala: Tal, just to confirm, your question is about the December quarter, first fiscal quarter? Tal Liani: Yes, first fiscal quarter, sorry. The question is about the guidance for next quarter. Yes. Akash Palkhiwala: Yes, perfect. So in -- specifically in automotive, we had a record quarter in September, so $1.1 billion -- approximately $1.1 billion, and we are guiding flat to slightly up in automotive. We do think that we're in this very strong position as additional cars get launched with our capabilities in them, we will continue to grow revenue through the year. IoT is similarly positioned, right? We saw significant upside relative to our guidance within the September quarter, and we are positioned to continue to grow revenue starting first quarter going into the rest of the fiscal year as well. Within handsets, the upside that you're seeing in the December quarter is really the success of our launch of our new chip. We've seen all the major OEMs launch devices with it. As I said earlier, strong consumer reaction, and that is reflected in our financial forecast. On a sequential basis, as I mentioned earlier, we are forecasting a low teens sequential revenue growth in the handset stream in QCT. Tal Liani: And my follow-up is on a -- like historical perspective, when you launch a product into China and it's into the New Year's -- the Chinese New Year, et cetera, is first fiscal quarter the strongest quarter? What happens from a seasonality point of view, what happens for the next few quarters from a historical perspective? Akash Palkhiwala: I mean, as you've seen in the past, we expect our first fiscal and second fiscal quarters to be the stronger quarters in the year. And usually, the June quarter, the third fiscal quarter is a lower quarter. So that's -- seasonality should be consistent with what you've seen before in the handset business. Operator: The next questions come from the line of C.J. Muse with Cantor Fitzgerald. Christopher Muse: I wanted to kind of focus on QCT EBT margins and revenues grew 5% year-on-year, yet margins were down 100-plus bps. And I'm curious, is that a function of mix? Or is that a function of higher manufacturing costs? Or is it simply R&D investments for future revenue growth? Akash Palkhiwala: Yes. I think when you look at the year-over-year trend, I think you should think of we are investing in the data center area, which over the last several years, we've been kind of just focusing OpEx on moving from mature businesses into growth areas. Data center is incremental to the investment profile that we have. Christopher Muse: Okay. It's very helpful. And then I guess just to hone in on your non-Android handset business. Is there an update in terms of how we should model that for calendar '26? Akash Palkhiwala: No change to what we've said on share within Apple versus what we've said in the past. Operator: The next question comes from the line of Ben Rises with Melius Research. Benjamin Reitzes: Just wanted to touch back on the data center event, you said you're going to be updating us in the next calendar year. Previously, you had an Analyst Day where you've put out these long-term targets for FY '29. I would assume that the smallest opportunity was in XR at $2 billion. I would assume if we're going to have an event and go through something like this, this has the opportunity to be something pretty material, bigger than the smallest opportunity outlined at the last Analyst Day, that was $2 billion for XR by '29 and more like another multibillion opportunity. Can you just -- can you guys clarify that? Akash Palkhiwala: Yes, Ben, that's a great observation. I think we're seeing this market take off very fast, especially AI smart glasses. And so we definitely feel like we're significantly ahead of the guidance that we had provided and very significant upside opportunity. I mean if you kind of step back and think about the broader opportunity around personal AI, and you could think of it as the glasses form factor or the watch form factor or hearables form factor, this could be a very, very large market. And so if that plays out as we suspect it might, it will create significant upside opportunity. Benjamin Reitzes: Yes. Sorry, just to clarify, though, my question, I appreciate that is that if you're going to outline the data center opportunity and have a special event, should we assume that it's a multibillion opportunity, something that you would call out that's at least as big, if not bigger, than anything you laid out at your last Analyst Day, which is the smaller opportunities are $2 billion to $4 billion. Cristiano Amon: Ben, now -- thanks for the question. I understand it now. Yes, it's upside on that number and success in this area, I think, presents to us a potential multibillion-dollar revenue opportunity in a couple of years, and that's how we're thinking about it right now. Operator: That concludes today's question-and-answer session. Mr. Amon, do you have anything further to add before adjourning the call? Cristiano Amon: I just want to thank all of our partners, our employees, and we are continuing to change Qualcomm into a very diversified company. We're probably one of the few companies among all the semiconductor companies that can go from 5 watts to 500 watts with very flexible and very broad technology capabilities. I think one thing that we take pride of in every industry that we enter, we have a platform that is a leading technology platform, and we're excited about the future of the company, and we're just going to keep executing on this strategy. Thank you very much for supporting our call. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Operator: Hello, everybody, and welcome to the Bumble Third Quarter 2025 Financial Results Conference Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to Will Taveras, Investor Relations. Please go ahead. William Taveras: Thank you for joining us to discuss Bumble's Third Quarter 2025 Financial Results. With me today are Bumble's Founder and CEO, Whitney Wolfe Herd; and CFO, Kevin Cook. Before we begin, I'd like to remind everyone that certain statements made on this call today are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of factors and risks that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in today's earnings press release and our periodic filings with the SEC. During the call, we also refer to certain non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Reconciliations to the most comparable GAAP measures are available in our earnings press release, which is available on the Investor Relations section of our website at ir.bumble.com. With that, I will turn the call over to Whitney. Whitney Herd: Hello, everyone, and thank you for joining us today. Helping people find love has been Bumble's focus since day 1. What made Bumble successful from the start was simple but powerful. We built trust with women. That trust became our moat. It created a healthier, more balanced member base that drove engagement, retention, growth and a global brand. Historically, most dating products skewed male, leading to an uneven experience where women often felt overwhelmed and disengaged. Bumble changed that by putting women in control, creating trust, balance and a higher quality member base that produce better outcomes for everyone. Today, we have the brand long identified with putting women first and a deep understanding of what women want from love and connection. This brand identification is perhaps our biggest strategic asset. That's why we've returned to that core, winning with women because we believe that when women feel safe, respected and confident and when they meet quality matches, everything else improves. Connection becomes more meaningful, engagement more genuine and the business more sustainable. When I returned as CEO in March, the first thing we did was listen deeply and intentionally to women. What we heard across markets was consistent. People want to trust who they're meeting. They want better quality matches, and they want more authenticity. Those insights became the foundation of the quality over quantity reset I've been talking about over the past 2 quarters. Every step we have taken since our product updates, investments in AI and every marketing move ties back to one goal, making Bumble a better experience for women because when women are happy, the entire ecosystem thrives. That is the focus driving our transformation into the love company, expanding beyond dating to build the global platform for meaningful relationships, romantic and platonic. At its heart, what women seek on Bumble is love, and we are building the product, the technology and the brand to deliver it. Since our last call, we've executed this reset with real focus and urgency while also delivering on our financial commitments. For the third quarter, our results are near the high end of our guidance range for both revenue and adjusted EBITDA. We are also seeing the expected short-term effects of prioritizing quality over quantity. Member registrations are lower in the near-term, but we believe that the foundation of the business is getting stronger. Early indicators suggest that retention is improving and ARPPU is growing. The entire team is heads down, laser-focused on executing this plan. The early signs we're seeing just months into our reset reinforce our confidence in our strategy, and we look forward to sharing more details as we progress further and have more data and visibility into trends. We are working aggressively to improve the mix of engaged approved members on our platform, reduce the noise and build a higher quality community. Our Beehive Fit framework is how we are measuring our progress against these goals. We are emphasizing members who are verified, thoughtful and focused on finding love and connection while filtering out low intent profiles and bad actors. This transformation isn't about growth for growth's sake. It's about growing right. We're deliberately trading near-term volume for quality because that's what we believe builds long-term trust, stronger engagement and sustainable growth. Consistent with this goal, in August, we launched a major update to Bumble Date focused on trust and safety. This was more than a feature release. It was a foundational step forward. These updates were built directly from what we heard from members. Men told us they weren't getting enough meaningful interactions. Women told us the profiles they were seeing didn't give them the context that they needed to take action confidently. So we've built tools to close the gap. We introduced richer profiles that let people show more of who they are. We added stronger verification features like phone number verification and selfie video verification to increase confidence. And we launched our new coaching hub filled with content from relationship experts and a help hub to reduce the time it takes to get our members to resolutions for any problems on the app. These are not cosmetic changes. They are designed to create trust to make dating more rewarding because when women feel safe and inspired to show up as their full selves, connection becomes easier for everyone. The problem we're solving for isn't a demand problem. The desire for love and relationships is universal. To deliver on that desire, we have built a product road map that is defined by fixing our members' pain points. Let me spend a moment on exactly how we think about this. It starts with strengthening the foundation. When you ask members what their #1 complaint is with dating apps, it's really wanting more trust, safety and authenticity. The August update landed this first piece. We're building tools that guide members to put their best selves forward and engage with confidence. Between now and the spring, we'll maintain a steady drumbeat of releases, tangible improvements that reflect what we're hearing from our community. Individually, the tools and features we introduced may not sound game-changing, but taken together, they are the critical building blocks for addressing members' pain points. The second largest complaint members have is that they're not seeing who they want to see. This is about the fundamental technology that any dating app has to get right. A major portion of the work we are doing on the UI side is building better signal capturing so that we can supercharge our matching and recommendation engine. Right now is an incredible time in technology to be doing this. AI makes so much more possible. It unlocks the ability to reinforce and enhance our matching engine in ways we could never before. These AI-driven improvements won't necessarily be visible to members, but they will deliver what they want, more quality matches. How does that work? To get good matches, you need great signals. Great signals come from stronger profiles, which is why we are starting at this foundation. More robust dynamic profiles gives both sides of the marketplace more info to react to. This gives our matching engine the high-grade fuel it needs to deliver the best possible experience and outcomes faster. As we get these pieces right, you will see more member-facing innovation. More social tools, for instance, which are coming next year and behind the scenes, better customer service. We've already made a lot of improvements in response times and problem resolution through automation over the past year. We believe there's a lot more to accomplish here. Together, all of these components drive the experience of our members today and those yet to join our platform. We're being really thoughtful about how we're sequencing our work and what we're putting out there and when, which brings me to the final pain point. Members want all of the above, and they want the outcomes faster. Our AI-first cloud-native platform, which we expect to launch in mid-2026 will become the engine of Bumble's future, helping us personalize at scale, enhance safety further and continuously improve the experience for our members. This new platform is expected to give us the innovation speed and flexibility to adapt faster than ever before. It's how we'll turn insights from member behavior into meaningful real-time improvement. We see this new platform as the unlock to restoring long-term product-led growth. In parallel, we're building something entirely new, a stand-alone AI product that will become part of our portfolio. We believe it will be unlike anything else in the market, powered by our deep understanding of human connection and supported by the robust data, brand and infrastructure that already set Bumble apart. We have begun internal testing as well as getting direct feedback on the concept to ensure we get this right. While we continue to enhance Bumble Date, we're also broadening our ecosystem through Bumble BFF, built on our modern Geneva platform, the new BFF app combines friend matching with group management and event planning. It's the next step in transforming Bumble from a dating app into a full platform for connection, and it is already performing well with increased retention compared to the old app. Our primary audience in the near-term is Gen Z and millennial women, the same demographic that powers Bumble Date. In 2026, we will expand this even further, adding group and community discovery so people can more easily find their people and form real friendship offline. BFF is both a growth opportunity and a launch pad for new social experiences that we can apply across our portfolio, further strengthening Bumble's position as the place women choose for friendship, love and belonging. In Q3, we introduced our For the Love of Love campaign, a celebration of real success stories and real connections. It's a reminder of why people come to Bumble in the first place to find love in all of its forms. The reaction has been encouraging with a 4 percentage point improvement in awareness among single women in the U.S. aged 22 to 45. Our goal is simple: to be the most trusted, highest quality women-first platform in the world, the brand people turn to when they're ready for something real. Across Bumble Date, Badoo, BFF, we're more differentiated and AI-driven innovation, we are building a connected portfolio of love. We believe the work we are doing today is strengthening our business and setting the stage for durable, profitable growth. We are proud of the progress we are making, confident in our strategy and focus on execution. We have conviction in where we're headed, and we are so excited for the quarters ahead. Thank you so much for your continued support. And now I will turn it over to our new CFO, Kevin Cook, who I am happy to introduce to you all today. Kevin has already brought fresh perspective and strong operational discipline to the company, and I am so excited to have him here to round out our outstanding new senior leadership team. Kevin Cook: Thank you, Whitney, and good afternoon, everyone. In my first months at Bumble, I've been impressed by the strength of our brand, the capability of our teams and the clarity of our vision. As Whitney mentioned, our third quarter results reflect our quality-first prioritization and ongoing strategic reset. We remain focused on improving member experience, strengthening the foundation of the business and maintaining financial discipline. While some of these actions create near-term headwinds, they are designed to position Bumble for healthier growth and stronger monetization over time. Together with continued product innovation and market expansion, we believe this is the path to durable long-term revenue growth. I will focus my comments on our third quarter performance before sharing guidance for the fourth quarter. Our third quarter results came in ahead of our expectations, but also were heavily impacted by our transformational work. So I think it's useful to start with context on the status of this work and the related puts and takes into what we are reporting today as well as our outlook for Q4. First, with respect to revenue, during Q3, we launched our August product updates focused on trust and safety. As Whitney has explained, we are committed to improving member base quality, and we expected these updates to result in increased attrition of targeted member segments over the near-term. That attrition is reflected in our monthly active user counts with the associated reduction in paying users creating a headwind to revenue this quarter. Since the trust and safety rollout occurred relatively late in the third quarter, results for Q4 will reflect a comparatively larger full quarter impact, both from a paying user count and revenue perspective. The second factor is marketing. We discussed last quarter how we largely paused marketing spend and in particular, stopped most performance marketing as we shifted our marketing posture to align to product launches and highly targeted user acquisition. Overall, this shift drove a significant year-over-year reduction in marketing expense and a corresponding benefit to adjusted EBITDA. This reduction is inclusive of the cost of our For the Love of Love brand campaign launched in August. At the same time, the reduction in marketing substantially contributed to the decline in registrations, active members and payers. The current performance marketing strategy has begun to show encouraging results with targeted audiences, attracting more approved-ready members into the ecosystem. While marketing spend is not expected to return to pre-transformation levels as we are focused on efficiency, we do expect some spend to return moving forward. The third factor to discuss relates to personnel. At the end of the second quarter, we restructured our headcount to align with our product and marketing strategies. We noted at the time that we expected to reinvest much of the savings from headcount reductions, and we are already making selective headcount additions primarily in AI, product and engineering roles that support further innovation. As a result, we saw modest benefits to our Q3 expenses related to headcount. Consistent with the tech and product-led organization, this controlled hiring will continue into Q4 and beyond. Hopefully, this discussion is helpful in shaping everyone's understanding of our performance as we execute on our strategic priorities. I'll now take you through the numbers. Unless stated otherwise, results are presented on a GAAP basis and all comparisons are year-over-year. Total revenue for the third quarter was $246 million, a 10% decline from a year ago. Foreign currency exchange rates contributed $4 million to revenue in the quarter. Bumble App revenue was $199 million, also down 10% year-over-year. Badoo App and Other revenue declined 11% to $47 million. Total expenses for Q3 were $183 million. On a non-GAAP basis, which excludes stock-based compensation and other noncash and nonrecurring items, operating expenses were $163 million, a decline of 15%, driven primarily by a decrease in marketing activity as well as the headcount restructuring previously discussed. Turning quickly to our key expense categories, which we report on a non-GAAP basis. Cost of revenue was $69 million, representing 28% of revenue, down approximately 1 percentage point year-over-year, with incremental improvements due in part to early testing of direct billing initiatives. Product development expense was $25 million, an increase of 14% year-over-year. Sales and marketing expense was $32 million, down 50% year-over-year. G&A was $37 million, an increase of 38% year-over-year, driven primarily by the cumulative adjustments for certain indirect tax obligations related to prior periods. Net income was $52 million. Adjusted EBITDA for the quarter was $83 million, up 1%, representing a margin of 34%, up from 30% in the year ago period. Please note that included within adjusted EBITDA is a negative impact of $12 million related to prior period indirect tax obligations. Nonetheless, adjusted EBITDA margin is temporarily elevated due to the factors I described, including the cadence of both marketing spend and our organizational realignment. We expect our margin to revert closer to historical norms as we complete technical and specialized hiring, reinstitute brand and targeted user acquisition spend and invest in updated product and our new tech platform. Q3 cash flow from operations was $77 million compared to $93 million in the year ago period, and we ended the quarter with $308 million in cash and equivalents. As planned, we repaid $25 million of our term loan in the third quarter. Looking ahead to the fourth quarter, as previously contemplated, our outlook reflects our expectation for continued attrition in active and paying members as we maintain higher quality standards across the platform with a full quarter of impact planned from the initiatives implemented in August. While Q4 will be challenging, we currently anticipate that the rate of sequential paying user declines will improve beginning in early 2026 as we largely complete our trust and authenticity work. As Whitney highlighted, it is early, but these measures are showing signs of improving retention and increasing average revenue per paying user. The thesis continues to be that a better member experience will result in higher retention and drive members' perception of value, leading to increasing revenue. For Q4, we expect total revenue in the range of $216 million to $224 million, representing a year-over-year decline of approximately 17% to 14%. We expect Bumble App revenue in the range of $176 million to $182 million, representing a year-over-year decline of approximately 17% to 14%. Direct billing tests continue to progress and nearly all members in the U.S. now have some form of direct billing available. We expect to continue to refine our direct billing offerings in Q4. We expect adjusted EBITDA in the fourth quarter of $61 million to $65 million, representing a margin of approximately 28% to 29%. Before wrapping up, I want to call your attention to additional information we reported today in our earnings press release and accompanying 8-K pertaining to our tax receivable agreement that was created in connection with our IPO. A special committee of our Board has agreed to a transaction whereby the company will purchase all parties outstanding TRA rights for approximately $186 million. The transaction eliminates the company's TRA liability in full. We believe the transaction is a positive development for Bumble and our shareholders. It removes a large liability from our balance sheet at favorable terms, thus simplifying and creating a more efficient capital structure. By terminating payment obligations under the TRA, the transaction also improves future cash flows. And finally, it greatly improves the company's strategic flexibility moving forward as we work to create shareholder value. I'd also like to note that we are funding the termination agreement with available cash given our solid balance sheet and cash-generative business. As a result of the TRA transaction, which substantially reduces our liabilities and deleverages the business, we no longer plan to pay down $25 million of our term loan as discussed last quarter. In closing, there's a lot of work ahead, but early indicators suggest that we're on the path to reshaping the core business and positioning the company for future revenue growth. From a financial perspective, we're prioritizing disciplined expense management, solid cash flows and the flexibility to invest in our strategic priorities while preserving profitability. We believe we're setting the foundation for a healthier, higher-quality business that will monetize more effectively over time. Operator, we'll now take some questions. Operator: [Operator Instructions] First question comes from Nathan Feather with Morgan Stanley. Nathaniel Feather: Two from me. First, Whitney, now that you've gotten back in the CEO seat and are really starting to make some real product changes, if we zoom forward 2, 3 years, what's your key vision for how Bumble will really work differently from today and be able to drive the successful outcomes? And then a little bit more short-term, but what visibility do you have into the timing and magnitude of when revenue growth might bottom and then hopefully start to improve, especially given the talk of potentially paying user growth bottoming in the first? Whitney Herd: Thank you so much for the questions. I appreciate it. So let's start with the 2- to 3-year outlook. I think there's a slight misconception that exists with folks looking at the dating industry, thinking that it's the swipes that people are dissatisfied with or it's this or it's that functionality. But the reality is, and I just want to put this extremely bluntly, our product road map for the foreseeable future, for the years to come is solving for people's pain points, particularly women's pain points. And frankly, that is how we got here. That is truly what differentiated Bumble from any other dating product that had ever existed. If you think about it quite simply, you don't have a balanced member base or ecosystem or dynamic when we're talking about heteronormative dating if you don't have a place that women want to be. And frankly, that's what Bumble has been synonymous with for all of these years. So when we look to the future, I don't think it's all that complex that you have to reinvent the wheel. The wheel works. And frankly, the demand has not changed through our history. As human beings, we just want love. We want relationships. And frankly, we need it to survive. How we deliver that needs to be modern. It needs to be current, and it has to feel up to par with where people are today with what they expect from technology. So what's so exciting about right now, and I cannot overemphasize this. What AI gives us the ability to do? It gives us the ability to solve our members' pain points to hear women and say, "Oh, this is what you want from a dating product. Oh, you don't want this to ever happen to you again. Oh, you want to meet this type of person and you want more control over that experience." What's phenomenal about our opportunity right now is, when we have this modern tech stack that we are operating on top of we will be able to deliver these changes to our members in a matter of, hopefully, days to weeks versus months. And frankly, even historically, it's taken companies years to build certain things. So we have a superpower because we listen to women. We have women that believe in us globally, and this gives us market expansion opportunity. This gives us a dynamic opportunity to really rescale once we have this quality approach really under our belt, and we're making great headway. So as you know, and I'm so grateful to all of our shareholders, we're very early in this transformation. I stepped back into the seat in March. We actively got to work. We have a brand-new executive team. They are superstars, and we are very bullish on going all in on having the highest quality platform. And that's not just from a member base standpoint. That's from an experience standpoint. You should come to Bumble no matter who you are, and you should be able to be very deliberate in what you're looking for and you should be able to get the great high-quality match as soon as possible. And hopefully, that should lead you to love. So that's the 2- to 3-year plan is really just build for the demand and answer the wishes and the wants and solve the problems of the dating market around the world. AI is going to be a huge part of this. But ultimately, we're here, and we're so excited about it. So as far as when do we see a return to revenue growth. So I know this is a tricky one for people to follow along with in such tight time lines as far as earnings calls go. But we've got to complete this reset. Frankly, we have to complete the trust and safety efforts. You've seen that the Q4 numbers really reflect most of the impact of that. And it's largely what drove the payer decline along with us really pulling back on the performance marketing. But one point I'd like to make quickly, and then I'll wrap this up is, we've actually -- because of all this work we've done around quality and the Beehive Fit framework, we've actually found ways now to go do targeted performance marketing that brings in high-quality, what we call approved or likely to be approved members. So we can go back to that here in a very precise and targeted and measured way. So overall, that is on the horizon. We do see an end in sight if that makes sense, and we're very fully committed. Kevin, is there anything you'd like to add to that? Kevin Cook: Yes. Nathan, it's Kevin. Thanks, Whitney. So as you might expect, we're not forecasting revenue beyond Q4, but I can give you an idea of the arc, right? So just thinking about the Q3 decline in payers, for example, the decline was driven primarily by 2 intentional strategies designed to improve member base quality and, of course, member experience. You're familiar with some of these, but let me just repeat them for clarity. So trust and safety work and a reduction in our marketing spend together contributed approximately 80% of the decline in paying users on a year-over-year basis. So it's important to recognize that we control these reductions to a large extent, and that this strategy is all consistent with the reset that Whitney outlined. In terms of sort of progress in executing that strategy, just looking at some of the things that we know, and as Whitney highlighted already, it's extremely early. We've only been at it for about a quarter, but we are seeing some signs of encouragement. We saw a modest improvement, and you might have observed this in our prepared remarks, but we saw a modest improvement in retention, for example, over the quarter. We saw an 11% improvement in ARPPU in the quarter for Bumble. We, in addition, saw very strong uplift in brand awareness and brand perception among women in the quarter, mostly related to our brand campaign. And we are -- we continue to make progress on this internal framework you've heard us refer to before, the Beehive Fit framework, where we are attempting to lift to members from what we call internally the improved category into the approved category. And there, we are seeing all of the categories moving in the right direction. And so, that incremental progress, it's going to take time, of course, but that incremental progress is encouraging as well. Remember that the approved members show significantly higher engagement and they monetize at more than twice the rate of improved members. So apart from understanding, as Whitney was suggesting that the functioning of the ecosystem, it's essential to have high-quality members as proxy approved members, it also has an obvious impact on