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Operator: Good day, and thank you for standing by. Welcome to the AG Mortgage Investment Trust, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I'd now like to turn the call over to Jenny Neslin, General Counsel for the company. Please go ahead. Jenny Neslin: Thank you. Good morning, everyone, and welcome to the Third Quarter 2025 Earnings Call for AG Mortgage Investment Trust. With me on the call today are T.J. Durkin, our CEO and President; Nick Smith, our Chief Investment Officer; and Anthony Rossiello, our Chief Financial Officer. Before we begin, please note that the information discussed in today's call may contain forward-looking statements. Any forward-looking statements made during today's call are subject to certain risks and uncertainties, which are outlined in our SEC filings, including under the headings Cautionary Statement regarding forward-looking statements, risk factors and management's discussion and analysis. The company's actual results may differ materially from these statements. We encourage you to read the disclosure regarding forward-looking statements contained in our SEC filings, including our most recently filed Form 10-K for the year ended December 31, 2024, and our subsequent reports filed from time to time with the SEC. Except as required by law, we are not obligated and do not intend to update or to revise or review any forward-looking statements, whether as a result of new information, future events or otherwise. During the call today, we will refer to certain non-GAAP financial measures. Please refer to our SEC filings for reconciliations to the most comparable GAAP measures. We will also reference the earnings presentation that was posted to our website this morning. To view the slide presentation, turn to our website, www.agmit.com and click on the link for the Q3 2025 earnings presentation on the home page. Again, welcome to the call, and thank you for joining us today. With that, I'd like to turn the call over to TJ. Thomas Durkin: Thank you, Jenny. I'm pleased to report MIT's third quarter results in which the company had one of its most active and successful quarters in recent memory. During the third quarter, we were able to increase our book value from $10.39 to $10.46, inclusive of our previously announced strategic acquisition of an additional 4 -- 21.4% of Arc Home through the issuance of approximately 2 million shares, creating a onetime dilution event of 1.8%, while also fully supporting our $0.21 dividend. The company continues to provide stability in book value performance, navigating both challenging markets and executing on growth initiatives like the one I just mentioned. We continue to believe growing the company's size and float is in the long-term best interest of its shareholders. Moving on to earnings. We increased our EAD to $0.23 per share, driven by strong earnings from our core investment portfolio. In this first quarter, with our larger ownership percentage of Arc Home, we are happy to report it contributed $0.03 towards EAD as the business continues to execute on its growth and profitability objectives. Lastly, it is important to note, we were able to deliver this growth in EAD despite turning off the accrual of our legacy WMC CRE loans this year as we work through the monetization process. So as we look forward, the ability to rotate this equity capital currently invested in the CRE loans into our residential securitization strategy, combined with Arc Home's profits should enable us to unlock even more earnings power from our portfolio in the coming quarters. I'll now turn the call over to Nick. Nicholas Smith: Thanks, T.J. The company had an extremely active quarter. We have made significant progress in rotating equity into core strategies, growing the investment portfolio, derisking and optimizing financing and accelerating growth at our portfolio company, Arc Home, along with other significant steps forward. Getting into specifics, starting with rotation. We monetized close to $55 million market value of legacy WMC securitized non-QM positions after restructuring these holdings and unwinding expensive and under advanced debt that came with the WMC acquisition. I will speak more about this later. An additional $11 million of equity came back from a legacy WMC's CMBS position that paid off at par. In aggregate, the company freed up nearly $66 million of equity for redeployment. With this capital, we significantly increased the investment portfolio by over 20% this quarter. We acquired over $1.7 billion of residential mortgage loans. Approximately $900 million was allocated to agency-eligible investor loans and over $800 million to home equity loans, including both closed-end seconds and HELOCs. Most of these acquisitions were immediately financed into 4 separate securitizations. We'd like to point out that this significant growth was achieved without incurring risk to the company through outsized gestation periods or warehouse financing exposure. Likewise, the company's leverage increased modestly from 1.3 to 1.7 turns quarter-over-quarter, which we see as more normal levels. Moving on to the company's financing activity. As alluded to earlier and mentioned briefly in our previous quarter's prepared remarks, we refinanced high-cost, inefficient debt backed by retained interest in WMC issued non-Agency securitization. This refinancing freed up $55 million of equity to redeploy and materially lowered the cost of capital while significantly increasing the market value advance. This quarter's EAD was boosted by approximately $0.03 by this refinancing, which normalizes to $0.04 to $0.05 for a full quarter looking forward. Moving on from financing to Arc Home. Simultaneous with the announcement of last quarter's earnings, we acquired an additional 21.4% ownership of Arc Home. We are happy to report earnings of over $2 million this quarter, which contributes approximately $1.2 million to MITT, the highest since the end of 2021. In September, they achieved record [ HELOC ] volumes. We believe this growth and profitability is sustainable as the non-Agency market continues to increase its share. Before passing the call over to Anthony, I would like to touch upon an item others have been addressing, call rights. Prior to quarter end, we initiated the sale of the underlying collateral to a third party in connection with the termination of a transaction issued in 2022. We see significant value in call rights from transactions issued in 2022 and 2023. We expect the termination of this transaction, along with others in the future to return capital that can be opportunistically redeployed into our core higher returning investment strategies. Over to you, Anthony. Anthony Rossiello: Thank you, Nick, and good morning. The third quarter was a pivotal one for MITT. We rotated a significant amount of capital from legacy WMC assets, boosting our earnings power, executed 4 securitizations, acquired an additional 21.4% interest in Arc Home and delivered EAD in excess of our dividend. During the quarter, book value rose 0.7% to $10.46 per share. Including our dividend of $0.21 per share, we generated a 2.7% economic return for our shareholders. It's worth noting that our book value grew even after accounting for 1.8% dilution from the shares issued for the additional Arc Home interest, which underscores the strong performance of our investment portfolio. GAAP net income available to common shareholders was $14.6 million or $0.47 per share. Strong asset appreciation driven by spread tightening on residential mortgage loans and non-Agency RMBS offset the dilution from Arc Home and unrealized losses on commercial investments. Residential investments continue to drive earnings with net interest income increasing by $1.7 million or 9% from prior quarter, resulting from refinancing high-cost legacy WMC debt and rotating a significant portion of capital into higher-yielding assets. EAD increased to $0.23 per share from $0.18 in Q2. Net interest income, including interest from our hedges, was $0.67 per share and exceeded our operating expenses, income taxes and preferred dividends of $0.47, resulting in net earnings of $0.20 per share. In addition to EAD growth from our investment portfolio, Arc Home contributed $0.03 per share to EAD, supported by continued growth in originations and margins. We grew our investment portfolio by 21% to $8.8 billion through securitization activity and continue to operate with a low level of economic leverage at 1.7 turns. During the quarter, we purchased and simultaneously securitized $764 million of agency eligible loans and $647 million of closed-end second liens. We also securitized $301 million of HELOCs held on warehouse at June 30 and purchased an additional $122 million to continue growing that portfolio. Since expanding into home equity in the fourth quarter of 2024, our investment portfolio includes $1 billion of loans and $52 million of non-agency RMBS collateralized by home equity loans, now representing 30% of our equity allocation. As mentioned earlier, we acquired an additional 21.4% interest in Arc Home for $16 million, bringing our ownership to 66%. This investment was completed through the issuance of 2 million shares of restricted common stock and as discussed last quarter, will continue to be reported as an equity method investment at fair value. Lastly, we ended the quarter with total liquidity of approximately $104 million, consisting of $59 million in cash, $44 million of committed financing available on unlevered home equity loans and $1 million of unencumbered agency RMBS. This concludes our prepared remarks, and we now like to open the call for questions. Operator: [Operator Instructions] Our first question from Doug Harter with UBS. Douglas Harter: Hoping, Nick, hoping you could expand a little bit more about the call rights, either kind of the amount of capital that could be freed up or how you think about the return differential on the called deals versus freshly deployed capital? Nicholas Smith: Certainly. So near term, we see, call it, $15 million to $30 million of equity that can be redeployed, more of an intermediate term, call it, 3 to 4 quarters, that could be $50-plus million. If you think about sort of 2022 and '23, the capital markets were fairly inefficient, spreads were relatively wide. So given sort of where interest rates have retraced along with credit spreads, we see a good amount of upside to be able to unlock that and redeploy. The equity, obviously, we could just refinance those. But I think our current -- given sort of how those loans have performed well, there's a good chance that we'll look to recycle that equity via the sale of loans, but are open to other alternatives, but either way accretive versus how we currently hold those positions. Douglas Harter: Great. And then can you give us an update on the CRE loans, the nonaccrual, what's their status potential for timing of resolution? Thomas Durkin: Yes, sure. So the hospitality loans are still progressing towards our original resolution plan. At this point, we think it's realistic to have that capital return in the first half of 2026. So that's just kind of going through the original motions. I think the retail property actually just hit its maturity date this quarter. And so we're in the early stage of say, working through the options there. On that note, I would say, Doug, it's important. That note is actually still cash flowing from the underlying properties. So I think we have some more options there as well. Douglas Harter: And can you just remind us the amount of capital that could come back on the hospitality. Thomas Durkin: Well, it's $30 million on the total. I think it's about $23 million on the hospitality. And then $7.5 million on the retail. Operator: And we will move next to Crispin Love with Piper Sandler. Crispin Love: First, can you just talk a little bit about securitizations, just how the receptivity has been, you did 4 in the quarter. And just as you look forward, what do you think a normal cadence could be on the securitization side? Nicholas Smith: Yes. The expectation going forward is probably not as many as we did this quarter, but it's probably more like 1 to 2 a quarter. The securitization markets themselves are healthy. If anything, we've sort of transitioned into positive net supply. And if anything, the inflows across different investment type vehicles, companies have been robust and have met that supply. We are off of sort of the beginning of the year's tights at the top of the capital stack, but at the bottom of the capital stack is a good amount tighter. We see issuance as a relatively healthy period. Crispin Love: Okay. Perfect. And then just if you could just share your thoughts on credit broadly. And then within that, they're kind of -- there started to be some concerns from banks, albeit some fraud involved, some weakness in the consumer. But curious on your thoughts on credit and then drilling down into MITT, whether it's non-QM or other areas. I know the delinquency metrics are still fairly low, but just want to get your sense there. Thomas Durkin: Are you focusing on like performance or the fraud issues, Cris. Crispin Love: Performance. Nicholas Smith: On the performance side, look, we have had a differentiated strategy. Our book has outperformed both on the agency-eligible investor side and non-QM side along with the home equity side. I think it's worth noting, and we've thrown these statistics out in the past that our agency eligible investor book is actually performing better than prime jumbo. And our non-QM continues to outperform the broader market issuance. So I think there's a credit selection story there. We have seen some slight weakness in other people's production, but we feel like that's isolated. And I feel like the housing story is well telegraphed that while there is some weakness geographically, it's in places where supply has mean reverted or have gone through sort of 2018, '19, '20 levels. But we believe that is contained, and we feel strongly about our current position and our current portfolio. Operator: And we will go next to Bose George with KBW. Bose George: Just given the timing of the purchase of the Arc, the incremental piece, did you guys get the full quarter of that this quarter? Or is there sort of a catch-up on that as well? Anthony Rossiello: No, the transaction was executed on August 1. So it's really only 2 months of that EAD that you see coming through. So to the extent performance continues, it will have a pickup in out quarters. Bose George: Okay. And just your commentary suggested that the EAD there should be -- should be flat to up going forward, just given the trends you've seen there. Nicholas Smith: That's right. Bose George: And then can you give us an update on book value quarter-to-date? Anthony Rossiello: Yes. Bose, just given where we are in the process, we don't have an update for you today. Bose George: Okay. That's fair. And then you guys noted that growing the company is in the best interest of shareholders, which definitely makes sense. What are some of the options? And is buying in more of Arc a possibility? Can you just talk about potential options for you guys? Thomas Durkin: Yes. I mean I think we're very inquisitive on other types of opportunities to build a more robust investment platform for the company. So whether that's working with other originators, other platforms, obviously, being conscious of dilution, et cetera. But I think we're certainly open to other ideas. Operator: [Operator Instructions] We will move next to Trevor Cranston with JMP. Trevor Cranston: Can you just give us an update on kind of where you guys see the ROE and economics on doing new securitizations given the spread tightening we saw during the third quarter and how it compares to kind of where things were earlier in the year. Nicholas Smith: So broadly where you can place debt versus the tightening still shakes out to largely similar equity returns. Obviously, that matters on what part of the capital stack you're attaching to and the amount of leverage you take. Given our current leverage profile and the assets that we're trafficking in, we still see comfortably equity returns with modest leverage in the mid- to high teens. Trevor Cranston: Got it. Okay. And then with the rally we've seen in mortgage rates, have you guys seen any kind of notable increase in prepay speeds on either the non-QM or the agency eligible part of the portfolio? And does that have any sort of meaningful impact on the expected returns on those retained investments? Nicholas Smith: Yes. So we have seen some uptick in prepayments, albeit modest and albeit relatively early on. From a return standpoint, we feel like the portfolio was well balanced between sort of the derivative portions and then the credit portions and don't expect book value to be materially impacted by large pickups in prepayments. It is worth noting that there are large portions of the portfolio that even into a pretty meaningful rally are still wildly out of the money, which provides a good amount of stability even into a rate rally. Operator: And there are no additional questions at this time. I'd like to turn the program back over to Jenny Neslin for any closing remarks. Jenny Neslin: Thank you, everyone, for joining us, and very much appreciate your questions. Look forward to speaking to you again next quarter. Have a great day. Operator: Thank you for your participation. This does conclude today's program. You may disconnect at any time. .
Operator: Good morning. Welcome to the PJT Partners Third Quarter and 9 Months 2025 Earnings Conference Call. Joining the earnings conference call today is Paul Taubman, Chairman and Chief Executive Officer; Helen Meates, Chief Financial Officer. During the course of this conference call, management may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors are described in the Risk Factors section contained in PJT Partners' 2024 Form 10-K, which is available on PJT Partners' website at pjtpartners.com. The company assumes no duty to update any forward-looking statements. Also, the presentation made today contains non-GAAP financial measures, which the company believes are meaningful in evaluating the company's performance. For detailed disclosures on these non-GAAP metrics and their GAAP reconciliations, please refer to the financial data contained within the press release the firm issued this morning, also available on the firm's website. With that, I'll turn the call over to Paul Taubman. Paul Taubman: Good morning. Thank you all for joining us today. This morning, we reported record results, revenue, adjusted pretax income and adjusted EPS, all reaching record highs for both the 3- and 9-month periods. Third quarter revenue was $447 million, up 37%. Adjusted pretax income was $94 million, up 86% and adjusted EPS was $1.85, up 99% from year ago levels. For the 9 months, revenues increased 16% to $1.18 billion. Adjusted pretax income increased 34% and adjusted EPS increased 43% from year ago levels. Since our last earnings call, we have seen further improvements in the macro environment. Equity prices are near record highs, volatility across equities and credit near historic lows, debt issuance is strong, and the IPO market has reopened. This favorable capital markets backdrop has been an important catalyst in the M&A recovery. Greater clarity on regulatory outcomes as well as increased CEO confidence has further amplified deal-making momentum with many companies revisiting their strategic wish list. That said, we still operate in a world fraught with risk, continuing geopolitical uncertainty, a weakening labor market, stubbornly high interest rates, tariff dislocations, coupled with concerns of an AI bubble have the potential to derail this pickup in activity levels. While we remain optimistic about the near to intermediate operating environment, it is a tempered optimism when balanced against these risks. After Helen takes you through our financial results, I will review our business performance and outlook in greater detail. Helen? Helen Meates: Thank you, Paul. Good morning. Beginning with revenues. Total revenues for the third quarter were $447 million, up 37% year-over-year. And for the 9 months ended September 30, total revenues were $1.179 billion, up 16% year-over-year. Revenue growth for the third quarter and first 9 months was primarily driven by strategic advisory, which was up significantly for both periods. Restructuring revenues rose slightly in the third quarter and first 9 months, while PJT Park Hill revenues were flat in the third quarter and down modestly for the first 9 months. Turning to expenses. Consistent with prior quarters, we presented the expenses with certain non-GAAP adjustments, which are more fully described in our 8-K. First, adjusted compensation expense. We accrued compensation expense at 67.5% of revenues for the first 9 months of the year compared to 69.5% for the same period last year. This ratio represents our current best estimate for the full year 2025. Turning to adjusted non-compensation expense. Total adjusted non-compensation expense was $51 million in the third quarter, up 5% year-over-year and $153 million for the first 9 months, up 10.5% year-over-year. As a percentage of revenues, 11.5% in the third quarter and 13% in the first 9 months. The main drivers of the expense increase for the first 9 months of the year were higher occupancy costs, which are up 19% year-over-year, reflecting the expansion of our New York and London offices and higher travel and related expenses, which are up 25% year-over-year, primarily reflecting higher levels of business-related travel. Overall, for the full year, we continue to expect that our non-comp expense will grow at around 12%, a similar rate to our 2024 growth rate. Turning to adjusted pretax income. We reported adjusted pretax income of $94 million in the third quarter and $230 million for the first 9 months. Our adjusted pretax margin for the third quarter was 21% compared with 15.5% for the same period last year and 19.5% for the first 9 months compared with 16.9% for the same period last year. The provision for taxes, as with prior years, we presented our results as if all partnership units have been converted to shares and that all of our income was taxed at a corporate tax rate. Our effective tax rate for the first 9 months of 2025 was 15.5%, which now represents our current expectation for the full year. This rate is slightly below our previous full year estimate of 16.5%. As a result, the effective tax rate for the third quarter was 14%. The reduction in the full year rate is primarily due to an updated estimate of our income allocation across state and foreign entities. Earnings per share. Our adjusted if converted earnings were $1.85 per share for the third quarter, up 99% and $4.43 per share for the first 9 months, up 43% from the same period last year. For the quarter, our weighted average share count was 43.8 million shares, down 2% versus a year ago. And during the third quarter, we repurchased the equivalent of approximately 186,000 shares primarily through exchanges. Our repurchases in the first 9 months of the year totaled approximately 2.3 million shares. We are in receipt of exchange notices for an additional 115,000 partnership units and subject to a Board approval, we intend to exchange these units for cash. On the balance sheet, we ended the quarter with $520 million in cash, cash equivalents and short-term investments and $558 million in net working capital, and we have no funded debt outstanding. Finally, the Board has approved a quarterly dividend of $0.25 per share. Back to Paul. Paul Taubman: Thank you, Helen. Beginning with restructuring. Notwithstanding favorable economic and capital markets conditions, demand for liability management and restructuring activity remains high. Even with a relatively benign credit environment, our market-leading restructuring team continues to deliver strong performance with third quarter and year-to-date revenues at record levels. At the same time, certain corners of the economy are feeling the weight of relatively high interest rates, dislocations caused by higher tariffs, disruptions resulting from accelerating technological innovation and changing consumer preferences. While these headwinds may not yet be broad-based, they are being felt in certain industries, including technology, media, health care, automotive and consumer. For the current year, we expect our restructuring results to meet or exceed last year's record results. Looking ahead, we expect our restructuring bankers to remain highly active as they continue to address liability management opportunities resulting from this concentrated stress. Turning to PJT Park Hill. The primary fundraising environment continues to be challenged by historically low levels of capital return, coupled with a significant increase in the number of managers seeking to raise capital. This, in turn, has elongated fundraising timelines and pressured the quantum of capital raised. As GPs and LPs seek additional paths to liquidity, the same forces that have dampened primary fundraising activity have also served to catalyze continuation fund activity. And more capital has flown into the space as investors have come to better appreciate the attractive return profiles associated with secondary products, creating a virtuous cycle. For PJT Park Hill, third quarter revenues were comparable to a year ago with strength in private capital solutions offsetting lower primary revenues. For the full year, we expect overall PJT Park Hill revenues substantially in line with last year's record levels. Turning to strategic advisory. Many of the pieces necessary for a meaningful rebound in M&A activity have fallen into place as the year has progressed. However, the recovery has been uneven. While we have seen a market increase in larger M&A transactions, we have not yet seen an increase in the overall number of transactions. Even though the average deal size is up almost 40%, the aggregate number of transactions has actually declined. For the 3- and 9-month periods, our strategic advisory business delivered record revenues substantially above prior year levels. Our mandate count has increased meaningfully from a year ago and now stands at record levels. Overall, our strategic advisory business remains on track to deliver another record year as the significant investments we have made over an extended period of time continue to bear fruit. On the talent front, we continue to add talent as we invest in our strategic advisory franchise and the firm more broadly. As a result of our active recruiting efforts, our headcount overall has increased 7% from a year ago and 4 partners joined our strategic advisory franchise in the third quarter. A decade ago, we set out to build a next-generation investment bank. We envisaged a firm where complex challenges would meet creative solutions, where top professionals would build their careers and where success would be defined by excellence, impact and integrity. 10 years in, our firm has grown substantially and so too have our aspirations. Today's mission is clear, to be the world's best investment bank. As we celebrate our 10th anniversary, we would like to take this opportunity to acknowledge the dedication of our colleagues and the trust and support of our clients. And to our shareholders, thank you for your partnership. We continue to see tremendous opportunity ahead, and we remain determined to capitalize on our enormous potential. As before, we remain confident in our near, intermediate and long-term growth prospects. And with that, we will now take your questions. Operator: [Operator Instructions] We'll take a question from Devin Ryan of Citizens. Devin Ryan: Congratulations on 10 years. Paul Taubman: Thank you. Good to speak, Devin. Devin Ryan: Yes, absolutely. So, I want to start, Paul, on the restructuring outlook and appreciate the framing that you gave and still sounds like you expect a strong kind of backdrop there. We've been hearing somewhat mixed trends, I would say, through earnings. And so, I just want to get a sense of how you're thinking about PJT specific relative to the broader macro backdrop for trends because you guys have a leading practice and so potentially outperform the industry in different environments. So, do you still see the environment being very good? Or is this more just about PJT maintaining or even gaining share as your kind of always going to be active in that business? Paul Taubman: Well, it's always hard to deconstruct the market versus your position in the market precisely. But we don't see any real diminution in restructuring activity. We just don't see it. So, we're operating at elevated levels relative to historic levels. But as I pointed out repeatedly, for most of that history, we're looking back at a baseline where the macroeconomic environment was far more constructive than it is today and where money was nearly free, and interest rates were nearly 0. We're also looking at a baseline where the quantum of debt outstanding was meaningfully less. And we're also looking at a baseline where there was not as much disruption, innovation and what we refer to as concentrated stress. So, in an overall accommodative environment, you can have a higher baseline of restructuring activity. We've talked about this repeatedly. We continue to see that. Now as it relates to our practice, the growth pillars beyond what the overall market conditions are, continued penetration of sponsor clients, which will give us a broader addressable market. Second is continued growth outside the United States as we build out local presence around the globe. And the third is, as we continue to build out our industry footprint, we have more relationships with which to leverage. So, I don't spend a lot of time talking about or thinking about the exact interplay of the 2. But as we look at our activity levels, they remain elevated, and we expect them to be elevated for the foreseeable future. And I do think there's a call option on a meaningful shock to the system because we're not experiencing any of that today. I'm not predicting it, but none of this assumes any real deviation from the current environment. Devin Ryan: I appreciate all that color, Paul. And then just for my follow-up, when I look at partner productivity, I appreciate it's kind of a crude number from the outside. But on a blended basis, it looks like you're on track for a record year productivity on my numbers at least. And I appreciate some of that's very strong restructuring and then you have strategic advisory ramping pretty materially as those partners on the platform mature. So, I'd love to just get an update on how you think about the productivity potential of partners from here, particularly as strategic advisory still feels like the environment is getting better, but then also the bankers on the platform are maturing as they've been doing. And I guess in that question, just love to hear about how you think about what is a reasonable number of kind of revenue per partner for strategic advisory when you're hiring somebody externally? Are you targeting $15 million to $20 million? Or is there a number? Just any more color you can give on how you're thinking about the potential from here given that you're going to have it looks like a record year there. Paul Taubman: Yes. I never think about a number. I never talk about a number. I don't believe in a number. What I believe is if you hire difference makers, you ultimately make a difference in your financial results to the positive. I really do. And I think it's so hard to come up with a number because you need to assume an environment. You need to assume how active that sector or that product is at that time. You need to look at what else has been built out at the firm, which creates either tailwind or headwind for those individuals. And then you need to ask yourself, are you looking in year 2, year 4, year 6, year 8. So, we don't believe in that. And as far as the number, in a perverse way, I'd love nothing more than to take the number down. I mean, if tomorrow, we could find 10 incredible partners to add to the platform on day 1, by definition, our so-called partner productivity would go down because those same revenues would be divided by an extra 10 individuals. So, it's a number that we don't spend a lot of time with, but we have great confidence that what we're building is highly additive and accretive to our overall financial results and to our brand and to the service of our clients. And that's how we think about it. And I think it's more of the relative construct. And if you ask me, do I think we've hit maximum levels, I'd say no, not close because there are a lot of partially built systems in our franchise, whether it's just beginning to put our toe in the water in a geography or just beginning the journey to build out an industry group or we have that, but we don't yet have full recognition or we have the recognition from the clients, but it hasn't yet translated into revenue. So, I think we feel very good about the direction of travel, but I don't spend a lot of time thinking about it as a number. Operator: We'll take a question from James Yaro of Goldman Sachs. James Yaro: Paul, I'd love to just get your perspective on the impact of the government shutdown on the business. Do you expect this to have an impact on the fourth quarter? But really more importantly, how are you thinking about the impact going forward? Is there anything beyond the temporary impact? Paul Taubman: Look, I think it has real implications to a lot of individuals in this country who are suffering because of the shutdown, but I don't think that it really affects our business in a meaningful way. It creates some complexities and complications and maybe some timing issues, but I think those pale in comparison to other implications. What I worry about more is ultimately what does this do to the broader macroeconomic environment in the country, which is really a function of how long does this shutdown continue, which workers aren't paid for how long, what resolution do we end up with and what are those implications? I think it's the macro implications that matter more. And the reality is no one has answers to that. So, we're all watching and waiting. I think that's the bigger question is what, if anything, does this do to overall economic output and consumer confidence and business confidence. James Yaro: That's super clear. Just maybe turning to the primary fundraising business. I'd love to just get your perspective on the ability for that to continue to improve. Obviously, it was down for a couple of years there, and you've seen a nice bounce back there over the past few quarters. So, is this sustainable? And how are you thinking about the outlook for that business? Paul Taubman: Well, there's good news, bad news and then back to good news. So, the good news is it's getting better. The bad news is, as it gets better, everyone is going to want to come to tap the market because they've been on the sidelines. So that's going to make it a crowded trade. And then the good news from the bad news is in a crowded market, they're going to want the best fundraising team, and that's going to play to our strength. So, I think overall, it's positive, but it's like everything else, it's never 100% positive. There are some puts and takes there. Operator: We'll take our next question from Brennan Hawken of Bank of Montreal. Unknown Analyst: I was hoping that you could -- I know, Paul, I heard you sort of loud and clear that the 67.5% is your expectation for the full year. But taking a step back, what's the best way we should be thinking about operating leverage, right, and the path for pretax margin as you continue to see this strong revenue growth as you see the -- as the investments that you've made in strategic advisory begin to bear fruit. How should we be thinking about that either in the year-end and then, of course, into the coming years? Paul Taubman: Well, I think into year-end, we've given you our best estimate for this year. You talked about operating leverage, which I appreciate the question because to me, operating leverage is what's the pretax margin because ultimately, that's what drives shareholder value. And if you look at our operating margin for this year and you look at it in the historical context of where we've operated, I suspect that if you ex-out 2020 and 2021 when we lived in this surreal world where there was no travel, there was no entertainment, there was no discretionary spend and margins were overly inflated. I think our margins this year are going to be at the high end of anything we've produced in our 10-year journey as a public company. So, we're quite proud of that and we are focused on it. We don't like to focus on any one individual component of that because, a, there's a lot of interrelationships between all of these line items; and b, you're trying not to manage the firm for the here and now, you're trying to manage it for the long-term. But if you're asking me, do we think that there's further margin improvement along the journey, I think the answer is yes. And I just don't want to lose sight of the fact that while we may be running with comp to revenue margins that are higher than our historical levels have been, we also have run this firm at, I think, the lowest non-comp to revenue margins that we've had as a firm. And if you take all of that together, the overall output is quite attractive. But to answer your question, there's more upside from here, and we're going to get at it. But exactly how and when, I don't know. But when I look at it over 10 years, this is going to be ex those 2 aberrational years, I think our best operating margin year in a decade. Unknown Analyst: And then when you think about the operating margin improvement that you guys are likely to generate here in 2025, is that a good way to be thinking about a path forward sort of you never want to anchor overly on one particular year, obviously, because things will move around. But is that a decent way to be thinking about it going forward? Or are there other factors -- what other factors should we consider? Paul Taubman: Well, look, I think as a general matter, there's -- we believe in operating leverage in the business. Let's just start there. We also believe in disciplined cost, but not an obsession with cost at the expense of long-term value-enhancing growth. So that's the mix. And since we continue to believe that we should be able to grow our top line faster than our expenses, we think that there's more operating margin to be had. But in any given quarter, any given year, you're buffeted by a lot of very specific things, which makes