business performance. So I'll pause there, Will, and see whatever questions we have or Nathan's got a follow-up. Operator: [Operator Instructions] We now turn to Andrew Marok with Raymond James. Andrew Marok: Maybe digging into that last point that Kevin made there on the improved bucket. I know that was going to be a major initiative in kind of bringing along the improved members to ARPPU. And I understand it's probably a pretty wide spectrum, but is there anything specific that you're seeing out of those improved members that are giving you signs for encouragement or perhaps caution? Or anything else that you'd like to call out within those that you think would be important for us to look for as we go into 4Q and beyond? Whitney Herd: Thanks for the question. So I'll take that. And if Kevin wants to add on, we'll do that after. So I think it's really important to understand that a lot of folks have the capability to be what we would call approved members in just a couple of tweaks. So I'll give you a quick example. You might have a great person who is looking for love, but they have no clue how to write a bio. They only have one photo. So while they could be going out on lots of dates and getting a lot of interaction, because they have limited knowledge on how to set up a dating app or how to show up at their best self, they actually get stuck in what we call this improved category. And so, what we're really seeing is the more profiles photos someone adds going through just a couple of these quick steps with the trust and the safety tooling that we've introduced, they get more matches. They get more right swipes, they get more engagement. An approved member has better outcomes. And as Kevin just stated, they have higher retention rates. They monetize much better. And frankly, it just improves that entire flywheel, and it really gives people more to operate with. And so, when we focus on improving the improved, not to be redundant there, there's huge opportunity here because the vast middle is somewhere stuck in the middle. And so, this is what we're focused on with this road map that we keep talking about. Building an exceptional product experience doesn't have to be some fancy flashy new feature. It's frankly, "Hey, how do we get onboarding tools in the hands of our members so that they can set up a remarkably robust and authentic and great profile in a really short amount of time, and then they're out in the dating pool." And so, these are just a couple of examples of how really just enabling the system to provide easier tooling to get out there and to move into the proved category, it pulls the tide up for everyone, and it really enhances the experience for everyone. So while we're early and while the metrics at math aren't suggesting this huge monumental moment, bearing with us and having some patience is critical here because this is the strategy that wins in dating. And I believe that I can speak to this with a lot of conviction. I've been at the forefront of this industry, frankly, on the front lines of modern dating technology since I was 22 years old. And I have seen this front and center when you have a healthy balance of women on a product, when people fill out their profiles with high-quality information, when they are not flooded with removed profiles and they see who they want to see. They get good matches, they get into great chats, they go on dates, and that's why I meet Bumble babies every day when I go out into the world. This works and this changes lives. We just need to land the strategy with returning to quality, and then we will reaccelerate on all of our growth opportunities in new markets and core markets, and we're here for it. We're very excited. Andrew Marok: Great. Really helpful color. And then maybe one quick one for Kevin. I'm not sure if you've seen the proposed transaction or the -- excuse me, the proposed settlement details between Google and Epic today. But just wondering if you have an opinion on how that kind of contrasts with what you have assumed into your guidance for the cost of revenue line. Kevin Cook: Okay. So no, I haven't seen the details. So I don't have any insight to share there. I can comment briefly on sort of our direct billing initiatives. As you might expect, we -- as soon as permitted, we set up alternative payments, and we've been testing those strategies throughout Q3, and we'll continue to do that in Q4. You saw in our cost of sales a meaningful improvement in Q3. And we would expect to continue to -- while we will refine strategies around alternative billing throughout Q4, we'd still expect that benefit to persist into Q4, and we should have a full quarter effect of cost of revenue benefits. Operator: We now turn to Ygal Arounian with Citi. Ygal Arounian: I wanted to ask specifically about the stand-alone AI product, Whitney and sort of your thoughts and visions around that, but something that will sort of always be stand-alone. What's the sort of AI-first dating app experience like? And how does that impact how you view the core Bumble experience and how that overlaps with that vision and strategy? Whitney Herd: Thanks for the question. So I think before I talk about our upcoming stand-alone AI product, I actually did want to speak about 2 things surrounding AI. So first and foremost, I'm sure you and everybody else tuning in have been reading a lot and hearing a lot about the new AI-focused dating apps. I really want to make an important point here. Throughout my career, I have seen hundreds of dating apps, dating products, dating matchmakers, you name it, hit the market and fizzle and fumble. There's a reason why there's only a couple of us that stand as strong as we do on a global level. And that's because building critical mass and building a trusted double-sided marketplace is incredibly difficult to do. So what really gives us a unique opportunity here and a right to win is, we have extraordinary data. We have unbelievable sets of groups of people around the world that are looking for love that are actively searching for dating and us being able to lean into this moment with AI and provide them a modern experience that doesn't collapse or change the current experience. So you've got to separate these in your mind. You've got Bumble Date today, and we're going to talk about how AI affects that in a moment. But the stand-alone product is something that, in my opinion, has never been done before. It is going to be very unique. I am extremely excited about it, and our team is very excited about it. The way it ultimately -- we can't disclose the details of how it will work. But what I will leave you with is, if dating apps have predominantly been discovery oriented, right? You get on and you kind of just discover people. This is really the first time that there will be precise search involved in this. And so, when you look at a lot of our consumer products we all use on a daily basis, they're powered by great search and great algorithms. So this AI product is going to lean into a new way of thinking about dating. And how it really will flow in our category -- in our portfolio over time is very exciting because, yes, it can be stand-alone. However, we can take a lot of those learnings, and we can take a lot of that modern technology and layer it in to the core products that we already have. You're seeing us do a bit of this already with BFF because BFF, we've migrated on to the Geneva tech stack, and I'll give you a quick example, what would have taken us a few months at Bumble Date to really update. So Date 1.0. That's the tech stack we're on right now at Bumble Date. It might take us months to build a certain feature or product change for our members. We had a piece of feedback from members at BFF, for example, and we had that problem fully changed and involved within a week where that would have taken months on Date 1.0. So we are already integrating some of these AI changes into 1.0 to solve customer needs. But what's very exciting is you'll have this tandem approach to AI in our group because the upcoming 2.0 infrastructure for Bumble Date, which we just said will be mid-'26, that will give us the capability to build tooling and we were speaking earlier about how certain features can be engineered in hours now due to this technology, it's revolutionary. So we're going to be able to move so fast. So the answer is yes, it will be stand-alone this new product. However, it will have overlap crossover function just like we're doing with BFF, where we're learning about how groups behave and how communities behave so that we can build that into the core dating product. So I hope that answered the question. If it didn't, please let me know. Ygal Arounian: It did and very helpful. And I guess maybe a little bit more near-term, just as you get through to the spring product release and you're talking about kind of the, I guess, steady releases through spring and solving pain points. Are there a few things that you see as being sort of the biggest drivers? I know we're doing all the cleanup work and enhancing the user experience on one side, but in terms of like new products that are coming out, are there a few things that are sort of excite you the most? Whitney Herd: Yes, that's a great question. So this might be a slightly unpredicted response that the least exciting features on paper are actually the ones that move the needle the most for us sometimes. So when you go and invest time and energy and optimization, for example, into customer service, that has a meaningful impact on our members' lives. They are feeling heard. They're getting their problems resolved. Now, on paper, that's not some flashy new release. So what we're really focused on right now between the launch of 2.0, and I'm using that as a reference point. 2.0 is the new AI cloud-native tech stack that Bumble will live on in the future, which is the mid-'26 technology. But if you look at everything we're doing between now and then, it's just listening to our members, right? Our product road map is our customer pain points. And as I said, you don't ask members, "Hey, what's not working for you and they say, "Oh, wow, I really wish you had this flashy crazy feature." They just say, I want a better profile. I want to be able to see more information about someone. I want a safer experience. I want the algorithm to be more personalized to me. These are at face value, quite basic asks, but this is what builds an incredible experience. And frankly, this is what got us to being the great company we are. And yes, the technology has been innovating and iterating over time. And obviously, we have to evolve with where the category is. But ultimately, the strategy doesn't change. Just listen to women and give them what they want. It's very simple, and that's exactly what we're doing, and that's how we win with the category. Operator: We have no further questions. So this concludes our Q&A and today's conference call. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Greetings, and welcome to the American Coastal Insurance Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, I'd like to let you know that this conference is being recorded. It is now my pleasure to turn the call over to your host, Karin Daly, Vice President at The Equity Group and American Coastal's Investor Relations representative. Please go ahead, Karin. Karin Daly: Thank you, Diego, and good afternoon, everyone. American Coastal Insurance Corporation has also made this broadcast available on its website at www.amcoastal.com. A replay will be available for approximately 30 days following the call. Additionally, you can find copies of the latest earnings release and earnings presentation in the Investors section of the company's website. Speaking today will be President and Chief Executive Officer, Bennett Bradford Martz; and Chief Financial Officer, Svetlana Castle. On behalf of the company, I'd like to note that statements made during this call that are not historical facts are forward-looking statements. The company believes these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those expressed in or implied by the forward-looking statements. Factors that could cause actual results to differ materially may be found in the company's filings with the U.S. Securities and Exchange Commission in the Risk Factors section of the most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and except as required by applicable law, the company undertakes no obligation to update or revise any forward-looking statements. With that, it's my pleasure to turn the call over to Brad Martz. Brad? B. Martz: Thank you, Karin, and welcome, everyone. I'm pleased to report American Coastal continued to deliver exceptional results during the third quarter with over $42 million of earnings before income taxes, representing our best quarter to date. Total revenues grew over 10% and despite general and administrative expenses normalizing in the third quarter without the nonrecurring payroll tax credits realized in the first half of the year, American Coastal was able to grow net income 16% year-over-year due to the muted catastrophe and attritional losses incurred. As previewed last quarter, we intentionally slowed premiums written in the third quarter to limit exposure growth through the peak of hurricane season and to hit our modeled expected average annual loss target, which was ultimately successfully accomplished. As the commercial property market continues to soften, risk selection and underwriting discipline remain paramount as we search for profitable growth opportunities. Looking forward, we believe the opportunity to earn strong returns on capital remains present even if headwinds from the current softening cycle persist. Accordingly, on October 1, American Coastal reverted to normal operations. So we do expect to see a rebound in premiums written during the fourth quarter with that positive momentum likely continuing into 2026. Our wholly owned MGA, Skyway Underwriters, recently introduced a new product and began quoting a new commercial residential property insurance program targeting the assisted and independent living facility market in Florida. American Coastal is only underwriting and retaining property exposure and will not be taking any liability or casualty risk. We believe the assisted living niche represents another attractive avenue for us to leverage our powerful distribution relationships and unique expertise in underwriting commercial residential property insurance by targeting properties that have similar physical risk characteristics to our condo and apartment policies, but are also expected to be diversifying to our risk portfolio. Page 10 of our earnings presentation provides more detail on this exciting new initiative. I'd like to now turn it over to our Chief Financial Officer, Svetlana Castle, for more specifics on our results. Svetlana Castle: Thank you, Brad, and hello. I'll provide the financial update, but encourage everyone to review the company's press release, earnings and investor presentations and Form 10-Q for more information regarding our performance. As reflected on Page 5 of the earnings presentation, American Coastal demonstrated another strong quarter with net income of $32.5 million. Core income was $30.5 million, an increase of $3.6 million year-over-year due to $6.4 million increase in net premiums earned as a product of stepping down our gross catastrophe quota share from 20% to 15% effective June 1, 2025, and the earning of new business premium written in prior quarters. This was partially offset by increased operating costs of $5.6 million, driven by $4.5 million or 21.5% increase in policy acquisition costs. Policy acquisition costs increased due to an increase in commission to MGA and decrease in ceding commission income year-over-year. Our combined ratio was 56.9%, a decrease of 0.8 points from 2024 and lower than our stated target of 65%. Our non-GAAP underlying combined ratio, which excludes current year catastrophe losses and prior year development, was 57.8%, also below our 65% target. We continue to feel our reserve position is strong. Page 6 of our presentation shows our increased operating expenses of $5.6 million, as previously described. These increased costs were in line with expectations and were more than offset by the increase in net premiums earned mentioned earlier, driving additional net earnings shown. Looking at the full year results on Page 7 of the earnings presentation. Net income from continuing operations was $80.2 million, an increase of $9.7 million or 13.8% year-over-year. Revenues have increased $31.7 million or 14.6% year-over-year, driven by increased net premiums earned. Operating expenses increased $23.8 million year-over-year, driven by policy acquisition costs increasing $28.7 million. This increase was in line with expectations and driven by the quota share of step-down and commissions mentioned previously. G&A expenses partially offset this, decreasing $4.9 million, however, this was driven by onetime tax credit refund of $4.5 million previously unrecorded and disclosed as a gain contingency. Page 8 shows balance sheet highlights. Cash and investments grew 28.5% since year-end to $695 million, reflecting the company's strong liquidity position. Stockholders' equity has increased 38.9% since year-end to $327.2 million, driven by strong results. Book value per share is $6.71, a 37.2% increase from year-end 2024. The company continues to be in a strong position to execute its strategic initiatives. I'll now turn it over to Brad for closing remarks. B. Martz: Thanks, Svetlana. I don't have anything to add. So that completes our prepared remarks today, and we're now happy to field any questions. Operator: [Operator Instructions] And your first question comes from Greg Peters with Raymond James. Charles Peters: So I'm going to -- I have 3 questions, one on the gross premium written decline in the third quarter. And related to that, I guess, would be the commentary in your presentation about pricing being down 13% also go to reinsurance. But first, for gross premium written, can you break up for us the part of the decrease that was related to suspending writing new business versus the portion that related to pricing being down, as you said in your press release, 13%, offset by I assume maybe there was some new business or maybe not? B. Martz: Greg, this is Brad. Yes, we didn't suspend new business per se. We were still actively writing new and renewal business. We just had more stringent underwriting controls in place. So we set and manage our book of business by giving AmRisc on the condo side, for example, certain targets for total insured value or PML and/or average annual loss. And in this particular case, for this year, we had set an average annual loss target at 9/30 linked to our reinsurance [ buy ], right? So we have -- we want to always meet the targets for the amount of exposure we're going to have in force during hurricane season relative to what we told our reinsurance partners we would deliver on. So that was super important to us. Obviously, if you go over that target, there's flexibility, just no additional reinsurance premium. We could have continued to grow in the third quarter if we've chosen to do so, but we felt it was prudent to hold the line and continue to meet the targets we laid out for our expected average annual loss. So that's the real reason for the decrease. I think it's, again, something we can easily make up for in the fourth quarter and into the first half of 2026. So I wouldn't read too much into it. Charles Peters: Okay. The other question, just -- in your press release you talked about the reinsurance costs as a percentage of gross earned premium quite down nicely in the third quarter of this year versus the third quarter last year. I know, I guess, the January 1 renewal is right around the corner. That's not the big [ wind ] contract for you. But maybe you could just give us a little sense or some sense of how the 1/1 renewal discussions are going, which I'm sure you're involved with at this point in time? And any early read you have on the wind contract that comes up in June? B. Martz: Sure. We had some very productive conversations in Orlando in early October with about 3/4 of our reinsurance panel. We had, I think, a good dialogue about capacity and desire to grow alongside our reinsurance partners. So there's certainly strong support for American Coastal out there. But interestingly enough, we didn't -- the conversations were not centered or focused around price. We leave that to other metrics and price discovery tools, including utilizing our broker -- reinsurance intermediaries to evaluate the market and try and get a sense for what we can expect on pricing. So I think there's lots of capacity out there. There's certainly not a supply problem. The question is what will be the demand. And I see reinsurance costs moving in step with what's going on with our rates on the front end. So you mentioned our rates are down. That trend continued in the third quarter. So we are obviously looking at those headwinds from the softening cycle, like I said, and trying to understand what that means for returns on capital and the profitability of our business. So -- when I think about average premiums, they're really only down about 9% since year-end. But for the full year, they will be down commensurate with the risk-adjusted cost decrease we've received on our core cat renewal pricing at 6/1 of 2025. So as long as that continues, our outlook will remain positive. But certainly, an absence of major cat events in the second half of 2025 has helped provide some clarity around where pricing, both on the primary and the ceded side are headed. Operator: [Operator Instructions] We have another question coming from Greg Peters with Raymond James. Charles Peters: I'm going to ask one follow-up question just because you featured this in your presentation, which is the assisted living business. Maybe -- you have a lot of information on the slide on it, but maybe you can give us a sense of what you think the addressable market looks like for American Coastal and how that might factor into your growth for next year? B. Martz: Absolutely. Thank you for the question. This is another opportunity for us, brought to us by some of our distribution partners. The initial market research we've done would suggest it's about $100 million market for the types of risk we're looking at, which is limited. It is growing. It could be double that in 10 years, as you can see by the growth projections. But it won't have a material impact on our results for next year. Similar to what we outlined for apartments, where we thought that was about a $200 million market opportunity. We'd write about 10% of that in year 1. I think you can think about ALFs the same way, where today, it's about $100 million addressable market opportunity. And if we can capture 10% of that in year 1, I think that would be a decent result. We're not looking to knock the cover off the ball right out of the gates. We've got a lot of learning curve in front of us, although we do feel very comfortable with this risk. What's interesting about it is that the properties we're targeting are eligible for the Florida Hurricane Catastrophe Fund, that's right in our wheelhouse. So just like apartments and condos, that provides us a cost advantage having that business in the Florida admitted market. So where it's eligible for the cat fund and the guarantee fund. So I think we'll have some success. It's a little early to forecast. So I would -- we'll have more details around our forward-looking projections for 2026 at our next Investor Day. We're currently targeting sometime in the first half of January, probably the second week of January, most likely. I don't have a definitive date yet to host an Investor Day where we'd like to update shareholders on our strategic initiatives for the upcoming year and update our full year guidance for 2026 for both net premiums earned and net income. So stay tuned for that. Operator: And there are no further questions at this time. So with that, we will conclude today's call. All parties may disconnect. Have a good evening. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Sixth Street Specialty Lending, Inc. Q3 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, Cami VanHorn, Head of Investor Relations. Please go ahead. Cami VanHorn: Thank you. Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Sixth Street Specialty Lending, Inc.'s filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. Yesterday, after the market closed, we issued our earnings press release for the third quarter ended September 30, 2025, and posted a presentation to the Investor Resources section of our website, www.sixthstreetspecialtylending.com. The presentation should be reviewed in conjunction with our Form 10-Q filed yesterday with the SEC. Sixth Street Specialty Lending, Inc.'s earnings release is also available on our website under the Investor Resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the third quarter ended September 30, 2025. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Joshua Easterly, Co-Chief Executive Officer of Sixth Street Specialty Lending, Inc. Joshua Easterly: Good morning, everyone, and thank you for joining us. I assume everybody has seen my most recent letter and the 8-K posted last night with our earnings. I'm joined by our newly announced Co-CEO, Bo Stanley; and our CFO, Ian Simmonds. Before covering our Q3 2025 results, I wanted to discuss the leadership changes that were announced yesterday. We are excited to announce that Bo has been named Co-CEO, effective immediately. Bo and I have been working together for the better part of the past 25 years. As an early member of the Sixth Street team, Bo possesses an unparalleled understanding of our industry is a tremendous leader and investor. As a key member of the management team, Bo has also been a driving force in preserving and strengthening the investor first mentality that defines the Sixth Street culture. After 15 years of leading the business and what is now my 47th public earnings call, I'll be stepping down from the CEO seat at the end of the year. This decision is made with considerable optimism for the future of the company. Bo has been integral in the investment leadership of the business for several years, and this transition formalizes our existing collaborative structure. Going forward, I'll continue to serve as Chairman of SLX and Co-President and Co-Chief Investment Officer of the broader Sixth Street platform. As part of this evolution, Bo has joined SLX's Board of Directors. It has been a privilege of a lifetime to lead the company. I'm incredibly proud of what we have accomplished together and even more excited about what lies ahead under Bo's leadership. With that, let's turn to this quarter's results. After the market closed yesterday, we reported third quarter adjusted net investment income of $0.53 per share or an annualized return on equity of 12.3% and adjusted net income of $0.46 per share or an annualized return on equity of 10.8%. As presented in our financial statements, our Q3 net investment income and net income per share, inclusive of the unwind of the non-cash accrued capital gain incentive fee expense were $0.01 per share higher than the adjusted figures. The difference between adjusted net investment income and adjusted net income of $0.07 per share was largely related to the reversal of net unrealized gains on the balance sheet related to investment realizations. Yesterday, our Board approved a base quarterly dividend of $0.46 per share to shareholders of record as of December 15, payable on December 31. Our Board also declared a supplemental dividend of $0.03 per share related to our Q3 earnings to shareholders of record as of November 28, payable on December 19. Net asset value per share adjusted for the impact of the supplemental dividend that was declared yesterday is $17.11. Since the start of the interest rate hiking cycle in early 2022, our net asset value per share has grown by 1.9%, representing a significant outperformance compared to the average decline of 8.5% for our public BDC peers through Q2. Focusing specifically on the last 12 months, this outperformance has continued with SLS delivering NAV stability while other public BDC peers experienced an average decline of 2.8% through Q2. While dividend policies vary across industry, SLX's outperformance remains largely consistent, whether measured by reported net asset value per share or net asset value adjusted for supplemental and special dividends. Before passing it to Bo, I wanted to touch on one topic addressed in our letter, which is the stock market performance of the BDC sector. We view the September sell-off as a net positive for our industry. Let me be clear, we do not believe the market move is credit related for us or the sector broadly. As we said in our last earnings call, we think credit issues are generally behind the industry. Our view is that the market woke up to the reality that the sector has been allocating capital based on a backward-looking view of higher-yielding back books in an elevated interest rate environment. This was the premise of our letter to shareholders in April, which illustrated forward ROEs falling below the industry's cost of equity capital. While we believe this capital misallocation will have both near- and long-term effects in the short term, we expect to see dividend cuts across the industry as net investment income falls below dividend levels. For SLX, we continue to overearn our base dividend with 114% coverage in Q3, allowing us to pay another supplemental dividend based on this quarter's over earning. Long term, we believe downward pressure on BDC stocks will constrain further capital raising, specifically in the nontraded perpetually offered vehicles. For a number of managers, investors can simply buy the same or very similar product in a listed format at a discount to net asset value with daily liquidity. While this will take time to play out, we see this as an effective market correcting mechanism to address the imbalance between supply and demand of capital that we have been talking about for several quarters. Ultimately, we believe this will create net negative flows for direct lending, similar to the experience in the listed and non-traded REIT products that occurred following the rate hiking cycle beginning in late 2022. There is more on this in my letter, but to wrap it up, we are optimistic that this environment will underscore the critical importance of manager selection and driving long-term shareholder value. With that, I'll now pass it over to Bo to discuss this quarter's investment activity. Robert Stanley: Thank you, Josh. It's a pleasure to be your long-term partner in our business, and I'm energized by the opportunity to serve as co-CEO. My focus is simple to continue executing the same disciplined strategy and uphold an investor-first culture that has defined our success from day 1. Turning now to the operating environment during the quarter. Competition in direct lending markets remained elevated, fueled by persistent oversupply of capital and historically tight spreads in the liquid credit markets. With broadly syndicated loan spreads reaching their lowest level since the great financial crisis, borrowers have been active refinancing into public markets to capture lower funding costs. Heightened BSL competition and muted M&A activity have led to sustained spread compression across the private credit landscape. Against that backdrop, we provided total commitments of $388 million and total fundings of $352 million across 4 new investments, 5 upsizes to existing portfolio companies and through selective deployment into structured credit investments. A key differentiator for SLX is that all 4 of our new investments were thematic off-the-run transactions, which we define as uniquely sourced opportunities that require a combination of deep sector expertise, a differentiated capital solution and the ability to commit in size to drive the transaction. These investments, which are driven by our thematic sourcing engine, create a unique portfolio for SLX shareholders relative to the sector, which largely focuses on conventional sponsor-backed direct lending transactions. An example of a thematic nontraditional transaction in Q3, which was also our largest funding for the quarter was our investment in Walgreens. Sixth Street acted as an administrative agent and joint lead arranger on a $2.5 billion term loan to support the financing of Walgreens U.S. retail business as part of Sycamore Partners' broader $23.7 billion take private of Walgreens