it very difficult to manage to a number in the short-term, which is why I like to sort of step back a little bit. And what I just suggested is if you look back at our journey as a public company over 10 years and you take out the 2 fantasy years where it just wasn't a normalized world because no one was traveling, no one was entertaining, there were no conferences. There was no travel expense. There was no entertaining expense. If you just strip those out, we're sitting here today saying we're still seeing the fruits of our investment, and we're going to post on a relative basis, our best or near best operating margin. So that, to me, is just a proof point that, a, there's operating leverage in the business; and b, we can get at that operating leverage. Operator: We'll take a question from Brendan O'Brien of Wolfe Research. Brendan O'Brien: To start, I just wanted to touch on the dynamic you flagged, which is the divergence of deal value versus deal count, which is something we've been keeping an eye on ourselves. The drivers of the increase in the larger activity is apparent around derive and things of that nature. But I just wanted to get a sense as to what you think is behind the lack of breadth and activity so far and what could maybe drive an improvement in that dynamic over the next coming year? Paul Taubman: Look, I think there's -- some of this is there's -- you have to really deconstruct the market. So, I'll just give you 2. I don't want to turn this into 3, I'll give you 2 thoughts. Number one, we clearly are dealing in a more favorable regulatory environment. Where is that going to create more momentum? It's going to be in the larger transactions. And if you're dealing with sub-billion dollar deals or $1 billion to $5 billion sizes and everything, but it's probably a pretty good correlation that that's not where there's regulatory complexity. So, it should be no surprise that as you're dealing with a more pro-growth, pro-business administration, you would see more of a skew to the high end, and that gets picked up in dollar values, doesn't get picked up in number of transactions as much. The second would be the velocity of capital with sponsors. And I continue to think that we haven't really gotten the reset with sponsor activity. We will. We hope. And when we get that, you'll start to see that reflective in number of transactions and in transaction count. I think those would be the 2 that I would highlight. Brendan O'Brien: That's helpful color. And for my follow-up, I just wanted to unpack your commentary on the Park Hill business a bit. You noted in your prepared remarks that Park Hill revenues were down year-on-year so far this year and PCS revenues were up, but the placement line was also up. So, I just wanted to -- if you could just unpack that piece a bit more, whether there's some non-Park Hill fees in that placement line. And then also last quarter, you noted that you expect a significant acceleration in PCS fees in the second half. Based on the commentary, it doesn't seem like that came through in 3Q. So, I just wanted to get an update here. Paul Taubman: Well, just let me just take the latter part. I think it did. And just to recall, those get booked in advisory. So just to be clear, what we said is exactly what happened, and that strength is counted as advisory as distinct from placement in most instances, and that's reflected in our financials. But on the former, I'll turn it back to you. Helen Meates: Yes. And then on the -- just a reminder that the placement line includes Park Hill placement, but it also includes any corporate placement. So, we did have some placement fees that were outside of Park Hill. Paul Taubman: Which is just another -- I think all you're doing is you're putting a highlight on the fact that I think we maybe need to transition away from these advisory placement designations because I'm not sure it helps give anybody any real clarity on the business. And we don't spend a lot of time apportioning it one way or the other. At the end of the day, they're advisory with a capital A revenues because they all relate to intellectual capital and intellectual advice. But I appreciate your question. Operator: We'll take a question from Alex Bond of KBW. Alexander Bond: Just wondering if there's anything that stood out from you in your recent dialogues with clients in regard to the overall credit backdrop. Curious how you're thinking about this broadly given your obviously strong presence in the restructuring market, the fact that private credit remains in the headlines, and we've got a couple of high-profile bankruptcies here recently. So, any color you can add here would be great. Paul Taubman: Well, look, I'll just make some general observations. One is when you see spreads tighten as much, I'm not sure that credit has been appropriately priced. I think that's maybe more the issue. And I suspect that over time, you'll probably see sort of more normalized spreads. And as it relates to these situations, unfortunately, malfeasance is a risk factor, and it occurs in bull markets, it occurs in bad markets. And I'm not yet seeing evidence that this is widespread. But when you're putting out an enormous quantum of capital, it does put pressure on diligence, diligence standards. And if you're dealing with individuals or entities that are not forthright and are engaged in improper activity, you're not going to catch all of it, which is why I just come back to some of this may not have been fully reflected in just how credit overall has been priced. What we're much more focused on is the fact that you can't have a world of enormous technological dislocation, all this innovation changes in market sizes, customer behaviors, demand and not have losers alongside winners. Everyone can't be a winner. And we're creating all of these new economy technology companies and new ways for efficiency, there are going to be companies left behind. So, I suspect that if you just take a slightly longer-term lens, the number of companies that are going to need to address their balance sheets is probably more likely to grow than to shrink. It may not happen immediately, but I think there's a longer-term trend at play here. Alexander Bond: And then maybe for my follow-up, I suppose just trying to understand to what degree maybe the strong restructuring activity has been a benefit to the comp ratio in recent periods. The headcount here is obviously a little bit lower than the strategic advisory business. So, I guess just in a scenario where maybe the restructuring activity does slow a bit, is it -- is there anything that would lead you to believe that there might be less comp leverage just given the smaller headcount there? And maybe if there's anything else we should be considering in that regard? Paul Taubman: Look, obviously, if there are big dislocations to our revenue, good or not, that will affect because this is a roll-up of all of the businesses. But if we continue to have steady growth or if we're going to have a reasonable match between the headcount growth and revenue, then you're just going to see a steady decline in the comp ratio. If you see a disconnect between those as we saw in '23, where you have the overall strategic advisory market meaningfully down. At the same time, you're adding meaningful heads, you're going to see real pressure to the comp line. So, it's like anything else, we see a baseline direction of travel, which is to get our comp ratio lower. But if there is a shock to the system in one place, good or bad, that could either accelerate or retard the improvement. But that's why we never want to lock in precisely to a number. We're much more comfortable talking about the direction of travel and what factors would cause that to no longer be operative. Operator: We have a follow-up question from James Yaro of Goldman Sachs. James Yaro: I just wanted to ask a nitty-gritty one. Any, I guess, pull forward in the quarter that we should be aware of? Helen Meates: It was relatively modest. It was $8 million this quarter. Last year, it was $6 million, so pretty similar. Operator: That concludes our question-and-answer period. I would now like to turn the call back over to Mr. Taubman for closing remarks. Paul Taubman: Well, we thank everyone for their interest and for participating in this morning's earnings report, and we look forward to speaking with all of you in the new year when we report full year results. Thank you, and have a good day.
Operator: Good day, and welcome to the UL Solutions 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 Yijing Brentano. Please go ahead. Yijing Brentano: Thank you. Welcome, everyone, to our third quarter 2025 earnings call. Joining me today are Jenny Scanlon, our Chief Executive Officer; and Ryan Robinson, our Chief Financial Officer. During our discussion today, we will be referring to our earnings presentation, which is available on the Investor Relations section of our website at ul.com. Our earnings release is also available on the website. I would like to remind everyone that on today's call, we may discuss forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among other things, statements about UL Solutions results of operations and estimates and prospects that involve substantial risks, uncertainties and other factors that could cause actual results to differ in a material way from those expressed or implied in the forward-looking statements. Please see the disclosure statement on Slide 2 of the earnings presentation as well as the disclaimers in our earnings release concerning forward-looking statements and the risk factors that are described in our annual report on Form 10-K for the year ended December 31, 2024. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as required by law. Today's presentation also includes references to non-GAAP financial measures. A reconciliation to the most comparable GAAP financial measures can be found in the appendix to the earnings presentation. With that, I would now like to turn the call over to Jenny. Jennifer Scanlon: Good morning, everyone, and thanks for joining us. I'm excited to report another strong quarter of consistent growth across our business. All segments, major service categories and geographic markets delivered solid results. I want to start by acknowledging our outstanding team, whose deep expertise and unwavering commitment are the driving forces behind these results. Their dedication to our safety science mission and exceptional customer service continues to be our greatest competitive differentiator and the cornerstone of our industry-leading success. This broad-based performance demonstrates sustained customer demand and the resilience of our business model. It also highlights both our global reach and the strategic value of our focus on transformative industry trends. Our ongoing investments in energy transition, the electrification of everything and digital transformation are expected to continue to drive sustainable growth and position us well for the future. Given our strong year-to-date performance, particularly in the third quarter and our current visibility into our customers' ongoing product development pipelines, we are strengthening our full year 2025 guidance. I'll cover four key areas before turning the call over to Ryan. First, I'll talk about our third quarter performance highlights. Second, I'll cover notable achievements and activities since we last reported. Third, I'll talk about a restructuring initiative we are announcing today to streamline our operating model, reduce expenses and keep our focus on growth areas. And finally, I'll offer some perspectives on how our business continues to thrive. Ryan will dive into the numbers. But first, let me hit the high notes of our third quarter 2025 results. I'm particularly proud that we delivered strong quarterly consolidated revenues that were up 7.1% as compared to the third quarter last year and up 6.3% on an organic basis. Organically, we had balanced contributions from all 3 of our segments, with Industrial up 7.3%, consumer up 5.3% and Software & Advisory up 6.5%. We achieved these results against a dynamic geopolitical and regulatory environment that continues to impact our customers' behavior. Profitability improved year-over-year with adjusted EBITDA growing 18.6% to $217 million and adjusted EBITDA margin expanding by 270 basis points to the highest level since we became public in April of last year. Higher revenue and realized operating leverage were key drivers We generated $317 million of free cash flow through the first 9 months of 2025, and our balance sheet remains robust. Now let me highlight notable new offerings and key developments during the quarter. First, we continue driving growth through our ULTRUS software platform with significant releases addressing customers' key compliance and sustainability challenges. New capabilities include enhanced PFOS identification, expanded ESG disclosure management for international standards and AI-powered features. These strategic enhancements strengthen our competitive position and are expected to grow our software annual recurring revenue. In addition, we expanded our marketing claim verification services into the high-growth industrial software sector. Positioning us as the trusted authority for our customers' next-generation manufacturing technologies and the emerging industrial metaverse. Siemens became our first customer to receive UL verified marks for these services. We expect this strategic expansion into industrial software verification to strengthen our role in enabling digital transformation across manufacturing environments while opening new revenue opportunities in this rapidly growing market segment. As the American leader in fire safety science, we broke ground at our global Fire Science Center of Excellence in Northbrook, Illinois, representing one of our largest laboratory investments to date and reinforcing our leadership in fire safety science. This state-of-the-art facility on our 110-acre headquarters campus will integrate advanced testing capabilities with a dedicated R&D hub. The multi-building complex will test emerging products, including PFAS-free foam systems and energy efficient designs and will serve North American and global manufacturers. We are focused on what we believe to be the most attractive megatrends in the product tech industry to drive above-market growth while delivering superior margins that ultimately result in healthy cash generation. As part of our journey to fulfill those aims, we regularly evaluate our suite of offerings as well as our cost structure. We may be over 130 years old, but we remain agile and will continue to adapt as markets evolve. To that end, today, we are announcing a restructuring initiative that will reduce expenses through streamlining our operating model and focusing resources on our core growth areas while exiting certain nonstrategic service lines. Ryan will address the details, but this initiative is expected to generate meaningful annual run rate savings and margin expansion once fully implemented. Finally, let me remind you of the resilience of our business. First, we believe our market position is fundamentally strong. As a global leader in critical safety science, we partner with customers throughout their entire product journey. From additional initial R&D to manufacturing across every major market worldwide. Second, our revenue model helps create stability and predictability. We provide essential testing during new product development and deliver ongoing certification services throughout each product's market life cycle. Third and most importantly, demand has proven remarkably resilient. During this recent period of uncertainty, our services have remained in strong demand. This validates both the mission-critical nature of our services and our customers' commitment to bringing new products to market. Now I'll turn the call over to Ryan for a detailed review of our third quarter results. Ryan Robinson: Thank you, Jenny, and hello, everyone. I also want to thank all of our team members for delivering another strong quarter and continuing our growth margin expansion and cash generation momentum. I'm pleased to share that both revenues and adjusted EBITDA for the quarter were all-time records for the company and it's encouraging to see the balanced revenue and profit growth across all of our segments. Now let me dive into the details of the quarter. Consolidated revenue of $783 million was up 7.1% over the prior year quarter. On an organic basis, revenue grew 6.3%. Revenue also benefited from favorable FX movements, particularly the euro. Cost of revenue as a percentage of revenue for the quarter decreased 130 basis points to 49.7%, primarily due to improved employee cost efficiency. SG&A expense as a percentage of revenue decreased 80 basis points to 30.4%. And SG&A expenses increased 4.4% compared to the prior year period. On an organic basis, employee compensation increased $6 million related to base salary increases and higher costs associated with performance-based incentives, including the company's long-term incentive awards. In addition, technology costs increased $4 million on an organic basis, primarily associated with cloud computing service arrangements. Adjusted EBITDA for the quarter was $217 million an improvement of 18.6% year-over-year. Adjusted EBITDA margin was 27.7% up 270 basis points from last year, with margin expansion across all 3 segments. Adjusted net income for the third quarter was $119 million, up 14.4% from last year. Adjusted diluted earnings per share was $0.56, up from $0.49 per share in the third quarter of 2024. Now let me turn to our performance by segment, starting with Industrial. Revenues in Industrial rose 8.2% to $343 million or 7.3% on an organic basis, primarily driven by growth in certification testing and ongoing certification services across most industries. We saw particular strength in demand for energy and automation. Ongoing certification services revenue increased due in part to price increases. Revenue also benefited by $3 million versus the prior year from favorable changes in foreign exchange. Adjusted EBITDA for the Industrial segment increased 16.0% to $123 million, while adjusted EBITDA margin improved 250 basis points to 35.9% as we continue to benefit from higher revenue and increased operating leverage. Now turning to the Consumer segment. Revenues in Consumer were $340 million, up 5.9% on a total basis and 5.3% on an organic basis. We saw balanced growth across all industries. We saw particular strength in non-certification testing and other services in consumer technology, primarily driven by increased demand for electromagnetic compatibility testing for consumer electronics and in retail. Adjusted EBITDA for the quarter in Consumer was $70 million, an increase of 12.9%. Adjusted EBITDA margin for the quarter was 20.6%, an increase of 130 basis points. Operating leverage as a result of organic growth was the main driver in the year-over-year improvement. In our Software and Advisory segment, revenues were $100 million, an increase of 7.5% on a total basis and 6.5% on an organic basis. Advisory had a particularly strong quarter as a result of a high level of customer project completion with organic revenue growth of 8.8% in addition to 5.8% organic growth in software. Adjusted EBITDA for the quarter in Software and Advisory was $24 million, which was up 60% compared to the third quarter of last year adjusted EBITDA margin for the quarter was 24%, an increase of 790 basis points due to higher revenues and greater staff utilization. Continuing our great cash generation trend we delivered $456 million of cash from operating activities for the first 9 months. Capital expenditures for the first 9 months were $139 million and I'm very proud of our global team for generating $317 million in free cash flow year-to-date which is up 47% from the first 9 months of last year, primarily as a result of improved profitability in our core businesses. We paid $26 million in the third quarter and $78 million year-to-date in dividends. And as of September 30, we held $255 million in cash and cash equivalents. Additionally, just last week, we replaced our credit agreement with a new credit facility. This updated facility provides us with enhanced financial flexibility, more favorable terms and supports our ongoing investment and growth initiatives. Our results have been strong as a public company. We're continuing to tailor our business to today's rapidly changing landscape. One of the pillars of our margin expansion strategy has been continuing to focus on internal cost improvement opportunities, and we are regularly evaluating our capabilities to ensure they align with our core markets. As Jenny mentioned, today, we are undertaking a restructuring initiative to streamline our operating model and to reduce expenses, including downsizing our current workforce by approximately 3.5%. The planned actions will include role eliminations and the exit of some nonstrategic service lines, representing approximately 1% of our total revenue in 2025. While exiting these services will create a modest headwind to our 2026 organic revenue growth, we believe this initiative positions us for stronger profitability and allows us to focus more acutely on our strategic priorities. We expect to record $42 million to $47 million in pretax restructuring charges primarily in Q4 2025. This initiative is expected to be substantially complete by the first quarter of 2027. And once complete, we expect to improve annual operating income by between $25 million and $30 million as a result of both the revenue and expense impacts from these actions. Now turning to our 2025 outlook. Given our solid performance through the first 9 months of 2025, current visibility into our end markets and confidence in our execution, we are pleased to strengthen our 2025 full year outlook. We now expect 2025 consolidated organic revenue growth to be in the range of 5.5% to 6.0% as compared to our full year 2024 results. Organic growth is based on constant currency, and it excludes acquisitions and divestitures. In the fourth quarter, we expect organic revenue growth to be modestly lower than our full year 2025 expectations as it represents the most challenging comparison to 2024. And as a reminder, the strength in the fourth quarter of 2024, we believe was due in part to some pull forward of revenue, particularly in the Industrial segment's ongoing certification work in advance of expected tariffs. We now expect our adjusted EBITDA margin organic improvement to approximately 25% for the full year 2025. And up from our prior guidance of approximately 24%. Our outlook for capital expenditures in 2025 is now expected to be in the range of 6.5% to 7.0% of revenue down from 7.0% to 8% previously. This change is mostly due to timing with ongoing strong customer demand in all 3 segment, we continue to invest in capacity and capabilities to address their needs. Our expectation for our effective tax rate in 2025 is now in the range of 25% to 26% compared to our prior guidance of approximately 26%. Our Q3 and year-to-date performance demonstrates sustained business momentum with enhanced profitability and robust cash flow generation, which enables strategic capital allocation opportunities. we expect to continue delivering exceptional returns to our shareholders. And now let me turn the call back to Jenny for her closing remarks. Jennifer Scanlon: Thanks, Ryan. I'd like to take a moment to talk about an exciting development. As we announced yesterday, UL Solutions is proud to be launching Landmark Artificial Intelligence safety certification testing. A major step forward in building public trust and enabling the responsible adoption of beneficial AI technologies. As AI rapidly transforms our daily lives, powering everything from smart devices to industrial systems, it also raises serious concerns about safety, ethics and misuse. The new certification testing we will offer is guided by UL-3115 and the newly published outline of investigation or OOI, as we call it, for artificial intelligence safety of AI-based products. As an OOI, UL-3115 serves as a set of safety criteria developed by UL solutions to assess emerging technologies that lack an established UL standard. Products that meet the requirements of an OOI through UL solutions testing and assessments may earn the UL mark indicating compliance with safety requirements. We have also been granted a patent for machine learning-based AI scoring. So let me close. Our third quarter results reinforce the fundamental resilience and growth potential of our business model. We delivered consistent growth across our business, all segments, major service categories and geographic markets and produced superior returns to shareholders. With that, we'll open the line for questions. Operator: [Operator Instructions] The first question comes from Andy Wittmann from Baird. Andrew J. Wittmann: Great. I have 2 this morning, if I might. I guess, obviously, good results here, very good results. I was kind of curious as to -- given the focus that some of your customers have in China and Greater China, the macro and the headlines are so volatile and the policy seems to switch every week. I was just wondering, Jenny, if you could just talk about the posture of your customers there. What is meaning for your business and what's your experience of all this has been? And what it might just mean here as we start looking into 2026. Jennifer Scanlon: Yes, Andy, thanks for the question. And it is certainly even as recently as this last week that tariffs remain a topic that is front of mind for most manufacturers and most of our customers. What we see was earlier this year, we saw uncertainty and I would say, some slowdowns, and we saw that in particular with some new product launches in Q2. I think what we're seeing now is almost a sense of a new normal that customers are just expecting greater certainty in wherever things are landing and it's becoming a more typical response to tariffs with the supply chain diversification discussions and timing around onshoring and reshoring. And I think just continued emphasis that you've got to get back to business as usual in whatever the new normal is. Andrew J. Wittmann: Got it. Okay. And then maybe, Ryan, one for you. The Software and Advisory business isn't historically a place that -- as you know, a lot of outperformance. It's obviously a small part of your business, but this quarter, it did. And so I thought I would ask here a little bit. And specifically, obviously, while both the top and the bottom line were good. You had a comment in your remarks talking about how there was a number of projects that were completed during the quarter. And I was wondering what the significance of that comment was. I was wondering if it had to do with projects that might have been done on a fixed price basis and therefore, done under percentage of completion accounting. Did that have like a kind of a benefit to the margin this quarter that was worth noting? Or was it purely just kind of every day, better utilization of your advisory staff and mix from having software growth? Ryan Robinson: Thank you very much for the question, Andy. And we are very thankful to the Software and Advisory team for a strong quarter. As you know, that business has recurring software revenue that we recognize over a period of time, but also the advisory business is professional services that can have lumpy project-based work. And what we saw in the third quarter was the completion of a lot of advisory-related projects and the recognition of a lot of revenue that led to high utilization of that staff. We use the words liberally particularly high level because in the -- we have not yet built a trend of multiple quarters, and it's quite possible in the fourth quarter and first -- in additional quarters, it could be lower than what we experienced in the third quarter. But we're very pleased with the performance in the third quarter. Operator: The next question comes from Andrew Nicholas from William Blair. Andrew Nicholas: First one was just to kind of follow up on the first question, just in terms of tariffs and the impact of tariffs to date. I think last quarter, you described a little bit more muted volumes in April and May and then somewhat of a snap back in June. Just kind of curious if third quarter results and maybe even what you've seen so far in October is consistent with those June levels or if there has been continued choppiness intra-quarter consistent with the second quarter. Jennifer Scanlon: Thanks, Andrew. And you know we're not going to comment on October, but Q3 we saw -- it was a strong quarter, and we saw a much more typical cadence. So it was relatively steady across all 3 months of the quarter. And we continue to -- as I said earlier, I think are reverting to a more normal response to tariffs and with customers just having greater certainty in the decisions that they're making around their R&D pipelines, their supply chain diversification and any moves they make around reshoring, onshoring, moving to other countries. We continue and we've said this in other quarters to see shifts in where our ongoing certification services are field sites. And there is pretty significant off a low base but significant growth in Vietnam, Thailand and India. And you see some of the more traditional countries have negative growth rates on a number of manufacturing sites that we visit countries such as Germany, Japan and Taiwan have a slight contraction. So that's how we're seeing this play out. Ryan, do you want to add anything to that? Ryan Robinson: Just that our business model is global. And as you know, we grow capabilities where our customers need our services. So we're adapting. We've added capacity in some of the markets that Jenny mentioned, in total, we're producing pretty good results. Andrew Nicholas: Great. Super helpful. And then -- for my second question, I wanted to ask a little bit more on the restructuring plan that you announced this morning and specifically on the exiting of nonstrategic business lines. Could you just kind of flush that out a little bit what you are deprioritizing? And to the extent that, that frees up capital, I know there's some margin improvement expected. But to the extent that, that frees up capital for incremental investment elsewhere, I would love to hear where you expect that to be diverted. Jennifer Scanlon: Yes. Thanks, Andrew. And philosophically, we on a continuous basis are always assessing where are we leading in our businesses. And part of our leading performance is we like to say the privilege of focus -- and we do have a philosophy of wanting to lead in any business that we're in. And so we have an annual long-range planning process, and we're constantly looking at how do all of the individual pieces fit in. And so this is no different than what we do on an ongoing basis. It's just packaging it a lot together here. But where we're focused is on the highest quality growth that we can get and we're focused on minimizing distractions from underperforming businesses that we don't see a path to leadership in. So that's how we would characterize this. And to that degree, it frees up time, attention and resources to focus on the areas that we believe have the greatest value creating capabilities for our business. Operator: We now have a question from the line of George Tong from Goldman Sachs. Jinru Wu: This is Anna Wu on for George Tong. I have 2 this morning. So first one for industrial businesses, have you observed different growth dynamics across the regions for the U.S., Europe or Asia? And are there any geographies growing meaningfully faster than others? And how does that trend compare to what you were seeing in the Consumer segment? Jennifer Scanlon: Thanks, Anna. I'll start and then let Ryan weigh in a little bit. We've had growth in every region in Industrial. And certainly, the United States Greater China and more broadly across ASEAN and even Korea have exhibited some real strength, especially in areas that I would say are fueling the data center growth. So Industrial, energy storage systems, high-voltage wire and cable and all -- and then the built environment, the fire suppression systems and other pieces that are needed to, again, protect those data centers. So it is strength across our operating units globally. Ryan Robinson: Yes. The only thing I would add is that we had moderately more contribution from the U.S. in the last quarter than last year at this time. But growth across the board and not a material difference, just like moderately more in the U.S. Jinru Wu: Got it. That's super helpful. Additionally, you launched a battery testing laboratory in Germany earlier last quarter. and also the Michigan battery testing lab opened the second half last year. So can you please talk more about the utilization rate of those battery testing labs? And how -- and how are you thinking about the growth momentum in the battery testing services. Specifically, are there any implications from the recent expirations of the federal EV tax credit? Jennifer Scanlon: Yes. Energy storage system batteries continue to be an important and evolving market. When we invested both in Auburn Hills, Michigan and in Batterieingenieure the company in Germany that we acquired last year and then added capital to this year. We always felt that there would be a balance between EVs and industrial energy storage systems. And I think our initial hypothesis is that might be more heavily weighted to EVs and over time, the energy storage systems for the industrial environment would increase. I think we're seeing that shift occur faster than we expected really on the heels of both changes in the approach to EVs as well as the rapid ascent of the need for energy and power and data centers. So we don't publish utilization of individual labs, but we are pleased with both of those investments. Operator: The next question comes from the line of Shlomo Rosenbaum from Stifel. Shlomo Rosenbaum: Jenny and Ryan, I just want to dig in a little bit more into the restructuring program. Is there something that's going to be happening structurally like from a process perspective, that's going to give you more margin leverage in the future? I understand there's like a risk that taking out specific areas. But is there anything that's going to be implemented that just structurally means that the margins are going to improve beyond that amount that you're taking out as the revenue grows. And then just as part of that question, there was a comment in there that the savings of $20 to $30 sounded like a combination of both cost savings and then also some revenue. I know usually hear revenue as a component of restructuring program. So I was wondering if you can kind of parse that out for us a little bit more? And then I have a follow-up. Ryan Robinson: Thank you very much for the question, Shlomo. We wanted to clarify that we're focusing in strategic service lines for our customers. And so as a consequence, we'll be exiting some revenue lines that are roughly 1% of our current revenue. So to get to a forecasted range of operating income improvement, we lose that revenue, and we need to take out more than that amount of expenses. Those service lines are less profitable than the total and our restructuring initiative extends to other areas of the company, other support areas unrelated to those service lines. So it's both a choice to focus on an exit from some service lines, but also a broader expense reduction initiative. The large majority of the expenses are people-related costs and that will occur through Q1 of 2027. The impact in 2026 will be moderate as the revenue comes down, and it's offset by expenses coming down and 2027 is when we'll see the lion's share of that $25 million to $30 million improvement range that I mentioned at an operating income level. Shlomo Rosenbaum: Okay. And then is it -- I guess, just -- just a follow-up on there. So there is there like process improvements that are going on? I understand it sounded like there was some of that, but I just wanted to confirm that. And then just also, the capital intensity guidance is going down a little bit for the year. And it sounds like your view of the outlook of investments are the same. I think you mentioned something about timing going on, but I wanted to know if you can just give us a little level of detail of what's going on over there, like in terms of thinking about the capital intensity going forward, is everything the same and it's just timing? Or is there anything like you're focusing on that is less capital intensive in terms of driving the growth? Jennifer Scanlon: Yes. Shlomo, let me follow up on your process improvement question, and then I'll let Ryan talk about capital intensity. I'm a huge believer in ongoing business process improvement. And we have invested in various technologies and intend to continue to do so to help our employees have better tools and techniques to improve their ability to service customers. So indeed, that type of process improvement on the backs of technology investment is helpful. Ryan Robinson: And in regard to CapEx, we continue to be excited about the portfolio of growth investments. In recent months, we've announced several exciting investments, including our Global Fire Science Center of Excellence here in Northbrook as well as an Advanced Automotive Electromagnetic Compatibility Laboratory in Japan. There was some investment that we had planned for 2025 that will just shift into 2026. We'll provide more overall guidance with our year-end reporting but the portfolio of growth initiatives remain strong. Operator: We now have a question from the line of Stephanie Moore from Jefferies. Stephanie Benjamin Moore: I wanted to touch on the pricing contribution for the third quarter. You called out some pricing contribution. So I was hoping maybe, Ryan, you could elaborate on the contribution from pricing versus maybe just volume growth in general? And how we should think about just pricing in general, just given maybe the competitive environment or anything else you'd like to call out for this year as well as you think about your normal pricing practices going forward? Ryan Robinson: Yes. So first off, certification testing had strong growth, 8.7% and non-certification testing was up 6.8%. So strong growth from both of those. Those are the service lines that comprise 59% of our revenue that are most measurable by price and volume there, the delivery of discrete projects for our customers and the -- we can count the unit volume of the completed projects. So overall, those grew 7.7%, and there was relatively similar contribution from both price and margin -- the price and volume, both very similar. We did comment that ongoing certification services particularly benefited from pricing. So that would be in addition to the testing-related activities that I spoke. Stephanie Benjamin Moore: Got it. And I guess on that last part, is this just -- I'm just in the normal course of pricing given where we are in the year? Or was this a more maybe active approach to take some incremental pricing? Ryan Robinson: Yes. For the testing-related services, we're continuously pricing hundreds of thousands of projects. So it is an ongoing value-based pricing evaluation ongoing certification services are more done on an annual basis, and we benefit from that throughout the year. Stephanie Benjamin Moore: Got it. And then just wanted to follow up on the restructuring program. A couple of questions here. As you think about the revenue impact for 2026, I think you called out the percent from discontinuing from businesses you're effectively walking away from. Do you believe that despite that headwind that you should still continue to grow in line with the algorithm that you have laid out in terms of your kind of long-term or medium-term top line growth algorithm? Ryan Robinson: Yes. I would say the things that drive our growth are unchanged. This will be an organic headwind for one year as we compare against businesses that we previously were in we're still going to be at 99-plus percent of the same businesses. So the growth rate of those -- our overall growth rate is not materially changing, but it does allow us to focus businesses that are underperforming pick up a disproportion amount of management time. So it allows focus to serve our customers in our core businesses. Operator: The next question comes from the line of Andrew Steinerman from JPMorgan. Andrew Steinerman: Ryan, I was really asking just to make sure that I understood the implied fourth quarter organic revenue growth right in your full year guide. I get a little bit under 4% organic revenue growth. I definitely heard you note the tough year-over-year comp and the explanation for the strength in fourth quarter of '24. I was just wondering if there's any other call outs affecting fourth quarter of '25 that didn't affect third quarter '25. And for example, are the exiting of the service lines through the restructuring affecting fourth quarter revenues? Ryan Robinson: Thank you for the question. So after strong Q3 performance, we have a similar outlook about Q4 is when we reported last quarter, and we're very pleased that put us in a position to raise our full year guidance. Q3 and Q4 have historically had similar revenue quarters in a given year, and our guidance assumes that, that trend will continue. When you look at the varying growth rates across quarters, the biggest factor is a tough comp in Q4, reminding that we had 9.5% total organic growth in Q4 last year, which included 1.9% organic growth in Industrial. Also, when you talk about sequentially, I just mentioned in Software and Advisory. Advisory had a particularly strong revenue growth quarter that may moderate in Q4, and that would affect the overall growth rate somewhat. But overall, we're pleased with the momentum we built through the third quarter and our ability to raise guidance. Andrew Steinerman: And then -- the last part about exiting the service lines, does that affect the fourth quarter? Ryan Robinson: I would say just the timing of that, that's more likely to be impactful in 2026 and not expected to have a material effect in Q4. The biggest single effect in Q4, as you pointed out, is comps to last year, particularly in ongoing certification services that grew substantially, we believe, ahead of tariff anticipation. Operator: We now have a question from the line of Josh Chan from UBS. Joshua Chan: Jenny, you mentioned data center a while back, I guess. Could you triangulate for us areas in your business that touch data centers? And maybe how big in total an exposure of that might be for you? Jennifer Scanlon: Yes. We haven't quantified the total exposure, but let me just give you an example of the types of effect that this has on our business. Some of our largest global and strategic account customers came to us and they asked us to host a Data Center Power Summit, which we hosted at our headquarters in September. And the safety challenges around this is that there's this rapid evolution of the energy that's needed in data centers, and then there's the power infrastructure that has to support that. And that energy is needed because of the AI, just amount of compute that's going on as well as the density of GPUs and the thermal environment that, that creates. And so there's things around shifting to direct current, DC as a systems architecture. There's changes in cooling that's required. And typically, you think about air cooled or water cooled back in my former days, now you've got in-rack cooling and on-chip cooling and immersion cooling. And that's just one example of the complexities and types of innovation that our customers are pursuing in the data center environment in this rapidly changing world. So we're right there with them. We're continuing to focus on this growth area and opportunity. And I think there's just a lot of innovation to be had around the this completely different world of different types of data centers that are required. Joshua Chan: Thank you for the color there. Yes, that's really helpful. And then on the broader expense reduction initiative, it certainly seems like this is a more concentrated way to kind of reduce cost. So I'm just wondering what's the historical source of those kind of excess costs, if you will? And is there anything changing that's enabling you to now take out those costs, whereas historically they were needed? Ryan Robinson: Josh, thank you for the question. We'll provide more detail about the program that we're announcing that we'll undertake in Q4 with the completion of the quarter on an ongoing basis. We do anticipate the majority of the restructuring expenses and therefore, the cost reductions will be in our testing inspection certification businesses, both consumer and in industrial but we'll provide some more detail on what we're doing and how we're achieving that as we progress through the program. Joshua Chan: Congrats on a great quarter. Ryan Robinson: Thank you. Operator: The next question comes from the line of Arthur Truslove from Citi. Arthur Truslove: Starting with Bryan. First, I had 3 questions, if I may. The first question is on the sort of underlying software business. You obviously talked about how the sort of project businesses have gone pretty well in Q3. At full year, you had a view that the software business might strengthen. Are you able to just talk to that? Second question, are you able to just give us some reassurance on the growth outlook? So I guess if one was to sort of be negative, if you like, clearly, the mathematically, the Q4 guide would appear to be 3% to 5%. Your CapEx guide is down and obviously, you're doing a restructuring. So can you just provide reassurance that your expectations for the underlying growth of the business have not changed? And then I guess, finally, just in terms of the cost savings, you've obviously -- my sense is, and please correct me if I'm wrong, that you are essentially abandoning a couple of business lines and that what you're saying is that your organic growth will be lower next year because you're not doing those businesses anymore and that the organic growth in the rest of the business will be pretty much as it was this year. Is that the right way to think about what you're saying? Or have I misunderstood something? Jennifer Scanlon: Yes. Arthur, let me start with the software. Our Software & Advisory business was up 6.4% organically, and software was up nicely. And the great thing about software being up is that there's operating leverage that you get from that, and it certainly both the throughput in Advisory and the growth in Software expanded the Software and Advisory margins by 790 basis points. And I think if you look at our software growth rate in the third quarter, you'll see that it continues to grow at an expanding rate versus year-to-date. So we're pleased and there's more to do. We're excited that our ULTRUS releases have been welcomed by the marketplace. We had new releases around sustainability and PFAS and some purchased goods and services and some focus on what will be needed in sustainability reporting as demand around fulfilling CSR-D needs bounces back. And then we were really pleased that Verdantix an independent research and advisory firm labeled us as a leader in their inaugural green quadrant for product compliance software. So overall, I think the underlying momentum in our software business continues. I'm going to ask Ryan to provide some reassurance on the growth outlook, but I do want to highlight that those 3 pieces, the Q4 guide the CapEx timing and the restructuring are not related. They are 3 independent variables that happen to all come together on this call. Ryan Robinson: Yes. I agree. I think that's well described. And then the impact of the expense reduction, I think that's -- you described it appropriately. We are just discontinuing some service lines and we will focus on the remainder of the business. It's roughly 1%. So it does not materially change our overall growth rates for other things. Arthur Truslove: So basically, Ryan, what you're saying is that if you thought -- I'm making this up, but if you thought you were going to grow 6% organically next year, it would now be 5% because you're basically abandoning 1% of the business. Is that kind of right? Ryan Robinson: That's directionally correct. Operator: We now have a question from the line of Jason Haas from Wells Fargo. Jun-Yi Xie: This is Jun Yi on for Jason Haas. Just wanted to jump back on the Software & Advisory segment. Advisory has been a drag on that segment for a couple of quarters and it kind of flipped this quarter, you saw a lot of good momentum there. I know you guys noted that the advisory part of that is very lumpy. But do you have any sense why you saw such a big upswing, what was fundamentally driving that? Jennifer Scanlon: Yes. Interestingly, the upswing in this was in our renewables advisory business. And I'll remind you, that business focuses on supporting financial decisions for banks and other financial services in financing renewables projects. So there was an uptick in that, and our team has been working really hard to fulfill that demand. We do continue to see some headwinds in advisory, in particular, the commercial real estate effect on our Healthy Buildings advisory continues to be a headwind and that's an area that we expect as commercial real estate continues to evolve to continue to hopefully bounce back in the future. Jun-Yi Xie: Got it. That's really good color. And then you guys have talked a lot on this call about your organic investments, but I'm more curious on the opportunity on the inorganic side. with the exit of some of these nonstrategic service lines, is there more appetite to conduct more M&A related to your more core growth areas? And also, I noticed there was no M&A done in the quarter. Is there any reason why? Has the market not been very appealing? Jennifer Scanlon: We'd like to say that we're disciplined and we're active in M&A, and a lot of it has to do with timing and quality of opportunities. So we will continue. If there is a conversation to be had about an acquisition in the product tick space, an opportunity out there. We like to be involved in those conversations. And timing is somewhat capricious sometimes, and we will continue to pursue appropriate opportunities for inorganic growth. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Jenny Scanlon for any closing remarks. Jennifer Scanlon: Thank you, everyone, for joining us today. We appreciate your questions and your support, and we look forward to updating you on our progress next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone and welcome to The Taysha Gene Therapies Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this call may be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Hayleigh Collins. Please go ahead. Hayleigh Collins: Thank you. Good morning and welcome to our Third Quarter 2025 Financial Results and Corporate Update Call. Earlier today, Taysha issued a press release announcing financial results for the third quarter ended September 30, 2025. A copy of this press release is available on the company's website and through our SEC filings. Joining me on today's call are Sean Nolan, Taysha's Chief Executive Officer; Sukumar Nagendran, President and Head of R&D; and Kamran Alam, Chief Financial Officer. We will hold a question-and-answer session following our prepared remarks. On today's call, we will be making forward-looking statements, including statements concerning: the potential of TSHA-102, including the reproducibility and durability of any favorable results initially seen in patients dosed to date in clinical trials, including with respect to functional milestones, to positively impact quality of life and alter the course of disease in the patients we seek to treat; our research, development, and regulatory plans for our product candidates, including the timing of initiating additional trials, reporting data from our clinical trials, and making regulatory submissions; timing or outcomes of communications with the FDA on the regulatory pathway for TSHA-102; the potential for the product candidate to receive regulatory approval from the FDA or equivalent regulatory agencies; our ability to realize the benefits of Breakthrough Therapy designation for TSHA-102; and the market opportunity for our programs. This call may also contain forward-looking statements relating to Taysha's growth, forecasted cash runway, and future operating results; discovery and development of product candidates, strategic alliances and intellectual property; as well as matters that are not historical facts or information. Various risks may cause Taysha's actual results to differ materially from those stated or implied in such forward-looking statements. For a list and description of the risks and uncertainties that we face, please see the reports that we have filed with the SEC, including in our annual report on Form 10-K for the full year December 31, 2024, that we filed February 26, 2025, and our quarterly report on Form 10-Q for the quarter ended September 30, 2025, that we filed today. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 4, 2025. Taysha undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as may be required by applicable securities laws. With that, I would now like to turn the call over to our CEO, Sean Nolan. Sean Nolan: Thank you Haley and welcome everyone to our third quarter conference call. I will begin with an update of our recent corporate activities and progress across our TSHA-102 Rett syndrome program. Suku will then discuss the new supplemental analysis from Part A of our REVEAL Phase I/II trials. Kamran will follow up with a financial update, and I will provide closing remarks before opening the call to questions. In the quarter, we believe we made meaningful progress that sets the stage for what could be a transformative period ahead for Taysha. The recent regulatory clarity and progress we've achieved, which was enabled by the strength of our REVEAL Part A data set, rigorous data evaluation methodology, and our natural history data analysis allows us to focus on executing our REVEAL pivotal trial and advancing towards BLA submission with clarity and confidence. A major milestone was the receipt of FDA Breakthrough Therapy designation for TSHA-102 at the end of September. This designation is designed to expedite the development and review of therapies for serious conditions that have demonstrated preliminary clinical evidence of substantial improvement over available treatments in one or more clinically meaningful endpoints. TSHA-102 received Breakthrough Therapy designation based on the FDA's review of available safety and efficacy data from all 12 pediatric, adolescent, and adult patients treated with TSHA-102 in Part A of our REVEAL Phase I/II trials, including clinical data from the previously disclosed May 2025 data cutoff. Receiving Breakthrough designation highlights the FDA's recognition of both the significant unmet medical need among the 10,000 patients suffering from Rett syndrome in the U.S. and the therapeutic potential of TSHA-102 to redefine the treatment paradigm for this devastating disease. Notably, over 80% of programs with Breakthrough Therapy designation that proceeded to file for approval have ultimately received FDA approval. We look forward to continued engagement with the FDA as we advance toward potential registration. In September, we finalized alignment with FDA on our REVEAL pivotal trial protocol and statistical analysis plan in support of our planned BLA submission for TSHA-102, following resolution of remaining clinical and statistical queries. Importantly, our previously aligned-upon key design elements remain unchanged. In line with FDA's guidance for cell and gene therapy programs that was issued in September, we believe that the prospectively aligned by -- that by prospectively aligning with FDA on the statistical analysis plan for our pivotal trial helps ensure that the data set collected will be considered reliable and suitable for BLA submission. We are enrolling 15 patients in the developmental plateau population of Rett syndrome with a primary endpoint of response rate which is defined as the percentage of patients who gain or regain one or more of the 28 natural history defined developmental milestones. A response rate of 33%, equivalent to 5 out of 15 patients, is the minimum threshold for success sufficient to achieve our primary endpoint. Notably, we've observed a 100% response rate across the 10 patients in Part A of our REVEAL trials. Additionally, we aligned with the FDA on a 6-month interim analysis that may serve as the basis for BLA submission, potentially accelerating our planned BLA submission by at least 2 quarters. As previously disclosed, the data from Part A of the REVEAL trials demonstrated an 83% response rate at 6 months post treatment, with 5 of the 6 patients treated with the high-dose TSHA-102 achieving a developmental milestone. We observed a consistent pattern of sustained milestone gains with a deepening of effect or additional milestone gains over time. By 9 months post treatment, the data demonstrated a 100% response rate across the 6 treated high-dose patients in Part A. We believe these data support both the suitability of the 6-month time point to demonstrate clinically meaningful efficacy and that the 6-month efficacy data may be representative of treatment effects at 12 months. We believe this enabled our alignment with FDA that a 6-month interim analysis may serve as the basis for BLA submission. It's important to understand that we believe we received Breakthrough Therapy designation and achieved FDA alignment largely due to the results of the rigorous clinical evaluation methodology applied to our video-evidenced developmental milestone data from Part A of the REVEAL Phase I/II trials. In Part A, videos were centrally rated by multiple independent reviewers using milestone definitions from the pivotal trial protocol to ensure an objective, consistent evaluation of milestone gain and regain in the developmental plateau population where these gains are not expected to spontaneously occur. By adhering to rigorous milestone evaluation criteria based on natural history, this approach minimizes bias and avoids overcounting milestones by ensuring the milestones are truly eligible for gain or regain. As a result, this provides a reliable reflection of TSHA-102's disease-modifying therapeutic effect and ensures that the pivotal trial is well powered to demonstrate efficacy. We will continue to have frequent and consistent interactions with the FDA. We presented our REVEAL Part A data from the May 2025 data cutoff, including the new supplemental analysis, which provides supportive evidence that further reinforced TSHA-102's consistent, multidomain impact on activities of daily living at the Child Neurology Society Annual Meeting in October. Suku will discuss these results shortly. With the strength of our Part A clinical data and a clear FDA-aligned path to potential registration, we believe we are strongly positioned to initiate our REVEAL pivotal trial and accelerate execution towards BLA submission. Dosing of the first patient in our REVEAL pivotal trial is scheduled and on track for this quarter, with additional patient enrollment expected to continue across multiple sites this quarter. On the heels of our strong clinical and regulatory progress, we are thrilled to have regained full global rights to our TSHA-102 Rett syndrome program. We regained these rights in October following the expiration of our 2022 option agreement with Astellas, which had granted Astellas an exclusive option to enter into a negotiation period to license TSHA-102 and certain rights with respect to change in control transactions. We appreciate the collaborative relationship we've had with Astellas and the unencumbered rights to TSHA-102 that we now hold enable us to focus on driving long-term value with full strategic flexibility and optionality. We continue to build out our infrastructure to support advancing TSHA-102 toward late-stage development and potential commercialization, if approved. This September we strengthened our commercial leadership team with the appointment of David McNinch as Taysha's Chief Commercial Officer. David brings over 2 decades of experience in global commercialization and strategic market development across multiple therapeutic areas. Most recently he served as Chief Business Officer at Encoded Therapeutics, where he led the commercial and partnering strategy across the company's gene therapy portfolio. He previously held senior commercial roles at Prothena as well as InterMune, where he led the launch of Esbriet, the first FDA-approved treatment for idiopathic pulmonary fibrosis, and supported the company's acquisition by Roche. David reports to Sean McAuliffe, Taysha's Chief Business Officer. Previously at AveXis, Sean led the development and execution of the commercial launch of Zolgensma for spinal muscular atrophy, the first FDA-approved gene therapy for the treatment of a monogenic CNS disease, which has reached blockbuster status. With an estimated 15,000 to 20,000 patients with Rett syndrome across the U.S., EU, and U.K., compelling clinical data from Part A of our REVEAL trials, and a minimally invasive, commercially advantageous delivery approach, we see a significant opportunity to address a profound unmet medical need and drive long-term value. We believe our strong balance sheet, team with proven gene therapy experience, and the clear path to registration strongly position us to initiate our REVEAL pivotal trial and accelerate execution toward BLA submission. I will now turn the call over to Suku to discuss our clinical progress in more detail. Suku? Sukumar Nagendran: Thank you, Sean. As Sean mentioned, the regulatory progress we've achieved to date was enabled by the strength of our REVEAL Part A data and our natural history data analysis that allows us to objectively measure developmental milestone gain and regain in the developmental plateau population using each patient as their own control. At the Child Neurology Society Annual Meeting in October, we presented a comprehensive review of our Part A data set using the evaluation frame point and endpoints of our pivotal trial. As previously reported, 100% of the 10 patients in Part A achieved 1 or more natural history-defined developmental milestones following treatment with TSHA-102, with a consistent pattern of early gains that are sustained and new achievements continuing to emerge over time following TSHA-102 treatment. These milestones were all video evidenced and assessed by independent central raters according to the definition of milestone achievement from our pivotal trial protocol. These criteria enabled a reliable, objective, and consistent assessment of TSHA-102's efficacy, and importantly, show that our pivotal trial is well powered to establish the therapeutic impact of TSHA-102. Additionally, we presented a new supplemental analysis of REVEAL Part A data that captured supportive evidence of additional skill gains and improvements outside of the 28 natural history-defined milestones. These gains are derived from the Adapted Mullen Scales of Early Learning, the Revised Motor Behavior Assessment or RMBA, and the observer reported communication ability assessment, which are Rett-validated, structured assessments that evaluated prespecified skills and quantifiable improvements. The results show that in addition to the developmental milestones achieved across the treatment cohort in Part A, patients consistently gained multiple additional skills and improvements in core disease characteristics across the domains of autonomic function, communication, fine motor, and gross motor areas. We believe these findings reinforce the consistent, broad therapeutic impact of TSHA-102 on activities of daily living that are important to caregivers and clinicians. As we continue to prioritize safety, I am pleased to share that TSHA-102 continues to be generally well tolerated, with no treatment-related serious adverse events or dose-limiting toxicities across the 12 pediatric, adolescent, and adult patients treated with the high and low doses of TSHA-102 in Part A of our REVEAL trials as of the October 2025 data cutoff. We are encouraged by the data we've collected from Part A of our REVEAL trials, which we believe support the potential of TSHA-102 to provide meaningful benefit to children, adolescents, and adults living with Rett syndrome. We look forward to reporting longer-term Part A clinical data in the first half of 2026. I will now turn the call over to Kamran to discuss financials. Kamran? Kamran Alam: Thank you, Suku. Research and development expenses were $25.7 million for the 3 months ended September 30, 2025, compared to $14.9 million for the 3 months ended September 30, 2024. The increase was driven by BLA-enabling process performance qualification, or PPQ, manufacturing initiatives, REVEAL clinical trial activities, and higher compensation expenses as a result of increased headcount during the 3 months ended September 30, 2025. General and administrative expenses were $8.3 million for the 3 months ended September 30, 2025, compared to $7.9 million for the 3 months ended September 30, 2024. The increase of $0.4 million was primarily due to debt issuance costs incurred in connection with the refinancing of our existing loan and security agreement with Trinity Capital that are recorded in general and administrative expense under the fair value option and was partially offset by lower legal and professional fees. Net loss for the 3 months ended September 30, 2025, was $32.7 million, or $0.09 per share, compared to a net loss of $25.5 million, or $0.10 per share, for the 3 months ended September 30, 2024. As of September 30, 2025, Taysha had $297.3 million in cash and cash equivalents. We expect that our current cash resources will support planned operating expenses and capital requirements into 2028. I will now turn the call over to Sean for his closing remarks. Sean? Sean Nolan: Thank you, Kamran. With Breakthrough Therapy designation and finalized FDA alignment, together with our strong balance sheet and full strategic control of TSHA-102, we believe we are entering the pivotal phase of development with focus and confidence in our ability to redefine the treatment landscape for Rett syndrome while driving long-term value. We remain on track to dose the first patient in our REVEAL pivotal trial with additional enrollment expected at multiple sites this quarter. Additionally, we expect to report longer-term clinical data from Part A of our REVEAL Phase I/II trials in the first half of 2026. We look forward to providing further updates as we initiate our REVEAL pivotal trial and advance TSHA-102 towards BLA submission. I will now ask the operator to begin our Q&A session. Operator? Operator: [Operator Instructions] We'll take our first question from Kristen Kluska with Cantor. Kristen Kluska: Just curious, this time around in the pivotal trial, you have a lot more evidence going for you. So can you talk about the pipeline of interest and demand for being in this trial and then your thoughts about how long it could take to fully enroll? Sean Nolan: Kristen, thanks for the question. I would say unequivocally that the demand to be in the trial is exceptionally high. I think the fact that we've been relatively consistently putting out both safety and efficacy data as we have maturation occur in the study and keeping close contact with the advocacy group, centers of excellence, and KOLS has led to a strong demand. So with that as a backdrop, let me just turn it over to Suku to give a little bit more flavor and then maybe just give time line parameters around when we expect enrollment could potentially take. Sukumar Nagendran: Thanks for that question, Kristen. So as Sean highlighted, we have multiple sites -- more than 15 sites identified for our clinical trials program Part B. All of these sites are at centers of excellence. And very interestingly, many of these sites have 100-plus patients per site who have the diagnosis of Rett syndrome. And many of these patients could qualify for a Part B trial. And this includes pediatric, adolescent, and adult patients who will be part of the process. Now furthermore, let me highlight that in the best case scenario, we could potentially enroll and recruit all 15 patients within a 3-month time period, and a more conservative time line could be between 3 to 6 months. And as I said, many of these sites already have multiple patients identified. And there's significant interest in our gene therapy program due to the efficacy already and safety already disclosed in the Part A trial and the ease of route of administration that we have to deliver a gene therapy that already shows significant clinical impact. Thank you. Sean Nolan: Yes. And maybe just one more thing to add. We highlighted it in the press release. But to Suku's point, we've got dosing schedules for the first patients already scheduled this quarter, and we expect other patients to enroll at multiple sites this quarter as well. So I think that speaks to both the demand and the alacrity at which the sites have worked to initiate the pivotal trial. Sukumar Nagendran: And Kristen, one more point I should emphasize is many of these sites may be able to dose more than 1 patient in a staggered parallel fashion. So we might be able to get 1, 2, or 3 patients 2, 3 weeks apart at some of these sites, which would further accelerate our timelines and hopefully make the submission of the BLA time line even shorter and make this product available to deserving patients who have Rett syndrome. Operator: Our next question comes from Salveen Richter with Goldman Sachs. Salveen Richter: I was just wondering if you could touch on expectations for the longer-term data in the first half of next year and also help us understand in the context of your discussions with the FDA what they have signed off on in terms of that minimum threshold for success here that's sufficient for filing. Sean Nolan: Thanks for the question, Salveen. For the first part of the question, relative to what updates will we give in the first half of next year, I think it'll be consistent with what you've seen. As the data matures, we've tried to look at things as a full cohort. So ultimately we want to get to, we have all 12 patients at 12 months, and I think that'll be very important data to look at relative to the 6-month time point, where are we at 12 months with these patients. And so we'll do that. In addition to that, I think it's important to continue to provide updates relative to the safety profile. So we want a little bit of flexibility here that we could potentially give an update in the first quarter with almost 12 months of data, we could do -- we could wait for the second quarter, but we want to -- we just want to make sure that the market is aware of the fact that we do plan to give further updates both in terms of safety and efficacy that we think will be very enlightening and informative relative to the predictability of the approval of the pivotal trial. So that's number one. Number two, as it relates to FDA alignment, we highlighted in the script and I think it's really important that back in September the FDA put out guidance that's very consistent with everything we've done to date in our interactions with them, which is very specifically, they want alignment on your SAP before you start your clinical trial. Like that is the highly recommended path to take. And that's exactly what we've done. We submitted the SAP going back as far as January. When we got the okay to go ahead and submit the final SAP and the clinical protocol by the end of the second quarter without an end-of-phase meeting, we did that. We've answered all the then subsequent queries from the statistical analysis plan question and clinical questions. And we actually even reached out to the FDA because we had believed we'd answered all their questions, and we sent them a note and said, "We just want to confirm that there's no other outstanding statistical or clinical questions." And they said, "Confirmed." So we feel everything that we've just presented with the [ NF15 ], the threshold of a responder being the gain or regain of 1 milestone and crossing the threshold of having a 33% response rate, all ties to the statistical plan that we've submitted. So we feel we're very much in alignment with the FDA. And the other thing I would just note is that per the FDA's internal SOPs, these milestone meetings where you're talking about the final protocol, the SAP internally, the Directors are at those meetings. So I can't give you specific names who are there, but that is the protocol. So we feel, again, supremely confident at this particular point in time. We've done everything that this FDA has asked us to do. We've been in full alignment with them the entire way. And I would argue, we were in full alignment with the Peter Marks regime as well. And I think that's all because of the integrity of the data and the quality and rigor of the data collection that we've put forward. So we think we've checked all the boxes, we've double checked, and we're told we're good to go. And that's why it's full steam ahead on patient enrollment right now. Operator: Our next question comes from Tazeen Ahmad with Bank of America. Tazeen Ahmad: I wanted to get a little bit more color on how you're thinking about the way we should all be thinking about the data from the younger patients, meaning the 2- to 6-year-olds, relative to the 6-plus-year-olds as it relates to efficacy in particular. And then on safety, should we be expecting to see a staggered release of safety data on that younger population relative to the older population? Basically, when could we expect to see data start to come in from that cohort base? Sean Nolan: Thanks for the questions, Tazeen. Number one, I think the headline is our goal is to ensure that by the time we submit the BLA under any circumstance that these 2- to 5-year-old population is included in that, so that we would have a very broad 2-plus label effectively. And so the way we're stepping through that is this quarter we'll be having dialog with the FDA. We've submitted the protocol to them, so we'll be getting some feedback on that. It is a safety focused study. We have had discussions with the FDA, formal meetings with the FDA, where we've basically made the following request, that for this population, we want to establish safety, number one. We will collect some efficacy data, of course, but what we proposed was that we could extrapolate efficacy from the 6-plus population and that that would be sufficient for getting this younger group into the label. And the FDA agreed to that. So that's how we're going to step through it. We would anticipate beginning to dose these patients once we have alignment with the FDA, probably towards the middle of 2026. Again, because it's safety, we think the trains will align on time in terms of BLA submissions, and then we'll follow efficacy over the course of time in this patient population to see if there's things that are unique there. And if appropriate, we could certainly update the label with any new data we have. But again, to just restate the primary goal is that, at approval you would have a label of 2-plus with no specific constraints relative to efficacy that's been collected. It's the full population that you're getting approval on. Operator: Our next question comes from Gil Blum with Needham & Company. Gil Blum: So maybe just another one on protocols here. How much leeway do you think the agency provides regarding the method of video review and is it fair to assume that all companies in the space receive the same guidance on that? Sean Nolan: Yes, Gil, I would say in our experience, the most time we spent in dialog with the FDA was around the rigor of the data collection for the primary endpoint. They were very much focused on how we were going to do that, that there was high fidelity in the data, and that there was high inter-rater reliability. And in fact, what we did to further bolster our case with the FDA is we actually ran a pilot at multiple sites testing the DMA with multiple central raters, and we submitted that as part of our data package to get the protocol approved and also in the Breakthrough Therapy package as well. And so all I can say is that like anything, you're as good -- in our space, you're as good as the data that you're collecting. FDA was super focused on that. So I'm assuming anyone going into a pivotal trial would be held to the standard of a minimum of video evidence and having it centrally adjudicated. I think the question is have you run the experiment and do you know that the methodology you're employing is going to give you the result that you anticipate. And what we feel good about is we've run that result. We've collected the data from our Part A study, and we've done central raters with that. But then the pilot study, which you really haven't talked too much about, but we ran that in the background again at multiple sites, and that gives us the confidence, and hopefully gave the FDA confidence that what we're putting forward is highly rigorous, high-end fidelity, and high-end inter-rater reliability. Operator: Our next question comes from Biren Amin with Piper