Boots Alliance. Our decades-long relationship with the sponsor built on a track record of successful retail ABL deals was instrumental in us leading the transaction. Our expertise in retail ABL space made us a credible partner to deliver a successful execution for what we believe was the largest nonbank ABL deal ever and also the largest retail buyout of all time. This transaction exemplifies our ability to create value for shareholders through differentiated investment opportunities. Our second largest investment during the quarter was a thematic investment in Velocity Clinical Research. Velocity is the world's largest fully integrated site management organization, which provides clinical trial facilities and site-based trial management services. The opportunity was driven by cross-platform effort across Sixth Street and our long-standing relationship with the company's sponsor. It aligns with our pharma services sub theme and followed an extended engagement in which we iterated on multiple structures to deliver a bespoke capital solution for the business. Our dedicated health care sector team continues to differentiate our ability to source and underwrite these off-the-run transactions. This investment extends a track record that has been a key contributor to SLX's returns, including prior investments in Arrowhead Pharmaceuticals and Biohaven that have generated alpha for shareholders. During the quarter, we opportunistically invested $100 million in BB-rated CLO liabilities. These investments, while representing a compelling use of capital at the time given the return profile are not reflective of a change in the core investment approach or long-term strategy. We view these investments as an effective way to deploy capital, particularly given that in the current tighter spread environment, we can purchase BB CLO liabilities at wider spreads than regular way direct lending loans, which are also subject to refinancing risk. Our Q3 CLO investments reflect a weighted average spread of 554 basis points. To the extent we see a shift in the relative value, the liquid nature of these investments allows us to rotate out of the positions. Our expertise in the structured credit market is underscored by our track record of investing in CLO liabilities, which has generated a weighted average IRR and MOM of 27.1% and 1.24x, respectively, for SLX shareholders. This track record is driven by Sixth Street's deep expertise in liquid credit markets, demonstrated by having deployed approximately $16 billion in structured credit investments with an additional $13 billion in 30 CLOs managed by a team of 27 investment and research professionals. We believe this capability further highlights the benefits of the broader Sixth Street platform in terms of providing SLX with differentiated deployment opportunities. Looking ahead, we do not foresee a broad-based recovery in M&A activity in the near term. We expect spreads to remain tight as the supply of capital continues to outpace demand. In this environment, our thematic sourcing continues to drive origination and the breadth of Sixth Street's platform helps mitigate the effect of market tightening. This is evidenced by our weighted average spread on new floating rate investments, excluding structured credit investments of 700 basis points in Q3. While we do not have Q3 peer data available, this compares to a spread of 549 basis points on new issue first lien loans for public BDC peers in Q2. Moving on to repayment activity. We continue to experience elevated payoffs during the third quarter. Total repayments in Q3 were $303 million across 9 full and 1 partial investment realization. This repayment activity was the main driver of the $0.14 per share of gross activity-based fee income earned during the quarter, which compares to our 3-year historical average of $0.08 per share. To characterize this quarter's repayment activity, 75% of repayments were driven by refinancings at lower spreads in the private credit or broadly syndicated loan markets. The spread on refinance deals range from 325 to 525 basis points. We continue to adhere to our ongoing message of disciplined capital allocation, demonstrated by only 12% of our investments by fair value as of quarter end, having a contractual spread below 550 basis points. To put this into perspective, as of Q2, 59% of BDC portfolios by count had spreads below 550 basis points, and we anticipate this percentage will increase further this quarter. As it relates to portfolio metrics and yields, at September 30, the weighted average total yield on debt and income-producing securities at amortized cost was 11.7% compared to 12% as of June 30. The decline primarily reflects the impact of change in the base rates from lower reference rates resets and from payoffs of higher-yielding assets, excluding the yields on new investments funded during the quarter. From a vintage mix perspective, our exposure to pre-2022 vintage assets is less than half of the BDC sector. 22% of our portfolio is represented by these investments compared to 56% for the public BDC sector. We believe this is a positive differentiator for our business as the vast majority of our portfolio was originated at the start of the interest rate hiking cycle, positioning us well for the current environment. Moving on to portfolio composition and key credit stats. Across our core borrowers for whom these metrics are relevant, we continue to have conservative weighted average attach and detach points of 0.3x and 5.2x, respectively. And our weighted average interest coverage increased to 2.3x. As of Q3 2025, the weighted average revenue and EBITDA of our core portfolio companies was $376 million and $113 million, respectively. Median revenue and EBITDA were $150 million and $46 million, respectively. Finally, overall portfolio performance is strong with weighted average rating of 1.12 on a scale of 1 to 5, with 1 being the strongest. We have 2 portfolio companies on nonaccrual status, representing 0.6% of the portfolio by fair value, reflecting no change from the prior quarter. Both of these investments included in the 5 rated category. With that, I'd like to turn it over to my partner, Ian, to cover our financial performance in more detail. Ian Simmonds: Thank you, Bo. For Q3, we generated adjusted net investment income per share of $0.53 and adjusted net income per share of $0.46. Total investments were $3.4 billion, up slightly from $3.3 billion in the prior quarter as a result of net funding activity. Total principal debt outstanding at quarter end was $1.9 billion and net assets were $1.6 billion or $17.14 per share prior to the impact of the supplemental dividend that was declared yesterday. Our average debt-to-equity ratio was 1.1x, down from 1.2x in the prior quarter. Our ending debt-to-equity ratio increased from 1.09x to 1.15x quarter-over-quarter. We continue to have significant liquidity for the size of our balance sheet with nearly $1.1 billion of unfunded revolver capacity at quarter end against $174 million of unfunded portfolio company commitments eligible to be drawn. As of September 30, our funding mix was represented by 67% unsecured debt, and we have no near-term maturities with our nearest obligation being $300 million of unsecured notes not occurring until August 2026. Consistent with previous quarters, we did not issue any shares through our ATM program during Q3. While SLX trades at a meaningful premium to net asset value, which presents the opportunity to grow our asset base by issuing equity, we remain steadfast in our commitment to disciplined capital allocation. We will only seek to access the ATM program when we identify compelling near-term investment opportunities that allow us to maintain our target leverage and when issuance is accretive to both NAV and earnings per share. Our guiding principle is to do what we should do rather than simply what we can do. We believe this disciplined approach as it relates to capital management has earned the trust of our investors and delivered consistent performance. We are committed to upholding that trust by prioritizing accretive growth and responsible capital management. Pivoting to our presentation materials. Slide 8 contains this quarter's NAV bridge. Walking through the main drivers of NAV growth, we added $0.53 per share from adjusted net investment income against our base dividend of $0.46 per share. There was an $0.08 per share reduction to NAV as we reversed net unrealized gains on the balance sheet related to investment realizations and recognized these gains into this quarter's income. The reversal of unrealized gains this quarter was primarily driven by early payoffs resulting in accelerated OID and call protection. There was a small $0.01 per share positive impact to NAV primarily from the effect of tightening credit market spreads on the fair value of our portfolio. And finally, there was $0.01 per share of net realized gains, mainly from our equity realization in Clarience Technologies. Moving on to our operating results detail on Slide 9. We generated $109.4 million of total investment income for the quarter compared to $115 million in the prior quarter. Interest and dividend income was $95.2 million, down slightly from prior quarter, primarily driven by the decline in interest income from lower base rates. Other fees, representing prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns, were lower at $6.8 million compared to $10.2 million in the prior quarter, driven by the elevated prepayment fees, including Arrowhead in Q2. Other income was $7.4 million, down slightly from $7.6 million in the prior quarter. Net expenses, excluding the impact of the noncash reversal related to unwind of capital gains incentive fees were $58.4 million, down from $61.4 million in the prior quarter, primarily driven by lower interest expense. Our weighted average interest rate on average debt outstanding decreased from 6.3% to 6.1%. This was the result of a slight decline in base rates quarter-over-quarter and lower average debt outstanding in Q3. While liability sensitivity is limited for BDCs, we believe SLX is best positioned to benefit in a falling interest rate environment given our liability structure is entirely floating rate in nature. We estimate undistributed income of approximately $1.30 per share at quarter end. As always, we will continue to review the level of undistributed income as the tax year progresses to ensure we comply with the RIC distribution requirements, minimize potential return on equity drag from the excise taxes and prioritize returns to our shareholders. We believe there is a misconception that spillover income protects the dividend. However, using spillover to cover the dividend simply reduces net asset value. This is a return of capital, not a return on capital and ultimately diminishes shareholder value if earnings don't support the payout. Philosophically, if we can generate a return on that retained capital that is in excess of the cost of that capital, our shareholders will benefit through greater economic return. If we were below our leverage target, which we are not, and the cost to fund the distribution was lower than the excise tax rate, which it is not, we could theoretically create more value for shareholders by distributing that spillover income. Given these conditions are not present today, and we continue to meet our distribution obligations through our existing dividend framework, we believe retaining this capital remains the most appropriate way to generate value for our shareholders. Before turning it back to Josh, I'd like to briefly provide an update on our ROEs. At the beginning of this year, we communicated an annualized ROE target range of 11.5% to 12.5% based on our expectations over the intermediate term for our net asset level yields, cost of funds and financial leverage. Based on our performance this year through Q3, we expect adjusted NII per share for the full year to be at the top end of our previously stated range of $1.97 to $2.14 per share for the full year. The potential to exceed the top end of that range will be driven by activity-based fees. With that, I'll turn it back to Josh for concluding remarks. Joshua Easterly: Thank you, Ian. That's pretty long-winded in my letter, but I still encourage all of you to read it. And as a result, I'll keep my conclusion brief and pass the baton to vote. As a proud shareholder, we're in the right hands to drive our platform forward. Our heartfelt thank you to all of our stakeholders has been an honor. The greatest pleasure of the seat was learning from all of you. It made me and SLX better. A special thanks to my co-founding partners who trusted me with our public vehicle, our pre-IPO shareholders and all of our shareholders over the last 11-plus years. I wanted to say thank you to Mike Fishman. I've worked with Mike for the better part of 25 years. Mike has been a mentor, a partner and most importantly, a friend. Thanks, Mike. With that, over to Bo. Robert Stanley: Thanks again, Josh. I'll close where we started. Today's leadership update doesn't change how we run the business or our capital priorities. We remain focused on disciplined underwriting, proactive portfolio management and delivering consistent investor-first results. We have great continuity with Ian and Craig Hamrah and of course, the next generation of talent. I have immense confidence in our team and the platform we've built, and I look forward to driving the next chapter of value creation for our shareholders. Thank you for your continued support. With that, thank you for your time today. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question will be coming from Brian Mckenna of Citizens. Brian Mckenna: First off, Bo, congrats on the new role. And Josh, I just want to say thank you for all the genuine perspectives and insights on these calls over the years. So my first question is on the theme of evolving businesses over time. I wasn't totally shocked by the announcement last night, although it also wasn't on my bingle card for third quarter results. But Josh, it would just be helpful to get your perspective on why it's so important to have a deep bench to always be thinking about the next generation of leaders, why it's critical to have such a strong culture and really how all this has played into the natural evolution of Sixth Street over the past 15-plus years. Joshua Easterly: Yes. Brian, it's a great question. Look, these things might seem kind of abrupt shocking or a surprise to the outsiders, but the reality is I think Bo has been -- this process started 8 years ago. Bo was named President in 2016, so 9 years ago, whatever that math is. Ian has been here 10 years, but we started this transition 8 to 9 years ago or at the beginning part of this transition. And when I look at -- and it was only fair to Bo and the team to continue on that path and give them space to run. Ultimately, this is a people business and culture matters. And I think what we've done is build a very, very strong culture around our franchise and around our shareholder orientation and Bo embodies that and he's going to continue that. So I'm super pumped as a shareholder, super pumped as Bo's partner to see Bo and then quite frankly, the generation behind that because at some point, Bo will have to make that choice on who the generation is. I'm sure he'll do that in a collaborative way with me and my other partners, but he's going to have to make that choice. And this is -- our shareholders have given us permanent capital. With that permanent capital comes the responsibility of building a culture that allows for these generational changes in leadership, unlike an LPGP relationship, which those are relatively short dated 5 to 10 years, and it doesn't depend on having the next generation of leadership. So that is a responsibility for leaders of these permanent capital vehicles and make sure you have succession planning and make sure you build a culture where people can step up, and we've done it. But I think it's different than the typical limited partnership relationship because these are permanent capital vehicles that belong to our shareholder and the shareholder trust that we do this. Brian Mckenna: Got it. That's really helpful. And then just a question on private wealth. I know this is extremely topical. But how is Sixth Street thinking about expanding into this channel? I'm assuming this is something you and your partners are thinking about a lot. And I know if you ultimately roll out a dedicated strategy, it will be in typical Sixth Street fashion. But what could this look like? I'm assuming you'll have to figure out a way to solve and really be able to prudently raise and deploy capital. But is there a way to create a strategy that caps quarterly or annual inflows and then you're also able to invest across asset classes depending on the current risk rewards in the market. Any thoughts here would be helpful. Joshua Easterly: Yes. I mean, look, I think it's obviously -- I talked about this in my letter in depth. It's probably not -- I would say we think about it, we debate it. There's not a conclusion today. But if we did something, it would have to be in a different way that I like the idea, and I said this on our last earnings call, the thought of the democratization of alts allowing that the small investor access to great management and those stream of returns. I'm not sure the market has figured out how to actually give them -- give that investor the institutional experience. And if we ever did something in the space, it would have to be to give them the institutional experience. And quite frankly, we haven't figured out exactly how to do that yet. Operator: And our next question will be coming from Finian O'Shea of Wells Fargo Securities. Finian O'Shea: Congrats again on the promotions, leadership changes and so forth. Just a small follow-up on that. Can you talk about how the focus may change, Josh, you'll remain CIO or co-CIO of the platform? Are you still focused on direct lending? Or will it be something else? And then, Bo, I think you were -- correct me if I'm wrong, split between the growth business and this. Will it be full on this or anything else in there interesting on what you'll -- your day-to-day will be like? Joshua Easterly: I don't expect like either one of our day-to-day changes, and I'll let Bo answer it for himself. I am -- what I love personally is investing. I'm going to continue to be an active member and voice on the direct lending investment committees. And so I don't expect anything to change. I think it's also -- again, it's hard to see from the outside, but this -- day-to-day, this is pretty consistent with how we operate today. And so again, if I've made one mistake, and if I can be self-critical for a second, I've probably been more of a voice and an outsized voice compared to how we operate. And the reality is how we operate the business is how it's going to operate going forward, which is I spend my time trying to invest and be helpful on the investing side and think about risk return. And so I don't think anything is massively changing. And on Bo, Bo can talk about how his responsibilities on growth changes, but I don't see that massively changing either. Robert Stanley: Thanks, Josh, and thanks for the question, Fin. As Josh mentioned, I don't see a big change in my day-to-day responsibilities. The framework for this transition has been in place for quite some time. And as Josh mentioned, started 9 years ago. I'll continue to split my time with growth. The great news there is Fin, I think you and I have talked -- spoke about this before, there's a lot of synergies across those portfolios and a lot to learn by being across both of those businesses. I'll be spending more time with you all. I look forward to that. I look forward to driving the business forward and continuing on the journey that we've been on for quite some time. But day-to-day activities, I don't expect a vast change. Joshua Easterly: Yes. I mean this is a little bit of a joke, and it's surely not going to show up well in the transcript, but both getting the worst part of the transition, which is public earnings calls and talking with you all, which makes us better ultimately. But I'm glad Bo is taking that off my plate, and I'm sure he'll do a better job than I have. Robert Stanley: But we'll keep leaving on him here for these calls. Finian O'Shea: And we'll see who will do the shareholder letters as well. I mean I'd be happy to go about. Just a follow-up on the -- I think, Bo, you gave color on the CLO liabilities. Is that something you're continuing to do given it doesn't seem like direct lending spreads are bouncing back imminently. And these are in the -- I think it was somewhere in the 50s you said. It's not like that's out of the park. So if you tie that to the spillover math you gave, does the sort of marginal dollar of the CLO debt investment make sense to support through the marginal sort of source of capital that is spillover income. And yes, I'll leave it at that. Joshua Easterly: Yes. I'll take -- first of all, let me take a step back because I think it's helpful. We have a huge dedicated structured credit team and broadly syndicated loan team. And if you look at the performance of both those teams, it's how this park topped us out. We're very good in those markets. And when -- and so we have a structural edge where you see we've invested in this asset class and over time in the BDC. I think our average return is in the 20s when we've done it. Obviously, it's not going to be a 20% return. But when you look at -- and so you start there and our choices were just to put it out there, the marginal economics are a lot better than the spread because it would have filled an investment income hole and was accretive to earnings this quarter by probably $0.01 or so. And so is this a -- and I don't expect it to grow. We're at, what, $100 million today, which is a very small part of, a, our balance sheet, our balance sheet is $3.5 billion and a very small part of our capital. So I don't expect it to grow. But is it a nice placeholder and a relative value trade? The answer is 100%. And so what we don't want to do is tie up capital in long-dated illiquid 450 things that won't give us the opportunity to drive value and create that antifragility that we have over time. And the great thing about this is, a, they're higher spread; and b, they're liquid. And so there -- it works on a marginal basis. It surely works on a risk-adjusted return basis, and it's liquid. And so we get to change our mind when there's other opportunities. And Fin, personally, I want to say to you and Wells Fargo and your predecessor, banks, and this is not calling out anybody else, but you guys have been at this for a long time covering the sector and the work you've done has, I think, been extremely additive to the sector where the sector needs transparency. And so thanks. You've made us better. You made the sector better, you and the institution and your predecessor. So thank you for that. Operator: And our next question will be coming from Melissa Wedel of JPMorgan. Melissa Wedel: Congrats again to both Bo and Josh on your -- maybe just formalizing the roles that have sort of been evolving that way for a long time. I wanted to follow up on credit. Obviously, there have been a lot of concerns about credit quality across the industry. And I think especially those have picked up -- those fears have picked up in the last month or so. I think -- and we heard a lot from investors about concerns around -- is there a pocket of weakness around auto in particular. We saw a couple of headlines there. It sounds like you're not especially concerned about any particular pockets of weakness, but it's more an issue of pricing and supply of capital in the market. Is that a fair characterization? Joshua Easterly: Yes. I think that is fair. I think generally, credit issues are behind. The idiosyncratic stuff will pop up. I do think who I love and respect a lot, your boss had made a comment about -- ultimate boss made a comment about credit. I think he was referring to generally credit and not private credit. So I think one of my contemporaries took the bit on that and the story kind of got wild. But what I would say is when you look at those instances that have been reported in the news, that was not private credit. That was a broadly syndicated loan market that's been around for 30 or 40 years and then was the other, I think, banks balance sheets. And so I think private credit generally does a good job because the model is different where they -- we do private equity. I can't speak for everybody, but I think the industry generally lends its way. It's slightly more concentrated. It's not fractional. They don't manage it as fractional risk. They manage it as idiosyncratic risk. They do private equity style due diligence. And I think the -- where people have got burned is they think about not about idiosyncratic and they lose focus on the individual credit underwriting and diligence and they lean into the fractional nature of their portfolios and then bad things can happen. So I actually think this is a good checkmark for private credit, at least in those 2 names that were public. Melissa Wedel: You just mentioned transparency, and that's also something you talked about in your shareholder letter. You didn't -- I'm curious what you think that looks like. You think there's room for additional transparency across the industry. So what does that mean? And is that something TSLX could be taking the lead on? Joshua Easterly: I actually think there's -- look, when you look at the ecosystem of public BDCs, there's a decent amount of transparency, right? You have rating agencies, equity research analysts, you have this process that provides tension and transparency. And what I was talking about was really transparency in the nontraded perpetually offered space or private space or those products, you don't have the equity research analysts with buy/sells. You don't have Morningstar yet with ratings on fund managers like you do in mutual funds. And so there is -- I think my hope is that transparency comes through that space. And that space evolves from being -- what's being sold today to a space that's being actively bought. You can't have something actively bought without transparency. And so I think that evolution will take time. But I think I had heard and it's going to be slightly unpopular. I think I had heard that my economics were wrong on -- or somebody said it came back to me through a reporter that my economics were wrong on the nontraded space. And I -- and that isn't exactly right because what -- it might -- that space might have lower management fees at the entity level, but they have other fees that the investor eat, a trailer on a dividend, et cetera. And so my math is exactly right in that space, too, but it's market is different. And so I think there needs to be just -- time will happen. It will happen. It will happen slowly. It won't happen as fast as we want. But transparency is going to be the key to what economics ultimately eat what investors ultimately eat and risk reward. And so I think that it already is in our space because you're on the phone asking questions and hard questions. The investors don't have that process or that content on the nontraded space. Operator: Our next question will be coming from Arren Cyganovich of Truist Securities. Arren Cyganovich: Maybe we could talk a little bit about the balance of, I guess, seeking yield. You have a few kind of unique investments this quarter in CLOs and ABL with the traditional part of your business. And I don't know, historically, when I think about spreads getting tight and loan yields getting tight, as folks are looking to maintain that yield, you take on more credit risk. Maybe you could just talk a little bit about the balance of kind of the types of deals you're doing and what the risk profiles are relative to doing your kind of more plain vanilla. Joshua Easterly: I'll hit it, then I'll turn it over to Bo. We're doing nothing different. ABL has always been part of our portfolio, like realized returns. It's been an alpha-generating part of our portfolio. It literally provides only alpha, no additional credit risk. That's the historical math. We're navigating complexity. That has been our story. The great thing about the middle market and about investment is that it's still pretty inefficient, which is you can have like SLX has higher asset level returns and lower losses. We have losses that are a fraction of the industry. We have had unlevered returns that are somewhere between 100 and 300 basis points higher than the industry. And so I would argue with the premise that we're taking -- that we've taken more risk on the structured credit piece, that's BB that probably has a wharf score, so weighted average rating factor that is somewhere between 3 and 7x less than the average idiosyncratic credit, which is probably somewhere between CCC and B- in the middle market. And so it is -- I think the premise is wrong. We actually have been risk-adjusted seeking versus risk seeking. And we've probably -- we most definitely, as it relates to structured credit investments have reduced risk, not increased risk. I don't know, Bo, do you have anything to add? Robert Stanley: Like Arren, thanks for the question. The only thing I would add is we have not changed anything. I highlighted our 2 of our larger thematic originations during the quarter. Those are both themes that we've been pursuing for quite some time, 5 years plus on each of these themes. Our other 2 originations were deeply thematic. We continue to be very disciplined in this environment. It's with supply-demand imbalance, but we're not changing how we underwrite credit, how we think through credit and how we structure credit. Operator: And our next question will be coming from Kenneth Lee of RBC Capital Markets. Kenneth Lee: Echo the congrats Bo on the new role. And Josh, it's been great working with you. And I hope you'll continue to be an outsized voice and continue to share your industry insights going forward. One question I had and what's really interesting from the letter here, you highlight that TSLX has a much lower beta than the BDC peers. Wondering if you have any thoughts on what could have been contributors historically for that lower beta, especially given the outsized returns TSLX has been generating. Joshua Easterly: Yes. I think it's a function of credit losses. The beta on stock price, my guess comes with blow-ups on credit. And we've had 20% less beta in the space, 20% less beta than the public equities and beta comes from surprises. Those surprises are asymmetrical in credit. And we've done a good job of not having surprises. Kenneth Lee: Got you. Very helpful there. And one follow-up, if I may. Wondering if you could just give us any kind of updated thoughts around expectations for prepayments, especially given your expectations for M&A activity. Robert Stanley: Sure. I'll take that one. Thanks for the question. As I mentioned in my prepared remarks, last quarter, we had elevated repayment activity, which has been the trend over the last couple of quarters. I think we generated $0.14 per share in activity-based fee income versus a historical average of $0.08 per share. It's a little early in the quarter to have the clearest picture, but what I would expect is that activity-based fee income to be closer to the norm this quarter. But as I mentioned, it's a little early. We usually have 30 to 60 days visibility on the forward of repayment activity. The great news, I think, as you've looked at our earnings historically, in quarters that there is less activity-based income, less repayment activity, we're able to grow interest -- we're able to grow -- drive leverage and drive interest income through the P&L. Operator: And our next question will be coming from Robert Dodd of Raymond James. Robert Dodd: Congratulations on the title though and condolences on inheriting the earnings calls. And Josh, congratulations to you to getting off the treadmill. And hopefully, your coach's advice on making up continues to pay you. On -- not related to the largest deal this quarter, as you said, was Walgreens, it was ABL. So if there is credit concern in the market right now, it seems more around collateral monitor -- in my opinion, the collateral monitoring and collateral quality when is a vehicle asset double pledged, is a receivable real or not? So when you look at an asset-based structure, how do you make sure, right? And it's kind of a softball question for both. How do you make sure that the -- your collateral is real because that has been a fall down in a couple of