Sandler. Unknown Analyst: This is [ Michael ] on for Biren. Are there any updates on your plans in Europe or discussions with the EMA on the applicability of Part B? And separately, is the bar for the interim analysis similar to that for the final 12-month analysis? Sean Nolan: Thanks, Michael. Thanks for the question. First and foremost, our focus has been and will be on the U.S., number one, two, and three. That's the biggest market out there. We've been historically resource constrained, both financially as well as human resource capital wise. We're in a better position now, but we've really worked to make sure that we are as aligned as possible, with the highest probability possible to get things approved as safely and as quickly as we can in the U.S. We will continue, and what we've been doing, Michael, with, with Europe and the U.K. is working to enable them, so stepping through regulatory dialogs and things of that nature. We think that as we further generate data in Part A and also get into Part B, that will further inform those discussions and will give us even clearer line of sight to what the options we have. We know we're going to have multiple options to go into Europe. There's some that we've taken in the past that would be the most efficient and make the most sense for all parties involved. We want to see if we can work to enable that. The other thing too is from a policy perspective, I think, we all know the challenges on both sides of the pond. We want to make sure we focus here at home and lock in those things. And we can also take the time while we're collecting the data to see how policy also shakes out from an ex-U.S. perspective as well. So the long-term goal is to enable Europe for sure. It's just a question of stepping through it in a very thoughtful manner. Operator: Our next question comes from Maury Raycroft with Jefferies. Maurice Raycroft: Congrats on the progress. Wondering if you'd tell us anything additional about timelines for IRB approval for the additional 2 to 5 sites that you'll need for the pivotal. And just when thinking about enrollment for this study, is there anything more you could say about number of patients you could potentially have enrolled by end of this year? Just helping provide some line of sight to potentially getting to data from the pivotal by the end of next year. Sean Nolan: Yes, Maury, it's a great question. I think we can provide more information in either Q1 or sometime in the springtime, I think, as we have better line of sight. Again, just from how we're stepping through it, we've submitted protocol to the FDA, we've got a -- waiting for their feedback on that. That'll certainly inform things. We're doing -- I would say, contextually, we're doing for the pivotal trial, 15 patients. This is a smaller subset of patients. So we would anticipate the number of patients to be less than 15 in this study. I think that from a IRB perspective, it will be a new protocol. So it'll have to go through the process of contracting IRB approval, ethics, all the things that you have to do. I can tell you that there are, as you would anticipate, multiple sites, of course, that want to be a part of this. So I don't think that's going to be an issue. We just want to make sure that, number one, we get alignment first and foremost with the FDA on the protocol and the associated statistical plan that we're putting forward. And then number two, that from an operational perspective, we're doing things in a manner that is most efficient and doesn't by any way impede the enrollment of the 6-plus population. So the way we see this, based on the fact that the primary endpoint in the little kids study, is safety -- we think the 2 trains are going to come back together. And again, just to make the point that we do anticipate including that data along with the 6-plus pivotal data in the BLA submission with the goal of getting a broad label. Operator: Our next question comes from Jack Allen with Baird. Jack Allen: Congrats on all the progress made over the course of the quarter. I guess my first one was on the broader sentiment of the FDA. There was quite a bit of news over the weekend and Monday morning [ driving ] CBER and some changes outside CDER. And I just wanted to get a sense for any thoughts that the team has as it relates to management interactions with the agency, whether the agency is functioning as expected and what your plans are going forward to interact. And then briefly on the younger patient cohort, I also wanted to ask about how you're thinking about dose. As you go into younger patients, you could theoretically increase the relative exposure if you're treating smaller patients with a fixed dose. I'm just curious if you have any plans to address that potential issue. Sean Nolan: Yes, Jack, let me start with the second part of your question on dose. It's going to be 1x10 15 total vg, but we're going to adjust for brain volume. So we want to make sure that none of those younger kids get any more dose on a per-kilogram basis than anyone we've dosed so far safely. So we've given that a lot of thought. The clin dev team has done a super job. Again, we've got that in front of the FDA. So we're being very thoughtful about that safety perspective. So more to come on that once we have the protocol finalized. As it relates to the FDA, what we can point to is a couple of things. And I said this earlier. We had good alignment with Nicole Verdun. Nothing that we've changed -- we've done nothing since the new regime's been in that's different in terms of our natural history assessment, our proposed endpoints, et cetera. And I've used this term before, but no one has pushed us off the ball. And the reason we believe that is because we have levered data collected in a very rigorous manner to make our case with the FDA. Number two, the approach that we're taking is exactly what the FDA wants. So that's why we referenced this FDA guidance from September where they're basically saying, "Hey, [indiscernible] for gene and cell therapies, we want alignment on your protocol and your SAP before you start the study." So what are we doing? We've taken our first-in-human study. We've learned from that. We've done the natural history analysis. And now what we're saying is, based on what we've learned, we're going to propose a prospective pivotal trial with the following endpoint and the following statistical analysis plan. And we've worked with the FDA to get that into a situation where they've signed off on that. So we've done exactly what they wanted. Our understanding is any of these milestone meetings like signing off on a protocol or Breakthrough designation, which I can talk about in a second. But internally the Directors are in those meetings. So we've checked and double-checked to make sure we're not misinterpreting things. We've gotten confirmation of that. We feel like we've done everything that the FDA has asked us to do. And more importantly, we're not asking them to do something that's out of course. What we're not doing is we're not taking the Part A data and saying, "Oh, you know what, we want you guys to go back and we're going to propose now that we're doing a DMA, and we're going to do these developmental milestones. So we want you to approve our data based on a statistical plan we put in front of you after the fact." That is not something that we've done. We're taking a more traditional approach and starting a new study. Suku wants to add some information? Sukumar Nagendran: Yes, one thing I would add, Sean, is that under Dr. Vinay Prasad and Vijay Kumar's current leadership of CBER, they have -- their team has followed the spirit of the RMAT designation in CBER and the Breakthrough designation that we have achieved. So our interactions have been very fluid and very constructive and very useful. So I just wanted to emphasize that. Sean Nolan: Yes, I mean, Jack, one last thing on Breakthrough to the point Suku is making. The internal SOP at FDA for Breakthrough is that when a Breakthrough request comes in, the Directors are made aware of it. They then send it to the review team and assign them to review it and let them know the recommendation. And so that means that eyes are on things. And again, we've done the best that we can to be data driven in all of our requests. And therefore, again, we feel the fact that the Breakthrough was granted in September under this current regime in the manner that they like. We've followed their guidance that they've issued in September in terms of protocol for pivotals as well as SAP. We've tried to step through it in exact manner that they want and, I would argue, the exact manner based on data that any administration would want. So that's why I went back into the Wayback Machine with the Peter Marks' group. But it is important, and I do think it's relevant, to say they agreed with what we were doing as well, based on the way that we were going through it. So I've always said data drives -- is the currency of the realm. And we believe that's the case. We're just going to keep moving forward and be as transparent as we can with the agency. And as a result of having Breakthrough, we now can set up even additional meetings with them, which we've already done, to start to talk about BLA submission process and things of that nature. Operator: Our next question comes from Chris Raymond with Raymond James. Christopher Raymond: Just a couple of commercial questions here maybe. So you're starting the commercial buildout now with the hiring of a Chief Commercial Officer. Maybe talk about the footprint you'll need, how it will look, and maybe the milestones that we should expect in terms of, I guess, access progress. And then maybe a related question. Of the 28 developmental milestones, are there any that you think matter more, be it communication, fine motor, or gross motor milestones in terms of clinical acceptance among the physician community, or in terms of ease of access that we should be thinking about? Sean Nolan: Yes. I think to start with your second question, all of the 28 milestones that we selected, we did in concert with KOLs and with the advocacy community. So if you were talking to some of the KOLs, they would talk about higher order milestones. So there's 51 milestones, Chris, in the natural history database. You'll hear like that language, because these are the milestones that, from a clinical and from a functional perspective, really do matter across the 3 different domains. So I wouldn't say anyone rises to the level more than anyone else. It's all relevant to the particular situation of each individual patient. I will say that when you talk to the parents communication is top of mind with them. They want to know what hurts, what do they want, are they hungry, how can they make them feel better, those kinds of things, which make a lot of sense. But that's why we feel we've reached that agreement with the FDA that any 1 of those 28 is relevant. And I think what we're also trying to show is that over time, not only are there more milestones being gained of the 28, but the whole purpose of the supplemental analysis was to show that outside of that -- the 28 are a mechanism for us to get approval, but outside of that, in multiple scales, whether it be done from the clinicians or rated independently like the Mullen or the ORCA, which is the parents and what they're saying that they're noticing. The point of that was to say, beyond the 28 that we've talked about, there's a lot of other things happening that are great. And we're seeing good things, the parents are seeing things, the clinicians are seeing improvements in function, and all of that is going to be what we put forward to the FDA in the final package and would also be part of what we discuss with payers. Suku? Sukumar Nagendran: Yes, thanks, Sean. And one more thing I would add is that -- Chris, is that as our trial design is patient as their own control, every milestone matters. So it doesn't matter what the milestone is out of the 28, to the patient, to the parent, or the caregiver, all of them actually matter, and all of them have impact on activities of daily living. And given our Part A data set, my hope as a physician and clinician is that there will be no patient left behind over time as we gather more data from Part B. Sean Nolan: Yes. And then the first part of your question, Chris, about commercial, I'd say a couple things. First, you're definitely on the leading edge of the curve here. We think starting in the first quarter, we really are going to put more color around how we see the commercial opportunity. I think, for starters, it really is underappreciated how large the patient population is. So we're doing a lot of work relative to claims data analysis and things of that nature to put finer points on things. We're also looking at the launch of Daybue. That's going to be a good surrogate for potential uptake. And the more that we're digging into things, the more robust we think the opportunity truly is, particularly in a situation where the data set that we're going to be able to discuss with payers and also get the treating clinicians and the families hopefully excited about what they're seeing is that no one's been able to demonstrate functional gains before in a neurodevelopmental disease, even in adults. So that opens up a really significant opportunity. And we also have known from the get-go that using CGI (sic) [ CGI-I ] and RSBQ and those type of scales is going to mean absolutely nothing to the payers. They do not care what a CGI (sic) [ CGI-I ] score actually is. They want to know what they're paying for. And what they're going to be paying for is going to be improvements in function or gains of function that haven't been demonstrated, which is why we feel so strongly that this endpoint for a gene therapy is the right way to go. An example is in Canada, the HTA denied Daybue being reimbursed because they couldn't determine the clinical relevance of a 0.3 change in CGI (sic) [ CGI-I ]. So again, I think we're going to be on really strong ground with the data set that we're putting forward in a very significant patient population. And the other thing I'll say just in terms of the team, David McNinch is our new Chief Commercial Officer. He's got a ton of experience. He and I work together at InterMune on the launch of Esbriet, which was a big success. David was also recently at Encoded. He knows gene therapy very well. He reports to Sean McAuliffe, who's our Chief Business Officer. Sean was on the Zolgensma launch team. So we've got a very stacked group internally and, I would say, on the Medical Affairs team, our Head of Medical Affairs, Alain, ran Med Affairs in Canada for Acadia. So we feel like the field team and the commercial team, call it, the external-facing group, we've got just a stellar all-star team, and we'll continue to put out more perspective on that as we generate the data and move towards the BLA submission. Great question. Operator: Our next question comes from Yanan Zhu with Wells Fargo Securities. Yanan Zhu: Wanted to dig into the statistical plan a little bit. Thanks for all the color so far on the call regarding alignment and the FDA. Given that the trial design is novel and there is not an external control arm, per se, wonder how the p-value is derived. And also in terms of the interim analysis, how unambiguous or subjective the threshold is for triggering filing based on interim? In other words, do you run any risk if you file on interim? Just wondering with regard to the actual data and the p-value in making that decision. Sukumar Nagendran: So that's a good question. I'll try to answer that for you in very simple, straightforward terms. So the evaluations are not subjective, they're actually quite objective, because remember, we have a natural history that is very tightly analyzed and the FDA accepted our natural history analysis. But it's very clear once these patients get above 6 years of age, they do not gain new milestones, or they do not regain milestones. And our evaluation process for achievement of new milestones or regain of milestones is video recorded. And as Sean has pointed out earlier, it's very rigorously evaluated by blinded central reviewers. And there are different reviewers for the 6-month interim analysis as well as the 12-month interim analysis. So you have to keep that in mind as well. Now remember, also the 6-month interim analysis, all 15 patients dosed have to reach that 6-month time point before we break the blind on the video evaluations and before we share the information or the data with the FDA for potentially filing on the BLA as we complete the study at 12 months. And that data set will also be available at the final filing of the BLA. So what we do is by the 6-month interim analysis process, we have the opportunity to shorten the time line of filing of the BLA by two quarters more. So again, the 6-month interim analysis also does not really have significant impact on the p-value nor the power of the study, given that the loss of the alpha is actually minimal, and it's a 33% responder rate is all that's needed really to meet our primary endpoint, whether it's a 6-month or 12-month analysis. And keep in mind that usually none of these patients at 6 months reach a new milestone or regain a lost milestone. Therefore, any milestone gained even by 1 patient is miraculous. So I will leave it at that. From a clinician's perspective, I think we have something that I hope that we can gather the data quickly and get our data set to the FDA so that we can make this therapy available to patients as soon as possible. I hope that answers your question, Yanan. Operator: Our next question comes from Joon Lee with Truist Securities. Mehdi Goudarzi: This is Mahdi on for Joon. So the question is, I just wanted to ask you to please remind us what is the actual definition of regaining again. And assuming that at the 6-month interim data is positive, how soon you can start filing for BLA? Sukumar Nagendran: Yes, thanks for that question. So this is Suku, and I'll respond to that question because it's -- thanks because it's important that it's clearly defined and the audience understands what it means. So remember again, natural history, once patients with Rett syndrome reach the age of 6 and above, they do not regain a lost milestone. So I'll give you an obvious one. Let's assume a patient before 6 years of age with Rett syndrome can sit up without support and they lose it completely and now cannot sit up without support. Post treatment with TSHA-102, our gene therapy through lumbar puncture, if that patient now again is able to sit without support, that is a regain of a lost milestone. A gain of a new milestone is something where the patient before the age of 6, for example, can never use their fingers due to significant stereotactic movements and therefore cannot pick up a teaspoon or a cup to feed themselves. Post treatment, this milestone is now achieved where the patient can actually use their fingers, which they've never done before, can pick up a spoon or a cup and feed themselves. That is the gain of a new milestone. So it's very almost black and white, which actually makes it very easy both for the clinicians who are evaluating the patients, the video reviewers who are blinded, as well as when the FDA hopefully sees our videos, it will make it obvious that our product actually works. And keep in mind that this entire process of video recording, central raters, blinding, et cetera, came from our AveXis experience many years ago. And we have most of the team here at Taysha that will continue to execute on this program and hopefully reproduce what we were able to do for SMA population using AVXS-101, which is now Zolgensma. Operator: It appears we have no further questions at this time. I'll turn the program back to the speakers for any additional or closing remarks. Sean Nolan: We appreciate everyone taking the time this morning to join us. Have a good day. Thank you. Operator: This concludes today's program. Thank you for your participation and you may disconnect at any time.
Operator: Good day, everyone. My name is Sophie, and I will be your conference operator today. At this time, I would like to welcome you to the Kymera Therapeutics Third Quarter 2025 Results Call. [Operator Instructions] At this time, I would like to turn the call over to Justine Koenigsberg, Vice President of Investor Relations. Justine Koenigsberg: Good morning, and welcome to Kymera's quarterly update. Joining me this morning are Nello Mainolfi, Founder, President and CEO; Jared Gollob, our Chief Medical Officer; and Bruce Jacobs, our Chief Financial Officer. Following our prepared remarks, we will open the call to questions from our publishing analysts. [Operator Instructions] Before we begin, I would like to remind you that today's discussion will include forward-looking statements about our future expectations, plans and prospects. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A description of these risks can be found in our most recent 10-Q filed with the SEC. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call. With that, I would like to turn the call over to Nello. Nello Mainolfi: Thank you, Justine, and thanks, everybody, for joining us this morning. Now in the final quarter of the year, as we reflect on 2025, I'm happy to say that our team has executed exceptionally well across all parts of our business, and we're very proud of all that we have accomplished this year. We're committed to building a global biopharmaceutical company and have established a strong foundation that will serve us well as we scale an organization and continue to advance our industry-leading oral immunology pipeline. As shown on this slide, I'd like to highlight a few of the key achievements this year that positions us well for important future milestones. In less than 2 years since unveiling our STAT6 program, we have demonstrated exceptional progress in advancing our first-in-class STAT6 degrader, KT-621. To recap, we completed our healthy volunteer study ahead of schedule with impressive results. We enrolled and completed dosing in the Phase Ib trial in AD patients with data coming in December. We initiated our first of 2 Phase IIb trial, BROADEN2 in AD, and we're on track to start the BREADTH Phase IIb asthma trial in the first quarter of 2026. We were also featuring 2 recent late-breaking presentations, which have helped us maintain high level of visibility with the medical and scientific communities where there continues to be strong interest in oral medicines with potential for biologics-like activity. Beyond STAT6, we unveiled our IRF5 program this spring and presented the robust preclinical data at the American College of Rheumatology Annual Meeting just recently. We've also completed the KT-579 IND-enabling studies and remain on track to initiate the first clinical trial in healthy volunteers early in 2026. In addition to IRF5, we continue to advance our earlier-stage undisclosed immunology pipeline, and our goal remains to address many of the major immunology indications with oral medicines. Importantly, we believe the synergies across our pipeline provide multiple development opportunities for broad patient populations. We also entered into a new partnership with Gilead outside of immunology. Gilead is an ideal partner to drive forward our CDK2 oncology molecular glue program, which we believe has broad potential in breast cancer and other solid tumors. In summary, it's been a very busy year and a successful one, and we look forward to finishing this year strong as we advance our pipeline towards more and more important milestones. More broadly, we built what I believe is one of the strongest oral immunology pipeline in the industry, where we're well positioned to deliver novel oral treatment options for patients with highly prevalent immune-inflammatory diseases. Several years ago, we made a deliberate strategic shift to focus our R&D efforts toward the significant opportunities in immunology. And the reason is quite simple. Within immunology, many pathways have been validated with upstream biologics. Traditional small molecule inhibitors are not able to block the signaling pathways as effective as biologics, given the direct correlation between PK and PD and the need of high drug exposures. As a result, the power -- of the power of protein degradation, we can now selectively remove disease-causing proteins through a catalytic mechanism and can block pathways completely, which we've consistently demonstrated across all of our programs. This allows us for potential of oral drugs with biologics-like activity for the first time in our industry, and our first-in-class pipeline is a testament to this strategy. If we look specifically at our STAT6 program, KT-621 exemplifies this approach. There is a tremendous opportunity for a convenient, safe and effective oral pill in highly prevalent Type 2 diseases like atopic dermatitis, asthma, COPD, EoE and others. Despite the large size of the patient population, the penetration of other systemic advanced therapies like injectable biologics is actually quite low. This creates a significant opportunity for safe and effective oral medicines, which we believe would have potential to change the quality of life for many patients and family around the world. We have moved our STAT6 program at a rapid pace from preclinical to IND to initial clinical proof of concept and we're now embarked on our first global Phase IIb trials. In fact, we filed our IND in September 2024 and by the fourth quarter of 2025, we've already launched our first Phase IIb study. This progress is a strong testament to the speed, focus and executional excellence of our team in driving this program forward. Looking back at KT-621 Phase I healthy volunteer study, we demonstrated at very low doses, we can degrade STAT6 fully and block Th2 disease-relevant cytokines in healthy volunteers as effectively as upstream biologics and in a well-tolerated manner. We're moving quickly towards completion of the BroADen Phase Ib trial, which we initiated in the spring. To remind you, the trial was designed to achieve 3 important goals: To confirm robust degradation in blood and skin and understand the translation from healthy volunteers to AD patients. To allow us to refine the Phase IIb doses based on that translation, and to demonstrate that robust STAT6 degradation in AD patients can impact biomarkers and clinical endpoints similar to upstream biologics, specifically dupilumab. Given that the trial is fully enrolled and we plan to share the data next month, I wanted to use this call one last time to reiterate expectations we're setting into the study across the 4 dimensions we're evaluating KT-621 on, degradation, safety, biomarker and clinical activity. With respect to STAT6 degradation, the goal is to translate in AD patients, the robust degradation of STAT6 in blood and skin that we have seen in the Phase I healthy volunteer study. The safety profile is paramount, and we hope to continue to see a safety profile in line with what we've seen in both healthy volunteers as well as our preclinical studies. With respect to biomarkers, we plan to look in both blood and skin. In blood, we have highlighted TARC as the most relevant biomarker at the 4-week time point. After achieving up to a median reduction of 37% of TARC in healthy volunteers and given that in atopic dermatitis patients generally have higher baseline TARC levels, our expectation is to show a meaningfully more robust TARC reduction. As a point of reference, in published dupilumab studies where baseline TARC levels were much higher than healthy volunteers, the reduction was in the range of 70% to 80% at 4 weeks, which is the bar we set for KT-621, assuming generally comparable baseline levels. In skin, we also plan to assess KT-621's impact on skin transcriptomics, which we have not assessed in the healthy volunteer studies. There, we anticipate changes in downstream genes that aligns with the expected biological effect of this pathway modulation. And finally, in terms of clinical endpoints, we went into the study with a robust body of evidence in all of our experiments demonstrating KT-621 blocks IL-4 and 13 as well as dupilumab, and this has resulted in comparable downstream pathway effects in both in vitro and in vivo studies. As a result, we entered the BroADen study expecting clinical activity of KT-621 to be in the range of what dupi delivered at 4 weeks in its published studies, including on both EASI score and itch with all the caveats of small ends and the lack of a placebo arm. I hope that this is helpful as we approach the data readout next month. Given that we have quite a bit of investor activities planned this month, please understand we will refer back to these key objectives and reserve any additional commentary for the final data presentation in December. So before I hand the call back to Jared, I wanted to take a moment to welcome Brian Adams, our new Chief Legal Officer, to Kymera. He's a seasoned life science executive with deep industry experience, bringing more than 2 decades of experience across legal and compliance, corporate development, strategic planning and governance. We're thrilled to have him join our team as we enter this next phase of growth and look forward to his contributions as we continue our efforts to building a fully integrated commercial stage company. So to wrap up, as I said on the onset of the call, this has been a year of exceptionally strong execution, and we're well positioned to continue advancing all aspects of our pipeline as we head into 2026. I'm confident that through our expertise, scientific rigor, focused execution, we're building one of the most exciting immunology portfolios in this industry. Let me pause here and turn the discussion over to Jared, who will provide us an update on the pipeline, including additional color on our newly initiated atopic dermatitis study. Jared? Jared Gollob: Thanks, Nello. We have made significant progress with KT-621, our STAT6 degrader, and I'm happy to share the advancements we are making in the clinic with you this morning. As Nello described, we see this as a transformative opportunity to develop an oral therapy that delivers biologics-like efficacy without the limitations of injectables. KT-621 is the first and, we believe, only STAT6-directed oral medicine in the clinic. It has the potential to positively impact the more than 130 million people around the world living with Type 2 diseases, considering all the indications where dupilumab is approved today. Our first development indication is atopic dermatitis, or AD, a common but complex dermatologic condition with a significant unmet medical need. This is a chronic inflammatory skin disorder, more commonly referred to as eczema that manifests as inflamed, itchy and often painful patches on the skin. These lesions can appear anywhere on the body and range widely in severity from mild irritation to debilitating full body inflammation. One of the most burdensome aspects of this disease is the persistent itch. It's not just a nuisance, it's a hallmark symptom that can severely impact quality of life by disrupting sleep, daily activities and overall well-being. While there are several treatments available today, they have limitations, forcing patients to make trade-offs. Antibody-based injected therapies like dupilumab have made a real difference for many patients, providing a well-tolerated and safe therapeutic option, but it's not a solution for everyone. For starters, access can be very limited and is a challenge for many patients. For those who are prescribed these drugs, it can be inconvenient or a painful route of administration with compliance impacted by lack of tolerance of injection site reactions or phobia of needles. And there are also issues with cold storage requirements and immunogenicity risk. In fact, in an industry survey, 75% of patients taking biologics said that they would switch to orals with an equivalent profile. There are some oral options such as JAK inhibitors that offer an effective oral alternative. However, they come with significant safety concerns, including box warnings that limit their use, especially in long-term disease management. Given this important unmet need, coupled with the strong preclinical and clinical profile of KT-621 in healthy volunteers, we have developed an accelerated clinical development strategy, including conducting a small Phase Ib biomarker-focused trial in moderate to severe atopic dermatitis patients that we initiated earlier this year. The key aim of the 28-day BroADen study is to show that robust STAT6 degradation in blood and skin lesions by KT-621 has a dupilumab-like effect on multiple Th2 biomarkers in the blood and skin. We will also assess KT-621's effect on clinical endpoints such as EASI and Pruritus NRS. The team has worked very hard to advance this program. And in line with expectations, we completed enrollment in the study last month and dosing is now complete. The final patients are completing follow-up, and we will collect and evaluate the rest of the data and report results in December. As we have said, this Phase Ib study was not gating to the start of the parallel Phase IIb dose range finding trials in AD and asthma, which in turn are designed to enable subsequent Phase III registrational studies across multiple indications. This quarter, we initiated BROADEN2, our Phase IIb AD study, a global randomized, double-blind, placebo-controlled trial to evaluate KT-621 in approximately 200 patients with moderate to severe atopic dermatitis. This study is designed to evaluate 3 different doses of KT-621 over a 16-week treatment period compared to placebo. Patients from the study have the opportunity to participate in a 52-week open label extension period after completion of the trial, which will contribute to building the long-term safety database we'll need to support eventual regulatory filings and is also an additional incentive for patient recruitment to the trial. Eligibility criteria to ensure we're recruiting patients with moderate to severe AD include an EASI score of at least 16, at least 10% of body surface area affected and an average weekly Pruritus NRS score of at least 4. While prior use of biologics is permitted if treatment was not discontinued for lack of response and following a study-defined washout period, we expect to enroll a substantial number of systemic treatment-naive patients given the attractiveness of the ease and convenience of a once-daily oral treatment option. The primary endpoint is the percent change from baseline in EASI score at week 16. Secondary endpoints will evaluate a range of additional safety and efficacy measures, including but not limited to, the proportion of patients achieving EASI-50, EASI-75, a validated Investigator Global Assessment score of 0 to 1 and at least a 4-point improvement in Peak Pruritus NRS. We expect top line results from the Phase IIb study will be available by mid-2027. In addition to atopic dermatitis, we plan to initiate the BREADTH Phase IIb study in asthma in the first quarter of 2026. We'll share more information on the trial design next year when we get closer to initiation. Beyond the STAT6 program, we have completed IND-enabling studies with KT-579, our IRF5 degrader, which we plan to advance into a Phase I healthy volunteer study early next year with data expected in 2026 as well. Last month, we shared incremental updates in 2 posters at the ACR meeting in Chicago. In several preclinical efficacy models of lupus and RA, KT-579 was generally more efficacious than clinically active or marketed small molecule inhibitors and injectable biologics, phenocopying IRF5 knockout studies. The compelling preclinical data we have generated showcase that targeting IRF5 can lead to correction of immune dysregulation across multiple disease pathologies while generally sparing normal cells. We continue to be excited about this opportunity and look forward to moving it into the clinic soon. I'll pause here and turn the discussion to Bruce to review our third quarter financial results. Bruce? Bruce Jacobs: Thanks, Jared. As I walk through the third quarter results, please reference the tables found in today's press release and 10-Q, which was filed this morning. Revenue in the third quarter of 2025 was $2.8 million, all of which was attributable to our collaboration with Gilead. With respect to operating expenses, R&D for the quarter was $74.1 million. Of that, approximately $8.4 million represented noncash stock-based compensation. The adjusted cash R&D spend of $65.7 million, which excludes that stock-based comp, reflects a 7% decrease from the comparable amount in the second quarter of 2025. On the G&A side, our spending for the quarter was $17.3 million, of which $7.4 million was noncash stock-based comp. The adjusted cash G&A spend of $9.9 million, again, excluding that stock-based comp, reflects a 3% decrease from the comparable amount in the second quarter. And overall, adjusted operating expenses were down slightly from the prior sequential quarter. We ended September with a cash balance of $978.7 million, providing a cash runway into the second half of 2028. This runway allows us to complete both KT-621 Phase IIb trials in AD and asthma, cover start-up costs in the initial Phase III activities for the STAT6 program, advance KT-579 through initial POC testing and advance our research pipeline as we scale and grow Kymera. Just a quick reminder, our runway collaborations, calculations, I should say, exclude any unearned milestones from our collaborations with Sanofi and Gilead. Regarding Sanofi, we expect that they will advance KT-485 into Phase I testing in 2026, which would trigger a development milestone payable to Kymera. As for the Gilead collaboration, upon exercising its option for a CDK2 glue, we are entitled to a milestone payment. As previously announced at the time of signing the Gilead collaboration agreement, we are eligible to receive a total of $85 million in upfront and option payments, with approximately half of this already received as the upfront payment in the last quarter. We look forward to the continued progress of both the IRAK4 and CDK2 partnered programs. With that, we'll pause here so we can convene in our main conference room and open the call for your questions. Thank you. Operator: [Operator Instructions] Your first question comes from Geoffrey Meacham, Citi. Geoffrey Meacham: I just had a couple of questions. So the first one is, when you look at the upcoming data for KT-621, maybe just highlight, Nello, what are the key characteristics that could enable it to potentially show differential efficacy versus dupilumab at relatively early time points, I think that's probably one of the bigger points of uncertainty with investors. And then the second question is, when you look at the 2 doses of the BroADen study, is the -- the 3 doses, is the expectation that the lower one maybe has a lower impact on degradation and therefore, is subtherapeutic? Or is it to test the upper end of where you'd like to be from a safety tolerability? I'm just trying to get a sense for the selection of the doses and kind of how you would frame that out for what would be the ideal kind of result. Nello Mainolfi: Great. Thanks, Geoff, for the question. So on the first one, let me just take a step back. So in all the work that we've done with our STAT6 program for multiple years now, we've been working on this program for a very long time, we were able to demonstrate, I think, convincingly in all the preclinical studies that when you degrade STAT6, you're able to block IL-4 and 13 signaling as well as an upstream biologics, whether it's an IL-4 receptor blocking drug like DUPIXENT or even an IL-13 drug. So generally, we're actually the only oral drug that is able to block IL-4 and 13 as well as upstream biologics. In all the studies that we've run, again, preclinically, as I said a few minutes ago, both in vitro and in vivo, we've seen comparable activity. And I think this speaks to the biology of the pathway. Whether you block the receptor or you block the specific transcription factor for the receptor, you see the same biology. So the reason why we say the opportunity here is to have dupilumab in a pill-like profile is not because it's actually what we hope to see. Obviously, we hope to see that. But it's because it's the activity, the biology that we've seen so far. So as a data-driven company as we are, we're reporting the observation of so far, we've seen dupi-like activity. In our Phase I healthy volunteer study, where we measured, as you remember, biomarkers in blood in healthy volunteers, we were able to show also in those biomarkers that we were generally comparable, some would say even numerically superior to dupilumab. So for me, it's really hard to say KT-621 is going to be better than dupilumab or worse than dupilumab. All we've seen so far that we're generally blocking the pathway the same way. Hence, that's where the expectations are set. Now as a data-driven drug development company with, I think, astute people in the company, we're very keen to see how the 2 profiles will evolve and where they would differentiate. We're talking about obviously an injectable biologic versus a small molecule degrader. So you will see probably small differences or larger difference here and there. But our priority is very difficult for us to like set the expectation one way or the other. I would be probably the happiest CEO in the world if we're able to deliver a dupi-like profile. Going to your second question, I think I understand what you're saying, what you were asking, but maybe not. So you can correct me if I got it wrong. So maybe the way that I'm going to answer your question is, so we selected 2 doses for the Phase Ib study because we wanted to really understand well what was the translation of healthy volunteer degradation profile into patients to then have a high level of confidence in selecting the 3 doses for the Phase IIb. The only thing I'm going to say right now is that the 2 doses of the Phase Ib as well as the 3 doses for the Phase IIb are all within the doses that we studied in the healthy volunteer study. And generally, our approach for the Phase IIb is to evaluate a range in which we see maximal pharmacology and at the top dose or some would call it super pharmacology and then in the bottom dose, a dose that reaches less than the optimal pharmacology and then obviously, a dose in between. So that's the general philosophy without going into details. Operator: Your next question comes from the line of Marc Frahm, TD Cowen. Marc Frahm: Maybe just on the Phase Ib. Nello, in your comments, you mentioned the kind of target of 70% to 80% TARC reduction, but with that caveat of assuming similar baseline characteristics. Now that you've enrolled the patients with a group of 10 per dose level, there's always some chance that you end up with a little bit of a skewed population relative to the comparators. Just anything you'd highlight there based on the patients that have actually enrolled that might be a little bit different than the historical DUPIXENT comparators? And then I'll probably have a follow-up. Nello Mainolfi: Yes. No, Marc, thanks for that. That's a great question. So let me clarify. So there is 2 aspects of this trial. One is the baseline, let's say, the baseline EASI of patients. And then I think what I was referring to back a few minutes ago was the baseline TARC levels. So I think if you study dupilumab TARC reduction over both the AD study, but actually if you study over all the other studies that were run in other indications, whether it's chronic rhinositis (sic) [ rhinitis ], asthma, EoE, et cetera, you see that there is a clear relationship between baseline level of TARC in patients and reduction of TARC. And so that's what I was referring to when I'm talking about baseline level of TARC, baseline levels, I was referring to the TARC baseline levels. And obviously, I'm not going to comment about what the baselines of the study -- of our study are, but obviously, we'll share the data when the time is right. Then there is another element, which I want to clarify, then there is the EASI baseline levels. And I think what we've said in the past, as we've seen generally when dupilumab was developed, it was the first systemic drug for atopic dermatitis. And so if you look at those studies, the baseline EASI were in the high-20s, low-30s. If you look at studies from all companies in the past 5 years or so, you see that the baseline EASI has shifted down in the, let's call it, mid-20s. And that's mostly because the patient population that we're accessing to these trials in the sites that most companies go to, obviously has changed given that these sites in these countries and these regions have access to dupilumab. So generally, the most severe patients are on systemic biologics. Some are not. But generally, the mean number has come down a bit, and that's what we're observing. And so that's kind of another element to the whole study and the outcome of the study. But I just want to separate the point that I was making before where on TARC baseline levels, not necessarily on the EASI baseline level. Marc Frahm: Okay. And should we expect that same trend kind of to lower EASI scores, it should apply here. But does that have an impact on TARC level -- likely TARC levels as well, do you think? Nello Mainolfi: I think that's something that we'll discuss when we release the data. I think we understand really well, obviously, the level of TARC at baseline in healthy volunteers, right, where we've seen reduction in the mid to high 30s in many patients on our studies in the healthy volunteers. And we show that also dupilumab when baseline levels were in the range of healthy volunteer at similar reduction. I think, again, as I've said, if you look at other studies, dupilumab level, you see a correlation between baseline level and percent reduction of TARC. And so I think that's the observation that we're sharing looking at those studies. I don't want to preview our study because -- as I mentioned a few minutes ago, I don't think it would be productive to preview some data here versus December. Operator: Your next question comes from the line of Brian Abrahams, RBC. Brian Abrahams: Congratulations on all the progress. I'm wondering how are you guys thinking now that it's been initiated about the powering overall for the Phase IIb AD study, just considering the population you expect to enroll, the mix of biologics and experienced and naive patients and your expectations for effect size? And then just as a follow-up, it sounds like you're thinking about maybe different doses for asthma and respiratory diseases versus dermatologic diseases. I was wondering if you could elaborate a little bit more about what you think are the important considerations around that. Nello Mainolfi: Jared, do you want to take that? Jared Gollob: Sure. Yes. I mean we can't give specifics around powering for the Phase IIb. What we can say is -- and we have stated that the end for that study is going to be approximately 200 with there being 4 arms, 3 drug, 1 placebo. So we look very carefully at what the expectations are, what the patterns have been in the past with regard to EASI responses, NRS Pruritus responses, et cetera. And that's all gone into calculating what sort of ends we need to make sure that the study is adequately powered. So we've been very careful in the design of the study to make sure that we are powered to show the desired effect relative to placebo. Another important aim of the study, obviously, is to be able to look across the 3 different doses and to see if we can discern any sort of a dose response. So the study is powered to enable us to do all of those things. Nello Mainolfi: And the doses between AD. Jared Gollob: The doses between AD. So right now, so I think what we've guided is that our plan is to -- in the Phase IIb to use the same doses for both AD and asthma across both Phase IIb studies. Nello Mainolfi: And then maybe just to add, then the Phase III doses or dose that will be used for AD Phase III and asthma Phase II might be different based on the dose ranging. To be honest, our expectation is that it will not be different, and we will use one dose for all studies. But that's why we're running different dose ranging in different diseases with different target tissues so that we actually understand what the right dose will be. Operator: Your next question comes from Brian Cheng, JPMorgan. Lut Ming Cheng: Some of the color you're providing here for the December readout is pretty much in line with what you already messaged. But I'm just curious, just given the gap between the time you selected your 3 doses for the Phase IIb and when Phase Ib finished enrollment around early October, what could be additive to what you already know in the December readout? Or do you think the data is most likely going to be in line with the data that you had already seen when you picked the 3 doses? And I have a follow-up. Nello Mainolfi: Well, so I'd like to maybe clarify. I think what we said before is the same thing that we've been saying for 9 or 10 months. But that's maybe just my small additional color. So I just want to clarify, when we selected the doses for the Phase IIb was actually a few months before October, right? We started the study recently in the Phase IIb study. But in order to submit the protocol and do start-up activities, you had to actually have chosen the doses much earlier. And I think I've said this many times, I believe, publicly that when we selected the doses, we had visibility into partial data for both doses for both the first dose in the Ib and less but still some data from the second dose in the Phase Ib. And again, we did not have access to the totality of the data, but we -- because we're focused mostly on the translation of degradation and obviously, safety, which is understood, we had enough information to make the right selection for the Phase IIb doses. Lut Ming Cheng: In the prepared remarks, in the BROADEN2 trial design, I think you mentioned that you expect a substantial number of patients to be naive to advanced therapy. So I'm just curious what's the driver behind that? And how should we take that into account as investors think about comparing the BROADEN2 future data against other benchmarks? Nello Mainolfi: Yes. So I'll start, Jared, please jump in. So the reason why we believe that will be the case is multifold. But I will start with -- we believe KT-621 and our STAT6 program is -- the whole value proposition is to expand patient access to advanced systemic therapy. The penetration of these advanced biologics in moderate to severe patients is less than 10%. Some companies claim it to be more than 10%. Maybe we align on, let's say, 10%. So we don't have to argue with other companies. So the majority of the patients do not have access to advanced systemic therapy. That's where we are coming from. Then another part, which we've discussed as well is patients that have gone on to systemic therapies that have failed systemic -- pathway systemic therapy, IL-4, IL-13, JAKs will not come on to our study. So they will have to have responded to those therapy, then decided not to continue and then jump on our 621 study. So for those 2 main reasons, and also, I would say, for the experience that we had in the Phase Ib, we believe the majority of patients will be naive. And I would also add, hopefully, I will not be proven wrong, that we don't believe there will be issue out there finding naive patients because those patients are in dire need of an active systemic oral safe therapy. Jared Gollob: The only thing I would add would be just as a reminder that this is a global study. And so we're running the study in North America, Europe, Australia and Japan, with the majority of sites actually being ex U.S. So ex U.S., in particular, there are going to be a number of patients who don't have access to IIb. And so that's another reason why we expect a substantial proportion of patients on IIb to be dupi-naive. Operator: Your next question comes from the line of Mayank Mamtani, B. Riley. Mayank Mamtani: Congrats on the progress. Could you give us a little bit more detail on the asthma BREADTH? I think you're calling it trial considerations. And in terms of if you're looking at a 12- or 24-week FEV1 endpoint or a longer duration exacerbation, you could be looking at both, but just wonder in terms of which is your primary endpoint? And then also curious about the kind of patients you're thinking to enroll there and the allowance of background therapies. And obviously, the question is around time lines for data readout for the asthma and atopic derm. Will they be stacked together in 2027? And then I have a quick follow-up. Nello Mainolfi: Yes. No, thank you for the question. Unfortunately, as we've said, we're going to talk more about the Phase IIb BREADTH study when we're in the start-up mode, when we're close to dosing our first patient. So give us a few more weeks, and then we'll provide all the color that you're asking for. So why don't you ask the follow-up so that at least we have a question. Mayank Mamtani: And maybe just to talk a little bit beyond 621 and about your pipeline beyond that. Just on the 579, could you maybe give us some color on what the initial targeted indications would be just given the broader inflammation cascade that you're targeting there? Nello Mainolfi: Yes. Maybe just high level. So thanks for asking about IRF5. This is a program that I think has mostly been unparalleled in the industry where you have highly validated genetically validated transcription factor that has been, I think, the object of many drug development efforts in the biopharma industry for a decade or so, but has maintained -- has remained elusive where Kymera has that solution using targeted protein degradation. So if you look at human genetics, the top 4 places where one would go directly are generally lupus, SLE and other subcategories of this disease, some other interferon-related pathologies, RA, IBD. So those are where human genetics point to our preclinical data point to. I think when we're closer to the Phase I study, we'll be able to share more about our development plans. Jared, anything you want to add? Jared Gollob: No. Operator: Your next question comes from the line of Sudan Loganathan from Stephens. Sudan Loganathan: Looking back at the healthy volunteer data for KT-621, I noticed that the median percent change in the serum TARC and the IgE were similar to that of dupilumab healthy volunteer outcomes for those same levels when on treatment. There was a noticeable rebound higher, obviously, whenever these -- on these levels when the patients were off of KT-621, as you showed. My question is how important is the durability for the AD and asthma patients' quality of life outcomes? And will KT-621's daily oral dose -- dosing regimen make up for any deficiencies and maybe durability outcomes that it could have compared to dupi? And does dupilumab mode of administration and systemic effects just inherently lend to a more durable outcome? Nello Mainolfi: It's a great question. So I mean, I will answer part of it, and then I'll let Jared also speak to part of all of it. So the beauty about our drug is that it's a once-a-day oral that allows you to block IL-4 and 13 continuously at steady state. The beauty of our drug is that you can stop and start when you want, if needed without long washout period. The beauty about a once-a-day oral drug is that as long as you continue to take the drug once a day orally, you will see profound effects or at least the effect that the biology -- the underlying biology will have. I don't believe that if these drugs are taken as prescribed, obviously, we're still very early to compare to dupilumab, that you have more or less duration of the effect. The only main difference that I will say between an injectable biologic and a once-a-day oral degrader, not small molecule inhibitor, is that the once-a-day oral degraders allow you to have steady-state complete pathway blockade. I believe with dupilumab, a couple of days before your next dose, you're not maximizing the pharmacology as much. So you might actually have less pathway blockade, continuous pathway blockade than a once-a-day oral degrader. Now what would that mean from a therapeutic perspective, obviously, well, time will tell and studies will tell. Jared Gollob: Yes. And maybe coming back to your comment around the Phase Ia, just to clarify, patients who were on the MAD portion were getting 14 daily doses. And so when we look at the effect on TARC and Eotaxin-3 in particular, that suppression or inhibition was seen throughout the entire 14-day dosing period. In fact, if you looked at day 7 versus day 14, levels were actually continuing to go down TARC and Eotaxin-3 between day 7 and 14, which suggested that if we had continued dosing beyond day 14, we might have seen more suppression. So there was no recovery of TARC and Eotaxin-3 until dosing was stopped after day 14 and then you see a gradual recovery. So that just speaks to what Nello was referring to in terms of the durability of the effect as evidenced by even in healthy volunteers, a durable effect on those biomarkers. Operator: Your next question will come from Andy Chen, Wolfe Research. Brandon Frith: This is Brandon on for Andy. Within BROADEN2, are you doing anything to control the rising trend of placebo that we're seeing in atopic dermatitis where recent trials have seen a higher placebo response? Nello Mainolfi: Thanks for the question. So I just want to answer the first part, and then Jared will address it. So I think that's an important point. I think as I was speaking earlier, I think with a drifting of patients with EASI, shifting from, let's say, early 30s to mid-20s, I think it's almost physiological to have seen an increase of the placebo rates. I think though, there are ways in which one can minimize the effect. And maybe, Jared, you can speak to it. Jared Gollob: Sure. Yes. I think as far as we see it, I think this is based on the general learnings from prior studies. There are really 3 main things that one can do to try to limit that placebo rate. One is making sure that you have the right protocol design and site selection so that you're making sure you actually have patients with atopic dermatitis, not other skin diagnoses and that you make sure you have moderate to severe patients that you're not somehow also getting mild patients. The milder patients, the more mild patients you have who should not really be enrolled in these studies, but they are enrolled, are going to have a contribution to placebo rate. The second important thing is to select very experienced sites because you want the raters, the people who are assessing the endpoints to have the right expertise, the right derm expertise here for AD. And you also want to have the proper training of those raters to make sure they're able to assess EASI, for example, consistently and accurately. And then finally, it's really important that there'll be close sponsor oversight of the sites involved and also the CRO that's helping to execute on the study. That oversight is really our study conduct and the sponsor has to really be all over study conduct. So I think all of those elements combined, I think, are important in helping to mitigate placebo rate, and those are all things that we're addressing in our study. Operator: Your next question comes from Kripa Devarakonda, Truist. Srikripa Devarakonda: Can you hear me? Nello Mainolfi: Yes. Srikripa Devarakonda: I was actually wondering how you think about the evolution of the competitive landscape for 621. I know you guys are significantly advanced in terms of the clinical development. There are competitors, whether you talk about degraders or some inhibitors. But based on what you've seen, how important is the fact that you're ahead in development versus any potential areas of differentiation? And where does the next-gen STAT6 degrader fit into this context? Nello Mainolfi: Thanks, Kripa. So obviously, yes, we're aware of other companies that -- I think we've enabled with our amazing data, right, over the past couple of years, which is obviously always great to see, at least from an industry perspective. So first, let me start with -- this is not just about being first. I think this is about being first and best because that's what is going to almost guarantee commercial success, right? You're ahead of the competition, which is important. But more importantly, you have a drug that is going to be extremely difficult, if not impossible, to do better than. And that's what KT-621 is. It's a drug that is exceptionally potent as we've seen, exceptionally well-tolerated with a profile that we believe would allow us to go in any potential indications of patients with Th2 diseases. I think others will have to talk about their differentiation versus KT-621. I'm not familiar with many of the other programs because there haven't been any publications or presentations with actual data. What I will say going on record here is I believe a small molecule inhibitor STAT6 is impossible to reach the level of pharmacological effect that our degrader will have, mostly because we'll not be able to block this pathway 24/7 almost completely or completely as we do. And we believe that, that's required to have biologics-like activity. On the other, obviously, degrader programs, again, I don't know enough. But the important thing here is that we have confidence in our drug. We're years ahead of competitors. And so our team mandate here, including us around the table, is to execute flawlessly in the next few years so that we can accomplish the commercial success that will make KT-621 a double-digit billion-dollar drug in the Th2 space. Operator: Your next question comes from Jeff Jones, Oppenheimer. Jeffrey Jones: We've been talking about TARC, Eotaxin and some of the other critical biomarkers for the STAT6 program. Can you comment on key biomarkers we should be focusing on for the IRF5 program when we see that data? And should we be expecting healthy volunteer data in 2026? Nello Mainolfi: Yes. Jeff, you always ask very orthogonal question. I love it. So yes, we expect to have Phase I data from 579 in 2026, next year. It's a bit early to speak to the biomarkers. But as you know us, as you do know us well, we tend to run Phase I healthy volunteer study that are quite rich in terms of information. So as we get closer to the start of the study, we'll share more about our biomarker strategy. Operator: Your next question comes from the line of Jeet Mukherjee, BTIG. Jeet Mukherjee: You folks have spoken at length about the niche and the opportunity for KT-621 in the atopic derm space. But could you just elaborate a bit further on how you see it fitting within the asthma landscape? Nello Mainolfi: Yes. I mean I'll start with -- actually, there's a more fundamental issue, I think, in the asthma space, and I'll let Jared speak to the medical part of it. I just want to talk strategically. So Th2 asthma, eosinophilic asthma, which obviously we expect this drug to address, right, just to level set, is a disease that starts very early in life. And actually, it turns out that if you're not able to impact the disease until or before your lung fully develops, you're actually going to have reduced lung function for the rest of your life. And children, young adults are on non -- on therapies that do not address the underlying Th2 inflammation for many years before they are graduated to systemic biologics. I think there is a paradigm that needs to change because we're actually putting kids' lives at risk or we're not carrying as much as we should or do for the best quality of life possible of children and young adults with Th2 inflammation. So that's where an oral drug with, hopefully, the safety and the efficacy that we expect should fit in, in the treatment paradigm, that help patients earlier in their trajectory. I'm not saying that this is a patient for mild asthma, a drug for mild asthma, but this is an opportunity to change the treatment landscape in respiratory diseases, given that this is a disease of young people, and we need to change how this disease is treated. Maybe, Jared, you can bring us back to earth and maybe talk more medically. Jared Gollob: Yes. No, I think in addition to the, I think, important opportunity in pediatric patients, I think also in the adolescent and adult patients with asthma, I think being able to access a much greater proportion of those patients with moderate to severe disease, right, who have a significant unmet need, but just are not going on injectable biologics for all the reasons around market access or concerns about being on an injectable or a biologic to be able to really penetrate the adult and adolescent space as well with our drug for those patients with moderate to severe because now we have an oral drug, which hopefully, if it says if it's comparable to dupi in its efficacy and safety, it could really transform how these adult and adolescent patients are also treated with asthma. Operator: Your next question comes from Clara Dong with Jefferies. Nello Mainolfi: I think you're on mute. Bruce Jacobs: Clara, we can't hear you. Yuxi Dong: Now? Nello Mainolfi: No. Bruce Jacobs: Yes. Maybe, operator, do you want to put her back in queue and we go to the next one and she can try to sort that out. Operator: Your next question will come from Alex Thompson. Please bear with us as we invite him to be panelist. Alexander Thompson: I guess on the Phase IIb AD study again, you mentioned obviously, patients that had experience with biologics. And I think, Nello, you also mentioned JAK inhibitors. Is there going to be a cap for how many of those advanced therapy experienced patients you might have in the study? And then on rescue therapy, how are you dealing with that as well? Nello Mainolfi: Yes, there would be no cap. Again, as long as you have not failed advanced systemic therapies that block this path to IL-4, IL-13 and even JAKs, there will be no cut for those. And I don't think we're discussing rescue therapy. Obviously, there is a system on how we're going to deal with it, but I don't believe we're going to disclose it at this point. Operator: Our next question comes from Faisal Khurshid, Leerink. Faisal Khurshid: So I know you've put kind of a benchmark out there of 70% to 80% on TARC reduction from baseline. Could you talk to us about what you would -- what efficacy endpoint you think people should focus on, given that people are focused on this, given that you already showed nice TARC in healthy volunteers? And then if you're not willing to put out a numerical benchmark, can you just clarify for investors why that's the case? Nello Mainolfi: No. So thanks. That's a very good question, actually. So we're just basically stating the facts. And we've said that this is a biomarker-focused study mostly because we -- I think we can gather from the data that there is very little, if almost no, let's call it, placebo effect on biomarkers. So the absence of placebo should not impact the interpretation of biomarkers, right? So we're honestly a bit more comfortable saying for TARC, assuming the baseline levels are in the range of what we've seen with the dupilumab study, we expect to see the 70% plus, 70% to 80%. That's a fact, right? That's what dupilumab has seen. Now you would say it's also a fact that the EASI reduction on day 28, there is a number to it. The reason, again, why we've been shy about putting a number on that is because, as you know, clinical endpoints are much more noisy and much more impacted by the potential placebo effect. And so I think we like to be data-driven and science-first company, as you know as well. And I think we'll put out things when we can confidently say that those numbers are something that we can scientifically then follow and adhere to. What we said, again, we're not going to hide behind it. The numbers are out there for dupi, right? I don't have to say what the numbers are. The numbers are out there. The treatment arm numbers are out there. We expect in this study at day 28 to be in that ballpark because we know that, say, KT-621 blocks the pathway as well as dupilumab. So here is how we've always characterized it, and we're not going to change it now a month from the data disclosure. Faisal Khurshid: Appreciate it. We look forward to the data next month. Operator: Our next question comes from Judah Frommer, Morgan Stanley. Judah Frommer: Maybe just one, if there's anything you can share on early recruitment trends, even anecdotally for BROADEN2. Obviously, the Phase Ib was tougher to recruit just given the 28 days dosing here, you can get patients on drug for a year plus. And curious about just awareness of the healthy data and how all that might be helping in recruiting patients and what investigator feedback is. Nello Mainolfi: Yes. I mean high level, again, we just started the study. We just activated a few sites. So we're very, very early into that process. I think what we believe right now is even on the healthy people -- on the Phase Ib, there was a lot of excitement by sites and investigators and eventually patients, we believe, in accessing an oral option. Obviously, the 28-day study was not set up to get patients excited because it's a short study without an OLE. So the Phase IIb, it's a whole different value proposition. And I believe between that and hopefully, the data that we'll disclose in December, I think it will be -- we are confident that this will be a study that we can recruit in a timely manner. Now recruiting the study as fast as possible is not our goal. Our goal is to recruit the study as fast as possible with the right patient. Going back to what Jared was saying earlier, we have a paranoid oversight of this whole study because we want to try and control the placebo rates as much as possible, even if that has to be at the expense of a week or 2 or 4. So that's where we're coming from. But hopefully, we'll be able to share more about your question as we get deeper into the study. Operator: We would like to invite Clara Dong to try one more time. Yuxi Dong: Can you hear me now? Nello Mainolfi: We can hear you. We see somebody else, we can hear you. Go ahead. Yuxi Dong: Thank you for letting me try again. So my question is on the Phase Ib trial. So this trial has a relatively short follow-up for weeks of patients. So among all the key endpoints like biomarkers, clinical efficacy and safety, which ones are -- in your view, are relatively less affected by the treatment duration and which endpoint do you think is more complex to interpret because of the trial design? Nello Mainolfi: Yes. So I think very quickly because we're almost running out of time. If you look at the dupilumab study, I don't believe -- and hopefully, I'm not wrong, Jared, correct me. I don't believe there was any endpoint that reached maximal effect at week 4. So I think it's hard for me to say which one is going to be less or more impacted by this 28-day duration. I think we'll look at all the data together in December and answer the question better. Operator: Our next question comes from Brad Canino, Guggenheim. Bradley Canino: Maybe just to close out on a capital allocation question for Nello because you're in the most comfortable cash position you've ever been in with the company, but also have the highest capital demands ever faced by the company. So how do you think about deployment of each incremental investor dollar across KT-621, the name pipeline and the platform to really maximize value for Kymera at this juncture? Nello Mainolfi: Yes, great question. So I probably need half an hour for this. But in 30 seconds is, I think there has never been a biotech company that has developed a program like KT-621 on their own fully. So we appreciate this is a unique both opportunity and responsibility to do capital allocation in the right way. I would also say that if we became a STAT6-only company, we will not be fulfilling the mission that we have of a global company that develops drugs that impact patients across the world with different diseases. Obviously, there is a medium -- and happy medium between going all in on 621 and spending a lot of money on the other programs. And I always believe that we need to earn the right to invest more. So our ability to invest more in 621 will be driven by the success of 621. Our ability to invest more also in other programs will depend on also our ability to have success with our clinical pipeline. So we don't do resource allocation because we have money. We allocate capital because we earn the right to do more. And that's the strategy since day 1. Operator: Our final question of today comes from Joe Catanzaro, Mizuho. Joseph Catanzaro: Maybe a follow-up sort of along the lines of duration of effect. Wondering if you could say anything about the level of compliance that you observed in the Phase Ib, but maybe more importantly, looking towards the Phase IIb and 16 weeks of dosing, what you guys can do to ensure a high level of compliance there? Nello Mainolfi: Yes. No, it's a great question. So obviously, with an oral drug, industry data will tell you that getting 100% compliance is difficult just because we all forget to take one pill one day. And with biologics, you can ensure compliance asking patients to be injected in the site. So obviously, we're aware of it. We're actually using novel technologies to increase as much as we can adherence to the study protocol with regarding to taking the drug. And we're confident that, that will deliver what we need. I will add one last thing. I know we're way out of time. The beauty about a degrader drug is that you can actually skip a dose and maintain maximal pharmacology, assuming you have the right dose that reaches complete degradation that you will never see with a traditional occupancy-based small molecule inhibitor. So we have a bit of a cushion on the adherence question. But obviously, we're not sitting on it. We need to ensure as much as we can, 100% adherence because we want to maximize the benefit to patients. Operator: Thank you. I'd now like to turn the call over to Nello Mainolfi for closing remarks. Nello Mainolfi: Okay. Thank you. I'm sorry, we ran beyond the 9:30 goal that we had. I want to thank everybody. Obviously, lots of questions. We are always available to continue to engage. This has been the most exciting year of Kymera, and we have 1.5 more months or so to go. So stay close. I think it's going to be an exciting time in the next few years developing this really once-in-a-generation drug and the broader pipeline. So thank you again today, and we'll talk more soon.