these credit -- idiosyncratic credit instances that we've seen over the last couple of months. Robert Stanley: Yes, sure. I'll take that one and then Josh or even Mike can add in. First of all, I would say this is a core competency of the platform. We've been doing this for over 20-plus years, monitoring ABL collateral, understanding ABL collateral, understanding how it would liquidate. Our team is very focused on inventory counts, inventory appraisals, having those in a timely fashion, monitoring that borrowing base on a monthly, if not more frequent basis to understand where we're at in the collateral picture. We have an excellent track record in the sector I believe we have over 20% IRRs historically in the retail ABL. You don't do that by happenstance, you do it by understanding who your borrowers are, what that collateral picture is and monitoring that on a day-to-day basis. But it is a core competency. We have a whole team that this is what they're focused on, and we have a lot of confidence in them. Josh, Mike, anything to add? Joshua Easterly: Look, obviously, we're one and part of those names. So that tells you something about this core competency for us. The second thing I would say is Bo is exactly right, which is it is -- this is -- this ABL loan, the predominant collateral is inventory in the stores where you're doing collateral audits to match inventory accounts and with GL and you're making sure that there is no discrepancy. And so these are physical things. I would suspect if on both those 2 instances, if people were reconciling cash to receivables, which we would have done, they would have picked up on it pretty quickly because the way that a fraud exists is that people create receivables. And by definition, those receivables have no cash collections against them. And so if you would have been doing your work, you would have saw that no cash collections or high dilution and you would have sniffed it out. Robert Dodd: On your kind of your optimum pipeline, I mean, over time, how fast do you think that kind of segment of the market can grow? Obviously, I mean, people put to your point, the perpetuals, the market opportunity, people put big growth numbers on it, but that comes at the expense of a lot of spread compression. For your more off-the-run type deals where you are getting these higher spreads and you're getting more unique assets and offered more fee income. How fast is that -- how -- maybe not how fast, but how penetrated are you in that market? And how -- what's the opportunity there for TSLX to continue to grow in a very controlled manner? Joshua Easterly: Yes. Look, I mean, a, we're not focused on growth. We're focused on shareholder returns. So I just want to put that out there is like we're focused on shareholder returns and having the right architecture, which is managing the right amount of capital for the opportunity set. So what people are wrong now is that there's the same amount of those opportunities and because we don't need to grow. And I think the one thing that people keep missing over and over again because -- and part of it is how they frame their business, which is growth. The only thing that really matters for our industry is a growth or earnings or growth in earnings as it relates to a unit of economic interest, so a share. like if you grow revenues by 20% or grow earnings by 20% and share count by 20% or 25%, you haven't created shareholder value. And so we're focused on creating shareholder value, which means that we might not grow. Operator: And our next question will be coming from Paul Johnson of KBW. Paul Johnson: Not to sound redundant on any of the management changes, I think they've been pretty well covered. But I just wanted to ask, as a part of those changes, were there any changes to the overall credit committee, investment committee and any of the processes around that? Joshua Easterly: No. Paul Johnson: Got it. And I'd be curious to get your thoughts. I mean, just you guys have obviously made a lot of thematic investments in the software space and been very active there. Maybe it would be just good to hear kind of your thoughts on just the overall AI risk and concern and whether that's kind of the risk or opportunity that you see within the portfolio. Robert Stanley: Yes, I'll take that one. I'm going to start off by saying the portfolio continues to perform very well, both software and non-software names. We have not seen any impact today as it relates to AI to any of the software names. With that, I think the impact of AI is nuanced and still evolving. There's going to be a lot of more questions than answers right now in the sector. I personally believe it will be a net positive for the sector overall, but it will be deeply nuanced. There's going to be winners and losers just like there were winners and losers from the transition from on-prem to cloud-native businesses. I think what's important is this is a sector that we've been active in for 2-plus decades, dating all the way back to Mike Fishman, who I think was one of the original folks that had a thesis around their credit quality. We focus then and now on businesses that have high switching costs, durable data moats and provide meaningful downside protection in that they own their customer base. They have a very -- they own the distribution, if you will, of the customers, which is still a high barrier to entry. But as I mentioned, it is going to be evolving. I think the important thing is you think about the forward and not the historic, and that's where we're focused not only on portfolio management, but also in new opportunities. But that's my thoughts on the space. Mike, you should add anything or Josh? Joshua Easterly: No, I think Bo hit it, which is AI will level the playing field on developer costs. And -- but the reality is there's other moats and capital is never a real long-term moat of a business. And so it reduced the capital intensity of creating software, but that wasn't the moat. The moat was data integration, workflow. And so I think that is -- capital is never a moat around or a competitive advantage or a barrier to entry. And what AI has done is just reduced the capital intensity, but that's never a moat, and we've always focused on the moats. Paul Johnson: It was -- and I appreciate the answer there. And last one for me. I would just be curious to hear just recognizing spreads didn't change all that much during the month of October, but kind of around the time of just the negative credit headlines and the bankruptcy announcements in the month, I'd just be curious to hear if there were any sort of bad balance sheet opportunities exposed or anything that was able to create kind of unique deal flow for the fourth quarter. Joshua Easterly: Yes. I mean I think there are things in our pipeline that are like very unique and that are thematic and complicated. We committed to a large financing for a company that's coming out of a bankruptcy that is in the energy infrastructure sector that like in that at some point, will fund in Q4, Q1 of next year. And so there's some unique stuff that we continue to find that is consistent with our model, which is find things that is less traffic, which requires industry knowledge, where we have an edge or where we have a theme. And so you'll see some of that stuff in the next quarter or 2. Operator: And our next question will be coming from Mickey Schleien of Clear Street LLC. Mickey Schleien: And like everyone else, congrats to Bo and Josh, I miss talking to you regularly. Joshua Easterly: I'm always around. You have my number. Mickey Schleien: Yes. I appreciate that. Josh, touching on spreads, I think there was a question recently about that. But my understanding is they actually did widen a little bit in October, which sort of makes sense given what we've seen in the market in terms of the macro and political backdrop. Do you foresee that to be sustainable? Or is the large amount of capital available still just going to overwhelm the market and keep this equilibrium in place? Joshua Easterly: Yes. I mean spreads will be a function of flows both ways. And so I don't think we saw a material change in spreads. I mean we found some really interesting stuff to do. So we had a higher spread. But syndicated loan spreads are tight in October, I think they're tighter by 5 basis points. Maybe in the private credit market came out 5 basis points, but not anything. It's going to be a function of flows. So -- but we've tried to platform where we're a little insulated. Mickey Schleien: Sorry, that broke up a little bit, but I think I got most of it. I apologize, but I had to jump on late into the call. Did you mention anything about the impact of the government shutdown on the portfolio? Joshua Easterly: We did not. It's a good question. There was no material impact on our business. Mickey Schleien: Okay. Good to hear. And lastly, has Sixth Street discussed or considered listing SSLP to give those investors some liquidity? Joshua Easterly: It is kind of not on the table. We're still investing in that fund. We're halfway through the fund. We're focused on making great investments and driving returns for those investors. Mickey Schleien: Those are my questions this morning. Again, congratulations. Joshua Easterly: This will be my last earnings call that I'm active on. So thank you so much for everybody. I'm super excited about Bo and the leadership. I want to -- thinking about on this earnings call, we spent a lot of time on management changes in the industry. What I do want to highlight is we had an awesome quarter. We've had an awesome year. And we found higher spread investments. We drove NII. The team has done an excellent job. And so hopefully, I understand that people are focused on the headlines, but the reality is the business is in great shape, and we keep on driving returns for our shareholders and so excited about that. Bo, congratulations. It's well overdue. I stayed in the seat too long. And I'm excited for you. I'm excited for the platform. And again, this is how we've operated together, and I'm around. So thank you, Bo, for being so patient with me. And I hope everybody has a great Thanksgiving with their family. Robert Stanley: Thanks, everybody. Operator: This concludes today's program. Thank you for participating. You may now disconnect. Goodbye.
Roberto Cingolani: Dear all, nice to digitally meet you again today for the presentation of the third quarter of 2025. Before getting started with the numbers, I'd like to share with you some of the news. You have partly read something on the communicate. First, I'd like to introduce you on my right, Claudia Introvigne who will be the new chief of the Investor Relations. There will be a new direction at the direct report of the CEO for Investor Relations. So welcome, Claudia, and thank you for being here today, joining us today. On my left, of course, Alessandra. Alessandra today, there is an important announcement. Alessandra, for personal reason, will leave the Leonardo. She will be with us continuing today the presentation and the last things for the Q3. And of course, she will pass the -- most of the information for the balance sheet of next year and for -- closing of the budget. We already have a succession plan in place in the company. This is existing since a long time. So there will be no break even for 1 second. And I thank you very much, Alessandra, for giving this availability to give total continuity to the business and to the operations. And of course, I want to thank Alessandra heartfully because she really did a great job with us, and thank you for staying with us and also helping us in closing this very dense period of work. So we go now to the numbers of the third quarter. And then, of course, as usual, Alessandra will give most of the information concerning the division and the KPI -- the financial KPIs and then the question and answer. Thank you, and I go to the Board now. Okay. Here we go, as usual, with our lead wall. The quarter 3 of 2025 turned out to be particularly good. As you've seen -- you can see here from the numbers, the new orders year-over-year are growing by 24.3%, reaching -- passing the threshold of EUR 18 billion at month 9 of 2025. On the same footing, we have an increase in revenues in the range of 12.4%. So we are reaching this month, EUR 13.4 billion. The EBITDA is growing by 22.7%, reaching EUR 945 million. I remind you year-over-year last year, it was EUR 770 million. And return of sales is growing by 0.6 points. That is we reached 7%. Free operating cash flow is improving by 22.3%. That is very satisfactory for us. And the net debt is under control with a decrease of 25.9%. So those are the numbers that are characterizing our third trimester. As usual, Alessandra will give you much more information about the -- how this is shared by the different divisions and business units. But the highlights are reported in a very synthetic way in this slide. So in general, all divisions performed rather well. There is no -- there are no spikes in terms of geography or there is no killer product that jeopardize all the other performances. I would say performances are well distributed across the portfolio of products. About electronics, there is a solid order intake across all domains. The Eurofighter and the GCAP are performing well. I'll give you more information later. The Naval business with the frigates and also with the multiple purpose offshore patrol vessels are doing quite well for Indonesia in this specific case. Land defense, particularly with the new contract with the Ministry of Defense is growing as expected. DRS is also showing a good performance actually, a strong performance, especially on electric power and propulsion technologies. And this is -- this class of products has to do with the Columbia Class programme, which is one of the leading program of DRS. Concerning helicopters, there is a rather solid order intake across all regions. This is driven primarily by defense and governmental customers and the offshore sectors. They are both very well distributed, strong revenues across both platforms and services that you remember, I'm sure, helicopters are growing in services continuously. Aircraft is doing quite well, strong sales. Those are reflecting the Kuwait Air Force business. It's a jumbo order, EUR 2 billion plus. We cannot give more details, but it's a big one. On top of that, solid contribution from the GCAP. At the moment, we have in the range of a bit less than EUR 0.5 billion programs, which has been already funded. I'll give you more details later. And even the C-27J has been growing as a business with an order in the range of EUR 100 million. There is a lot of increase in the training services, not only the customers, we now have even the U.S. Air Force customers, but also the number of flight hours that have been delivered by the IFTS, the training school, that corresponds to something like EUR 90 million. So that's a very, very encouraging result in terms of training services. Last but not least, the 345, the small trainer aircraft is finally in the phase of having a syllabus at the Italian Air Force bases. So this is now going to be an operating machine. Aerostructure, in this -- in the area of Aerostructure, we are satisfied because we confirm the rate of increase from 5 to 7 fuselages in Q2. And moving towards 8, I'm sure you remember that we -- the plan we are making together with the potential partner for the creation of a new joint venture is based on a progressive improvement of the situation, which is actually in line with our forecast at the moment. I will give you more information about the aerostructure situation later on during the presentation. On top of that, I should add that the Airbus 2020 rear fuselage contract has been awarded. So we now are double source for those components for our colleagues in Airbus as well as the NEMESI optimization program for manufacturing has delivered the first fuselage of ATR. That's an important result because it took a bit of time to optimize the manufacturing. Now we're happy with what we have. Cyber is undergoing a strong growth. I mean numbers of cyber are extremely interesting, thanks also to the inorganic growth program, the acquisition of the Zero Trust Technologies. So at the moment, the secure digital transformation program is running very well with the governmental and defense customers. There is a strong acceleration in the business with the European institution like European Commission, eu-LISA and the European Space Agency. And finally, the cleaning of the product portfolio and the production of new products that are proprietary of our division is clearly impacting on the improved profitability of the division. We are very satisfied of this trend at the moment. Finally, concerning space, there is a strong order performance across the service market, including earth observation both in Italy and for export. And I should say that our new activity related to the earth observation constellation is growing fast. We inaugurated recently our facility together with our colleagues in Thales, the facility in Rome for the fabrication of satellites. And we are now starting the construction of the constellation and also the contact with other important countries that are interested in investing in new constellations. Before going to the technology news and the product news, I'd like to comfort all of you about the tariffs. You remember there were a bit of doubts at the beginning, what could have been the impact of tariffs on our business in the American market. I'm sure you remember that the preliminary evaluation was that tariffs would have impacted on less than 5% of the global market we have in U.S. So we expected something in the range of EUR 20 million as an actual impact. Now fortunately, the US-EU trade deal has been officially implemented and now is exempting the civil aeronautic sectors and also the components for the civil aeronautics and even the helicopters. As a matter of fact, at this point, we expect a clawback for the September cash out of approximately EUR 2 million. This is actually no longer a complex issue. We don't have to go to the court. It's something we do with the form fit basically. And we are starting now the potential clawback for the cash out that has been done before the trade deal implementation. So I can say safely that with this piece of information, we can consider right now with the situation that we have at the moment, we can consider the tariff issue as a marginal one, I would say, even closed. We don't expect any surprise under the present conditions. Update about the efficiency plan. This is running exactly as agreed. We are on schedule. As already reported in the previous quarters, most of the savings come from the procurements, primarily great attention in the procurement, but also renegotiation of long-term contract. And this renegotiation is fundamental to keep under control the prices and of course, the mitigation of the inflation. At the moment, we are approximately at target. We were planning to have a saving in the range of EUR 20 million to EUR [ 30 ] million in 2025. We are very close to this value. And apparently, the trend, which is you can see here with the green dots, this is the actual trend, is very close, slightly better than the expected trend, which is the pink line. So no news from this point of view. I think the machine is well started. People are very committed. So we will continue informing you about those numbers, but I think there's no surprise because the technology for the implementation saving plan seem to be operating very well. Now let's go to the description of the large-scale initiatives. As you remember, at the last quarter presentation, I told you that was -- that started as inorganic growth, but now most of this is becoming organic growth because it's now in our -- it's incorporated in the plan of the company and a lot of work is running. I will go analytically one-by-one through the different initiatives. Let's start with the Leonardo Rheinmetall Military Vehicles. You remember very well that in this specific initiative, we -- the execution means that we have to integrate payloads, weapons and turrets on existing machines to see motors, transmissions. So basically, the challenge here is to have a very efficient integration of top-notch electronics, weapons, control systems and top-notch military carriage technologies. At the moment, commercial and operational actions are underway because we have to secure that the delivery, which is for the first period is shown here is respected. Actually, we already secured a contract for the Advanced Infantry Combat systems, which are those smaller with smaller gas, but multipurpose. And right now, we have -- already EUR 400 million have been allocated on the AICS and another EUR 350 million program is supposed to be launched very soon, the second phase of the program. So we are starting the real business. Five of those machines will be delivered by the end of the year. In the meantime, we are all working on the MBT. It is more complicated, of course. The chassis has to be prepared, and we have to start the system integration on the Main Battle Tank, which will come later compared to the AICS. As you see from the plot, the red is the AICS and the blue will be the MBT. Now the peak of the red start rising earlier, whereas for the Main Battle Tank, we expect the first prototype between '29 and 2030. But anyway, we are on track. We are working with our partners in Rheinmetall. And I would say the team is really attuned and committed to results. At the moment, I don't have anything -- any danger or any, how to say, uncompleted part to communicate. The program is running well. On the same footing, I can tell you more about GCAP. Now in the scenario in which the competitors like those in U.S. or like those in Europe seem to be -- seem to progress very slowly if they are progressing. GCAP is really now up and running. The Edgewing organization, which is actually the top company that coordinates the activity of the NatCo, has currently reached 180 people. The target is going to be something like between [ 20, 2050, ] so it's almost completed. The ramp-up is progressing very well. And also new governance and operational procedures are in place. So the Edgewing mother company in the GCAP is actually almost ready, fully operative. In the meantime, we have launched the consortium that involves Leonardo, Mitsubishi and others to deliver the next-gen of ISANKE, so the integrated sensing and non-kinetic effect electronics and Integrated Communication System, ICS. Those are essentially fundamental, crucial elements of the GCAP architectures. They represent the heart of the communication and control. And now we are working to the delivery of the next-generation technology for the ISANKE and ICS. On top of that, I should say that at NatCo level, so now I'm dealing with the NatCo connected to the Italian funding of the GCAP, quite a substantial budget has been secured at the moment. We are EUR 1 billion plus. And this is being used -- this is by the end of the year. It's being used to cover the national technology program that should essentially incorporate high-performance computing and AI technologies into the building blocks of the future GCAP architecture. The concept and the assessment phase for the Adjunct, the Adjunct is simply a fighter drone that could be universal, controlled by GCAP or by any other sixth-generation fighter. And finally, the working environment and the digital infrastructure that will control all the components of the system of systems. So this is now initiated at NatCo level with our domestic funding, and our engineers, our teams are already working on the development of those components. Now last but not least, there is also another good news from this point of view. GIGO, which is the governmental structure on top of the GCAP is now discussing and negotiating the first international contract that will be provided to the Edgewing and the Edgewing with that money will boost the activity of the three NatCo. This is going to be not only national activity, but coordinated sovereign national activity of the GCAP consortium, having to do primarily with the platform and so on and so forth. So apparently, the GCAP machine is moving. The company is up and running. And I think if we work seriously, and we're all committed in getting the results on time. I think our GCAP road map will grow properly. And that's very important because apparently, our competitors at the moment are slowing down for different reasons. Let me go now to the third initiative. This has to do with the Baykar and Leonardo collaboration, the LBAs, Leonardo Baykar Advanced Systems. So what are we doing now? We are working, first of all, with the regulatory -- for the regulatory approval because we are making a sovereign national joint alliance. And this, of course, needs several regulatory approval, not only antitrust, but also authorization, certification. So we do need a lot of work to make sure that those machines can fly because, as you know, in most war combat area, war scenarios, drones are not certificated. But now we are thinking to an industry that massively produce machines of different payload, different size, and we want to have machines that are certificated and can be sold everywhere in the world, not only in Europe. In the meantime, we are progressing in the integration of payloads and platforms. Now let me show you a bit more in detail, I'll just expand the plot here. This is the industrial plan. So I start with Ronchi dei Legionari, our plant in -- close to Trieste in Northeast. This is the Leonardo plant that originally was involved in drone fabrication and design. So here, we're going to assemble, make the final assembly of the TB3, which is one of the cash cow of this category of machines. And in the meantime, we're also recovering, improving the Mirach, which is a Leonardo platform actually. It's in the range of 200 kilos with a payload of approximately 50 kilos, which is a lot for a machine like this. It's pretty much like a missile more than a standard drone. And this will be assembled in our Ronchi dei Legionari plant. So integration of electronics, payload, sensors, weaponization will be done there, starting from these two platforms. In Genoa, close to Genoa, Villanova d'Albenga, we're going to make the final assembly of TB2 and Akinci. Akinci is the bigger machine, 22 meters wingspan. They have quite a big payload, and those machines will be assembled there. Meanwhile, in Torino, where we do have a lot of aircraft activity, aviation activity, we have all the engineering and certification activities, which are crucial for the future expansion of this market. In Rome, now in our plant -- in the electronic plant in Rome, we're now -- where we did our roadshow 2 years ago, we are now developing in the new multi-domain facility, all the technology that are needed to control, to govern the multi-domain situations that involve drones. And finally, in Grottaglie, which is our plant for aircraft, civil aircraft, carbon compounds and so on and so forth, we're going to make composite manufacturing and final assembly of the Kizilelma. The Kizilelma is the fighter. It's a real aircraft, something that looks like an aircraft. And this one actually is going to be our adjunct -- universal adjunct fighter that can be coupled to any machine as long as you can develop the electronic for the control. And this is, of course, what we do because this is one of our specialty. So now as you see, the geographical fingerprint of the drone activity is quite well organized at the moment. We are making all the necessary investment and upgrade of the production lines. We are working on the integration. And as soon as the regulatory issues will be fixed so that we are working daily with the authorities, including the Ministry of Defense, I believe that already next year, the first product will be delivered to the market. Let's go now to the Iveco Defense acquisition. Iveco Defense, of course, it's -- you know the story, it's quite recent. Now what are we doing with Iveco? This is a rather young initiative. 3 months ago, we completed the agreement. And now we are working on, first of all, regulatory approval that is quite very important at the moment. And of course, we are negotiating to ensure the deal closing. Now to be clear, Iveco Defense at the moment needs to fix a few important things. The first one is that the supply chain has to be guaranteed. Originally, Iveco had a sort of mixture of civil and military technologies. So some of the components were produced by the civil part of Iveco, and they were delivered like an internal supply chain delivered to the military part. Now, of course, we own -- we are supposed to own the defense Iveco part, but the civil part will go to another owner. So in collaboration with the government, we are working through the prescriptions in the Golden Power to make sure that this internal supply chain will be ensured for at least 1 decade under the same conditions. This is very important to have no interruption in the production pipeline. It doesn't seem to be a problem. There is maximum availability. And I have to say that this negotiation discussion is progressing very well. We don't see big obstacles, big hurdles. But anyway, it's something we have to fix supply chain first. Then a second thing which is very interesting is the technology of land drones. At the moment, we are studying together with our partners and colleagues, I should say, in Iveco, land drones that are ranging between 600 kilos and 2 tons. So those are land drones with trails, not on wheels, but can also be on wheels. And they can mount and transport different payloads. They have different functions. And of course, in the concept of the multi-domain interoperability, having land drones together with all the other manned machines, it's very appealing. So we -- there is a special focus now in our technical teams and commercial teams about the land rules. The third issue that we are developing, we're studying is that -- I'm sure you remember, originally, we were discussing with our partners, Rheinmetall, about the possibility to carve out the trucks as opposed to the armored vehicles. Actually, now that our teams are working together, we are studying all the perspectives. It is yet unclear because the due diligence is in progress, whether it's more convenient to keep things together or to carve out them. This is just industrial analysis. It depends on how much money you have to put to change to double, to split a line or so. But one thing is sure, the trucks that at the moment, Iveco can offer 6 x 6, 8 x 8, 10 x 10, 12 x 12 wheel traction can be very interesting for a number of applications, including the transportation of different weapons and different payloads, massive payloads. And so we are now analyzing also what kind of market openings we can have by combining different payloads, different GaNs or different missiles or radars with the different platforms for transportation. This is now under examination. We have to see -- basically, it's just an industrial analysis. We have to see whether it's more convenient to split, to double or to concentrate. It will depend, of course, on the financial and commercial analysis, which is in progress. But for sure, the more we work on the Iveco analysis, the more we are convinced that this is a very promising -- it was a very promising choice from the technology point of view. Needless to say that Iveco ensures the possibility to offer the same armored vehicles on trucks or on trades or on wheels. And this is a unique possibility now we have, depending on the market, we can offer wheeled machines or machines with trails or with trucks that can go in different ground and different combust scenarios, so you -- of course, you will be informed continuously about the evolution. I think we are online. We are on time on the -- for the closing of the deal that should be the first quarter, if I remember correctly, of 2026. So the teams are working continuously on this assessment. I go now towards Aerostructure. I know this is -- you're very much interested to the aerostructure issue. So let me tell you that the good -- very good thing is that we are really progressing according to the agenda. You remember in July, our counterpart, our partner -- potential partner approved our stand-alone plan and gave a very positive evaluation, financial and technical. Now it's the other way around. They are making their own stand-alone plan that should be complementary to ours to create synergies. They're working with our people. Basically, on a 2-week basis, we are at their place or they are at our place. There is a number of important things. I mean we -- of course, we are working on the deployment of the synergies that the merge of the two partners can make, and this is the most interesting part. At the moment, we have -- so the teams working in commercial and industrial synergies, this is done by a joint working group, which is quite consistent, quite big. We are working at the same time with the key stakeholder. Needless to say, we have to share our vision and the idea of this joint venture with our main customers, those for which we build the components. And this is already in progress and reaction seems to be interested. And then we are working on the joint venture governance and organization, which comes out of the industrial choice, but also on the sovereign national character of the initiative. There is a detailed joint venture implementation road map at the moment. To make a long story short because of the confidentiality constant given by our partners still very strong. They gave us a disclosure only to discuss with the key stakeholder, client suppliers basically. But to make the story short, we maintain our target to sign the partnership agreement by the end of the year. Of course, we are working very, very hard for closing this very complex negotiation. We believe we can keep at the end of the year as the target, and we will make a special session, information session, communication session to you guys, of course, not waiting for the first quarter of '26, that should be months after January. So the sooner, the better, as soon as we close, we call you and disclose everything. But as you can imagine from what I told you, after almost 1 year of work, clearly, there is a strong motivation, very strong motivation. And also, I have to say there is a strong interest by the governments of both partners. So that's an extra guarantee that we are on the right track. I can't say more, as you know, about that, but I inform you about the progress and you see -- and you can see that with this kind of progress, clearly, our partners really want to make things, want things to happen for real. Least but not last -- last but not least, capacity boost. Now, I -- we explained to you the concept of capacity boost in the last quarter. Now the capacity boost team and the external adviser and our dedicated team is now focusing on a number of specific actions. So let's go on the -- let's consider this column. Engineering is responsible for 30% to 40% of the extra workload, so millions and millions of hours that is necessary to improve the efficiency in production. Manufacturing is responsible for at least 10% to 15% of the extra workload necessary to improve our capability. And finally, supply chain is responsible for 10% to 20% of the total strategic supplier -- well, actually not responsible. In the space -- in the supply chain, we have identified 10% to 20% of the strategic suppliers, which are classified as critical, and this has to be addressed by the capacity boost. So those are the three pillars where we are moving. Now about the engineering, we are working essentially on engineering digitalization. So the infrastructure is fundamental because if -- the more we digitalize the engineering, the more efficient is the process. We have selected a few partners for engineering, optimizing the partnership to have basically more hours, less price and of course, more focused collaboration. And we are working a lot on talent attraction. That will be the first talent attraction campus in close to Napoli, where is Aerostructures, but this is now being extended to many other manufacturing areas and engineering areas of Leonardo. Just to let you know, within the industrial plan period, we plan to hire 17, 1-7, 17,000 people, partly replacing retirements, maybe 9,000 or so, but most of them are fresh brains. And of course, those fresh brains will be STEM primarily, and they're going to contribute to the efficiency of the engineering. Now in order to make a very good hiring program, we need to invest on talent attraction. And this is exactly what we are doing now, and our HR department is fully committed in developing this strategy. Second, manufacturing. Now because we want to reduce the inefficiency in manufacturing, that sometimes really impact on margins. We have now a number of case studies. In La Spezia, we are making a very strong analysis and improvement for the land platforms. This is crucial for the Rheinmetall program for the land defense program. We are investing in Cameri, in Caselle, in Venegono, which is a pilot experiment for helicopters. So in that case, we are really working on the divisional plans to improve manufacturing. That means many things, process engineering, rules, supply chain, warehouse organization. There is a lot to be done, and we are working full time on that. Finally, about the supply chain, we are working on the supply chain. There is a program for the supply chain. By the way, this is also supported by funds, not necessarily from Leonardo. We need to invest in our supply chain, not only financially, but also, for instance, moving productions of products that don't have big margins, but they can fill the capability of the supply chain. So we are really working in the optimization and distribution of workload with our most important supply chain representatives. Now last thing that I didn't mention before is a new program that we call mixing the blood. I mean this sounds a little bit like a one-time movie, but that's very important because recently, I've been in Washington, visiting our colleagues in DRS. And by the way, welcoming the new CEO, John Baylouny, that I think is starting in these days. And then we've been in London talking to our guys in the various plants that are distributed in the U.K. area. Now the point is that, I need much more integration, I need much more synergy. We cannot do sort of independent industrial plans because we belong to the same multinational company. There must be synergy. No problem at all in deciding that a company, DRS makes something, and we don't make it in U.K. or in Italy as long as this product is the best and also it's available to all the others in the Leonardo Galaxy, in the Leonardo family. So the mixing the blood program means that we will start soon in having top managers in U.K. from Italy, top managers from U.K. to Italy, being resident and working side-by-side with the others and also revisiting a little bit the synergy with DRS, which is very important because there are new areas where DRS is starting, for instance, space, for instance cyber where we can really benefit of each other. We can open much more market for DRS in Europe, and they can open much more market for Leonardo Europe in U.S. We have to exploit the synergy. Otherwise, we miss big opportunities and frankly speaking, big money. So the mixing blood program is basically a program performed, carried out by a team of HR strategy, operations in collaboration with the divisions and the plants because we have to accomplish this in the next 6 months. We have to improve a situation that at the moment gives fragmentation, zero synergy and ultimately loss of good opportunities. We will make also jump to see what is the situation in Poland. Most important is that when I was in U.K., I spoke to the Under Secretary of Defense, honorable [ Healey. ] I will meet him again in [ Naples, ] mid-November because we are trying to boost the collaboration with the U.K. government. We have a company -- we have a plant in Yeovil that is not getting industrial grants, public governmental grants from the U.K. government since 14 years. And you understand that in order to make sure that this plant is not only subsidized by Italian orders and technologies, we need to have more participation. So we are negotiating a bit more attention to our industrial presence there. Anyway, I can say, as I found good faith and good willingness by everybody, I'm sure we can make much better than in the past. This will be the commitment for the next few months. I just go now to the -- towards the conclusion, and I want to tell you a bit more about the future and the future has to do with the recent news that I'm sure you've heard. We've been working for more than a year, almost 1.5 years with our colleagues in Thales and Airbus for the creation of a giant. We signed this agreement with Airbus and Thales to create a key European player for space technologies. The new company is expected to be operational in 2027. We have about 1.5 years or so, maybe 1.5 years or 2 years to -- first of all, to face the antitrust situation and then to coordinate and develop the synergies. But most of the conceptual work has been done. We aim at creating a European space of space basically. Till then, Leonardo will work -- I mean, every company will work on its own. And of course, Leonardo and Thales within the Space Alliance. And we will try to do our best to provide -- to develop satellite constellation, promote end-to-end solutions like expected, like proposed by the industrial plan. However, we are all in the mindset that we have to converge, carve out those things, merge into a unified new company and work together. This is crucial from our point of view, in view of the multi-domain solutions in which space is a key pillar that would be necessary for integrating air defense and earth observation. So the Bromo company, which is this new company that we -- you have heard about, and we mentioned so far, mean to establish European space global player that can compete with the big players in U.S., China, very likely India and other emerging countries. We will be very careful not to jeopardize the PME, and the small medium enterprises, sorry, [ SME ] and the start-ups. But of course, we need at global level, a very competitive big machine. The governance structure in a simplified form, the Space alliance, Thales plus Leonardo is at 65%. Airbus is at 35%. Within the Space Alliance, as you see, Thales and Leonardo are equivalent, 32.5%. The JV will be based on five NatCo, Italy, France, Germany, Spain and U.K. This reflects the geographical fingerprint of the constituting companies. And there is a matrix where you have the six domains and five NatCos. And if you are sitting at the head of a NatCo, you will be responsible of the domain, which is relevant for that NatCo and all the activity will be done by the NatCo. The domains are earth observation, SatCom, navigation, exploration and science, equipment and ground operations. Now there's a lot to be done. But the very important thing is that in this -- in the idea that we have of Bromo, actually, the NatCo, they're going to have legal autonomy and profit and loss management, so they have a balance, so they are real companies. They have the responsibility for the sovereign decision of the government in dealing with security because we have -- of course, we have to consider that each country wants to have sovereign dominance of the security area. And of course, each NatCo, will be in charge of the supply chain to make sure the supply chain is boosted and not jeopardized. Anyway, this is now in a nutshell, what we will do with Bromo, we're going to work in the next, let's say, 18 months to making this thing happen for real. So the concept, the scheme is clear. Now we have to see how this will work in a very operative way. We need a lot of good managers, a lot of participation and goodwill to make this work, but it's going to be a very competitive company in the world if we make a good job. At the moment, the revenue profile is approximately EUR 6.5 billion with 25 people -- 25,000 people involved. And the synergy in a very conservative way, we expect easily EUR 0.5 billion synergies from scratch. Of course, we have much, much bigger opportunities. This is just to give you a very rough idea of day 1. The ambition is really high. I conclude because I want to wrap up what has been -- what has happened in the last 2.5 years. And what could be the Leonardo's architectural vision for the future. This has to do with the integrated air defense system that I'm sure you remember, I introduced you at the last quarter, that was my last slide when I introduced you the “Michelangelo Dome, this concept of air defense dome that should be customer-friendly, very flexible, adaptable to any effector, any missile, any weapon. So not a rigid system, but something which really makes the difference because it essentially takes advantage of all the strategic choices that Leonardo has been doing in these 3 years. Number one, creating a space division, launching the constellation and creating Bromo at European level, launching a large-scale initiative on drones. So cutting the edge and basically accelerating the drone technology. The GCAP for the sixth-generation fighter, which has been launched and as you've seen before, is up and running. The land defense boost given by the Rheinmetall-Leonardo collaboration, Iveco acquisition and so on and so forth. The strong investment on digital high-performance computing and artificial intelligence as a connect home of the entire company, which allow us to produce electronics, which is for command and control, combat systems, almost ubiquitous in all our platforms. We can do platforms for all domains, land, sea, space, air, sharing a concept electronics, which is meant to interoperate all the platforms in the multi-domain approach. And finally, the strong investment on cyber technologies, which has brought to a strong increase of our cyber technology capability and also of our cyber technology product. Now all these things should converge into something that takes advantage of the fact that Leonardo produces all kind of state-of-the-art radars from 30 kilometers to 1,000 kilometers, produces all kind of platforms, drone, land system, contribute to ships, sixth-generation fighter, all the ground systems, all the armored vehicle. We do -- we can do all platforms. We start now working with our constellation, but of course, Intercom with other constellations. So if you have all the ingredients, the problem now is the interoperability, to develop the proper electronics that makes it possible to enable any platform to enter in this sky dome and to neutralize any threat from 30 kilometers in that zone to 3,000 kilometers, no matter whether it is hypersonic or subsonic or whatever. I can't say more now, but I want to tell you that on November 26, we're going to present this program, the “Michelangelo Dome, the “Michelangelo program to our Ministry of Defense and all the military forces in Italy. And on November 27, we will present the “Michelangelo project to the market and to the most important stakeholder. So please save the date, you will get an invitation. The presentation will be done in detail at the multi-domain center that we created in the Tiburtina plant in -- close to Rome. For most of you attending the first roadshow when we -- 2 years ago, 2.5 years ago, we presented the industrial plan, you were there. So this will be the place. And I hope you will realize how the vision developed in this almost 3 years that was really making a new Leonardo, now will be transferred into the Leonardo of the Future, which is the interoperable multi-domain machines, multi-domain company that has to guarantee global security for any kind of threat. This is now the system of system evolution of the effort we did so far in Leonardo. I look forward to seeing you on the 27th in Rome, either by video or in presence, we will show how this will be deployed. Thank you very much for your attention. And now I'd like to give the stage to Alessandra, who as usual, will give you all the details about divisional activities and KPI -- financial KPI in a much more precise way than I'm able to do. Thank you very much for your attention, guys. Alessandra Genco: Thank you, Roberto, and good afternoon, everybody. I'm very pleased to be talking you through how we have delivered another good quarter and so very solid 9-month results. We're continuing the positive trends that we saw earlier in the first half, especially in our main Defense and Security businesses. We're seeing new orders coming through at a good pace, and we're delivering off a record backlog of EUR 47 billion. This is driving higher volumes and solid double-digit top line growth and high double-digit operating profit growth and higher profitability. We have also delivered another quarter of improving free operating cash flow, and we are reducing net debt with disciplined capital allocation aimed at supporting growth while improving shareholder returns. We are on track on all our key metrics, and we're confirming the full year guidance that we have upgraded a few months ago in July. We see strong performance across all group KPIs with increased order intake, growing volumes and profitability. Let's now look at the key group KPIs. In the first 9 months, group new order intake was EUR 18.2 billion, an increase of 24% year-on-year. We have also seen strong commercial performance across Defense and Security in Electronics, Helicopters and especially Aeronautics with a very strong recent quarter, which includes the recently signed extension of the Kuwait Eurofighter multiyear support contract. This order intake is consistent with the upgraded guidance that we set out in July when we flagged potential large orders in the pipeline. Book-to-bill was 1.4x. We're seeing sustained demand all across Defense and Security and fast growth in areas like cybersecurity. Then group revenues grew 12.4% to EUR 13.4 billion. We have continued to see across all divisions the capability to deliver versus last year. By virtue of good visibility in our backlog, we see strong growth going forward. Plus, we have a strong capability and focus on program milestones and good support from the supply chain in general. And this has translated into higher EBITDA across the group, an increase of 23% to EUR 945 million with good performances across the group. Return on sales improved to 7%. And as we saw in the first half, we are proceeding at improving profit at almost twice the pace of revenue growth. And we have continued to strengthen our financial position. In the 9 months to September, we saw an improved free operating cash flow with a cash absorption of EUR 426 million versus an absorption of EUR 548 million last year. As at September, our group net debt was significantly lower at EUR 2.3 billion versus EUR 3.1 billion last year, in part because also of the proceeds of EUR 446 million from the sale of the underwater business, which we completed in January. In August, we received another credit rating upgrade from Fitch, and we're very proud of it. So a good first 9 months on track, and it underpins our confidence in our targets for the full year. Now let's go deeper into the results and performance at business level. Starting with Helicopters. We saw continued positive momentum supported by a good flow of business with progress on all programs as well as customer support. New order intake was EUR 4.9 billion in the 9 months, a good performance against a strong comparator for the previous year. Continued solid order intake on defense and governmental, including the AW249 program for the Italian Army, governmental orders in Malaysia, customer support orders from the U.K., MoD for its Merlin fleet and orders for the Italian military for ground-based pilot training systems and other logistics and follow-on orders also in the U.S. -- from the U.S. Air Force on the MH-139. Helicopter revenues increased to EUR 4.1 billion, up 13%, driven by increased activity on the AW family, the dual-use area as well as the good contribution of customer support and training. And this was all supported by good resilience in the supply chain. This is an element that Roberto stressed whose importance we can't absolutely under-evaluate. Leading -- all of these results have led to an EBITDA of EUR 320 million, up 18% with a slight improvement in return on sales, supported by consistent program delivery. So a good performance from Helicopters with strong demand across the business and good growth in revenue and EBITDA. Now moving on to Defense Electronics, which continues to perform very well across all segments, both geographically and across domains. Electronics Europe achieved good growth in orders, volumes and profitability. In the first 9 months, new order intake was EUR 4.9 billion, up 2.5% year-on-year, excluding the underwater contribution. And the book-to-bill was 1.4x. All of this is showing growth across all domains and especially in Defense Systems and good demand for the upgrade and renewal across a broad range of platforms. We saw additional orders for the MK2 radar for the U.K., Eurofighter Typhoons for our Royal Air Force customer as well as Defense Systems for the 16 Eurofighter for the Italian Air Force. And in the naval sector, the order for combat systems for the Indonesian Navy Patrol vessels. Electronics Europe revenues were up 13% at EUR 3.5 billion, reflecting higher volumes as we delivered off the growing backlog. EBITDA rose to EUR 450 million, an increase of 18% and return on sales increased to 12.8%. Contributions from strategic joint ventures were in line with expectations, and MBDA continues to perform well, thanks to a continuous flow of business and strong program margins. At the same time, as you have heard last week, Leonardo DRS has also reported a good 9-month performance, showing new order intake of EUR 2.8 billion, up year-over-year about 9% with continued broad-based customer demand across the business and especially for counter UAS, advanced infrared sensing, naval network computing and electric power and propulsion technologies. Revenue rose to EUR 2.3 billion, up 11.7% on the back of growing volumes. And EBITDA grew to EUR 217 million, up 15% with an increased return on sales of 9.4%. Moving on to cyber, Cyber & Security, where we see the first 9-month volumes and the profitability continuing to trending up significantly compared to last year. New orders were EUR 700 million, up almost 20%; revenues of EUR 532 million, up 19%; EBITDA EUR 41 million, up 86%, with return on sales rising from 4.9% to 7.7%. So continuing its positive trajectory with increasing profitability driven by higher volumes and product mix. Order intake included various orders for Italian public administration through the PSN fund for digitalization, the cloud infrastructures and the secure communication as well as new governmental orders in the U.K. and elsewhere. As we mentioned at the half year, we are now presenting the Aeronautics division. This reflects our role as a leading player in fixed wing aeronautics in both the military and civil sectors, with our Aircraft and Aerostructures units combined. And it also now includes our participation in the next-generation GCAP. You remember that the GCAP program was previously reported under the other activities. We're also developing our activities in unmanned aerial systems. You can see the aggregated Aeronautics division's high growth in orders and revenues, while the EBITDA fall reflects the losses in the first 9 months in Aerostructures and ATR. To make operating performance comparable, we are also setting out for you the KPIs for aircraft, now including GCAP and then for Aerostructures. You can see aircraft has been performing very strongly this year, especially with new order intake. After an excellent third quarter, new orders in the first 9 months have now grown to EUR 4.3 billion, well over double the previous year's level, benefiting from the follow-on logistics support contract for 5 years for the Kuwait Eurofighter program. We are also seeing orders coming from the GCAP program and export orders for the C-27J multi-roll aircraft, as Roberto mentioned at the beginning of his speech. Revenues have grown in the first 9 months to EUR 2.3 billion, up almost 16% on the back of higher volumes across military programs such as C-27J, GCAP and JSF. EBITDA grew to EUR 265 million and maintaining strong double-digit profitability. We have previously mentioned that now about 1/3 of the Aircraft division's revenues are coming from customer support. And that is representing an attractive margin and cash flow business, which also is showing how we have successfully been implementing the servitization strategy over the last few years, which was one of the pillar and is one of the pillars of our industrial plan. Now moving on to the civil side of Aeronautics. In Aerostructures, order intake in the first 9 months increased to just EUR 789 million, up on the previous year on the back of orders from Boeing. Revenues were $510 million and EBITDA losses rose slightly to $135 million, excluding ATR. As planned, we have just returned to a second shift per day in Aerostructures and are increasing production levels relative to the first half of the year when we were unwinding inventory, which, by the way, we continue to unwind. And this is leading to better underperformance -- under absorption of fixed cost and reduced losses in the second half. Our actions are taking effect to narrow the gap in line with the ramp-up by Boeing for the B787 to 7 ships per month. Separately, ATR's contribution in the 9 months was negative $34 million, with lower deliveries impacted mainly by supply chain constraints, which are currently being addressed. And we're now pleased to see more positive signs at ATR in terms of new order intake. Turning to Space. We have continued to see improving commercial performance and profitability. New orders were EUR 655 million, notably in Telespazio Satellite Systems and Operations and geoinformation segments, also leading to increasing revenues. The more positive EBITA contribution reflected the confirmed profitability of Telespazio and also partial recovery in TAS following the efficiency plans launched last year, which benefits mainly on the SG&A line with close attention on program deliveries. You've heard Roberto talk earlier about the exciting proposed combination of our space activities with those of Airbus and of Thales to create a leading European player in space. Our higher group EBITDA in the first 9 months also helped drive a better bottom line performance. EBIT grew to EUR 722 million, up 13.5% and the group net result grew to EUR 466 million versus EUR 364 million in the same period of 2024, with lower financial expenses in line with our reduced debt levels. The bottom line net result of EUR 735 million benefited from the capital gain recognized on the sale of underwater business to Fincantieri completed last January. We have also made continuous progress in improving our cash generation, which, as you know, for us, is one of the key highlights and key drivers of performance metrics. It is driven by robust performance on defense and governmental. And year-over-year, there is a reduced outflow with a cash absorption of EUR 426 million versus EUR 548 million in the last year 2024. This is reflecting our improving operating performance and higher EBITDA and the efforts we have been making to manage working capital and cash ins. You know that this is a key area of focus for us, and the culture of cash is being permeated within the company. We have full confidence in our 2025 free operating cash flow targets, which we have raised last July to a range of EUR 920 million to EUR 980 million. Then we continue to focus on executing on our disciplined financial strategy. And you can see how, over the last 3 years, we have achieved a very solid investment grade, receiving repeated upgrades in rating and in outlook. Most recently in the last few months, there have been 2 upgrades in our rating and 1 upgrade in our outlook. We remain fully committed to maintaining a very solid investment-grade status while supporting growth and improving shareholder returns. We also recently announced a successful renegotiation of our ESG-linked revolving credit facility. It was oversubscribed 3x, confirming the positive sentiment and the support that the market has for Leonardo. We also achieved a margin reduction of up to 30% and savings on financial charges. These improved terms reflect our stronger balance sheet and the solid investment grade we have achieved. We also are including new ESG indicators in the credit line, which are in line with the financial and sustainability strategy we have put forth. Let me finish with the confirmation of our full year guidance. You have seen in the period to September that we have continued our good start earlier in the year, and we are on track with our expectations. We continue to see clear momentum. And as such, we confirm the full year upgraded guidance, which we gave you in July. Our main businesses on the defense governmental side are delivering strongly in order intake, revenues, profitability and cash flow. We're seeing good demand for our core defense and security products, technologies and solutions with solid commercial performances across all divisions. New order intake has been very good and especially in the last quarter, and it gives us confidence. Orders are an indicator of the future. They are not linear, as you know, but overall, the trend is positive and a step up again this year. We're pleased with not just the level of orders, but also the quality. And as I said earlier, this order intake is consistent with the upgraded full year guidance we gave you of EUR 22.25 billion to EUR 22.75 billion when we flagged potential large orders in the pipeline. We're also confirming the full year guidance for revenues and EBITDA with top line revenues growth as we deliver from backlog and improved profitability and the full year free operating cash flow that we upgraded in July. So now to conclude, we are continuing to deliver well on track with a good performance across all key metrics. Thank you all, and I will now hand you over to the Q&A. Claudia Introvigne: Thank you, Alessandra. Good afternoon to everybody also from my side. I think that it is now the time for the Q&A. We can use the remaining 20, 30 minutes for the Q&A session. So I leave the word to the operator, and you can open the line. Thank you. Operator: [Operator Instructions] Our first question comes from Alessandro Pozzi with Mediobanca. Alessandro Pozzi: And let me start by saying congratulations to Claudia for the new role, and I wish all the best to Alessandra. The first question on results, clearly, very strong set of numbers. The only issue here is that you haven't changed the guidance, and therefore, Q4 looks really low, especially when you -- the implied guidance for Q4 once you factor in the seasonal trends. And I was wondering how you feel about the guidance and the reason why perhaps you haven't upgraded the guidance, especially for order intake, which seems to be really strong in Q3 and also in light of the fact that there are probably new contracts that you will sign in Q4, very large, like the Turkish Eurofighter, the Germany Eurofighter contract, just to name a few. The second point I would like to discuss is Iveco Defense. I believe that you are doing an industrial analysis at the moment. And I don't know whether I understood correctly, but maybe the carve-out of the truck division of Iveco Defense is not on the table anymore or maybe it's perhaps. So I was wondering whether there is a chance whereby you end up with 100% of Iveco Defense. And maybe the last one, you mentioned synergies with DRS. Historically, it's been really difficult to create synergies between the European subsidiaries and U.S. subsidiaries. And I was wondering how do you think you will be able to improve that? And longer term, what's your view on your stake in DRS? Roberto Cingolani: Yes. Thank you for the set of questions. Okay. I will be, at the very beginning, a bit qualitative. And then obviously, I will ask Alessandra maybe to point out a few aspects of my answer. To be frank, guys, at the last quarter, I had a discussion maybe because of my scientific background, but I like to have kind of algorithms or KPI that are giving us a guideline. I mean, of course, they are very flexible, but they give a criteria for us to make actions. For instance, I was wondering whether it makes sense that we update the guidance every quarter because there is an increase of 1%, 2% of the specific KPI. So I just proposed, but that was a very flexible proposal, okay, just to give a criteria, not because I would say it's not mandatory. It was just a proposal. Let's communicate a change of guidance when we expect, let's say, 10% increase on a specific KPI, which was the case. We might argue and discuss, I'm totally flexible, no ideology at all. If you think 10% is too high, we can make 5% or whatever. I was just trying to give to the team an