Operator: Good morning, and welcome to Reed's Third Quarter 2025 Earnings Conference Call for the 3 and 9 months ended September 30, 2025. My name is Lilly, and I will be your conference call operator for today. We will have the prepared remarks from Cyril Wallace, Reed's Chief Executive Officer; and Doug McCurdy, Reed's Chief Financial Officer. Following their remarks, we will take your questions. Before we begin, please take note of the company's cautionary statement. Today's call will include forward-looking statements, including statements about Reed's business plans. Forward-looking statements inherently involve risks and uncertainties and only reflect management's view as of today, November 4, 2025, and the company is not under obligation to update them. When discussing results, the presenter may refer to non-GAAP measures, which exclude certain items from the reported results. Please refer to Reed's Investors website at investors.reedsinc.com and its quarterly report on Form 10-Q for the period ended September 30, 2025. This should be expected to be available on the website soon. For definitions and reconciliations of non-GAAP measures and additional information regarding results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. I will now turn the call over to Mr. Wallace. Cyril Wallace: Thank you, operator, and good morning, everyone. We appreciate you joining us today to discuss our third quarter 2025 results. Q3 marked another period of steady operational progress as we continue executing our plan to strengthen our foundation for sustainable long-term growth and profitability. We advanced our manufacturing initiatives to better align production capacity and capabilities with current demand, enabling us to meet customer needs more efficiently while maintaining a strong focus on quality and operational discipline. At the same time, we're identifying additional opportunities to streamline processes, enhance scalability and drive further improvements in overall performance. During this quarter, we saw higher-than-anticipated trade spend as we leaned on 2 large distributors to help fulfill order volume and ensure on-time delivery to key customers following prior supply chain challenges. This approach enabled us to maintain strong customer relationship and service levels. However, it did not yield the expected efficiencies, and we have since begun redefining our approach with these distributors. We're evaluating our strategy to move away from short-term 3-month promotions to a fully integrated 52-week strategy that aligns more closely with retailer planning cycles and support stronger year-round execution. With a more disciplined approach, we expect greater predictability and control over trade spend. We're already seeing early signs of improvement in Q4. And as we transition away from legacy distributor arrangements, we believe these actions will support continued gross margin expansion going forward. From a production standpoint, we are working to drive greater efficiency and cost reduction through enhanced manufacturing processes, tighter operational controls and improved sourcing discipline. We are actively identifying new opportunities to lower unit costs and enhance overall performance across the supply chain. Turning to our core product sales. During the third quarter, our sales team continued to execute against our refined commercial strategy, driving meaningful wins across both new and existing retail partners. These successes reflect stronger alignment between our sales, marketing and operation teams and demonstrate the progress we're making in rebuilding placements and expanding distribution within key national and regional accounts. We achieved notable retail gains this quarter, highlighted by our partnership with Costco to develop a winner Ginger Ale variety pack, expanding seasonal innovation opportunities. Core distribution grew 4% year-over-year across top accounts, including Kroger, Sprouts, Ahold Delhaize, reinforcing momentum within our core Ginger Ale, Ginger Beer and Virgil's portfolio. A successful Walgreens test further validated consumer demand and merchandising performance, paving the way to broader expansion discussions in priority small format channels such as drug and convenience. Additionally, we remain focused on regaining lost distribution with key regional wins at Harmons, Fashes and Festival Foods. Looking ahead, we're focused on expanding our presence in underrepresented channels and particularly food service and convenience, which represent meaningful long-term opportunities to expand the reach and visibility of Reed's brand. I'd like to share a few updates on our product portfolio, starting with our core categories. We're reinvigorating the Ginger core with full packaging and brand restage across Reed's Ginger Beer and Ginger Ale, launching July 2026. The update introduces new Ginger ale flavors, cranberry, blackberry and reformulated Zero Sugar offerings plus new club soda and tonic mixers. Together, these moves simplify our lineup, sharpen shelf presence and strengthen Reed's leadership in authentic craft ginger beverages across retail and on-premise channels. A complete restage of our functional soda line also slated for July 2026 will reestablish Reed's as a category disruptor. Designed to leapfrog the modern service space, the new platform delivers wellness proposition with purposeful ingredients, elevated design and a bold innovation pipeline targeting incremental consumption occasions. We're optimizing Virgil's and Flying Couldron, transitioning from glass to cans with full restate slated for 2027 and reformulating our RTD range, Reed's Mules and Hard Ginger Ale to enhance quality, flavor and consistency. Internationally, Reed's launches its Ginger core in Greater China and Japan, followed by broader Asia in 2026. To support our next phase of growth and brand evolution, we've strengthened our leadership team with several key additions who bring deep expertise across marketing, commercial execution and governance. In early September, we appointed Tina Reejsinghani as Chief Marketing Officer. Tina brings over 2 decades of global marketing leadership across lifestyle, spirits and consumer packaged goods. She has built a scaled iconic brands at Unilever, Pernod Ricard, and Remy Cointreau, delivering double-digit growth award-winning campaigns across multiple categories. Her expertise in brand storytelling, innovation and premium positioning will be instrumental as we modernize and elevate Reed's Inc. portfolio on its path to becoming a high-growth beverage powerhouse. Next, we welcome Keith Johnson as Reed's Chief Go-To-Market and Customer Officer. Keith has almost 30 years of CPG beverage experience, spanning sales, distributor operations, marketing and revenue growth. He spent 21 years in leadership positions at Coca-Cola, building high-performing collaborative teams. Over the past 10 years, Keith led national and regional customer teams at Molson Coors and most recently served as VP of Strategic Regional Accounts and Military at Diageo, driving channel strategy, joint customer supply growth and talent development. We believe he is well positioned to lead our channel development strategy and go-to-market execution. Lastly, we appointed Michael Tu to our Board of Directors. Michael brings nearly 3 decades of experience in corporate governance and securities law, advising and representing boards, committees and executives at numerous public and private companies. His deep understanding of regulatory framework, compliance and Board governance will help guide our long-term strategy and ensure we continue to build a strong transparent foundation of sustainable value creation. Now let's dive into our third quarter operational highlights. Similar to Q2, we completed another review of our finished goods inventory and wrote down approximately 114,000 of obsolete product. This initiative is part of our broader effort to rationalize SKUs and sharpen our focus on high-velocity items that align with current demand and support a more efficient, profitable portfolio. By streamlining our product mix, we can better concentrate resources on core SKUs that drive volume and margin expansion. On the logistics and supply chain front, we continued executing the rebalancing plan initiated last quarter to optimize inventory placement across regions. These actions are designed to improve deliver efficiency, reduce freight distances and minimize out of stocks in key markets. We're beginning to see tangible benefits. Delivery and handling expenses declined 14% year-over-year in Q3, reflecting early progress from these operational improvements. We remain focused on refining our logistic network to further drive efficiency and reduce costs over time. We are advancing our transition from glass to cans across both Reed's and Virgil's portfolio, an initiative aimed at improving cost efficiency, sustainability and operational flexibility. We expect this transition to strengthen margins while supporting continued consumer and retail adoption across our core brands. We also continue to strengthen our balance sheet through our recent financing repayment of approximately $650,000 of debt and the refinancing of our credit facility. These actions improved our liquidity and provided additional flexibility to execute on our core growth plan. From a capital markets perspective, we're preparing for an uplift to a major exchange. We view this as an important milestone that will enhance visibility, improve liquidity and broaden our access to institutional capital as we enter our next phase of growth. As part of this process, we implemented a 1-for-6 reverse stock split effective October 31. Looking ahead, our priorities are clear: improve margins, optimize operations and drive sales growth within our core Reed's and Virgil's portfolios. The investments we're making today, coupled with our recently fortified balance sheet, will accelerate our progress towards sustainable profitable growth ahead. Before wrapping up and closing remarks, our CFO, Doug, will cover financial highlights for the third quarter in more detail. Doug, over to you. Douglas McCurdy: Thank you, Cyril. Turning to our results. All variance commentary is on a year-over-year basis, unless otherwise noted. As Cyril mentioned, we affected a 1-for-6 reverse stock split and all per share data is on a post-split basis. Net sales for the third quarter of 2025 increased 4% to $7.0 million compared to $6.8 million in the year ago quarter. The increase was primarily driven by higher volumes of Reed's branded products with recurring national customers. Gross profit for Q3 2025 remained flat at $1.2 million. Gross margin was 17% compared to 18% in the year ago quarter. The year-over-year decrease in gross margin was primarily driven by $0.1 million of inventory write-offs related to product portfolio optimization. Excluding these inventory write-offs, gross profit for the third quarter of 2025 was $1.3 million or 19% of net sales. Delivery and handling costs were reduced by 14% to $1.1 million during the third quarter of 2025 compared to $1.3 million in the third quarter of 2024, primarily driven by lower transportation costs. Delivery and handling costs were 16% of net sales or $2.50 per case compared to 19% of net sales or $2.99 per case during the same period last year. Selling, general and administrative costs were $4.2 million during the third quarter of 2025 compared to $3.1 million in the year ago quarter. The increase in SG&A was primarily driven by investments in personnel, marketing and related services to support growth initiatives. Total operating expenses were $5.3 million compared to $4.4 million in the year ago period. Net loss during the third quarter of 2025 improved to $4.0 million or negative $0.48 per share compared to $4.2 million or negative $4.91 per share in the third quarter of 2024. Modified EBITDA loss was $3.9 million in the third quarter of 2025 compared to $3.0 million in the third quarter of 2024. For the third quarter of 2025, we used $2.8 million of cash from operating activities compared to $1.1 million of cash provided by operating activities for the same period in 2024. As of September 30, 2025, we had $4.1 million of cash and $9.2 million of total debt net of deferred financing fees. This compares to $10.4 million of cash and $9.6 million of total debt net of deferred financing fees at December 31, 2024. I will now turn the call back to Cyril for closing remarks. Cyril Wallace: Thanks, Doug. Our third quarter reflects continued progress in strengthening Reed's operational foundation and advancing the key initiatives that will drive long-term growth and profitability. While there's still work to do, I'm encouraged by our team's focus and execution to build a strong foundation and position Reed's for accelerated organic growth in 2026 and beyond. With that, operator, we're ready to open up the line for questions. Operator: [Operator Instructions] Your first question comes from Aaron Grey from Alliance Global Partners. Aaron Grey: First one for me. I just want to get in better color in terms of expectations for distribution gains and how best to think about how shelf resets might come into play and opportunities that might differ between Reed's traditional and Reed's functional beverages there. Cyril Wallace: Yes, it's a good question. Listen, I mean, our -- within the changes that we just recently made within the organization, we essentially restructured our entire sales team and added key positions so that we could focus on channels and customers or retailers that we're currently not focused on today. So I think what you'll see here, coupled with focusing on and making sure that we understand the time lines in which resets to some of these key customers take place, we're in the process right now of building those relationships, building out that network to ensure that, one, that we're focused on the right time line and also have the right product mix to go after these customers with our core business and also our modern soda line. Now as we -- as I discussed earlier, we are looking to take our current modern soda line and restage it, reformulate it, retool it and relaunch it to be in store July of 2026. So within that, right, that would constitute us to have to focus on for that particular line for fall resets. So think core, Ginger Ale, our 2 new flavors will come out in Q1 of this year. The broader restage of our core functional Reed's will take place in the second half of next year. Along with that is the restaging of our modern soda line. So most of that will come into play within our fall resets on both our existing customers and also new customers where it makes sense that we're targeting. Aaron Grey: That's helpful. On the switching right from bottles to cans across the portfolio, just help us understand and triangle that maybe are there some near-term kind of costs, obviously, long term, cost savings you're expecting. So just as we think about the P&L, potential impacts potentially on the near-term charges and how much benefits we should expect and when that kind of flows through the P&L? Douglas McCurdy: Yes, sure. So for bottles to cans, it's a conversion that I think first is kind of in line with the trending of the industry as a whole. I think it's an opportunity to give the consumer a packaging set that they're interested in and is better for them in addition to better for you. And then as we think about some of the efficiencies directly to the P&L, what we see is simply the cost of bottles versus the cost of cans is a nice shift improvement, and there's a benefit in margin as well. So we would anticipate that as we move forward with the transition, the transition will happen over some period of time that's measured in months and quarters. But we would imagine that as we enter into first quarter, we'll be moving along smartly to affect that transition. And I would imagine that by the end of the second half -- by the end of the first half of 2026, we should be well into it. And some of the considerations are we want to be mindful of the customer set and making sure that we're making that transition in partnership with our customer set and making sure that, one, the customers are pleased with the approach and invested in the approach. And two, we want to make sure that there's no disruption to the shelf space that we have and the P&L benefit that we're going to gain from it. Aaron Grey: Appreciate that. Last one for me, if I could. As we think about marketing, obviously, beverages remains a competitive category. You guys have a focus on profitability. How best to think about the marketing spend line how -- and what levers you think are best available to the best bang for your buck to build up brand equity as you look to expand these different brands and product portfolios? Cyril Wallace: Yes. We want to be very targeted and strategic around how we're spending dollars on marketing. Now understand that from where we are today to where we're headed tomorrow, it will be an exponential shift in the strategy and also investment in terms of how we're thinking about marketing our core brand restage in the middle part of next year, along with our functional line, along with this new mixer line as well. So I think what we're focused on is grassroots marketing campaign and building from there, right? So it will be very targeted. It will be very specific but it will be certainly exponential in terms of what we're spending today. And we feel like just given where we are, we've got a great opportunity to kind of build out this campaign given the -- already our high consumer appeal amongst consumers who tried our product and repeat purchasers as well. So I think there's a story that we have to tell there, but we'll be very targeted and specific as how we use those dollars, which is -- it's a new area for us in terms of investing in marketing, but we'll do it grassroots and it will be very targeted. Operator: Our last question comes from Sean McGowan from ROTH Capital Partners. Sean McGowan: Actually, 2 questions. One quick housekeeping. Doug, do you have a sense of what the timing could be on the uplist? And whether those steps need to be taken to satisfy all those requirements? And then more broadly, on the last call, we talked about maybe having lost some listings or some outlets. What progress have you made on kind of reestablishing some of the existing customer base that you had and getting back some listings that you may have lost? Douglas McCurdy: Yes. Thanks, Sean. Nice to hear your voice. In terms of timing for all things uplifting and related, I think the first kind of milestone that we were able to achieve to move forward with that was affecting the 1-for-6 reverse stock split. So on Friday at 5:00 p.m., we were able to get ourselves in a place where we could affect that. Our stock began trading under the ticker RED with an extra D, 2Ds, which signifies corporate action that there's a split. But we began trading yesterday morning at the open on a split-adjusted basis. So we'll kind of watch that settle out. We'll monitor the market and where we are in terms of some of the other preparation considerations. But in an ideal world, we would be able to move forward prudently, but get to the point where we could uplist to the major exchange sooner rather than later because we think that there's nice value for our existing investor base and a nice opportunity for potential new investors as well. Cyril Wallace: And then, Sean, to answer your question around loss distribution, yes, we're doing some work to build that into our AOP for next year, and it's certainly a focal point for us. What I'm excited about is that we are starting to see some of that business come back, which I highlighted in my earlier comments around key regional wins at Harmons, Fashes and Festival Foods. There are some obviously larger, more strategic retailers that we're focused on regaining some of that lost distribution or also getting back in. And I think Keith and the team are really going to be focused on that in the first quarter of next year. And I think the story to tell, which is where we saw successes already with winning back some of these regional accounts is we got to do what we say we're going to do, right, build -- leveraging the relationships, but also telling the story of how the team has done a nice job of kind of rebalancing and reentering our sales around our operational efficiency and maintaining that quarter-over-quarter and being able to prove it out to show the customer that they can count on us from an in-stock perspective. that, along with just continuing to rebuild these relationships, I think, will allow us to be able to get back in to some of these retailers. Not only that, but I would also highlight we're now talking and moving in a position where we're building our innovation pipeline. So that will get customers and retailers excited about leaning in as well. And then this whole notion of this core restage of our Reed's functional line and also our core products is something that also that we're leaning on. So I think we continue the course, stay focused on operational efficiency, continuing to maintain that, we'll be able to continue to regain some of these lost customers that we lost. Sean McGowan: Okay. And if I could follow that up, at the risk of sounding maybe a little impolitic. Do you think that the experience that some of these guys have had with the past couple of years of some being late or not delivering on time? Is that going to make it harder to launch a new product? Or are they willing to give you kind of a fresh look? Cyril Wallace: No, I think -- I mean, obviously, I can't speak for retailers and put words in their mouth. But I think any time a CPG company goes to a buyer with a new proposition, right, they've got to make sure that it makes sense for the category and make sure it makes sense for the set, right? What is the innovation? Is it an A1 type innovation? Or how does it separate itself from anything else that we're currently selling. So I think there's always a story to tell as it relates to trying to sell innovation or a new item or even your core flavor extension in where there may be already a flavor that exists today. So there's certainly work to be done to go tell that story. I don't think it makes it any easier or harder. I do believe that given our recent history, building that confidence in terms of operational stability helps us to kind of tell that story and shore up that end of the equation. The other thing is just in terms of which is normal for any type of CPG that's going in talking to a buyer around innovation, how does this innovation work for me? How does it drive consumer engagement and appeal? And does it make sense for our sets. Operator: There are no further questions at this time. I will now turn over the call to Mr. Wallace. Please continue. Cyril Wallace: Thank you, operator, and thank you for joining us today. I want to express our appreciation to our employees, customers and shareholders for their continued support. We're excited about the opportunities ahead, and we believe we are well positioned to execute on our 2026 plan. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. Welcome to Eaton's Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Yan Jin, Senior Vice President of Investor Relations. Please go ahead, sir. Yan Jin: Good morning. Thank you all for joining us for Eaton's third quarter 2025 earnings call. With me today are Paulo Ruiz, Chief Executive Officer; and Olivier Leonetti, Executive Vice President and Chief Financial Officer. Our agenda today include opening remarks by Paulo, then he will turn it over to Olivier who will highlight our company's performance in the third quarter. As we have done on our past calls, we'll be taking questions at the end of Paulo's closing commentary. The press release and the presentation we'll go through today have been posted on our website. This presentation includes adjusted earnings per share and other non-GAAP measures. They're reconciled in the appendix. A webcast of this call is accessible on our website and it will be available for replay. I would like to remind you that our commentary today will include statements related to expected future results of the company and are, therefore, forward-looking statements. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties as described in our earnings release and presentation. With that, I will turn it over to Paulo. Paulo Sternadt: Thanks, Yan, and thanks, everyone, for joining us. I'm happy to report we delivered solid results. From a demand perspective, we continue to see tremendous strength. On a rolling 12-month basis, our orders accelerated in Electrical Americas, up 7%, from up 2% in Q2. Our Electrical Americas backlog grew 20% year-over-year, hitting an all-time record. Demand in Aerospace business remains very strong as well. We posted order growth of 11% on a rolling 12-month basis and backlog expansion of 15% year-over-year. As a result, our book-to-bill for the combined segments was 1.2 on a quarterly basis and 1.1 on a rolling 12-month basis. As we continued to deliver robust growth in data center market, our orders accelerated 70% and our sales were up 40% versus Q3 2024. This strong demand picture gives us confidence in our ability to deliver sustained growth and add value to shareholders. Among the Q3 highlights, our adjusted earnings per share were up 8% versus prior year, and our segment margins of 25% hit a quarterly record up 70 basis points year-over-year. We're also reaffirming our 2025 guidance. Lastly, yesterday, we were excited to announce the agreement to acquire Boyd's thermal business, a global leader in liquid cooling. And I will talk through this in much more detail in the following slides. Olivier and I will dive into Q3 and the full year outlook in just a minute, but first, I'd like to share more details on how we are investing and executing for growth in our operations, starting on Page 4. So earlier this year, I laid out our bold new strategy with 3 pillars: lead, invest and execute for growth. All 3 are designed to accelerate our growth and create sustained value for shareholders. These 3 pillars also enable us to capitalize on key megatrends we've discussed for the last few years. Today, we will focus on invest and execute for growth. The Boyd acquisition fits squarely into our strategy to invest for growth. Executing for growth involves elevating operations from good to best-in-class. It includes self-help growing the head and fixing the tail and controlling our destiny independent from end market developments. Today I'll walk you through a few examples of what we are doing and the results we are starting to see from this strategy. Turning to Page 5. Yesterday, we announced the acquisition of Boyd, the global leader in liquid cooling technologies for critical markets like data centers, aerospace and defense and industrial. This is a high-growth business playing a high-growth market, and we expect it to generate $1.7 billion in sales next year at an adjusted EBITDA margin of 25%. This level of sales represents significant year-over-year growth, demonstrating how the business is benefiting from strong customer demand, especially in data centers. And the business itself has a large global presence with over 5,200 employees and 16 manufacturing locations. This global presence is critical to Boyd's success as they are able to support customers almost anywhere in the world as they build out their data center infrastructure. Of those 5,200 employees, over 500 are engineers, which is another important part of Boyd's success. These engineers work directly with the customer teams design the next chip platforms to understand the thermal characteristics of this next generation. And then this knowledge gets translated into Boyd's own designs. Boyd's manufacturing engineering teams are also involved in the design of the cooling systems to ensure the highest reliability and the production can be rapidly scaled to meet customer needs anywhere in the world. This deep application engineering expertise combined with world-class manufacturing and supply chain create a powerful flywheel for Boyd to always stay ahead of the competition in terms of technology, reliability and scalability. On Slide 6, we show some market data. As we talked about previously, the chips used to power AI models and other high-performance compute applications are getting more and more powerful. If you look at the data, before the advent of GenAI, the power used in a typical rack was in the 10 to 15-kilowatt range. At this level, you can cool this chip using air cooling, which is a pretty mature technology and has been around for many years. Now, the introduction of more and more powerful AI chips, the power in each one of those racks is just skyrocketing. Take NVIDIA for example. Its GB200 chip unveiled in 2024 uses 120 kilowatts per rack. Fast forward a year to 2025 and NVIDIA's GB300 chip now uses 180 kilowatts per rack. And it's only increasing from there. NVIDIA's Rubin chip is expected to use 600 kilowatts per rack, and its Feynman chip, 1,000 kilowatts per rack. Now in addition to these higher-power chips requiring more and more electrical equipment, which is a great thing for our business, once you get above roughly 50 kilowatts per rack, traditional air cooling is replaced by liquid cooling. The physics of these power levels require liquid-cooling the chip, otherwise performance is degraded, chips don't last as long or they just might not work at all. So all the demand that you are seeing for GenAI chips will drive commensurate demand for liquid cooling solutions to cool those chips. The growth goes hand in hand. Market estimates vary, but we believe that the global liquid cooling market will grow around 35% annually through 2028: just tremendous growth that is supported by long-term underlying factors. And to go back to my point from the prior slide, Boyd is the global leader in liquid cooling, which is why we are so excited about this business. With the acquisition of Boyd, Eaton's data center portfolio will now be even bigger than before, shown in more detail on Page 7. We can now provide solutions for all major power and cooling systems from the chip to the grid. This includes all of our traditional power distribution, power quality and infrastructure products in the data center gray space. And here you can see our other 2 recent acquisitions of Fibrebond, modular parts; and Resilient Power, medium-voltage substation transformers. And in the data center white space, we can provide everything from power distribution units, remote power panels and busway, to racks, enclosures, cable tray and, in 2026, liquid cooling. And of course, I need to mention our software and services capabilities, which we historically have been focused on the gray space and the white space power distribution and power quality equipment only, and now we added the same service capabilities for liquid cooling, which we view as a really attractive avenue for growth. Truly an impressive portfolio of solutions for data centers. Moving to Page 8. I already talked about how this acquisition bolsters our data center portfolio, and I also want to mention how it aligns with how our customers are thinking about the future data center architectures. Starting from the chip out, there are really 5 main technology blocks that work outwards toward the utility grid. There is a thermal management system to handle heat loads, primarily from the chip, but also from other heat-generating assets like storage devices and power supplies. There is white space power distribution and infrastructure equipment to get that power to the racks. There is the grid equipment to distribute, transform and condition medium-voltage AC power down to low-voltage AC and then low-voltage DC power. There is Eaton assets to connect the data center to the grid. And finally, there is software and services to monitor and manage all these power and IT assets. So with this acquisition of Boyd, Eaton now plays a leading position in each one of those technology blocks. One reason this is important is that we can now offer our data center customers a greater share of wallet. This is important as they seek to consolidate their supply base among a smaller set of stronger, more globally capable players. And the other important reason is that customers are increasingly looking to integrate these various systems to drive increased technical performance and more rapid deployments. This is especially true in data center white space, which is exactly where Boyd plays. So overall, a really exciting acquisition for us and one that we know will allow us to continue supporting our customers today and into the future. Now let's pivot to execute for growth, another exciting important pillar of our strategy. So on Slide 9, these are key leading indicators in Electrical Americas. This segment is clearly the head of our portfolio, and we have an execution plan to grow it even stronger and with increased margins. All leading indicators on this page are proof points of the generational growth opportunity ahead of us. They also show that our team is executing well to capture this growth. The visibility is unprecedented. So let me walk you through what we are seeing. Over the last 2 years, the mega-project announcements have increased a staggering 185%. In the same time frame, our negotiations pipeline have increased 35%, following into rolling 12-month orders up 23% on a 2-year stack and a book-to-bill of 1.1. For data centers specifically, the 2-year stack of rolling 12-month orders are up more than 100% and the data center book-to-bill is 1.7. Electrical Americas backlog is up 51% over the last 2 years, of which data center backlog extends over 2 years. On a 2-year stack, Electrical Americas has grown 23% organically, and we think that data centers have grown 104%. So the demand indicators clearly support why we are so bullish for this business. Our position of strength in the Americas keeps resonating across the market. We are proud to have the broadest portfolio of electrical products in the market, to cultivate strong and trustworthy relationships and to be the partner of choice to codesign the technologies of the future together with our key customers. Slide 10 showcases Electrical Global organic growth journey. Last year we grew 4%; this year, approximately 7%. We've talked about the focus to increase Electrical Global margins, well, we continue to make strong progress. Our 2025 guidance reflects year-over-year margin expansion of 100 basis points. And let's talk about the growth rates in Electrical Global now. Our Electrical Global organic growth is accelerating, up to about 7% in our 2025 guidance from 4% last year. Our 2030 target of 6% to 9% growth for the portfolio assumes about a middle single-digit growth over the period, and we are off to a great start. We are seeing order acceleration, building strong backlog and positioned to win for years to come. We've talked about being in the right markets, targeting fast-growing markets supported by secular mega-trends. For example, the data center growth is impacting our business globally as governments and enterprises are prioritizing data localization and resiliency, and we are partnering with our hyperscaler customers in various parts of the world. And by the way, all these data centers need power, and we are a key beneficiary of our global utility space as well. And we have a broad portfolio with breadth and capabilities leveraged across end markets. All these enable us to win and position us to gain market share on the global front. The strategy is clear, and as you'll hear from Olivier soon, we are booking sizable orders already, which is momentum to position us for strong growth for years to come. Now I will pass to Olivier to walk through the financials. Olivier Leonetti: Thank you, Paulo. I'll start by providing a brief summary of Q3 results. Organic growth for the quarter was 7%, driven by strength in Aerospace, Electrical Americas and Electrical Global, partially offset by weakness in short-cycle markets, including Vehicle and eMobility. Otherwise, organic growth would have been almost 10%. We generated quarterly revenue of $7 billion and expanded margins by 70 basis points to 25%. Adjusted EPS of $3.07 increased by 8%, which is at the high end of our guidance range. Now let's move to the segment details. On Slide 12, we highlight the Electrical Americas segment. The business continues to execute at a high level and delivered another record quarter on operating profit, and Q3 record margins. Organic sales growth of 9% was driven primarily by strength in data centers, up about 40%. Operating margin of 30.3% was up 20 basis points versus prior year, benefiting from higher sales and increased operational efficiencies. Orders accelerated to up 7% on a trailing 12-month basis, from up 2%. This represents a strong acceleration, with total quarterly orders up sequentially by more than 11%. We are confident that we will have an all-time record level of orders booked in 2025. Book-to-bill remained at 1.1, and our backlog grew by $2 billion or 20% to $12 billion, providing strong visibility for our organic growth outlook. Now I'll summarize the results of our Electrical Global segment. Total growth of 10% included organic growth of 8%, so a very strong performance for the quarter. We have strength in data center, residential, commercial and institutional and machine OEM. Regionally, we saw high single-digit growth across all 3 regions. Operating margin of 19.1% was up 40 basis points over prior year, driven primarily by sales growth, partially offset by higher inflation. Orders were up 2% on a rolling 12-month basis, with mid-single-digit growth in APAC and EMEA. EMEA orders increased by more than [ 30% ], driven by data center orders, including sizable orders in the Middle East and a large order with a hyperscaler in Scandinavia. This represents strong acceleration with quarterly orders up sequentially 15%. Backlog increased 7% from prior year, while book-to-bill remained above 1 on a rolling 12 months basis. Before moving to our industrial businesses, I'd like to briefly recap the combined Electrical segments' performance. For Q3, we posted organic growth of 9% and segment margin of 26.6%, which was up 40 basis points over prior year. On a rolling 12-month basis, orders accelerated to up 5% and our book-to-bill ratio for our Electrical sector increased to 1.1. This represents continued acceleration with quarterly orders up sequentially by 13%. We are very excited to capture growth from the robust demand with strong margins in our overall Electrical business. Page 14 highlights our Aerospace segment. Organic sales growth of 13% remains at the high end and resulted in Q3 record sales, with broad-based strength across all markets and particular strength in defense aftermarket. Operating margin expanded by 150 basis points to 25.9%, driven primarily by sales growth. On a rolling 12-month basis, orders increased 11%, driven by defense OEM and aftermarket up 16% and 14%, respectively. On a 2-year stack basis, trailing 12-month orders are up 70%. This demonstrates strong momentum with quarterly orders increasing over 9% sequentially. Our book-to-bill for our Aerospace segment remains strong at 1.1 on a rolling 12-month basis, resulting in backlog increase of 15% year-over-year and 4% sequentially. Overall, Aerospace posted a solid Q3 and remains well positioned going forward. Moving to our Vehicle segment on Page 15. In the quarter, the business declined by 9% on an organic basis, primarily driven by weaknesses in the North America truck and light vehicle markets. Margins are down 160 basis points year-over-year, primarily driven by lower sales and higher inflation. On Page 16, we show results for our eMobility business. Revenue decreased 19% from 20% lower organic, partially offset by 1% favorable FX. Operating loss was $9 million in the quarter. Now I'll pass it back to Paulo to go over the remainder of the presentation. Paulo Sternadt: Thanks, Olivier. Here on Page 17 is our updated guidance for the year for organic growth and operating margins. We are reaffirming our growth guidance range of 8.5% to 9.5%. We'll likely end up at the low end of this range in total, primarily due to market dynamics in our Vehicle and eMobility businesses. We are also reaffirming our margin guidance of 24.1% to 24.5%, with minor revisions between Aerospace and eMobility. Moving to Page 18, here's the outlook for Q4 and our updated guidance for the year. For the upcoming quarter, we see EPS of $3.23 to $3.43, representing 18% year-over-year growth. We see organic growth at 10% to 12%, which is a reacceleration of growth for the company. And for the year, we are reaffirming our adjusted EPS guidance at $11.97 to $12.17, which includes our near-term investments to position us for sustained long-term growth. And this represents 12% growth in earnings per share at the midpoint, which I promised you in March. Shifting our perspective ahead to 2026 on Page 19, we provide our view of end market growth assumptions for the year. All in, this equates to about 7% market growth rate and, with some outgrowth, is consistent with our 2030 organic growth CAGR of 6% to 9%. I won't go line by line here, but this chart shows that we anticipate growth across our end markets with attractive growth for over 70% of our portfolio. In particular, the data center, distributed IT and electrical vehicle