idea that we have a target. If we go above that target, we changed the guidance. If we are below, even if we grow, maybe it's not so relevant to give a marginal change to the guidance. For instance, -- to be honest, I'm pretty sure, guys that we go well above EUR 19 billion. We already have EUR 19.2 billion or so for revenues, and we possibly break the roof of EUR 1 billion for the free operating cash flow, okay? I'm very confident this will happen. So in some sense, I would feel very confident to give you -- to propose you an upgrade in the guidance. But it's going to be 2%, 3% because we are growing, we are growing fast. We did a lot of work, and now I expect to grow rather continuously. Maybe there is no point to update the guidance every quarter. But with the same transparency and honesty that I told you in my premise, if you think it is better to update even a marginal increase 1%, 2%, we do it. We're not, how to say, hiding or protecting or acting in a conservative way. I'm sure we're going to pass the target this quarter or the next quarter, for sure. I wonder whether it is useful to anybody to give an upgrade of 2% or 2.5%. If you think so, we are ready to get the lesson and to do it. I mean, really, we are absolutely agnostic in this respect. So I know that it's a nonconventional way to answer. But as I said, I feel confident with the numbers. So at the end of the day, for us, it doesn't make any big difference if you say we correct the guidance every 3 months, plus 2%, plus 3%. We can do it. Or if you look at the single line algorithm, we don't disturb you if it is less than 10% or 7% or so. Now concerning Rheinmetall, as I tried to explain before, the due diligence in the industrial analysis is really very complicated now. So we know exactly what we could do in Iveco, for instance, splitting an internal supply chain line or doubling a production line in the plant. Now we have to see whether the investment to do it is worth to make it to carve out a specific part and maybe to sell this to our partners or we better keep all unified and anyway, having commercial agreements with our partners, which would have exactly the same result in the end of the day without a massive investment. We're going to make this analysis in the next weeks. There is a team of about 20 people, including advisers that are working with us. As soon as we are clear this with the numbers, of course, we will make a proposal. But to be honest, we cover both scenarios, 2/3, 1/3 or everything for Leonardo. There is no, how to say, financial problem for that. We are ready to both. We want to make the things which is more effective and requiring less investment. I think you had another question. Which one? Yes, synergy for DRS. Yes, what we conceived with our colleagues in DRS is to create a mixed team of top managers that from U.S. are staying in our place and from Leonardo, let's say, Europe, they move there to have a more -- a much closer interaction of people and of course, to update and align the industrial plan that DRS has made and of course, Leonardo has made and not always coincident or maybe sometimes overlapping with less synergy and more repetitions or overlaps. Now maybe some thought about the operation of the proxy can also be done. But this is one of the avenues we are discussing together. I mean we have a common aim to integrate more, to make more synergy, mixing the blood means mixing the people and also the product. And this is what we're going to study in the next 3 months. But by the end of the year, beginning of next year, we should have 1 or 2 scenarios to propose and develop. I hope I answered. And of course, Alessandro, if you want to say more... Alessandra Genco: I think you have covered it all, Roberto. Valeria Ricciotti: Okay. So we move to the next question. Alessandro Pozzi: I also agree on raising the guidance only when you think you can beat by a certain amount. So again, raising -- changing guidance by 2% to 3% every quarter, maybe -- yes, I agree with you on the style. And also on the equity participation of Avio, maybe can you say something? You announced the sale of a 9% stake in Avio. What is the longer term? Roberto Cingolani: So first of all, thank you for stressing the point of the guidance. I'm very relieved that you understand how flexible we were. There was no intention to do anything strange. It was just a basic thing to feel confident at some automatic decision system. So happy that you -- that is acceptable. But of course, always happy to receive suggestions and criticism because we are trying only to speed up the machine. Concerning Avio, so the point is the following. Avio has made an industrial plan, which moves the central mass of the company from launchers to, let's say, missiles and propulsion systems towards missiles, moving the business in United States progressively and somehow, how to say, seen by us in Leonardo, we were in Avio because our interest was 90% on launchers because we do the missiles with MBDA. So for us, it would be a nonsense to nurture 2 competing missiles activities in 2 companies that we control, we participate in, while losing the focus on launchers. So in a very collaborative spirit, we discussed with Avio that we are not interested in the augmentation of capital in this new initiative because that will be, first of all, for us, quite an amount of money to be invested to stay at 28% in a company that, however, is moving the business towards a direction which is competitive to what we already do with MBDA. So industrially, I don't think my Board and even you guys that are investing on us would understand the philosophy. Why are you duplicating something and losing the focus on launch that was the original idea, even though it was not very successful. But anyway, that was the idea. So we didn't want, however, to stop Avio because I think they have the right and they want to play their cards, obviously. So we said, of course, we agree on the augmentation of capital, but we don't participate directly. I mean, to be honest, this happened exactly the same with Hensoldt if you remember, a couple of years ago. So it was a very mild way to say, okay, we don't follow you, but we understand your reasons, okay? Now technically speaking, that meant not participating in the augmentation of the capital, but we had to sell the right of options [indiscernible] residual value. So in doing this, we collaborated with the group of the bank advisers, and they suggested something like selling a bit of shares and then using part of the income of the sale to resubscribe some of the share of Avio. This is not actually augmenting -- participating in the capital augmentation, but subscribing again, of course, brings us around 18%, 19%, which is the minimum participation Leonardo should have in Avio, not to abandon Avio because also the government wants to make sure that we still have some presence in -- not the government, the Minister of Finance, which is our main shareholders. There is some presence ensured in Avio for the -- at least for the beginning of the action. So we diluted from 28% to 18%, 19% or so. We monetized in an amount in the range of EUR 20 million to EUR 21 million or so, our rights. And now we are there, not making hurdles to have on one hand, but on the other hand, meaning that we cannot follow the plan towards the missiles in the United States. Now there are other companies that would be interested, for instance, MBDA and so, but we are discussing those things went very fast. So no one could take a decision. We were prudent, and we decided to follow this strategy. So in the end of the day, we get some cash. We diluted from 28% to 18% or so 18%, 19%. I don't remember the exact number, but we'll see in a few days. And then in a couple of weeks, we confirm we're going to resubscribe some of the shares to stay constantly at 18%, 19%. And then we will see how the market behaves and how the initiatives takes off. And of course, we wish the very best to Avio in the meantime to be successful with the new strategy. Operator: The next question comes from Ross Law with Morgan Stanley. Ross Law: Hope you can hear me. So 2 from me. The first is similar to Avio, but more specific to Hensoldt and your stake there and how you're thinking about that? And then the second one is just on the NHI deal with Norway. You flagged that your free cash flow guidance now includes the impact. Can you just confirm what the magnitude of that impact is? And does it all fall in Q4? And is this payment in line with your shareholding in NHI? Or is it slightly different? Roberto Cingolani: Okay. For Norway, I'll leave the word to Alessandra because she closed fantastic of the deal. I will tell you a bit more about Hensoldt immediately after. Alessandra Genco: Okay, Ross. So on the closing of the transaction with Norway, the cash outflow -- total cash outflow for Leonardo will be EUR 125 million, which is 41% the stake that Leonardo has in NHI of the settlement amount, EUR 305 million. The distribution from a timing standpoint of this outflow is mainly in '26. This year, we're going to have a negligible EUR 10 million to EUR 15 million payment, and the majority will be in 2026. Clearly, as you know, the closing of the transaction is a very positive event for us. This is a legacy contract, 20 years old. The risk has been -- from a court stance perspective, the risk has been tangible. We could have had a much worse outcome at the end of the day. So we really brought down the amount of exposure down to EUR 300 million of a consortium. So it's a really good outcome that we are satisfied with, and we are closing once for all the topic. Back to you, Roberto. Roberto Cingolani: Yes. So Ross, about the Hensoldt. After the contact I had with my colleague, Oliver Dörre, the CEO of Hensoldt, we met a couple of times recently. So we are now studying what next. Of course, this has to be integrated into a very complex situation. On one hand, we have the extra funds from Europe, the SCAF program, ReArm Europe and so on and so forth. And on the other hand, we have the big boost that the German government is putting on defense, which means that they need the German companies to be really committed on the domestic programs. So I gave my complete availability to discuss any scenario with Hensoldt and eventually with the authorities on about -- what could be the best scenario for them and, of course, for Leonardo. So the discussion is in progress, very constructive, very friendly. Well, of course, we have to see how the Bazooka German program is deployed to understand what is the best solution for both of us. At the moment, however, the collaboration is ongoing on the legacy programs. The numbers are, okay, good, we cannot complain. I mean there is no red light anywhere. But in order to have a strategic choice made, we need to talk to our German colleagues when they have a clear planning of the situation. And at that point, we'll try to adapt our strategy to their strategy. In the end of the day, staying like this would not be bad. The point is, can we do better or can we do somewhere else something better? And this we will discuss with our colleagues as soon as they have a clear scenario in front of them. Operator: And the next question comes from Martino De Ambroggi with Equita. Martino De Ambroggi: I know the trend in orders is not linear. And you already talked about the guidance for the current year for sales and free cash flow, which may be better. I was wondering on the order intake, very strong in the 9 months. Q4 implicit in the guidance would mean at the lowest absolute value over the last 10 years in a much more favorable environment. So I was wondering specifically on order intake if there is the same conclusion that you mentioned on sales and free cash flow. And on Hensoldt, a follow-up on the previous question. When you talk about open to different opportunities and so on, does it include divestiture, either merger with other activities? So it's 100% every kind of possibility or I don't know, because you also mentioned if we stay as we are today, we are happy in any case. Roberto Cingolani: Yes. I'll give it the word for the first question, then I will specify [ Borenzso. ] Alessandra Genco: So Martino, on orders, you said it, orders are not linear. We are very pleased with what we have seen in the 9 months. And clearly, that's a very good outcome. And it's a performance that is also reflecting the jumbo order of the contract -- the [indiscernible] contract for customer support. So if you project into the full year, we confirm the guidance between EUR 22.250 billion and EUR 22.750 billion, and we feel very confident that we will hit that range. Roberto Cingolani: Martino, about Hensoldt, so let's say so, but this is my personal interpretation, and I believe it's reasonable. I think we could consider as totally abandoning this idea, the original idea 6, 7 years ago because I was even not in Leonardo when they started that one day, Leonardo could be -- could own 51% of the share of Hensoldt because that was another -- before the war, before everything. And now I'm sure that the profile of Hensoldt is growing a lot and the strategy of the German government is very clear. I'm sure they don't want to leave the control by another company of an asset such as Hensoldt. So this, we can discard. 2 years ago or 3 years ago, could have been yet still the case, but for sure, not now. Now what can we do? We can, of course, create -- we can divest, obviously, getting out. But I mean, this must have -- from our point of view, divestiture is made because we make money to reinvest in something which is very strategic. We don't sell things to make money, and that's all. We sell because we want to have money for a strategic investment. We did a lot of work so far, actually, a lot of new initiatives. Now implementation is really the challenge. And even if you have infinite money and you buy infinite new things, then you have to make them profitable, to make them efficient. And this means find managers, proper organization, so on and so forth. So I wouldn't do anything that would create extra load, extra payload to our managerial activity and industrial activity, unless it's really crucial for the global security program, for the multi-domain interoperability program. I think we are very close to have all the elements, and I don't want to do things that could make the machine more difficult to drive. Having said this, let's see also what our German colleagues propose. There are potential synergies between Leonardo and Hensoldt that could be further studied and developed. And this is also one of the areas where our teams are discussing. But as I said, I think now the ball is in the field of the German partner for domestic political reasons, for strategic reasons. We are happy to contribute to the discussion, but we look forward to having indications by Hensoldt to see what could be also for them a good way to go. And in the end of the day, we are rather flexible. We don't see any red flag, any red light anywhere, as I said, because the program is running, we are doing things together. Margins and numbers are satisfactory. So for me, it's much more important to fix in a permanent way other loss-making situations, as you know. So in this respect, you find me rather relaxed and flexible. But we are discussing quite intensively any possible scenario. Operator: And the next question comes from Gabriele Gambarova with Intesa Sanpaolo. Gabriele Gambarova: The first one is on aircraft. You got this huge contract with Kuwait. And at the same time, I remind that during your, let's say, March business plan, you assumed that aircraft margins would go down by roughly 200 basis points starting from next year. So I was wondering if this Kuwait contract, jumbo one changes anything about this? Another question is on the U.K. Roberto, you mentioned [ Yeovil, ] the plant, and we know that there is this new medium helicopter program ongoing. You are the sole contender. I was wondering if something is moving there, if you have any update on this? And the third one is housekeeping -- just housekeeping on the below-the-line items you expect for 2025. Roberto Cingolani: Okay. Will you go with this expectation for aircraft? And I go for Helicopters. Alessandra Genco: Sure. So Gabriele, the margins on aircraft that we have projected factored in a portion of the contract and of the servitization strategy that we had in place. Having said that, as you know, the aircraft division has proved to deliver very strongly at top level margin systematically year-over-year. So I would say that in the context of the opportunity that we see throughout the fighter business being Eurofighter in export, being Eurofighter for the 4 core nations, the JSF, which is a continuous positive contributor to the overall volumes as well as the GCAP, we will have a consistently solid and top level profitability in the division. Roberto Cingolani: So the question was the other one... Alessandra Genco: The NMH in U.K. Roberto Cingolani: Yes, the NMH in U.K. So Gabriele, look, the reason for me to go to U.K. and talk to the Secretary of Defense, Honorable Healey was just to make sure that things are coming and moving because there was a sequential delay of the decision point for the helicopter tender. And so we made clear that we are waiting. For us, time matters at this point. We cannot subsidize Yeovil forever. It's 14 years, 1-4, 14 years that we don't get any contract from the U.K. government. It's getting difficult for us to keep this big plant alive without institutional collaboration. I think the minister was very serious, very -- he's working on that. As I said, we will meet in Naple very soon. And our team, [ Clive Egans ] and team in U.K. are really working and kind of chasing the institution to see what happens. So I think we can be positive. But of course, we have to see what happens in the end. I mean those -- as you know, those are very complicated tenders, and there is a lot of political influence behind. And therefore, it's not simply an industrial issue. It's a kind of geopolitical issue. We want to see what happens. But of course, should this not happen, well, we should seriously consider why we keep a plant there for 15 years, not getting anything. So -- but this is part of the efficiency plan that we might consider in case things will not run properly. But I think we made a very clear statement, and we found a very collaborative and responsible answer. So let's see what happens in the next few weeks. The decision is made -- should be made by the end of the year. So we are really at the last mile, okay, we should not wait for long. Alessandra Genco: Gabriele, on your last housekeeping point, the expectation for below the line, before the closure of the NH90 program, I would have responded to your question as approximately in line with 2024. I have to say that given this extraordinary item, which is accounting for EUR 125 million, we may be slightly above last year. Operator: And our last question comes from Christophe Menard with Deutsche Bank. Christophe Menard: The first one is on the NH settlement. What is the impact, I mean, on the 2026 free cash flow guidance? You're obviously spending EUR 125 million or I mean that's the -- I mean, a little bit less than this, but what is the impact on what you guided? The second question is on capacity boost. Can you also remind us the free cash flow impact that it could have, if any, in the coming years? And the last question is on the [ Christophe ] project. I was wondering how it actually fits with the European Sky Shield initiative. What is the plan or strategic plan to insert it within ESSI? And also my best wishes to Alessandra. Alessandra Genco: Thank you, Christophe, for your well wishes. And let's start answering your question on NH90 settlement and impact on next year free cash flow. What I can tell you is that we will work our hardest to compensate that outflow with other inflows and maintain the outlook that we have provided last year. Clearly, this is a cycling -- budgeting cycling process, which has just started, and we will keep you posted. But the goal for us as management team is to not have a negative impact next year from this settlement. Roberto Cingolani: Okay. Christophe, concerning the capacity boost, let me remind the main motivation for the capacity boost is that we know already that with the exponential growth of demand that we're going to have in drones, aircraft, land defense systems, we soon are going to meet a bottleneck in our production capability. So before telling you what is the expected amount of -- the expected improvement in terms of cash, I want to fix the main problem, which is we need to deliver, for instance, in the case of land defense, 1,250 heavy armored vehicles, approximately 250 main metal tanks and approximately 1,000 advanced [indiscernible] combat vehicles. And we don't have the capability right now to deliver because we need a strong efficiency in our production capacity. So somehow, the -- how to say, the revenue or the money that we can get, it's a consequence of the fact that we can deliver more. And we don't deliver -- if we don't deliver, of course, we don't earn money. So that was the first motivation. And so it's a kind of indirect analysis we can do. But if you consider that we have about $20 billion program -- more than $20 billion program in 10 years for the land defense. That's an example, but I could tell you the same for GCAP for other things. You divide by 2, us and Rheinmetall, and you can see that the margin can be 15%, okay, you easily get how much money we can earn if we are able to deliver. If we don't deliver, this money is not taken. The second point is that we are facing something like -- I don't remember exactly, but we are talking millions and millions of offload engineering hours. And this is a cost. It's a net cost that goes against the marginal -- the margins of our manufacturing. Of course, in order to satisfy the demand, if you have to pay 10 million, 11 million, 15 million of engineering hours, you're going to pay that. And this is going to be a reduction in the margin. So reducing the number of hours of offload that we buy, it immediately turns into margins and of course, into euro or dollars or whatever. So we are not able to make the calculation now because we are trying to cut this 30% to 40% extra workload in the engineering, 10% to 15% extra workload in manufacturing. And if we manage, then we can give you an equivalent in euro. But clearly, the algorithm is very simple. The point is to act in a way that we can make the capacity boost. In terms of investment because, of course, you could ask, okay, but you have to put money on the plants to make them more efficient. Obviously, we invest in the optimization of manufacturing as long as the investment is below the expected gain in 2, 3 years in the budget plan. This is exactly what we're doing now, and it seems to be very effective as a model. So sorry for not giving you a number, but those are big numbers, to be clear. There was any other question? Yes, Michelangelo. Sorry, Christophe, I would like to ask you, can you repeat the question? Because you said how do you integrate your Michelangelo -- don't mean something, but I didn't understand the acronym. What did you say exactly? Christophe Menard: Yes. Yes, I was hinting at the European Sky Shield initiative that Germany sponsored, which is a multilayer defense system. Roberto Cingolani: Okay. Sorry, I didn't understand. Yes. So we do have a product portfolio of approximately 150 components in electronics, radar, sensors, effectors mounted on land defense systems, vessels, aircraft, helicopters, and we built our own constellation. These things are already on the portfolio. So I'm talking about the largest integration program ever in the defense industry, but we do have all the components. I don't think anybody else has the portfolio ready. So one thing is to say, I would like to do this. One thing is to say, I have these components, I want to integrate them. So I'm not able to compare because I know what I have, but I'm not aware of what they have. But for sure, they don't have all the platforms and all the components. So I think they are a little bit -- if I remember correctly, they made a statement that we candidate ourselves to drive the design of the air defense system. Fine. It's a candidature. What I'm going to present is a product. Christophe Menard: Yes. Looking forward to the presentation. Roberto Cingolani: Sure. We'll be happy to give all the details as long as we can disclose everything, but it will be very clear. Claudia Introvigne: Okay. I think we are to the end of our presentation. Thank you for your participation. And I leave the last word to Alessandra. Alessandra Genco: Thank you. Thank you, Claudia. And let me make -- let me say a few words here. Our journey together started exactly 8 years ago in November 2017. These 8 years have been phenomenal, extremely intense and Leonardo throughout this time frame has become bigger, stronger, more profitable and more cash flow generative. I thank Roberto for this great time we spent together, and I thank you all for the fantastic journey that we have done together. And I'm confident that Leonardo will continue to do great in the future. I look forward to crossing path again with each and every one of you in our future. Roberto Cingolani: We will, for sure.
Operator: " Delbert Rose: " Ryan Ezell: " J. Clement: " Jeffrey Grampp: " Northland Capital Markets, Research Division Gerard Sweeney: " ROTH Capital Partners, LLC, Research Division Donald Crist: " Johnson Rice & Company, L.L.C., Research Division Joshua Jayne: " Daniel Energy Partners, LLC Unknown Analyst: " Joichi Sakai: " Singular Research, LLC Operator: Good morning, ladies and gentlemen, and welcome to the Flotek Industries Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, November 5, 2025. I would now like to turn the conference over to Delbert Rose. Please go ahead. Delbert Rose: Thank you, and good morning. We're thrilled to have you with us for Flotek's Third Quarter 2025 Earnings Conference Call. Today, I'm joined by Ryan Ezell, Chief Executive Officer; and Bond Clement, Chief Financial Officer. We will start with prepared remarks covering our business operations and financial performance. Following that, we will open the floor for questions. Yesterday, we announced our third quarter 2025 results and an updated earnings presentation, both of which are available on the Investor Relations section of our website. This call is being webcast with a replay available on our website shortly after its conclusion. Please note that the comments made on today's call may include forward-looking statements, which include our projections or expectations for future events. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from those projected in forward-looking statements. We advise listeners to review our earnings release and most recent 10-K and 10-Q filings for a more complete description of risk factors that could cause actual results to materially differ from those projected in forward-looking statements. Please refer to the reconciliations provided in the earnings press release and investor presentation as management will be discussing non-GAAP metrics on this call. With that, I will turn the call over to our CEO, Ryan Ezell. Ryan Ezell: Thank you, Delbert, and good morning. We appreciate everyone's interest in Flotek and for joining us today as we discuss our third quarter of 2025 operational and financial results. In the third quarter, we saw North American operators maintain the cautious posture initiated in the second quarter as they continue to navigate the return of OPEC+ spare capacity and persistent global trade uncertainty. Despite the dynamic geopolitical and macroeconomic challenges that have injected uncertainty within the market, the Flotek team remains steadfast at the execution of our corporate strategy, driving transformation and delivering our 12th consecutive quarter of adjusted EBITDA improvement. As referenced on Slide 4, Flotek extended its track record of transforming the company into a Data-as-a-Service business model as our industrial pivot continues to gain momentum while expanding the total addressable market for future growth of the company. Furthermore, we increased market share in both of our complementary business segments with an unwavering commitment to service quality and value creation for our customers and shareholders through the convergence of innovative data and chemistry solutions. With that, I'd like to touch on some key highlights for the quarter referenced on Slide 7 that Bond will discuss later in the call. Total revenue during the quarter rose 13% versus third quarter 2024, highlighted by a 232% increase in data analytics revenue, which is our strongest quarter ever and a 43% increase in external chemistry revenue. Gross profit climbed 95% versus third quarter 2024, with third quarter 2025 gross profit margin rising to 32%. Net income totaled $20.4 million, while adjusted EBITDA was up 142% versus third quarter 2024 and up more than 20% sequentially. On October 29, 2025, Flotek announced that the XSPCT analyzer was the first optical spectrometer to comply with oil and gas custody transfer standards known as GPA 2172, further empowering our ability to build high-margin revenue backlog in the Data Analytics segment. Finally, we increased our 2025 total revenue and adjusted EBITDA guidance ranges by 6% and 3%, respectively. Above all, these milestones were achieved with 0 lost time incidents in the field of operations. I also want to spotlight our differentiated prescriptive chemistry management service team, which has remarkably maintained over 3,500 days with no OSHA recordables or lost time incidences. You combine that with the recent achievements at MTI in the third quarter of 2025 saw Flotek achieve its lowest EMR score in company history. I'd like to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results. Now turning to the larger picture for the energy and infrastructure sector shown on Slide 9. We share the vantage point that the fundamentals for hydrocarbon demand will continue to grow over the long term. Substantial investment will be required to maintain current production levels, much less to increase production sustainably to meet expanding requirements of power demand driven by AI, data centers and industrial reshoring, combined with the reliability issues of an aging transmission infrastructure. As our legacy pressure pumping customers diversify into the power generation business to capitalize on this demand opportunity, Flotek is poised to support them and emerging customers with products and services that help protect their investment in power generation equipment. With multiyear waiting list for turbines and reciprocating engines, protecting these capital-intensive investments is critical, along with enabling reliability standards that exceed the greater than 99% uptime requirements. With this outlook in mind and referencing Slide 10, I've never been more invigorated about Flotek's future as we strengthen our position as a technology leader, spearheading innovation and delivering tailored data and chemistry solutions that meet our customers' specific needs. We are committed to shaping the industry's digitalized future by leveraging chemistry as the common value creation platform. Now let's dive into the details, referencing Slide 11 of the earnings investor deck. Today, I want to spotlight the remarkable progress in our Data Analytics segment, which saw service revenues increase 625% in Q3 2025 versus Q3 2024, elevating gross profit to 71% in Q3 2025 versus 44% in the same quarter a year ago. This transformational growth in data-driven service revenue is empowered by 3 upstream technology applications: power services, digital valuation and flare monitoring, all of which are fueling significant advancements for our organization while generating recurring revenue backlog. The first is our transformative power services, which has evolved from a novel analytical approach into a transformative solution for the energy infrastructure sector that we call PWRtek. What began as advanced analytics has grown into a comprehensive end-to-end fuel management platform, redefining performance standards and operations within the sector. Looking at Slide 12. At the heart of PWRtek is our Verax analyzer, which goes beyond data collection to deliver custody transfer grade measurements. It provides precise BTU methane number and volume reporting for royalties, invoicing and performance guarantees. Complementing this is our patented ESD trailers actively remove liquids and contaminants, conditioning high BTU hydrocarbon feeds to meet exact turbine or engine performance specifications. Because every site and grid condition are unique, we have integrated Coriolis metering, automated CNG blending and seamless backup connections, allowing operators to switch fuels or go off grid with a single button resolving major constraints to the development of data center and grid power infrastructure. But Biotech is more than just technology. It's about control. Operators interact effortlessly through an on-trailer HMI or a unified web portal that is accessible on desktop, tablet or smartphone. Our cloud-based portal enables the monitoring of live BTU trends, H2S alerts, Coriolis flow meter readings and automated CNG blend controls, combined with custom alarm thresholds to automatically isolate all-spec hydrocarbon feeds and protect high-value turbines or engines from catastrophic damage, thus minimizing downtime and operational risk while enhancing safety. All data flows securely through our patented edge-to-cloud pipeline, ensuring 0 manual intervention, end-to-end encryption, full audit trails and compliant custody transfer recordkeeping. Finally, our over 35 data analytics patents position Flotek as a leader across the natural gas value chain. When considering our capabilities for advanced fuel blending, zero emissions analytics, custody transfer grade flow cell measurements, wireless ESD actuation and secure edge-to-cloud data transmission, we deliver unmatched monitoring, control and safety for field gas operations. In April of 2025, we acquired 30 patented real-time gas monitoring and dual fuel optimization assets. We are proud to report that the integration of these assets has gone seamlessly and all units are in service as of today, which is ahead of our original schedule. Now let's transition to Slide 13, where we'll dive into our second upstream application, digital valuation. This groundbreaking use case sets a new standard in the oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk for producing wells like never before through a real-time digital twinning of the custody transfer processes. By monitoring hydrocarbon quality and composition in real time, we have unlocked a new market for the industry and for Flotek. On October 29, 2025, Flotek reported a historic milestone in natural gas measurement. The XSPCT spectrometer became the first optical instrument to achieve the stringent reproducibility and repeatability requirements of the oil and gas industry standard for custody transfer, GPA 2172 and API 14.5. The XSPCT measurement unit is designed to enable more accurate volume and composition of data, thereby delivering greater transparency for royalty owners, operators and midstream companies than traditional methods. We believe the XSPCT speed, accuracy, durability and qualification under the rigorous measurement standards outlined in GPA 2172 will provide a significant advantage in discussions with prospective customers as we aggressively expand this manufacture and field deployment. Let's move to our third upstream application, the VeraCal flare monitoring solution. We continue to see operational demand in the third quarter of 2025 as we navigate the rapidly changing regulatory landscape by partnering with operators and flare developers to deliver value that goes beyond just compliance and unlocks new efficiencies and environmental benefits to our clients. It's clear that our transformational strategy to grow the data analytics segment through upstream applications is gaining traction. But what is most important is what it means for our stakeholders and investors. Our DaaS-driven strategy ensures predictable recurring revenue and cash flow, delivering stability and long-term value. Our proprietary data technology is a superior measurement accuracy enable velocity and decision control that establish a high barrier to entry, secure client loyalty and support our value-based service model. In long time, high-margin subscriptions position Flotek for sustained growth and margin expansion, driving significant shareholder value over time. And lastly, our Chemistry Technologies segment continues to deliver robust performance, driven by the differentiation of our prescriptive chemistry management services and our expanding international presence. Slide 17 underscores the resilient performance of our Chemistry segment with 54% growth in external chemistry revenues and 21% increase in total chemistry revenues for 3 months ended in 2025 versus 3 quarters or 9 months ended 2024, despite a 24% decline in active frac fleets during the same period. While we anticipate potential commodity price volatility through the remainder of 2025, we do see indicators for cautious optimism in 2026. This presents a strategic opportunity to expand our market share by accelerating the adoption of our prescriptive chemistry management solutions and enhancing asset value for our customers. It's evident that our chemistry team has executed our strategy flawlessly despite the near- to medium-term headwinds. While uncertainties around near-term activity levels persist due to macro factors that could affect the completion chemistry market, we remain focused on defining these challenges, delivering differentiated chemistry and data services to provide our customers with industry-leading returns on their investment. We're confident that our expanding suite of services positions us to deliver superior solutions to a variety of our industry's most challenging problems while maximizing our customers' value chain. Now I'll turn the call over to Bond to provide key financial highlights. J. Clement: Thank you, Ryan. Good morning, everyone. I'm excited to discuss our third quarter numbers released yesterday afternoon. Our results were positively impacted by the first full quarter of cash flow contribution from our PWRtek assets. The $6.1 million in PWRtek revenues during the quarter drove a 50% sequential increase in data analytics revenue. Data analytics gross profit margin totaled 71% during the quarter. That was up 800 bps sequentially as gross margins relative to the PWRtek assets specifically came in at 89%. The increased data analytics contribution, along with an increase in the chemistry shortfall penalty, combined to raise total company gross profit margin to 32% for the quarter. As noted in the release, all of the PWRtek assets are now in service, so we expect fourth quarter revenues to increase further to approximately $6.8 million. As shown on Slide 11 in yesterday's deck, since closing the acquisition in April, our PWRtek assets are a clear catalyst for margin and profitability expansion, driving improvements not only within the Data Analytics segment, but also at the corporate level. Emphasizing PWRtek's impact and as shown on Slide 6, during the third quarter of last year, the Data Analytics segment contributed just 13% of total company gross profit versus 35% during the third quarter of this year. As a reminder, based on the contractual terms in the lease agreement, PWRtek revenues in 2026 are expected to be north of $27 million or an approximate 70% increase from 2025. So we fully expect these assets to be a significant part of our 2026 results. Looking at the quarter, revenue during the quarter was up 13% from the year ago, and as Ryan said, was driven by the Data Analytics segment. As compared to the year ago quarter, we saw a massive increase in service revenues driven by PWRtek. Data Analytics segment revenue represented 16% of total company revenue in the third quarter, which is up from 5% in the year ago quarter. In addition, third quarter revenues from the Data Analytics segment equaled the entire segment revenue for all of 2024. During the quarter, total chemistry revenues were flat versus the '24 quarter, but on a year-to-date basis, as shown on Slide 17, total chemistry sales are up 17% from last year. More importantly, we have made substantial progress in diversifying our chemistry sales. Excluding the chemistry order shortfall penalty, 53% of third quarter 2025 chemistry sales were to external customers, and that's up from 35% in the year ago quarter. As it relates to international sales, they totaled $10 million through the first 9 months of 2025, which is up about 122% from the year ago period. SG&A costs during the quarter were up versus the third quarter of last year due to higher personnel costs, including stock comp as well as increased professional fees, some of which are related to the company's first-time requirement for an integrated audit. On a percentage of revenue basis, G&A was 13% this quarter versus 11% in the year ago quarter. We do expect G&A to trend down in the fourth quarter as compared to the third quarter. Net income for the quarter totaled $20.4 million or $0.53 per diluted share as compared to $2.5 million or $0.08 per share in the year ago quarter. Current quarter net income did include a $12.6 million tax benefit, primarily associated with the partial release of the company's valuation allowance on its deferred tax assets. While the tax benefit is noncash, it is a positive development that illustrates the company's expectation of future profitability along with its outlook on utilizing deferred tax assets. As shown on Slide 8, during the third quarter, we continued our streak with respect to growing adjusted EBITDA. Our third quarter 2025 adjusted EBITDA was 24% higher sequentially. And through the first 9 months, adjusted EBITDA is running more than 110% higher than the 9-month 2024 period. Similar to the gains we saw in gross profit margin, our third quarter adjusted EBITDA margin increased by 500 bps sequentially, primarily as a result of the increased contribution from our mobile power support assets, PWRtek. In yesterday's release, we increased our 2025 guidance ranges on both total revenue and adjusted EBITDA, which we've summarized on Slide 8. The midpoint of our revised guidance implies 2025 revenue growth of 19% and adjusted EBITDA growth of 85% as compared to last year. Again, using the midpoint of both metrics, it implies a 17% adjusted EBITDA margin for 2025 as compared to 11% in 2024, further underscoring the positive margin impact attributable to the PWRtek assets. Wrapping up my comments on the financials, the third quarter built upon a very strong second quarter, highlighted by continued growth in margins and profitability. We remain focused on continuing to rebalance our profitability mix, transitioning from chemistry technologies as the primary contributor today to data analytics as the leading driver in the near future. With that, I'll turn the call back to Ryan for closing remarks. Ryan Ezell: Thanks, Bond. The third quarter 2025 results build upon our now multiyear track record of consistently posting improved financials as we successfully transformed the organization to enter a new data-driven frontier. Our 2025 guidance points to the execution of our corporate strategy, leveraging chemistry as the common value creation platform. Looking at Slide 18, I remain convinced we are still in the early innings of Flotek's transformation as we continue to grow and maximize returns for our customers and shareholders across the entire value chain of the energy landscape. Our transformative and strategic entry into the energy infrastructure sector is expected to provide a significant increase in high-margin data analytics revenue and cash flow for years to come. Through the growth of our upstream applications, we anticipate the Data Analytics segment will contribute to over half of the company's profitability in 2026. We continue to secure long-term contracts for both our Chemistry Technologies and Data Analytics segments, bolstering confidence in Flotek's ability to deliver stable revenue and profitability while effectively shielding our business from the impacts of commodity price fluctuations. Finishing with Slide 19, we believe no other company in our industry is better positioned to deliver the cutting-edge technologies needed to tackle the unique challenges of our energy and infrastructure sectors. I'm incredibly proud of our progress and confident in our team's ability to execute moving forward. Given the growth potential for our Chemistry Technologies and Data Analytics segments, we see Flotek as a compelling investment opportunity. Thank you for your continued support, and we're eager to share our vision for Flotek's future and look forward to updating you on our progress in the quarters ahead. Operator, we're ready to open the floor for questions. Operator: [Operator Instructions] Your first question comes from Jeff Grampp with the company Northland. Jeffrey Grampp: I wanted to start first on digital valuation. So I saw on the slide deck, there's a goal to get to 25 units to 35 units by year-end, and then there's over 200 installations kind of, I guess, in the pipeline, if you will, with those customers. What's the major factor from your guys' perspective determining the cadence of that ramp to get from that 30-ish to -- it sounds like the goal is kind of over 200. I don't know if that's near term, medium term. Just hoping for a little more granularity on that -- those data points. Yes. Ryan Ezell: So Jeff, this is Ryan. We look at it as there's kind of 2 to 3, I wouldn't say hurdles, but progressions that have to take place in terms of what we do from digital valuation. We spoke on in earlier quarters this year around some of the successful pilot programs that we had ongoing in 3-plus basins here in the North America land. We've seen those all turn over and are no longer in pilot phase. They're more in commercial phase. So that's one of the driving factors that we'll now start to see multiple unit deployment starting here at the back part of Q4, and that will roll into some of these 200-plus sites we see in 2026. There's also a little bit of piece of looking at the exact location for where they go because the different operators are looking at 2 to 3 different things they do well. A big value creation point is where when we bring on the production wedge component there at a gathering site, that's one key location that's typically garnering the initial most interest. And then we move into the actual pure 2172 addressing method around custody transfer pieces. So it's just -- it's kind of like walking over that heel to turnover. The pilot phases are complete. We've now seen full commercialization. We've increased the level of manufacturing. We don't feel we'll have any issues addressing the total number. We've already pre-bought all of the materials and are completely building now. And so what we're doing now is working out final Ts and Cs on customer rollout. So we expect it to be steady output closing this year and in '26 with increases in total number quarter-by-quarter, if that gives a little bit of better granularity. Jeffrey Grampp: Yes, that's perfect, Ryan. And just to, I guess, make sure I was understanding one of your comments right. So it sounds like the issue is -- issue is not the right word, but the inflection point more pertains to customer decisions around where exactly to deploy these, not if to deploy these. Is that fair? Ryan Ezell: Correct. Yes, that is correct. And so you look at it -- and it kind of goes through a progression, right? The big input we first see is when they're bringing new wells on production because we can see every minute change in production quality and then it goes into monitoring the well over a long period. And so it's kind of like -- as you can imagine, each customer operator and/or midstream client is looking for the maximum ROI on the initial deployments and then it works its way down the value chain. So that's mostly what we're doing is we'll pick up a customer. It takes a few weeks to go through the technical install pieces, test out how it does. Typically, production wedges are the big pieces we look at first. and then we move into the day-to-day monitoring or what we call creating -- you're essentially making, Jeff, a digital twin of the manual custody transfer sampling process, which is faster, more accurate and more durable in the long term and actually cheaper in the long term as well. Jeffrey Grampp: Got it. Those are great details. I appreciate that. My follow-up is on the power gen side with PWRtek. Can you update us on kind of customer conversations for third-party power services and any kind of outlook on when you can get some deployments there? Ryan Ezell: Yes. So we actually -- I would say, Jeff, excluding what we've done on the PWRtek deal with our initial contract, year-to-date, we've done an additional $2.1 million of revenue secured already after just having the equipment for a quarter. And I'd like to reference you like Slide 12. We try to give a little bit of a schematic to where -- what's going on in the business location in terms of how our sales process works. That first step is proving the measurement out. So that $2.1 million has been solely related to us sending Veraxs or XSPCT to location to monitor the gas and prove the fact to most of these people who are running either turbines or reciprocating engines that, look, we can see your gas quality coming in and out of any type of current manual treatment that you're doing and improve that. And those have gone really well. We've actually seen 6 new customers outside of our deal with ProFrac adopt that already in Q3 with multiple units testing for each one of them. The next phase of that goes into control, where they look at applying a smart filtration skid or an ESD monitoring unit, and we determine do they need H2S, do they need CO2? Do they need an MRU? Do they need these different pieces at what level of conditioning they need? And the final piece is issuing distribution and full control. And we've seen great success at working directly, feeding information directly to reciprocating engines and adjusting temperature and gas quality for turbines. So we're making great progress, in my opinion, on this. Now what's also interesting, Jeff, is these sales work a little different, depending on the vertical with inside power generation that you're working and how fast the sale takes place. And they're a little -- I would say they have a little slower turnover period than our traditional frac monitoring power gen and/or chemical sales, which work on a pretty quick sales cycle, almost pad to pad in some cases. So -- and I think you'll see some of the other, I would say, power service providers commenting on the sales cycle is a little bit different. The pursuit is a little bit different. But if you look at what we laid out here on Slide 12, we really laid a pathway of sales out, and we made great progress in our first phase of the measurement, and we're now transitioning to control the multitude of those clients. And I would say those client bases are legacy pressure pumping type customers, data center development and building customers and also biogas generation customers. So working in a multitude of verticals depending on the installation time and the equipment provided. Operator: Our next question comes from Gerry Sweeney, ROTH Capital Partners. Gerard Sweeney: I apologize. I was jumping back between a couple of calls here, so I may have missed some stuff. But Bond, I think you said how much did you say PWRtek is projected to do next year? Was it $26 million or $27 million? J. Clement: Yes, it's $27.4 million next year and for each of the next 5 years or so years. And then in the sixth year of the lease agreement, it reverts to whatever the prevailing market rates are. But for the first 5 years, it's fixed rates and the math is $27.4 million a year of revenue. Gerard Sweeney: So that was just for the acquired assets with your partner. That obviously doesn't apply any growth for the power side. J. Clement: That's correct. So that excludes the $2 million that Ryan just mentioned on the previous question relative to non-PWRtek power services is not included in that number. That's just the 30 trailers. Gerard Sweeney: Got it. And obviously, what was it -- I still call it custody control, but I think you sort of renamed it. But obviously, I think that's a focus. But how do you start expanding into the power side? Do you have enough skids, monitors, et cetera, manufacturing capacity sales? Can you walk us through sort of how you start to drive additional growth on that front? Ryan Ezell: Yes. So kind of alluded, I go back to referencing to Slide 12 again, Gerry. Our first step is proving out what the heart of PWRtek and Power Generation services is, and that's our ability to do the real-time gas measurement. Now depending on the type of equipment, whether it's reciprocating engine and/or a turbine is what measurement, whether you're looking at BTU number, methane number, Wobbe index, different components, high heating value, low heating value, et cetera, our equipment does all of that. And it's proving out what the brain of PWRtek does is our initial step. As I told Jeff earlier, we picked up 5 new customers for that in Q3 alone and testing multiple Verax and/or expat units on location to drive that part. The next piece is once we get a defined point of gas quality, we move into the next part of control as in the ESD trailers or smart filtration skids or H2S monitoring, all the different pieces that bolt on to really condition that gas to optimum output for the turbine and/or reciprocating engine. We've also moved into being able to -- because we can see BTU or methane number in real time, we have the capabilities to automatically tune a reciprocating engine, which has never been done in the industry before. And we've been working that aggressively in Q3. And so that's where it leverages into the next point of the sale. And finally is our state-of-the-art distribution trailers. And so it takes -- it's like a methodology that we go through in doing it. And we progressed through what I call Phase 1 pretty aggressively in Q3, and we'll see further expansion into control and distribution in Q4 and all of 2026. Now addressing capital needs, we've got plenty of measurement devices. We kind of preloaded XSPCT Verax units for that. We've built an initial 4 ESD trailers that are coming out, and we'll be issuing POs for additional distribution trailers here in Q4. And we've got probably the most -- well, not probably, the most aggressive capital delivery plan in Flotek probably in the last decade as we roll into 2026 to drive the deployment to ensure that we can address the needs of the growing customer base of not only some of our legacy pressure pumping customers that's made that transition, but also some new and emerging customers that are out there in the pure mobile power generation piece, and we look at the fixed installation and the biogas treatment facilities as well. Gerard Sweeney: Got it. Jumping back to the custody control or custody transfer, I'm sorry, the GPA 2172, there's a little bit of talk about maybe getting regulations moved around change that would be beneficial for XSPCT and custody transfer. Does that -- clearing that hurdle, GPA 2172 help that and maybe give a little bit of details maybe what the opportunity is? Ryan Ezell: Yes. Like the GPA 2172 that also relates to API 14.5 was the specific hurdle that had to be addressed. It is the backbone of what actually allows you to say we have a true digitized or digitalized custody transfer model in that it sets the standard of, hey, you have, you can use gas chromatography on another acceptable method, which is the optical spectroscopy. But for the optical spectroscopy to be allowed, it has to meet reproducibility and repeatability of what a GC standard is, and we exceeded all of those capabilities with the XSPCT unit, which is pretty amazing, being it's the first optical spectroscopy unit in the world to be able to do that. And so that kind of takes away a majority of a lot of -- particularly the midstream guys ask us, hey, is it compliant with 2172 and it is now. And so that was a big deal about being able to do that. And in all honesty, we had to progress in a lot of our pilot testing earlier in the year to get access to be able to do that to live streams. And so that was some of the big parts that we were able to close up here in the quarter, and we're extremely excited about it. Operator: Our next question comes from Don Crist, Johnson Rice. Donald Crist: Most of my questions on the power side or the data analytics side have been answered. But I did want to ask about on the chemical side, particularly international chemicals. Your customer got a big contract with Saudi, the other day and didn't know how that would kind of play into your future relationship with them. It seems like they're going to be growing rapidly. And I don't know if you all are going to participate in any meaningful way there? Ryan Ezell: Yes, Don, that's a great insight and a great question as our head teams are over in ADIPEC and following this week in Saudi as well to discuss the impacts of the business expansion with our -- what I consider to be our largest customer in the Middle East. And if you look at -- we mentioned around how that international revenues year-to-date are up 122%. Getting ready for some of this initial work is what led up to those revenue increases. We saw that slow down as that mega tender for Aramco was completed. And with our customer picking up the majority, well, I guess, 100% of that hydraulic fracturing scope, we do expect to see business pick up in the back half of Q4 and heavily in 2026, which is -- you've talked Bond and I acknowledging over this for the past year. This is what we've been positioning Flotek for is this type of growth in the Middle East. And we haven't given any guidance on specific expectations around there, but we do expect it to be very positive for us. Operator: Our next question comes from Josh Jayne, Daniel Energy Partners. Joshua Jayne: First question is just on XSPCT. I think in the press release that [Audio Gap] October, could you elaborate a bit more on the cost and efficiency gains for the [Audio Gap] so that the real-time analysis happens every 15 seconds. I just -- how does that alter decision-making for the customer and.[Audio Gap]. Ryan Ezell: Yes. So I'll talk about a couple of things. Let me talk a little bit around efficiency, right? What -- being the fact that we're now past the GPA 2172, we are now able to deliver a custody transfer level grade measurement to a resource owner, an operator or a midstream first buyer essentially almost every 5 seconds versus what was taking 3 months to 6 months to turn those over. More importantly is because you get such a regularity of measurement at such high resolution, we're able to resolve a multitude of the potential manual sampling bias that takes place on the production, which removes a layer of, I would say, fog around it provides a lot of transparency over what the true production and production quality out of each individual target location is. So that -- and typically, what we've seen is anywhere from 3% to 5% bias. What's also important is the fact that we can measure the direct flow line removes the process of manual sampling. So you see cost reduction there. You also manual sampling is never done the same way by anybody. It changes lab to lab. And so there is a variance typically or error introduced by the type of sampling that's done, whether it's pressure drop, temperature issues, et cetera. And so we remove all those components. So there are significant improvements in measurement quality, accuracy, resolution and reduction in variance -- variability. In terms of cost, traditionally speaking, we expect overall between CapEx and maintenance, almost a 50% reduction in cost overall through the process. So as you can see, I mean, this is a transformative step in creating a what I would consider to be a digital twin of -- in a real-time digital twin of the custody transfer process and creating significant efficiency, accuracy and cost gains for the customers. Joshua Jayne: That's very helpful. And then I did want to hit the chemistry business. Continuous fracturing has been discussed on some recent E&P calls. And maybe could you just discuss what you're seeing with respect to what's left for efficiency gains on the pumping side? And I think you highlighted the revenue growth against declining frac count in the chemistry business. But is there -- maybe just you could speak to your outlook for U.S. land in 2026, the ability to grow chemistry revs even if we're sort of flat to down from a fleet standpoint. And do you see more customers using chemistry in the current environment trying to get more out of less with respect to acreage? Ryan Ezell: Yes. So that's a lot to unpack. And so I'll try to do it in 4 or 5 main points. The first thing is around our ability to grow chemistry. Number one, the efforts that we put into stabilizing our revenue streams domestically and internationally is going to provide a solid runway to grow. I think as we kind of alluded to the potential impact of the expansion of our Middle East -- potential impact of our Middle East business is going to be huge for us to provide growth in '26. And then also some other countries that we have opportunities in, in Latin America and as well as Asia Pac, I think, are going to be positive, but probably not nearly as, I would say, material as what the Middle East will be. Secondly, as we move to the domestic component of it, everything that the oil and gas operations from the operator and the oilfield service companies are doing right now plays into the strength of Flotek. They want efficiency. They want maximum return on invested capital. They want maximum returns, and they want cost options that digitalize their entire value chain. And that's where the next frontier for Flotek is the tip of the spear and moving. We've not only been able to improve efficiency just by quality of our PCM services on location, the advanced chemical technologies, but we moved into complete automation by looking at real-time water quality, being able -- we've got our own chemical pumps on location that can adjust on the fly to water quality. We're able to pump concentrates instead of spotting 8 ISOs to 10 ISOs, we can bring 7 totes out to location. So we're doing a multitude of things that impact the overall progress and the efficiency there overall that to me, what we're hoping to do is bridge that gap between Tier 1 and Tier 2 type acreage, right, where you get similar returns out of the Tier 2 production because we look at it from an overall transition, although pumping hours and everything has increased, we've seen a relatively flat utilization of water. I think we're kind of at the floor. We're going to -- we see indicators of positive movement in 2026. But for us to really do that, we've got to continue to be sharp on our game and deliver differentiated technologies that allow us to gain that, what do you say, really competitive market share that we're going to go after. But I will tell you the thing that when I look at it on the long term is -- right now, even with all the efficiency gains, even all the technology things that we've seen here in North America land and the capital discipline, the fact of the matter is we're still at the level of underinvestment. It probably -- for us just to maintain current production, 90% of the spend right now is going just to do that. And the quality of the production has been steadily declining overall since probably the end of 2021. And so sooner or later, we're going to hit a discontinuity that's going to require a shift in terms of investment going back in there. And I do believe that the differentiated capabilities of Flotek from our data-driven real-time monitoring services, combined with our innovative chemistry solutions is going to put us in a great place to help the industry bridge that gap. And I think that gap is getting closer to the point when it's going to kick off. And I think we're in a good position there. So I hope that gives a little bit of color around kind of how I think about that in terms of, one, we've got plenty of room to grow. We're advancing technologies that's going to continue to drive efficiency and get maximum ROI at every well that these operators that work with us are drilling. And then secondly, there's going to be a demand shift that's going to require not only just to maintain production, but also fuel the demand created by electrification, onshoring, reshoring of industrialization and infrastructure support. Operator: Our next question comes from [ Tom Bishop ], BI Research. Unknown Analyst: It sounds like a lot of the components and add-ons that they are available for the PWRtek units. But just in terms of the PWRtek units themselves, I mean, do you have a projection of how many additional units you might build and install in 2026? Ryan Ezell: We haven't given any particular guidance on those numbers yet. I do -- when I look at the health of our pipeline and the continuous expansion of it, our goal would be we say this loosely to get into the doubling the size of our paired fleet by the end of 2026. I think that's a reasonable goal and one that we can potentially exceed. But that's -- when we start to look at capital outlay, we're looking pointed in that direction and doubling that size and some sensitivity pluses and minuses in that direction just to kind of start off. And I think you'll come to see us as we wrap up the year, we start to understand the impacts of natural gas and some of this transition, and we'll give a little bit better guidance towards the end of the year. Unknown Analyst: Sure. But to be clear, you'll -- the $27.24 million is a starting point. Ryan Ezell: That's our... Yes, that's just the base contract with the 15 payers. And our goal would be to work towards doubling that in 2026 in terms of payers and applications. Unknown Analyst: Okay. And then given the deferred tax credit valuation release event, the $12.6 million in Q3, does this mean the company in the future will be showing maybe a larger tax rate for GAAP reporting? Ryan Ezell: Yes, Tom, that's exactly right. We'll go back to a more normalized tax rate now that we've got a forecast of realizability of deferred tax assets. Unknown Analyst: Can you give us -- analysts are going to need this, what kind of a percentage maybe we'd be looking at? Ryan Ezell: I'd say somewhere in the 20% range. Unknown Analyst: Okay. And why is ProFac not able to use the amount of chemistry that they contracted for when your other customers show 43% growth, which is amazing, by the way, given the decline in fleet crews. It sounds like I think -- I'm sorry, go ahead, sorry. It sounds like you booked the revenue at the minimum contract requirement leading to that 28% figure included in the $27 million. And is that then what they pay on an -- as an offset to the PWRtek asset purchase price or what they actually pay? Ryan Ezell: So if -- there's 2 separate agreements we're talking or you're talking about here. We have the lease agreement with PWRtek and then we have the chemistry supply agreement. Under the chemistry supply agreement, ProFrac is obligated to purchase a requisite amount of chemistry on an annual basis. So what we do at each quarter, we assess where they are from a trajectory perspective, and we effectively book a receivable and revenue for what we believe they're going to be under at the end of the year. So that receivable builds up at the end of the year and then it gets released in the first quarter of the following year. So there's really no tie-in per se between the chemistry shortfall penalty, if you will, and the lease agreement other than we do have some offset rights as it relates to some leverage that ProFrac extended in connection with the PWRtek acquisition. Unknown Analyst: Well, earlier, you had said you might offset that against the PWRtek acquisition price, I thought. Is that still the plan? Is that what happens? Ryan Ezell: Yes. sorry. So we've got a deferred liability on the balance sheet for $7.2 million, which was effectively a loan against the 2025 shortfall penalty. So when the order shortfall penalty gets settled up in the first quarter of next year, we'll knock off $7.2 million is effectively part of the consideration from the PWRtek assets. Unknown Analyst: Okay. Good. But why is it that ProFrac can't get to this -- it is always running behind? And is this minimum likely to get renegotiated? Ryan Ezell: That's a great question. And what I would say is when you look at the way the minimums were calculated, it was on volumes of chemistry pumped by an average fleet times a certain number of fleets is where we got to these numbers from. And earlier in the contract, when you saw high hydraulic fracturing fleet demand, we were actually meeting and exceeding the revenue numbers on a monthly basis. And then the back half of 2023, we started to see a correction, efficiency gain in fleet count, but also just a slowing down of the market. And we feel like we're at the trough of where it is right now. We do expect the chemistry sales to ProFrac to improve in Q4 as we picked up quite a bit more work with those guys. And what's interesting is during that shift between the end of 2023 to where we sit today, there was a massive influx at the earlier part into the Permian Basin. The buyers in the Permian Basin run significantly simpler hydraulic fracturing formulations and traditionally basically separate the chemical buy -- from the pressure pumper, particularly in markets where there is an oversupply of equipment and the demand for the horsepower is down. They don't necessarily are not able to enforce the wheel per se and selling a particular type of chemistry. And as we've seen the fleet counts go down, the biggest change in fleet count number has been away from the Permian and into more of these gas-rich basins being the Haynesville and the Northeast, et cetera, where our differentiated solutions make a huge difference. And so it's -- our technology deployment has gotten better and will get better through the back half of this quarter and while we roll into 2026. But a lot of it has to do with buying behaviors of the operator, the geographic location of those operators and where we are in the cycle on hydraulic horsepower demand and leverage pieces. And so what was unique about this 10-year contract is we kind of try to model and build in that robustness. There's capability years through the cycle where they'll exceed and it will actually take away and can take away at sometimes OSP that are gained in different pieces. And so at this point in time, we -- there's been no discussions on changing anything related to that supply agreement or an asset for the company. So -- but just trying to give you a little bit of color on the way the cycle influences the buying powers of the chemistry providers and operators. J. Clement: And Tom, it's important to note that ProFrac did get a significant portion of equity in Flotek in conjunction with that transaction. So that shortfall penalty was always meant to protect the other shareholders in terms of preserving the value of the contract that was exchanged for equity. Unknown Analyst: Okay. And before I let you go, the number of -- you said the international revenue was up 122%, but what's the dollar amount that is running on an annual basis? J. Clement: Yes. Well, year-to-date, it's $10 million, right at $10 million international revenues. Unknown Analyst: Okay. And how much do you expect from the optical spectrometry unit, the -- I forget what all the letters are… I don't know how big a business that is in terms of dollars and what you expect there. J. Clement: Well, that business, not segment, but that application, if you will, generated its first dollars of revenue in the second quarter of this year. So we're effectively first at bat in the first inning of the game on that business. Unknown Analyst: Well, hopefully, it's going to amount to a fair amount. Operator: [Operator Instructions] Our next question comes from Joichi [ Sakai ], Singular Research. Joichi Sakai: Can you hear me? Ryan Ezell: Yes, we got you. Joichi Sakai: Yes. Just on the data analytics, can you give us a sense of where that analytics gross margin would normalize as the installed base kind of matures or the recurring revenues outweigh onetime setup and integration costs? Ryan Ezell: You're talking about our expectation going forward? Yes. So this year, we'll do -- we haven't given guidance really on 2026 as it relates to the various components that drive data analytics revenue. The one thing I'll point you to is, this year, we're going to do, call it, $16 million under that PWRtek agreement. We know those are 89% to 90% margins. Next year, that number jumps by 70%. Obviously, more revenue from this high-margin business is going to, I think, continue to move margins. It's hard to say what the other contributing factors are for revenue next year because we don't have anything like this big long-term contract that's driving the margin growth this year. But we -- I would expect if the PWRtek business is a meaningful part of next year's revenue, it's going to drive the weighted average gross margins higher than 70%, perhaps even closer to 80%. Joichi Sakai: Got you. And just that the post-sale customer support for this product installation, is there -- so you don't foresee any resource constraint or additional cost that will have -- that you'll need for continued future renewal rates? Ryan Ezell: Not at this point in time. I think that we've begun to invest in inventory of the actual measurement devices, whether it be in the Verax or XSPCT expect units. And I think we preloaded and started building out from the PWRtek aspect, multiple ESD and smart filtration skids and we'll be transitioning to additional build-outs of our distribution skids, trying to keep a healthy risk weighting of what we put in the pipeline and what we prebuild versus what's delivered by contract. Luckily for us, even if we had a large, I would say, tender or award come through that would exceed the capacity most of these pieces of equipment we can build in 5 weeks or less on the big pieces of equipment, we can typically turn expected Verax units out within a few days once we get an order. So we should be able to, at this point in time, keep up. I will tell you this, that we have looked at -- when we look at capital outlay and manufacturing production, we're looking at this on a 36 month- to 60-month landscape in terms of bottlenecks that could potentially be created by our current facility capacity more than personnel and/or availability of equipment. And that's some of the things that we're looking at is expansions to -- potential expansions to our facilities in the coming months. Joichi Sakai: Got you. And on the external chemistry side, as your mix kind of shifts, how are the payment delays from your non-anchor clients compared to your legacy business? Ryan Ezell: So I would say all things considered in the components in the market, our North America land customers pay pretty well. We have relatively, I would say, low DSOs compared to the industry. But as expected, our international customers, particularly in the Middle East, typically pay a little slower. Most of the time because the payment terms with some of the service companies work over there with are already extended due to payment terms from ADNOC or Aramco or the Dorra KJO, et cetera, over there. And it kind of adds 20 days to 25 days additional on the average DSO. But right now, the cash flow has been relatively consistent. I will think we're going to -- if we see the significant ramps in our Middle East business, that will consume a little bit of working capital to get that stabilized. We'd see that pool come in, in the first half of '26 and hopefully stabilize by mid-Q2. But we are looking very carefully at that if we see an accelerated ramp for that business with a little bit longer payment terms. So I would say that's probably our -- the big thing on the radar is just the working capital to complete the ramp. Joichi Sakai: Got you. And just my last question on that working capital. If these order volumes kind of spike, would you need any alternative backup for working capital facilities? Or do you have headroom in the lending capacity? Ryan Ezell: Yes. I think we're pretty good right now as it relates to capital. I mean, keep in mind, in the first quarter, we will receive a cash payment relative to the OSP, which I don't know what that's going to be, but net of the $7 million offset could be $20 million to $25 million cash infusion that comes to see us -- we've got plus or minus $15 million of availability under our existing ABL. We currently have very low leverage. So we -- if we needed to, we could explore some capital raising options in the debt markets. And at the end of the day, the stock has done very well. So if we chose to, we have options relative to the equity. So we've got a lot of optionality as it relates to liquidity build, but we think just in terms of managing the initial working capital draw potential on expanded international business, the OSP cash payment in 1Q is going to be fine. Operator: There are no further questions at this time. I will now turn the call over to Delbert Rose. Please continue. Delbert Rose: Yes. Thank you. Join us at some of our upcoming events. The Permian Basin Barbeque Cook-Off from November 11 to 12 in Midland, Texas. The Invest: Houston Second Edition event on November 20 at the JW Marriott in Houston, Texas; Daniel Energy Partners Executive Series, December 3 in New York City, New York; the 14th Annual ROTH Deer Valley event December 10 through the 13 in Park City, Utah, and we will participate in Northland's Virtual Growth Conference on December 16. Ryan Ezell: So thanks, everyone, for joining us today, and we look forward to keeping you abreast of the growth and execution of our digitalization strategy. Operator: All right. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Accuray First Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Steve Monroe, Vice President of Corporate Financial Planning and Analysis. Please go ahead. Stephen Monroe: Thank you, and good afternoon, everyone. Welcome to Accuray's conference call to review financial results for the first quarter of fiscal year 2026, which ended September 30, 2025. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Steve LaNeve, Accuray's President and Chief Executive Officer; and Ali Pervaiz, Accuray's Chief Financial Officer. Before we begin, I would like to remind you that our call today includes forward-looking statements. Actual results may differ materially from those contemplated or implied by these forward-looking statements. Factors that could cause these results to differ materially are outlined in the press release we just issued after the market closed this afternoon as well as in our filings with the Securities and Exchange Commission. We base the forward-looking statements on this call on the information available to us as of today's date. We assume no obligation to update any forward-looking statements as a result of new information or future events, except to the extent required by applicable securities laws. Accordingly, you should not put undue reliance on any forward-looking statements. A few housekeeping items for today's call. All references to a specific quarter in the prepared remarks are to our fiscal year quarters. For example, statements regarding our first quarter refer to our fiscal first quarter ended September 30, 2025. Additionally, there will be a supplemental slide deck to accompany this call, which you can access by going directly to Accuray's Investor Relations page at investors.accuray.com. With that, let me turn the call over to Accuray's Chief Executive Officer, Steve LaNeve. Steve? Stephen LaNeve: Thank you, Steve. Good afternoon, everyone, and thank you for joining us today. It's a privilege to address you on my first earnings call as Accuray's CEO. I want to begin by recognizing the remarkable dedication and expertise of the entire Accuray team whose commitment and innovative technologies have made a meaningful difference in patients' lives around the world. I have also genuinely appreciated the transition time that Suzanne is making for me as I onboard. Today, I'm excited to share why I chose to join Accuray and my high level of conviction in Accuray's success as we enter the next phase of transformational growth. Accuray is one of just a few companies operating at the intersection of technical sophistication and human impact. I have a tremendous amount of respect for what the Accuray radiation delivery systems can do to prolong life and for being indispensable in treating malignant and nonmalignant disease. I've spent my first several weeks at the company listening to and learning from many different stakeholders, and I continue to be incredibly impressed with Accuray's foundation and technology. This makes me more confident than ever about the potential to enhance our performance, market position and our long-term growth prospects. Here's why I have this belief. I've come to Accuray with over 40 years of global experience in med tech and biotech, including capital equipment and have held executive leadership and CEO roles at high-performing, well-differentiated and impactful publicly traded companies, including Roche Diagnostics, Becton Dickinson, Medtronic, ETEX, Bone Biologics Corporation and most recently at Globus Medical. The common thread across my experience was driving top line growth profitably while meaningfully improving patients' lives with innovative technology. This was achieved by creating clear strategic and financial goals, solid execution against these goals, consistently identifying avenues to optimize operations and grow margins and disciplined cost management. I am encouraged by what I've seen so far at Accuray, and I'm even more optimistic about the tremendous opportunities ahead. This is where our transformation plan comes in. Our immediate goal is to identify key strategic, operational and financial areas that we believe are necessary to position Accuray to compete more effectively, drive margin expansion, enhance organizational responsiveness and agility and ultimately position Accuray for sustainable, profitable growth. In short, continue to build a performance-based culture. As mentioned in our news release a couple of weeks ago, Steven Mayer, one of Accuray's Board members and our transformation Board sponsor will support us with this set of initiatives. Stephen brings extensive experience leading complex corporate transformations and will be instrumental in helping us to prioritize our resources, sharpen our focus and reinforce our culture of continuous improvement. The management team and I look forward to working closely with Stephen to execute on these goals. In the near term, as we implement key changes during the current fiscal year, we expect to reach a high single-digit adjusted EBITDA margin as a percentage of revenue on a run rate basis within 12 months. Furthermore, we are confident that our transformation efforts will enable us to expand our adjusted EBITDA margin as a percentage of revenue to double digits over the medium to long term and drive sustained and profitable growth for our company. We look forward to presenting more details on our transformation plan in early 2026, and we'll be updating you on the progress being made toward our goals on a regular cadence. I will now turn the call over to Ali to review the first quarter results. Ali? Ali Pervaiz: Thanks, Steve, and welcome to the Accuray team. We look forward to working closely with you as we execute on our transformation plan. Before discussing our financial highlights, I wanted to call out some major wins during the quarter. In September, we launched our Stellar product at ASTRO. This was more than a product debut. It was a statement. Stellar represents our commitment to adaptive radiotherapy and our belief that every patient deserves precision care. The reception at ASTRO was overwhelmingly positive, and we're already seeing strong interest from both existing and new customers. This is the kind of innovation that sets Accuray apart. Other highlights in the quarter include the announced signing of a memorandum of understanding with the University of Wisconsin School of Medicine and Public Health to advance online adaptive radiotherapy on the Accuray helical radiation treatment delivery platform. As part of the MOU, the 2 parties outlined their intent to collaborate on clinical research, education and training and adaptive technology development to help empower medical care teams to raise the bar in the personalization and precision of cancer care. Another highlight was the announcement of first patients treated in Melbourne, Australia using our CyberKnife system. Aligned with the Accuray mission to expand the curative power of radiation therapy, the recent treatment using a CyberKnife system fills an unmet cancer need in Australia to improve community access to this powerful technology while limiting the patients' need to travel long distances for care. Both these events provide further testament to the high level of interest and adoption of our technology, both in the U.S. as well as globally. Turning to the first quarter results. Net revenue for the first quarter was $94 million, which was down 7% versus the prior year and down 9% on a constant currency basis. As you know, due to the long sales cycle and relatively low unit volumes in the product side of our business, quarterly product revenues can be volatile. With that said, product revenue for the first quarter was $37 million, which was below expectations, mainly due to slower performance in our EIMEA and China regions. Year-over-year product revenue was down 23% and down 24% on a constant currency basis. On the other hand, as you know, our installed base generates a relatively predictable, higher-margin, valuable revenue stream, which continues to grow and which we intend to emphasize strategically. Service revenue was again a highlight of the quarter with revenue of $57 million, up 7% from the prior year and up 4% on a constant currency basis. This increase was driven by contract revenue growth of 10% year-over-year, which was higher than our installed base growth of 2% over the same period, illustrating that our pricing actions are taking effect. Product orders for the first quarter were approximately $40 million and represented a book-to-bill ratio of 1.1 with a trailing 12-month ratio of 1.2. Gross orders were also lower than our expectations for the first quarter, which was largely due to timing of receipt of customer orders for certain projects in China and the Americas regions. We ended the first quarter with a reported order backlog of approximately $396 million, defined as orders that are younger than 30 months. This represents over 18 months of product revenue, giving us strong visibility and confidence in future revenue conversion. As part of our diligence in ensuring a high-quality backlog, we canceled 1 unit representing approximately $2 million of orders to maintain a high-quality backlog. Our overall gross margin for the quarter was 28.3% compared to 33.9% in the prior year. This decline was primarily driven by product gross margins, which were 20.3% compared to 32.9% in the prior year. The key elements that unfavorably impacted product gross margins were sales mix, both geographical and by product of $2.9 million or 7.8 points, incremental costs associated with the tariffs announced earlier this year of $1.1 million or 3 points and a onetime obsolescence charge associated with aged inventory of $0.7 million or 1.7 points. Service gross margins were 33.5%, 1.4 points lower than the prior year, primarily driven by lower parts consumption in Q1 of fiscal year '25 due to a supplier credit obtained in that quarter. Overall, we continue to be focused on margin expansion in our service business driven by higher pricing and reducing our cost to serve. Operating expenses in the first quarter were $37.9 million compared to $36.6 million in the first quarter of the prior fiscal year. The increase was largely due to $3.3 million in restructuring and post-financing costs recorded within operating expenses this quarter. This was partially offset with $1 million of realized savings from restructuring actions. Operating loss for the quarter was $11.3 million compared to a loss of $2.1 million in the prior year. During the first quarter of fiscal 2026, we also had some onetime items that impacted financial results during this period. The company initiated a restructuring plan aimed at reducing costs, aligning resources with strategic priorities and streamlining operations. This resulted in $2.8 million in restructuring charges, which included $1.5 million in severance-related costs and $1.3 million in consulting costs directly related to the restructuring plan. Adjusted EBITDA for the quarter was a loss of $4.1 million compared to an income of $3.1 million in the prior year. This was largely due to the product gross margin challenges discussed earlier. We described the reconciliation between GAAP net income and adjusted EBITDA in our earnings release issued today. Turning to the balance sheet. Total cash, cash equivalents and short-term restricted cash amounted to $64 million compared to $57 million at the end of last quarter, primarily due to the net decrease in primary working capital. Net accounts receivable were $54 million, down $29 million from the prior quarter due to lower revenues and collection of certain past due receivables. Our net inventory balance was $156 million, up $14 million from the prior quarter as we ramp up for increased manufacturing in the coming quarters. Turning to guidance. Although we have had a slower-than-anticipated start for the first fiscal quarter of fiscal year '26, we have confidence in our cross-functional teams to execute the plan we had set out in the beginning of the fiscal year. With that in mind, we are reiterating our fiscal year '26 guidance with revenue in the range of $471 million to $485 million and an adjusted EBITDA range of $31 million to $35 million. We plan to provide more details behind the new transformation plan, which is expected to meaningfully improve our adjusted EBITDA as a percentage of revenue on our fiscal Q2 earnings call. And with that, I'd like to hand the call back to Steve. Stephen LaNeve: Thank you, Ali. At this point, as Ali indicated, guidance is unchanged. However, in the next 90 days, I will have a better feel for the organization, the progress of the transformation initiative and the external market dynamics in order to make an assessment of revenue and adjusted EBITDA guidance for the fiscal year at that time. As I begin my tenure, I see the path to deliver the adjusted EBITDA guidance with increased earnings momentum going into FY '27, even with the ongoing geopolitical and macroeconomic uncertainties. In closing, I'm extremely excited to have joined Accuray at this critical time of transformation for the company. My underlying goal is to foster a performance-driven culture that pairs innovation with execution, strengthens operational discipline and drive sustainable, profitable growth while creating long-term value for the patients, providers and shareholders we serve. I will now turn it back over to the operator for Q&A. Operator: [Operator Instructions]. Our first question comes from Marie Thibault from BTIG. Marie Thibault: Nice to be working with you, Steve. Welcome. I wanted to start here on sort of a high level and understand what you're seeing out there in terms of the capital equipment purchasing environment, the ordering environment. You did talk a little bit about product revenue and some of the recognition, of course, but wanted to understand if you're seeing things get better, get worse, stabilize in the various regions on the ordering front. Ali Pervaiz: Marie, thanks so much for the question. That answer really varies by region. Obviously, this particular quarter, we did see a slowdown in EIMEA and in China, mainly due to some of the geopolitical and macro issues that we are starting to see ease up a little bit. The U.S., we feel okay about from an overall capital equipment standpoint. And then we continue to see growth in our APAC business. And so it really does vary by region. And so I think overall, we're still going to continue to work with our region teams to gain a better pulse in terms of how capital equipment is shaping up as we look into the rest of fiscal year '26. Marie Thibault: Okay. That's very helpful, Ali. And as part of that, I also wanted to ask on net orders. Certainly, a bigger difference between gross orders and net orders than we're used to seeing this quarter. Did some of that have to do -- I heard about the cancellation, but did some of that have to do with age-outs maybe related to China? Just any detail on that? Ali Pervaiz: We did have read outs, but I would say they weren't out of the [indiscernible]. And at the end of the day, I tend to focus more on gross orders because that truly is a representation of new business that's coming in. And so we reported new gross orders from across the globe of about $40 million, which was lower than expectation and primarily related to timing of customer receipts in both the Americas and in China. Marie Thibault: Okay. And if I may sneak in one other. Just wanted to hear the latest on kind of tariff mitigation efforts. I know that you have a number of initiatives to sort of offset some of that. So any progress or any updates on those? Ali Pervaiz: We continue to take a look at the duty drawback program, which is something that will allow us to at least regain tariffs that we've paid on any equipment that does not remain in the U.S. And so that is a program that is very active for us. We have in the past sort of spoken about implementation of a foreign trade zone, which is certainly something that we continue to take a look at to see does that make sense for us as this tariff environment is pretty fluid, but that is certainly something that is on the table as well. And so it's certainly is a pretty fluid situation, Marie, as you know, the headlines change quite frequently, but we keep a pretty close pulse on it. And so I think that's sort of what's happening from a tariff standpoint. Marie, I will take the opportunity because I know we did reiterate guidance this particular earnings call as well. I think it's important to highlight that we're really pleased with the continued growth in our service business, and we expect that to continue through the year. Product revenue was obviously slower than anticipated in Q1 due to what I highlighted in the prepared remarks in terms of slower performance in EIMEA in China. And we do expect that to continue in the second quarter. But with geopolitical macro issues starting to ease, we're confident that a lot of these orders that we will not deliver in the first half will actually shift into the second half based upon customer schedules and feedback that we've gotten from our teams on the ground as well as our JV partner in China. So with that, I think it's really important to highlight that we do expect first half revenue to be closer to about 40% of our full year guidance and the second half to be about 60% of our full year guidance because we are seeing some of these -- some of this product demand shift to the second half. Obviously, we're going to keep a close pulse on it to see if there's any other dynamics that happen from each of the different regions, but this is what we're seeing right now. Marie Thibault: That's really helpful, Ali. And I appreciate that, especially the 40-60 split, we'll make note of that. I know in the past, it's been 45-55. So certainly helpful to have that split now. If I could then maybe follow up with one more question just on the margin side. I heard the commentary about product and geography mix impacting product gross margins. It sounds like that should also continue into fiscal second quarter and then possibly improve in the second half. Is that the right way to think about that as well, Ali? Ali Pervaiz: I think that's the right way to think about it, Marie. We did have more deals that went into emerging markets that contributed to revenue in Q1. We expect something similar in Q2. And then as we start to execute on our backlog that has more for developed markets, those come with a better margin profile. I think at the end of the day, Marie, we've spoken about this in the past and which really we just want to be able to continue to make sure that we're getting our installed base to increase, and that's really going to help our service business grow. And you saw that as a highlight in terms of service grew by about 7% this quarter and contract revenue grew by about 10%. And so I feel really good about the way that our service business is positioned right now and moving forward. Operator: [Operator Instructions]. At this time, there are no more questions. This concludes our question-and-answer session. I would like to turn the conference back over to Steve LaNeve, President and CEO, for any closing remarks. Stephen LaNeve: Thank you all for joining our call today, and we look forward to speaking with you again in February when we report our fiscal 2026 second quarter earnings results. This concludes our earnings call. Thank you. Operator: The conference has now...