markets are expected to be the strongest, up double digits. We also expect solid growth in the utility end market along with both commercial aerospace and defense. In summary, we continue to see many paths to our sustained growth, and we are confident in our end market positioning to deliver another differentiated year in 2026 of growth and strong shareholder returns. I will close with a quick summary on Page 20. We had a strong quarter, Q3 record revenue and an all-time record on segment profit and margins. We are seeing unprecedented demand reflected in continued order acceleration and growing backlogs. Our strategy to lead, invest and execute for growth is positioning us to capture generational demand and deliver lasting value for our shareholders. We look forward to welcoming and integrating Boyd into our business and satisfying our customers with a complete solution offering. Bottom line, we have confidence in our guidance to close out the remainder of the year, and we are well positioned as we go into 2026 and beyond. And we remain confident that our brightest days are yet to come. And with that, we are happy to take your questions. Yan Jin: Thanks, Paulo. [Operator Instructions] With that, I will turn it over to the operator to give you guys the instruction. Operator: [Operator Instructions] Our first question comes from the line of Andrew Obin from Bank of America. Andrew Obin: So I know orders, maybe you guys don't want to talk about them, but investors certainly do. Maybe we can talk about Electrical Americas LTM orders outlook. Electrical Americas orders continue to accelerate on an LTM basis, I think it was 2% in second quarter, 7% in third quarter. So what's your expectation for orders in fourth quarter and the beginning of '26, if you're willing to talk about it? Paulo Sternadt: Sure. Thanks for the question, Andrew. Based on the orders momentum we had in Q3 and a very strong October in orders, and we also have a growth in our negotiations pipeline, we have a lot of visibility into Q4 orders. So we remain very bullish about our orders growth also in Q4. And I say that because we continue to have specific projects that we track in the pipeline that support this outlook that I'm referring to for strong order acceleration of LTM orders into Q4. So we are bullish about orders. Andrew Obin: Excellent. And maybe we can talk about Electrical Americas quarterly orders. You only disclose orders on an LTM basis. But I think externally, we do estimate your orders on a quarterly basis in Electrical Americas, I think we sort of came up like mid-20s to close to 30% year-over-year. Is that in the ballpark? And is it close to 30% or is it close to 25%? Paulo Sternadt: Another great question. Based on these LTM disclosures we make, we know that people externally estimate quarterly orders as well. I would say this direction, your estimate, is in the ballpark, I would say towards the higher end of your estimation. So we continue to see strong inflection in orders in Q3. And as I just said, we continue to see momentum in Q4. But most importantly, I would like to remind you and the whole team why we are winning businesses at this pace. I think it's important we talk about it. We have this success because we have the broadest portfolio of electrical products in Electrical Americas. We have all the solutions and services. We count on strong channels. And we also have deep customer intimacy, so we codesign future technologies with our customers. And this allows us to be a leader in several end markets. I'm not talking only about data centers, but we also lead in utilities, we had very strong orders in utilities, C&I, et cetera. So every investment we make into Electrical Americas actually scale across many different end markets. And as you know, we're expanding our footprint in North America as well to better serve our customers and to continue to capture more than our fair share of the market. And at the same time, I would say this, that we are also in the position of strength that we have today and winning all these orders because of the way we intentionally position our portfolio. So we have proven to be disciplined, proven to be nimble, progressive, and we continue to make the right moves to boost our growth. So we believe the best days and years are ahead of this business yet. Olivier Leonetti: And Andrew, as there was a lot of focus also on data center and hyperscalers, the growth on orders in this particular vertical was very strong. In the Americas, close to 70%, same number for Global. And in total for the Electrical sector, close to 70% order growth in the quarter for data center and hyperscalers. Paulo Sternadt: Yes. And I'll just conclude by saying that we are beating every competitor in the market in orders. And part of this is attributable to the portfolio and our sales channels and the relationships. But partially is also to the fact we are investing in our footprint, and our customers feel comfortable and confident in giving us more orders versus other competitors. So I think that's also a point that I would like to stress. Andrew Obin: Well, I'll let others to ask how Boyd was going to help you with that. Operator: And our next question comes from the line of Andy Kaplowitz from Citigroup. Andrew Kaplowitz: Paulo, you previously said that AI data centers can get you $1.2 million to $2.9 million in sales per megawatt and that you expect data center growth to be 17% over the next several years. But as you suggested today, Eaton and the market have changed, even since your Investor Day, with the market beginning to evolve toward 800-volt DC power architecture. And you added Fibrebond and now you're obviously adding Boyd. So can you talk about what total Eaton sales per megawatt within your eventual new portfolio could be? And do you ultimately see the data center market growing considerably faster than that 17%, with Eaton outperforming? Paulo Sternadt: Yes, great question. Let me lead with this. We mentioned to you before that we have the broadest portfolio of power management solutions for data centers. We had it already even before the announcement we made yesterday. But starting with the white space products. The white space is centered around the chips. And moving to the gray space, we have all this power distribution, power quality products, and all the way to the front of the meter where we have our utility grid products. So we have a very extensive portfolio. And the recent acquisitions we made, made our position so much stronger. And as you know, the data centers exist to support the chips ultimately. And as these chips become more and more powerful, especially in support of AI workloads as you mentioned, data center operators are moving towards direct current. Why is that? Because direct current offers advantages in terms of reduced power losses, fewer conversions with alternate current, and the ability to offer direct integration with other sources of power just like renewables and battery storage. And Eaton is extremely well positioned for this change, not only because today our products touch every conversion of AC and DC in the data center, but also because we have decade-long experience with dealing with DC power in other segments, like machinery, industrial facilities and also eMobility, we're dealing with DC power for a while. So this is another example that makes Eaton unique in this space. And the Resilient Power acquisition we made a couple of quarters ago actually accelerates our readiness for DC integration right from the utility feed down to the chips. So the question you made is how this can be possible. We are working with a number of customers. We're also working with institutions and governments, and we have a seat on the table to decide on the codes for the new systems. And we also, as you probably know, we are partnering with NVIDIA, so we design the data centers from the chip out. On your specific question on the dollars per megawatt, our range was between $1.2 million to $2.4 million per megawatt, being the lower end cloud and being the higher end AI loads for the portfolio we have today. And with the acquisition of Boyd, we're going to add another $500,000, so it will be close to $3 million per megawatt at the high end of the guide here for construction. Andrew Kaplowitz: Paulo, that's helpful. And then maybe just for Olivier. Your organic revenue growth in Electrical Americas slowed in Q3 versus Q2. I think the comps are pretty similar. I think you also have more capacity coming on. So can you give us more color on what happened in your end markets? Was maybe residential slower? And I know you have a relatively big implied ramp in Q4, easier comps help. But where is that coming from? Is it data center revenue growth? And how does that translate into '26? Olivier Leonetti: So if you look at Q3 on organic growth for ESA, we had 2 factors impacting our sales to the downside. One, residential being slower in September; and two, some small orders, some orders being delayed from Q3 to Q4. We are confident that we'll catch up in Q4. If you look at the implied revenue guide for ESA, that would be in the range of 17% to 18%. We're confident in our ability to deliver this kind of revenue growth as we're adding capacity. Paulo Sternadt: I'd like to complement this -- just to complement what Olivier said, which is absolutely right. I'd like you to take this into perspective. This miss of Electrical Americas to the midpoint of the guide, if you calculate the dollars, are $80 million, 8-0. If you think about the future performance of the business and the overall company, it's not comparable, it's not really important, if you compare versus the backlog sequential increase we had for the company. The backlog increase from Q2 to Q3 for the overall company is about $1 billion, being $600 million only in Electrical Americas. So that's what gives us the confidence we have the right number going forward. And then a reminder, last year, we had also a tough Q4 because we had impacts of strikes and hurricane. So the comparable as well helps in this case year-over-year. Operator: And our next question comes from the line of Chris Snyder from Morgan Stanley. Christopher Snyder: I wanted to follow up on some of that Q3 versus Q4 commentary, but specifically more on EPS. So Q3 EPS was up, I guess, 8% year-on-year. You're guiding Q4 at the midpoint up to 18%, above the full year of 12%. So is that just all driven by the Americas seeing stronger organic growth, which you just talked about? Or are there other factors in here that's driving that sharp pickup in earnings growth? Olivier Leonetti: Mainly other factors. If you look at, first, the tax rate, last year our tax rate in the quarter for Q4 was 17.4%. We are modeling 15%. The 15% is supported by discrete tax items. This is under our control. So that would be half of the difference between the 18% and the 12% for the full year. And the other half is a compare benefit. Paulo mentioned that last year we had the impact of strike and hurricanes, which impacted EPS and would benefit from the compare as well. So between the 18% and the 12%, 50-50 of the gap between tax and the compare, Chris. Paulo Sternadt: And Chris, just to add one element to this, just to complete the picture here. If you adjust by the 2 factors that Olivier just mentioned, the EPS growth will be around 13%, which is a little bit higher than the average of the year. So that gives us confidence that we can hit that. Christopher Snyder: I appreciate that. And maybe if I could follow up with one maybe more thematically around the Boyd acquisition. I imagine that there has always been some benefits if you were able to supply customers power equipment into both the gray and white space within data center. But it does seem like the ability to supply both is getting more important. I don't know, maybe that's on the move to 800 volts, I'm not sure. But I guess, Paulo, from your standpoint, is the ability to sell into both the white and the gray space becoming more important? And was that a big -- and if so, why? And ultimately, is that kind of a big motivation for this acquisition? Paulo Sternadt: Yes. No, great question. If you'll allow me, I'd like to give you a big picture rationale on the acquisition, we can deep-dive on this particular topic. We are excited about the data center market. We all know it's growing at a very fast pace. But if you look at liquid cooling in particular, it's growing at even faster pace than the average of the data center market. So you saw in your chart, in the low point, projection of the market is 35% CAGR. So market will be between $6 billion and $9 billion already in '28. In 2030, we expect the market to be between $15 billion and $18 billion. So it will be a massive market. And I told you, I think it's important I get back to that point, I told you last quarter that the white space became much more interesting for Eaton given the power ranges that now also go into the racks, moving from a few kilowatts to a megawatt, which is at sites now. And this makes a remarkable change in the way we design the power solutions, to be more attractive for Eaton having mission-critical solutions here. And then if you look at the cooling portion of it, there are technical synergies in the way you design the white space from the chip out, and that's what we are interested in, and converting power and cooling technology and knowledge to come up with better designs for our customers. Then, why Boyd? I would say I would start with this. Firstly, they really have similar DNA that Eaton, which means that they lead with technology and innovation. Second, they are the market leader, so that provides us with a scaled entry into the market, not the suboptimum assets we saw on the market before. This is a market leader. They have a global footprint, which is impressive, in all 3 continents, and a best-in-class engineering team because they have around 500 engineers and they are the best cooling experts on the market. So we like what we see. And we also like the way they sell it because they work through technical sales, meaning they work intimately connected with all the chip companies. So think about the merchant chips like NVIDIA, AMD, but they also work on the captive proprietary custom silicon developers which are the hyperscalers. So they are in those development projects for the long run. So they know 2 or 3 generations ahead of what is commercial today, what's going to be delivered, because they are part of those projects. So talking about synergies here, first of all, Eaton, in our power portfolio, we can leverage this connectivity they have with the chip manufacturers and the hyperscalers on their own chips to leverage our power system designs as well. So they have the customer intimacy. On the other end, we believe we can help them grow their co-location, multi-tenant market. We have better access and better relationships than them. And then we also can help them reducing their cost position given our purchasing power at Eaton. So this business is growing really, really fast. And this year they're going to reach $1 billion in revenue. Next year they're going to reach $1.7 billion in revenue, which is a staggering 70% growth. We double-clicked on that during diligence, and their Q4 exit rate is already $400 million, which gives $1.6 billion if you multiply it by 4, making this $1.7 billion plan not only achievable, but there is upside next year. So I mean, everything we saw from that angle made us believe that was the right asset to go after. And we also know that we keep our discipline with the returns between 200, 300 points, being accretive on year 2. So all the good stuff. So the asset is fantastic. I'm really excited about winning this business, especially because we've been working, getting them to know as a supplier first for over a year, getting to know the teams, the technology. We hired independent consultants to browse all the cooling players. And all the inputs we got pointed to Boyd as the best option for us. So when the asset came to market, we knew exactly what we wanted to check, we knew what plants we wanted to visit, we had an idea on the talent we wanted to retain. So we were quick. We were fast. And we won by certainty of our proposal, fully vetted by our Board, not necessarily because we were bidding higher than other folks. So a great step for us, a great step for the business. And we believe that combining these 2 technologies in the future will bring a lot of wins for the company, even though I'd say we didn't need to put much of the synergies into the model to make the math work, because the business is growing so fast that it wins on its own merits. Operator: And our next question comes from the line of Joe Ritchie from Goldman Sachs. Joseph Ritchie: Paulo, maybe just continuing the conversation on Boyd. I'm just curious, when you think about this asset and how long they've been providing liquid cooling or CDU solutions to data centers, maybe help us provide a little bit of a history on that. And then secondly, we're trying to level-set the portfolio of their business that you've laid out on Slide 5. I'm curious specifically, how much is liquid cooling, how much is cold plate? Just any color you can give us on that would be helpful. Paulo Sternadt: Great. So the company historically started by designing cooling systems for aerospace, which is a great place to start because it's very stringent, tough requirements, tough engineering solutions. And they really got traction there. And then when cooling became a reality in the data center space, they migrated to cooling in data centers. You should think about Boyd as over 80% of their revenues are in the data center space and the other 20% are divided between aerospace and industrial applications. So the data center part is growing at a much faster pace, as you know. But the aerospace part is also interesting. We were working on our own projects to achieve exactly that. And now with that technology, we don't need to continue with those projects any longer in Aerospace. It's also important, but not any close to the growth rates that we see in data centers. And as you think about Boyd, they are not a -- don't think of Boyd as a cold plate company. They are the cooling experts on the market. When you have 500 engineers and you are embedded into 2 or 3 generations of chips ahead of what's commercial today, you know what's going to happen in the next 5 years and you are designed in. And it's almost like the same behavior we have in the Aerospace selling. You get to develop something with your customers, you win and you are in the platform. The difference here is that the aerospace platforms change every 30 years and the chips change every 18 months. So they are ahead of the curve for the new designs to come to reality, which gives them a lot of advantages. I'm going to explain what I mean by that. When solutions are stable, people will try to copy and do it cheaper. When the design is changing every 18 months, there is no way a company can catch up with them, unless you have a seat on the table, you're working with the engineering teams of your customers. That's exactly how they play. So we felt really comfortable with that. And then they have a long range of products in the cooling space, and they also have systems and they have systems capabilities. So the way to think about the future of this business is: whatever makes more sense to the customers, they will develop and they will implement. They will not be fighting for Product A or Product B. They will always be offering the best solution to make the chips work perfectly fine. So that's how they are wired. We love the way they conduct themselves. And we talked a lot about engineering side of it, but they also have a great footprint with plants in Asia, Eastern Europe, North America and cutting-edge, lean qualities as well. So it's a well-run business. And we know we can scale. We know we can scale that business, and we will. Joseph Ritchie: Got it. That's super helpful. And then just a quick follow-on question on EA backlog. So you've grown the backlog by about $2 billion year-over-year. It sounds like you have an expectation it will continue to grow through the end of the year. Just how are you thinking about 2026 just given the strong growth that you're seeing and potentially continuing to see backlog growth in EA in '26? Paulo Sternadt: Yes. So particularly on Electrical Americas, through Q3, we saw this backlog growth of 20%, which includes 9% organically. And on LTM basis, our book-to-bill was 1.1, as I said before. We were supported by higher growth in our end markets and also because, as I said before, we are investing and the customers are trusting us. So great results for Q3. As we look into Q4, and I said before we are bullish about orders growth once again in Q4, we see momentum in negotiations in orders, so it's very possible that our backlog at the end of '25 will be up year-over-year at similar growth rates as Q3 was versus last year. So there are indications that could be possible. And the book-to-bill could also improve beyond 1.1 as a consequence. For '26, the second part of your question, I would say it's a bit too early to call. We will have more to share when we provide our guidance in February. One thing is for sure, I want to share with you. We will start 2026 with record backlogs and enormous -- just enormous visibility into the fiscal year. That's a guarantee. Operator: Our next question comes from the line of Nigel Coe from Wolfe Research. Nigel Coe: Just want to change gears a little bit here and maybe talk about Aerospace. Perhaps you could just unpack the drivers of the Aero performance and, in particular, the margins and, obviously, very strong leverage there. So just wanted to understand what's driving that. Paulo Sternadt: Okay. Great. Well, you probably remember, Nigel, that we shared in March our plan for the Aerospace business to go to 2030 and to reach 27% margins. John Sapp explained that to the whole team. I will start by saying that we are on the right track to deliver on 2030 commitments. I see great performance by the Aerospace team this year that supports my statement. I'll give you more detail on that. Firstly, I want to say, which is really important for this business, they landed historical wins on new platforms that were available, defense platforms. So those historical wins will give us a lot of revenue decades to come. So the long-term view of this business is fantastic and incredibly strong. For the short term, I'm again proud of the team as they keep ramping volumes consistently and improving customer satisfaction while they do that, which is also great. So if you compare, this business last year we grew 10%, and this year we're yet again raising organic growth guidance up 100 basis points to the midpoint of 12% this year, which is a great year-over-year performance. And on the margin front, we start to see upside from some of the key strategic levers, which are driving already 70 basis points of margin expansion. So I would say we are on track to reach the 27% margins we promised for 2030. You asked for details where we are working to improve margins. The first thing is no surprise in the industry: supply chain. We invested in AI tools to improve planning and the connectivity between our suppliers and our customers, including our plants. This is growing well. Second, we are investing in manufacturing excellence, improving the way Aerospace runs the show. And it's also going in the right track. And third, I would say this, we also -- although there is not the massive investment we had in Electrical Americas, Aerospace is also expanding a couple of plants and they're doing that very well. But their growth is basically getting more products out of the same facilities they have, which is great performance. And fourth, I would say this, we talk about portfolio management, both for the short term and for the long term, I see also green shoots here. You've heard me saying before, we treat every GM as a portfolio manager. So John Sapp and his team, they took care of some contracts that we saw as a tail of the portfolio, and they renegotiated those contracts, which will give us better margins in the future. And the other thing I want to highlight, which the team also landed, I don't want you to forget, is that the Ultra PCS announced deal is a great example of an asset we will acquire that will add to the top line in terms of growth acceleration and will start adding to the margin, being accretive to margins right away. So it's a great asset. And we expect now to close this year, in Q4, rather than beginning or the first half of next year, which is also great news. So I would summarize by saying I'm proud, really proud of this team, and I'm confident that they will deliver on their commitments towards 2030. Olivier Leonetti: One additional statistic, Nigel, if I may. The 12% revenue guide for the year will also assume a backlog growth. So we're not flushing the backlog. We are growing faster than prior year and adding to the backlog. As a reminder, the backlog in Q3 was 15% higher than it was a year ago. Nigel Coe: Yes, that's great color. And then second was margins. There's a lot going on in the Americas margins, price, tariffs, investment spending, et cetera, obviously, a lot of volume leverage as well. So just wondering how we should think about incremental margins in 2026 and how that all plays out. Paulo Sternadt: Yes. I will start and then I'll allow Olivier to provide more color. It's too early to talk about 2026 margins, but I think Q3 was a good proxy where the top line didn't come to the levels expected and the business could produce very good margins. And why was this possible? First, because we had a backlog we could deliver on. Second, because the team now covers for all the tariff costs and is not a drag on the margins. So it's not only recovering on the dollar-by-dollar basis by the end of the year now, but also it's not dilutive to margins, which is great news. Where are we now in Electrical Americas? That's exactly the discussion we should be having. Think about a business that has been growing consistently with the same portfolio of plants, and all of a sudden, now they're expanding 12 facilities at the same time. So 6 are built and they start to ramp. Other 6 are in building phase. So it's a lot of activity in that business, preparing us to start a new S curve, a new chapter of growth for the business. That's the way to think about Electrical Americas. Our customers trust that, and it's proven by the amount of orders they are giving us, which is it's just fascinating to see that quarter after quarter. So that business is exactly getting ready for all this demand that we announced the expansions at the right time. And we realized, with all this order momentum we have, we need to accelerate investments, get the people ready so we can produce on this backlog that we count on today. And with all that, we have over 100 basis points of inefficiencies, minimum, that we have, by dealing with those inefficiencies and all this turmoil, are ramping 6 facilities at the same time. So we're going to give you full guidance in February for 2026. But in '26, you should expect that we continue to ramp, so some of those inefficiencies are still going to be there. But they're going to disappear over time, and then we can print even better margins for Electrical Americas. Operator: And our next question comes from the line of Jeffrey Sprague from Vertical Research Partners. Jeffrey Sprague: Hey, a lot of ground covered. I just want to come back to Boyd one more time, at least for me. Just a little more color sort of on some of the deal assumptions. Paulo, that was very helpful, giving us the $1 billion to $1.7 billion. That was part of my question. But this 25% margin that you're pointing to, is that their organic margin? Is that kind of comparable to Eaton accounting? Or do you have some synergies baked into that number? Paulo Sternadt: No. This is their margin. Olivier Leonetti: This is their margin, yes. Paulo Sternadt: Today. Jeffrey Sprague: And then so if you think about synergies, you alluded to revenue synergies working together, I would assume you're maybe not ready to totally kind of give us a number on that, although the $500,000 of content certainly is a starting point. But how about on the cost side, is there a cost story here too? Or coming out of private equity, maybe these guys have a lot of capacity they need to add or something to kind of keep up with this demand. Should we just think about kind of investment for growth as opposed to kind of cost-related synergies as part of the earnings algorithm? Paulo Sternadt: Yes. We have both. I would say this, and I'll go back to the deal criteria so it's clear that we remain disciplined. This year is delivering between 200, 300 basis points over cost of capital, is going to be accretive on year 2. And I said before, we didn't need to use the synergies to make the business case work given all the growth that they have in the pipe. But if you look at the synergy, the multiple after the synergies, the multiple goes down to high single digit. So there are synergies that we can play here. The most -- the quickest and the easiest to implement is, on the cost side, we look at what they buy and we compare to our purchasing volumes and our purchasing power, we believe we can help them a great deal. And then again, the other part on synergies, about sales, that we see as a great opportunity, and we work towards that. But once again, we could even take this out of the model and the math still works fine. Olivier can give you more details on how we're going to run the financing, et cetera. We also checked our leverage point, and we believe that after the deal, we're going to still be at the same credit rating as today. So that would not be affected. You want to add anything, Olivier, to it? Olivier Leonetti: Nothing more to add. No. Operator: Our next question comes from the line of Steve Tusa from JPMorgan. C. Stephen Tusa: So just to kind of clarify in the fourth quarter here, so I guess what you're saying with the EA revenue is that the resi stuff remains weak and some of these other nits and gnats that were onetime issues ship. And so I think the midpoint of the prior range was higher than 18% revenue growth. Is that basically the resi impact in 4Q? Paulo Sternadt: Yes. So you got this correctly, Steve. I'll go back. So we -- if you look at the sequential revenue growth for Electrical Americas, around $200 million, we are confident, we check plant-by-plant what needs to happen, and this is around 5% to 6% sequential growth. And this is possible because new capacity came online in Q3 and we are ramping up as we speak. In terms of the miss you mentioned, which was half of the miss to the middle of the guidance on growth, you should think about this as being less than 1 day of sales, right? So think about a whole quarter and they missed less than 1 day of sales. And this is going to be a carryover for us in Q4. So that product is on the pipe, it was on the shop floor and now becomes a tailwind for Q4. So this is one element for you to consider. That's why we believe the strong double-digit growth is possible, having this carryover from Q3, that we were working on, we couldn't deliver. And then the second thing was that last year is the easiest comp of 2024, which the growth was only 9%. So we believe it's possible to achieve that. C. Stephen Tusa: Yes. That makes sense. Like only 9% growth, that's not exactly the easiest comp in the grand scheme of the economy, but I understand for you guys, it's kind of a different scale. And then just lastly, following up on Nigel's question on the margins. I think your margins are guided this year down 50 bps, and you have this 100 basis points of inefficiencies, but you're also absorbing tariffs and maybe like a deal here and there this year. Like why wouldn't it be better than down modestly next year? Like does 100 bps get it worse next year or does that get a little bit better? You should be able to kind of, in my view, engineer to something that's at least up a little bit for next year for EA. Paulo Sternadt: Yes. So on the first part of your question, of course, we are dealing with those 4 different deals and we are investing. And we don't regret doing that because that makes our position so much stronger. We cannot continue acquiring companies at that pace. You shouldn't expect that next year, right? We need to digest those deals. They were the right deals in the right time, the right place, but we cannot continue to make acquisitions at that pace per year. It's not what we're going to do. So that addresses the first part of your question. And of course, the business is making things better, as we speak, every month, every day. And you should expect that those inefficiencies will go away as more of the plants that we start to ramp up, they become mature. I'll only caution you, it's too early to give you guidance for '26. We're going to talk in February and then I'm going to give you more detail on the plan. I need to meet with the team to see the bottoms-up plan myself. They're working on that as we speak. But directionally, think about this, less deals next year. We focus to digest what we acquired this year. And then in terms of efficiencies, should start getting better over time for Electrical Americas as we mature the footprint. Operator: And our next question comes from the line of Deane Dray from RBC. Deane Dray: Just want to follow up on Jeff's question regarding capacity investments, and particularly for Boyd. We talk about the 70% growth expected for '26. How much capacity do they need to add? One of their key competitors announced they're doubling capacity, you said Boyd has 16 plants. Just what's in front of them in terms of capacity? And really, what are you solving for? Is there a backlog that you have in mind that you don't want to exceed in terms of how much capacity you'll be adding? Paulo Sternadt: So this was a key part of our diligence and we double-clicked on that. They are ramping 2 facilities, large facilities, 1 in Asia and 1 in North America. They have ordered. They have equipment in place, they are hiring people at a high pace. And then all the long-term, the long-lead items, the long-lead capital goods, machinery, et cetera, are ordered already. So the capital plan is well underway, and so whatever is required for '26 and '27 is already in the pipe. And then we feel really good about their capacity to ramp because we were, we saw those plants, we saw the exit rate now in Q4 already in the ballpark of the revenue numbers for next year. So yes, they are investing, they are growing. The investment is already in their plan. And over time, it could well happen, as it's happening with Fibrebond, that we can accelerate and augment their wins and then we can come to a decision later on to invest even further. But today it's not required. It's all in. Deane Dray: That's really good to hear. And then just a follow-up, we appreciate the update on the mega-projects. You all have been really good about providing some data points given your perspective. Can you talk about the number of projects you see today and your win rate? Paulo Sternadt: Yes, great. Great question. We didn't have a slide -- we planned to have a slide here before we closed the deal, so we needed to remove. So maybe next quarter, I'll bring it back. So another very strong quarter, record announcements once again. So in Q3, the mega-project announcements reached -- sorry, $239 billion, which is up 18% year-over-year. And if you think about the sequential growth from Q2, it's almost 50%. So a very, very, very strong quarter. You look at the composition of those mega-projects, you would expect a big portion of it be data centers. And it's true, it's almost half of the total. But the other half is not data center, which is also great and diversifies the end market. And if you look at what's happening, I gave you data about starts and announcements last quarter, if you look through September, and you look back from January to September, average announcements per month are reaching $65 billion, and the starts for all 9 months are only $100 billion. So there is a lot of things to still come to the markets, a long runway. And the backlog today is around $2.6 trillion. So it's up 29% from last year. So astronomical numbers. And if you translate to us, we won around $2 billion in orders. We have a negotiation pipeline now, we are active on negotiating other $4 billion-ish in products and solutions. And we win around 40% of what we bid on. So that's a very strong win rate. With all those numbers and you compare the potential to what we booked so far, I hope you're going to get to the same conclusion I got, which is those large projects typically take between 3 and 5 years from announcement to our revenues. So think about this as a great, great tailwind for extended duration of the market growth that we have for even a longer period of time. Olivier Leonetti: You could also triangulate those large projects with what the -- with the announcement from the hyperscalers. If you remember, during the earnings season, the top 5 in U.S., they announced a growth in the CapEx '25 to '24 by 67% year-on-year, and then '26 versus '25 about 45%. And all those numbers are higher than what they had announced the prior quarter. So many triangulation points. Paulo Sternadt: That's a good point. Thanks, Olivier. We are over time, so let's go for the last question, please. Operator: Our final question for today comes from the line of Scott Davis from Melius Research. Scott Davis: Congrats on the numbers, et cetera, or the outlook, I should say, is very encouraging. Just a couple of cleanup items because I think you've touched on 99% of what matters here. But the CapEx, I think you were guiding to kind of, call it, $1.2 billion this year and next combined. Are you at the point where you may need to upsize that '26 CapEx number given the order book? Olivier Leonetti: So we will be higher in CapEx in '26 versus '25. We have said that constant -- in a consistent manner. We think we're going to have leverage -- you go back to the question from Paulo on the CapEx we have deployed in '25, '26 would be a peak, and then we'll go back to the historical CapEx as a proportion of revenue you had at Eaton. Paulo Sternadt: As of '27, right? Olivier Leonetti: As of '27, correct. Paulo Sternadt: So you should -- we are actually accelerating our hiring and our ramp now on the existing expansions we announced already. Scott Davis: Okay. That's helpful. And then, guys, just again another cleanup item. Where do we stand right now with channel inventories? Are they back to kind of more normal levels? Paulo Sternadt: Yes. So we have a closer look with our distributors. I think resi reached bottom, in my opinion. And then we see other markets that are coming back really nicely. Distribution IT, for example, recovered, not only in North America, but also in EMEA, double-digit orders growth. Our utilities business came back very strongly now as well in terms of orders; strong double-digit growth. So this is coming back. Resi is still down, DIT is back. And then utilities very, very strong orders, which we didn't have an opportunity to cover, but utility business did really well in orders as well in Q3. Yan Jin: Thanks, guys. As always, the IR team will be available to address your follow-up questions. Thank you for joining us. Have a nice day, guys. Paulo Sternadt: Thanks, everyone. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: " Michael Cooper: " Unknown Executive: " Sairam Srinivas: " Cormark Securities Inc., Research Division Sam Damiani: " TD Cowen, Research Division Operator: Good morning, ladies and gentlemen. Welcome to the Dream Impact Trust Third Quarter Conference Call for Tuesday, November 4, 2025. Please advise the participants are in listen only mode and the conference is being recorded. [Operator Instructions] During this call, management of Dream Impact Trust may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Trust's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in the Trust's filings with the securities regulators, including its final long-form prospectus. These filings are also available on Dream Impact Trust's website at www.dreamimpacttrust.ca. Your host for today will be Mr. Michael Cooper, Portfolio Manager. Mr. Cooper, please proceed. Michael Cooper: Thank you, operator, and welcome to the listeners on our third quarter conference call. We're really quite pleased with how the third quarter has gone. We've made quite a bit of progress since our last call and our last results in August. In Ontario, and particularly in Toronto, the housing market is quite difficult. And we found some really innovative ways to deal with it and add value by moving projects forward. Now the difficulty, just to be clear, is really from the last decade of poor economic performance in Canada, increasing cost to build both in the -- from the private sector as well as from governments and the limited ability of residents in Toronto to earn sufficient income to afford the economic rent necessary to fund new developments. Dream is focused on attacking the affordability issues by partnering with governments to lower our costs with low interest loans and waivers of development charges. while including affordable apartments in our projects. We're providing a lot more affordable. So the savings we're achieving are getting passed on to our tenants in the portion of the building that's discounted. While we're one of the original pioneers of these public-private partnerships, they've become very common in our industry recently. Our experience and track record have supported our plans to build viable purpose-built rental projects on our lands, even when condominiums are not feasible and pure market apartment returns are too low to justify the risk. We await tonight important budget to see the specific housing initiatives to support providing additional housing and specifically affordable housing. The budget is also important to see how our government create an environment for new investments to grow the economy. And we're also waiting to see what the bond markets do tomorrow morning after they digest the budget. It's great to see that the government sees the problems we are facing and admits them. The steps they take next will have a big impact across the country and also have a significant impact on the short-term success of our business. Even prior to the introduction of these policies, Impact has made tremendous progress. I just want to go over a few of the examples of what we've achieved in the last 90 days. Our value-add apartments have been increasing their net operating income. We've had increased turnover and with turnover, we get to move to market rent. It's moving the low rents to higher rents that's driving the net operating income, even though market rents are a little lower than they were at the peak. For our purpose-built rental, we've been very pleased to see significant increases in leasing over the last while, and 2 of our buildings are approaching stabilization. These 2 buildings are funded with CMHC ACLP financing. And once we achieve stabilization, provided we have net operating income above that meets or exceeds our pro forma, the loans will become nonrecourse, which is a significant accomplishment, and we're looking forward to two of the buildings hitting that soon. In addition, we made a tremendous amount of progress at 49 Ontario. We're currently starting some of the demolition of the office building. It will be fully underway within 2 weeks. So construction has started, and we expect the CMHC debt to be finalized and advanced within the next 30 to 90 days. This will solidify $75 million of equity in the project or almost $4 per unit. And as the project progresses, that $4 per unit represented by 49 Ontario could grow to 7 with the profit of the development. With construction costs declining and the way of development charges, the returns are relatively attractive as the savings have offset the decline in rent. So we're very excited to get that project going. In addition, at Quayside, we're advancing with milestones being achieved weekly. We anticipate that by year-end, the only milestone left prior to starting construction will be the finalization of the CMHC financing and the construction should start in the second half of next year. Again, this will lock in the equity value in the land, and it should be another exciting investment with decent returns. We said one of our goals for this year was to decrease our land load significantly. Our goal is to get to $140 million of land loans. That would basically be 2 of our big projects, Brightwater Zibi plus land loans at Forma West, Victory Silos, and we want to get rid of Scarborough Junction. We're a little bit behind on that, but we're trending to where we want to be. Brightwater has had quite a few closings so far. We've got another 200 to go. We're very pleased with purchasers' closing ability. So that's pretty exciting. We're generating a fair amount of cash out of that. And we're also getting ready to start the next block, which had sales from 1.5 years ago, and that's a 220-unit condo unit building, and we expect that construction to start within the next couple of months. Otherwise, any new developments on our lands have been delayed, which is what we expected for the last couple of years. At Zibi, we are quite pleased with the leasing of the residential buildings and the progress at Odenak. We are approaching the commencement of Block 1 in Gatineau, which is the last building that we had budgeted to start this year, although, again, that's likely to be late into next year. As I was saying, at Brightwater and Zibi, we are developing the units slower because of the softness in the market, but we're making progress. We've also made progress continuing to renew debt as it expires. We also extended the Fairfax debenture out to 2031. And we've entered into a $15 million loan with Dream and are looking to increase that facility prior to year-end as we establish what the liquidity requirements are. Over the next few years, we expect to sell a similar amount of properties we have in the last few years. And with the Dream loan, we are well positioned to manage our liquidity over the next few years. Based on our current plan, we expect to have about 90% of our portfolio to be apartments by 2030 with a best-in-class portfolio with low-cost debt, stabilized with sufficient cash flow to meet all of our obligations and with some cash flow left over. We're aware that the public markets show little interesting impact currently. However, we have excellent assets, which we are making more productive at every level. At this point, I'd like to ask for Derrick to do his inaugural conference call address. Unknown Executive: Thank you, Michael, and good morning, everyone. In Q3 2025, the Trust recognized a net loss of $10.3 million compared to a net loss of $7.6 million in the prior year quarter. This change was largely driven by deferred tax recoveries and condo occupancies at Brightwater in the prior year quarter as well as respective fair value adjustments in each period. This was partially offset by earnings from our multifamily assets in lease-up. This includes Voda at Zibi as well as Birch House and Maple House, both at Canary Landing. For the recurring income segment, same-property NOI was $1.7 million, consistent with the prior year. Occupancy remained stable at 95%. With regards to our assets in lease-up, we are pleased with the increase in leasing performance over the third quarter. Overall, these assets are approximately 9% leased, up from 75% last quarter. We anticipate these assets will continue to contribute to NOI as they reach stabilization. For the Development segment, we reported a net loss of $1.4 million compared to a nominal net loss in the prior year. Results are not directly comparable as the prior year included occupancies at Brightwater and certain fair value adjustments. During Q3 2025, approximately 9% of the 106 unit block at Brightwater Town closed. In combination with Brightwater 1 and 2, we have completed closings for nearly 400 units over the past 12 months. The next block at Brightwater is Mason, which is expected to close by year-end. Construction is progressing at Cherry House and Odenak. Combined, these projects are expected to bring nearly 1,500 units to market over the next 2 years. We are advancing on construction at 49 Ontario and making progress with Quayside. These are significant projects, and overall, we expect to have positive cash flow once 49 Ontario is completed and stronger cash flows once Quayside is completed, which we anticipate will be in approximately 2030. We have made good progress working through our near and medium-term debt maturities. During the quarter, we reduced our outstanding debt position by over $119 million. This included extensions for $84 million of land loans for Zibi and Brightwater without a repayment. Additionally, the construction loan for Brightwater Town was repaid with proceeds from condo closings. We are working with our partners and lenders to address the remaining debt maturities for this year and into 2026. As noted in our August update, we expected to reduce land loads by $140 million this year. We plan on repaying the land loan at 49 Ontario within the next 90 days and have paid off $7 million in land loans related to Zibi. The remainder is largely related to a project where we reduced the debt by 1/3 or approximately $15 million and are working with our partners to repay the remaining debt. We are generally on target, but it may take a little bit longer than we had estimated. As at September 30, the Trust had cash on hand of $7.6 million. As previously announced, we have entered into an agreement to extend our 2026 convertible debentures totaling $30 million by 5 years. The extension is subject to unitholder approval and customary closing conditions. Subsequent to the quarter, the Trust entered into an agreement with Dream up to $15 million in financing with a 5-year term. The financing agreement demonstrates Dream's continued support of the trust and provides it with increased financial flexibility as we work through our upcoming developments and stabilize our completed assets. I will now turn it back to Michael. Michael Cooper: Thanks, Derrick. The stock price has definitely been under a lot of pressure, and it's been very disappointing. So it's hard to explain that we have some of the industry-leading projects that are advancing very well that are very exciting that look to be very profitable endeavors. The focus obviously is working on the balance sheet and the liquidity. And I think we've got ways to address that, that we're quite confident about. And we're also focusing on growing our rental properties, the value of our rental properties through increase in net operating income for the value-add properties, achieving stabilization for our completed purpose-built rental and for developing the land into new developments for Odenak, 49 Ontario and Quayside and also reducing the debt on lands or selling some of the lands. So that we shore up value and reduce risk. But I think that the message that's been so hard to communicate is the work that we're doing is excellent projects with tremendous support from governments that will realize a lot of value. With that, we'd be happy to answer any questions at this time. Operator: [Operator Instructions] Your first question comes from Sairam Srinivas with Cormark Securities. Sairam Srinivas: Michael, clearly, there's a lot that's gone on this quarter in terms of progress on leasing all the assets that were under development, and that's a great thing. When you kind of look at occupancy quarter-on-quarter, that's reflected. But when you look at rents, average rents are slightly down quarter-over-quarter. Would that be a function of any incentives you're seeing in the leasing environment? Or is it just generally that leasing is weak? And how does that compare to your point economic rents and what you would expect from these projects? Michael Cooper: So I think, firstly, on the value-add projects, we don't we don't usually have incentives. It's really on the purpose-built rental, which is common to have incentives. With these buildings, you finish a building that's 200 to 700 units, and you want to fill them up as quickly as you can. So use incentives to get the first tenants in. On top of that, what we've had is a lot of condo deliveries, which are effectively competition for new apartments. So we think this is near the bottom. There's going to continue to be more condo deliveries next year. The interesting thing is there's less new apartments being started. So what we're seeing is tons of apartments being delivered -- tons of condos being delivered this year that have put into the rental market. There's going to be a fair amount next year. And then I think what we're going to start to see is a reduction in the number of condos that are being rented as people start to buy them up for their own use at prices significantly below what they were sold for initially. So we think there's kind of a temporary jump in supply that's going to start to moderate. The new supply is going to stop coming from condos and apartments are even slower starting. So we think it's just a lot of turbulence right now. In our numbers, like on the new projects, we've probably reduced our expected rents by about 15% from where they might have been 1.5 years ago. But as I mentioned, construction costs have come in. Interest rates are reasonable. And for Quayside and Ontario, we've had development charge waivers. So even at that much lower rent, the returns are meaningful and in line with where we had hoped. The interesting thing is as we -- like when we look forward from these lower rents, we are not expecting any jumps in rent. We have a relatively historic average growth in rents from where they are now, where they're under a little bit of pressure. Does that help? Sairam Srinivas: That does, Michael. When you probably translate that into SPNOI growth, average rents overall in the multifamily same-property portfolio were up 7% year-over-year. Occupancy looks stable, but NOI seems to have actually been unchanged almost year-over-year. Can you kind of speak to the operational expenses perhaps on those assets? Unknown Executive: It's Derrick. So on those ones, what you'll see year-over-year is that there's higher operating expenses, and this is largely due to the timing of property taxes. So this quarter, we had property -- we received those and those, I think, for 3 months. So I think you'll see a slight decrease. But excluding those, I think it would have gone up instead of going down by about $100,000, it's going to go up by $200,000. So I think we do expect to see that to continue to grow going forward outside of the property tax items that were received during the quarter. Sairam Srinivas: That's great, Derrick. And perhaps, actually, while I have you, when you think about the financing stack and when you compare the projects that are currently coming up after leasing, the base of my question is that when we look 12 to 24 months from now and hopefully, when the market recovers, you would see these assets stabilize and start generating a more stabilized NOI. But when you look at financing, would you say the current level of financing is more temporary and there are some adjustments that could happen in terms of lower finance costs for these developments? Michael Cooper: So you're asking on the renewals, we would expect Well, firstly, on a lot of the projects, we've got longer-term debt. So the first project that we have coming up is around 2029, 2030 for the new builds. And then some of the debt is going to be in 2034, 2036 kind of stuff. On the value-add, we're probably -- we put debt on at a very good time. As that comes up, it will be up a little bit higher. Sairam Srinivas: All right. That makes sense, Michael. And my last question is on Brightwater. As far as the sales go, Derrik, can you run me through the revenue recognition of it? Is it recognized in Q3? Or do you expect more to come in Q4? Unknown Executive: It would be in Q4. So the occupancies for Brightwater, the others happened in Q2. In Q3, we had closings on that. And then in Q4, we had another closing, which will be the Mason. And just to be clear, we recognize the profit during occupancy, not at closing. So what Gary is referring to is when we have closings coming up, we may have already recognized that profit, but we're going to get the cash and pay down debt, which is also important. So we're closing about 200 units, but I think we've already recognized that profit, but we're going to have some other units closed at occupying, which will provide a little bit more revenue recognition. That's right. So there's no revenue going to be in Q4. It will be all cash related to the closing. Operator: [Operator Instructions] Your next question comes from the line of Sam Damiani with TD Cowen. Sam Damiani: Just on the disposition strategy, can you give a little bit of color on -- in terms of what you expect to see, I guess, over the next quarter or 2 in terms of dispositions? Michael Cooper: Yes, that's a pretty short time frame. I think over the next quarter or 2, we're going to sell the 10% of 49 Ontario. We hope to have a contract to sell the excess land at 49 Ontario. And don't hold me to whether it's the next quarter or 2 or the quarter after that. And I think we're looking at one commercial property that there's some action on, but I doubt that will be in the next quarter or 2. So I think we've got some transactions in the second half of 2026 for the most part. Sam Damiani: And then beyond that, Michael, you're still looking at selling more in the fullness of time? Michael Cooper: Yes. I think that we're probably going to want to like lighten up on the commercial properties. And maybe I wasn't clear. We're clearly going to as close to an all apartment business as we can. So we expect to see that happen over the time. We've got some condos that will be finishing. We've got some land. But generally, I think we're going to try to focus really on the apartments. Sam Damiani: Okay. Helpful. And just on the loan from Dream, I mean, how much bigger could that get beyond the $15 million? Michael Cooper: It's a great question. I mean we thought about putting it in the press release and decided not to. So I'm just thinking out loud, I probably wouldn't say it here either. But what I would say is we have a very busy November and December on a lot of fronts that is going to have an effect on how much liquidity is required. So it could vary by $10 million or $20 million based on some of the things that happened this fall. But we'll provide more details. I mean, obviously, one of the issues is Dream Unlimited has their Board meeting after Dream Impact Trust. So we've got to discuss it with them, and then we're going to size it as we get a little bit more information. Sam Damiani: And then the plans to ultimately repay that loan would come from asset sales or what would be the source of funds to repay those loans? Michael Cooper: That's another great question. The concept is to be a 5-year loan. I think that Dream's view is to make sure that they don't have the money at risk to get a fair return, but really to support the trust. And I think that the view would be to look at the business once there's a completion of 49 Ontario and Quayside is mostly finished. But they're going to represent a tremendous amount of the value of this business. So we'll take a look at that in 2030 and decide whether that capital gets repaid, stayed outstanding as debt or some type of potential equity, but that's way in the future. All I'm trying to get at is it's a very supportive lender who will be looking out to make sure that the best outcome possible for Dream Unlimited and Dream Impact Trust. And all I'm saying there, Sam, is you don't have to look at exactly like where the proceeds are going to come from. We're working very hard to have like 90% apartments, have decent free cash flow. And at that point, we'll take a look and say, okay, what should we be doing with the company now that it's really -- a lot of the risk is diminished. We'll look at the balance sheet, and we'll kind of decide where do we go from here and Dream would look at what to do with the debt at that time. The last point would be that the loan will be a 5-year loan on paper, and that is the actual rights and obligations. And the other part is just saying that that's how the 2 parties have conducted themselves in the past and likely to conduct themselves in the future. Does that make sense? Legally, it to be a 5-year loan. Sorry, operator. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Cooper for any closing remarks. Michael Cooper: Thank you, operator. Thank you for listening. And I don't have any closing comments. I sort of put them in my opening comments. Thank you, everybody. Derrick and I are available all the time. Give us a shout if you want to discuss any further. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: " Austin Willis: " Scott Flaherty: " Louis Raffetto: " Wolfe Research, LLC William Waller: " M3F, Inc. Eric Gregg: " Four Tree Island Advisory LLC Operator: Good day, and welcome to the Willis Lease Finance Corporation Third Quarter 2025 Earnings Call. Today's call is being recorded. We would like to remind you that during this conference call, management will be making forward-looking statements, including statements regarding our expectations related to financial guidance, outlook for the company, and our expected investment and growth initiatives. Please note that these forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect WLFC's views only as of today. They should not be relied upon as representative of views as any subsequent date, and WLFC undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion of the material risks and other important factors that could affect WLFC's financial results, please refer to its filings with the SEC, including, without limitation, WLFC's most recent quarterly report on Form 10-Q, annual report on Form 10-K and other periodic reports, which are available on the Investor Relations section of WLFC's website at https://www.wlfc.global/investor-relations. At this time, I'd like to turn the call over to Austin Willis, CEO of Willis Lease Finance Corporation. Please go ahead. Austin Willis: Thank you, operator, and thank you all for joining us today to discuss Willis Lease Finance Corporation's Third Quarter 2025 Financial Results. On our call today, I am joined by Scott Flaherty, our Chief Financial Officer. In the third quarter, WLSC continued our trend of strong financial performance. We delivered quarterly revenue of $183.4 million, a 25.4% increase year-over-year, reflecting sustained demand for our core leasing business and the strengthening aviation market as airlines continue to rely upon our leasing, parts and modules and maintenance services to minimize costly, time-consuming engine shop visits. During the third quarter, WLSC purchased 16 engines and 6 aircraft for a lease portfolio, totaling approximately $136.4 million. This includes 12 engines from Air India Express. This expansion of our second constant thrust with Air India Group further demonstrates the success and value we have achieved for them as a customer. We also purchased 6 Dash 8-400 aircraft from Porter Aircraft Leasing Corp. and 4 PW1524G engines from RTX Corporation. Our steady performance underscores the strong market we're in and how our platform and portfolio are well-positioned to return capital to our shareholders. We are declaring our seventh consecutive quarterly dividend, and we are increasing it to $0.40 per share, symbolic of our ongoing confidence in the strength of our business. Taking a step back, I'd like to revisit the fundamentals of our business. 2025 has been an unusual year in that there have been multiple one-time events. Q1 was impacted by expenses related to our SAF project. The sale of our consulting business to our joint venture impacted our revenue in Q2, but the third quarter was indicative of the strength of our leasing business without the noise. A testament to that strength is the record leasing revenues produced in the third quarter, where leasing, maintenance reserve, and interest revenue totaled $156 million, a 32% increase from the same quarter in 2024. At our core, we provide engines and services to our customers to address planning, financing, and maintenance needs. Demand for our engines remains robust and is evidenced by our average third-quarter utilization of approximately 86% and our lease rental factor of over 1%. Our engine shops continue to operate near capacity with the biggest limiting factor being engine testing capability, which we are addressing through our engine test cell development in Florida, Willis Global Engine Testing, just down the road from Pratt & Whitney. As the cost of engine shop visits [indiscernible] and CFM56s continues to escalate, we are seeing more airlines considering shop visit avoidance strategies. I think this trend will accelerate as the OEMs begin to provide greater clarity on new aircraft delivery dates, giving airlines more confidence in timing their fleet transitions. During the quarter, we also opened our new aircraft maintenance hangar in Teesside. These additional lines will provide us with the scale necessary to offer competitive products to airlines, and our new hangar space is already fully booked through the winter season. Before I hand the call over to Scott to provide more detail on our financial results, I want to briefly welcome Pascal Picano to our team as Senior Vice President of Aircraft Leasing and Trading. Pascal is an industry veteran with experience in services, aircraft leasing, and, most recently, at an airline operator. Our vision is to be the premier partner in aviation propulsion, helping our customers connect the world through sustainable flight. The next logical step for us to become the best partner for airlines is to grow our aircraft leasing capability, where we can add value to our customers through engines and services. Pascal bolsters our intellectual capability on the airframe side to help take our existing aircraft leasing business to the next level. As we near the end of 2025, we believe that we continue to be well-positioned to fulfill customers' increasing needs for lease engines as well as our own growth, as we continue to see good opportunities to deploy capital, thanks to our flywheel business model. And with that, I'll hand it over to Scott Flaherty, our CFO, to discuss our financial performance in greater depth. Scott Flaherty: Thank you, Austin, and good morning, all. Q3 2025 was another quarter of solid performance for Willis Lease as the business produced record core quarterly lease rent revenues of $76.6 million, record maintenance reserve revenue of $76.1 million, $16.1 million of gain on sale of leased equipment, continuing to highlight the unrecognized value of our lease portfolio, $43.2 million of earnings before tax or EBT for the quarter up 25% from the comparable period in 2024 and $22.9 million of net income attributable to common shareholders for the quarter, all while continuing to develop and vertically integrate our services platform in order to enhance our customer-focused leasing solution and experience. Walking through the P&L as it relates to the top line, core lease rent revenue for the quarter was $76.6 million, up 17.9% from the prior comparable period, and interest revenue, which reflects interest income on long-term loan-like financing, was $3.4 million. The relative growth we see from the comparable quarter in 2024 was driven in part by an increase in our equipment held for operating lease, which sits at $2.70 billion as of September 30, 2025, but more so by our average portfolio utilization, which ticked up to 86.0% for the quarter from 82.9% from the comparable period in 2024. Our total owned portfolio is reflected on our balance sheet as equipment held for operating lease, maintenance rights, notes receivable and investments and sales type leases, which aggregate to $2.89 billion. Average lease rate factors for on-lease operating lease assets in the portfolio were in line with the comparable period of 2024 at 1.04% and slightly up sequentially from the prior quarter. Maintenance reserve revenues for the quarter was $76.1 million, up $26.3 million or 52.8% from the prior comparable period. As you dissect these numbers, you can see that short-term maintenance reserve revenues associated with the cyclical and hourly usage of our engines came in at $46.6 million, negligibly down from $48.5 million in the comparable period of 2024, continuing to reflect the high level of asset usage by our customer base, which is represented in monthly, hourly and cyclical-related billings and long-term maintenance revenues generally associated with the release of maintenance reserve liabilities or end of lease payments came in at $29.5 million compared to $1.2 million in the comparable prior period. Spare parts and equipment sales through our WASI business to third parties was $5.4 million in the third quarter compared to $10.9 million in the prior comparable period. This downtick in revenues is reflective of the fluctuations we see in spare parts sales as well as the fact that in Q3 2025, there were no discrete equipment sales and there were $1.0 million of such sales in the comparable prior year period. Q3 margins in spare parts and equipment sales were a negative $1.3 million and not typical of this segment due to a larger scrap expense. During the quarter and not reflected in the consolidated P&L were sales to our largest customer, Willis Lease, which demonstrates the value of our vertical integration efforts. WASI provides valuable feedstock supporting both the Willis and our customers' fleets. The recycling of these spare parts often occurs at one of our two engine MRO facilities, which are located in Coconut Creek, Florida and Bridgend, Wales. Gain on sale of lease equipment, a net revenue metric, was $16.1 million in the third quarter, up $6.6 million or 69.5% from the comparable period. This gain was associated with gross sales of $73.7 million less economic closing adjustments. Included in this gain was the sale of 10 engines, 1 airframe and other parts and equipment from the lease portfolio. The implicit margin on these sales was 21.9% and is supportive of our view that there is substantial unrecognized value in our company's lease portfolio. Our trading efforts allow us to recycle capital for growth and maintain portfolio relevance. Maintenance services revenue, which represents our engine and aircraft storage and repair services and revenues related to the management of fixed base operator services decreased by $2.3 million to $3.6 million in the third quarter of 2025. 56% or $1.3 million of this reduction relative to the comparable period was related to the sale of our engine consulting business to our 50% owned joint venture, and we, therefore, did not directly recognize such revenues in the current period. Willis Lease through our 50% investment in our joint venture, Willis Mitsui still enjoys and benefits from such services. Gross margins were negative $1.5 million as we are still in the build-out stage of our aircraft line and base maintenance business. On the expense side of the equation, depreciation and amortization of $28.7 million in Q3 increased by $5.0 million as compared to the prior year. Growth in depreciation was primarily attributed to portfolio growth and new off-lease assets going on initial lease, which starts their depreciation cycle through the P&L. To a lesser extent, accelerated depreciation, which is reviewed on an annual basis, also contributed to the increase in depreciation. Write-down of equipment was $10.2 million for the quarter, representing impairment on 8 engines, 6 of which were moved to held for sale. In-period write-downs generally reflect older and unserviceable engines being positioned for monetization rather than a full performance restoration shop visit. G&A was $49.2 million in the third quarter, up $9.2 million compared to $40.0 million in the comparable period in 2024. Increases in the overall G&A spend were mainly related to a $3.5 million increase in consultant fees influenced by our sustainable aviation fuel efforts relative to the comparable period in 2024 and $2.8 million of increased personnel costs, including $1.6 million of incentive compensation, which is derivative of business performance and $0.9 million of share-based compensation expense. Technical expense, which consists of noncapitalized repairs, engine thrust rental fees, outsourced technical support services, sublease engine rental expense, engine storage and freight costs increased by $3.2 million to $8.4 million in the third quarter compared to $5.2 million in the prior year period. This increase was primarily due to an increased level of engine repair activity as the portfolio increases in size and utilization. Net finance costs were up $9.3 million to $37.1 million in the third quarter compared to $27.8 million in the comparable period in 2024. The increase in costs was primarily related to an increase in indebtedness as total debt obligations increased from $1.99 billion at September 30, 2024, to $2.24 billion at September 30, 2025, and indebtedness throughout the third quarter was temporarily inflated due to our late Q2 WEST VIII financing, which had a delayed paydown of refinanced debt which is typical characteristic of this type of financing. $3.0 million of the increase was noncash in nature and related to the early paydown of indebtedness of our WEST IV and WEST VII transactions. Another $3 million was related to the contractual unwind of interest rate swap transactions on the back end of warehouse facility reductions associated with our late Q2 WEST VIII ABS capital raise. Offsetting the increase was a $3 million increase in interest income, driven by the larger restricted cash balances over the last quarter associated with our WEST VIII ABS financing. Income from operations was $38 million, up 12.8% from the comparable prior period. The company also picked up $5.2 million in ratable earnings from our 50% ownership interest in our Willis Mitsui and Classic Willis joint ventures. EBT for the quarter was $43.2 million, up 25.4% from the comparable period in 2024. Income tax expense was $18.9 million, an ETR of 43.7%. The company's ETR differed from the 21% federal statutory rate, primarily due to Section 162(m) compensation treatment and recent tax law changes. The company's favorable tax position provides a significant cash tax shield for our business. The company produced $22.9 million of net income attributable to common shareholders, which factors in GAAP taxes and the cost of our preferred equity. Diluted weighted average income per share was $3.25. Net cash provided by operating activities was $209.1 million through the third quarter of 2025 as compared to $216.4 million in the comparable period of 2024. The $7.4 million or 3.4% decrease in operating cash flows was primarily driven by a $23.2 million decrease in payments on sales-type leases, a period-over-period $28.1 million decrease in cash flow from changes in accounts receivable and a period-over-period $24.0 million decrease in cash flows from changes in accounts payable and accrued expenses. Partially offsetting the decreases was a period-over-period $52.1 million increase in cash flows from changes in inventory. Cash flows used in investing activities were $108.2 million for the 9 months ended September 30, 2025, and primarily reflected $310 million for the purchase of equipment held for operating lease, partially offset by proceeds from sale of equipment, net of the selling expenses of $194.3 million. Cash flows used in investing activities were $455 million for the 9 months ended September 30, 2024. On a year-to-date basis, cash flows from financing activities were a net $62.4 million use of proceeds as compared to $175.6 million source of proceeds in the comparable period of 2024 as the company was in a net paydown position of debt for the quarter given the strong cash flow characteristics of the business. On the financing and capital structure side of the business, during the quarter, the company unwound several swap positions for contractual requirements under its warehouse facility. At quarter end, 89% of our indebtedness was fixed rate and our weighted average cost of debt was 5.11%. We amended and extended our $500 million warehouse facility to provide the company with more favorable asset advance rates, reduced borrowing costs and extensions of the commitment period and final repayment date to May 3, 2027 and May 3, 2030, respectively. Subsequent to quarter end, we paid off our WEST IV ABS financing. The company continues to assess the broader capital markets to lower our cost of capital, spread refinance risk and diversify our capital sources. In August, we paid our fifth consecutive regular quarterly dividend of $0.25 per share. Subsequent to quarter end, we declared our sixth consecutive regular quarterly dividend at an increased $0.40 per share rate, which is expected to be paid on November 26, 2025, to stockholders of record at the close of business on November 17, 2025. We believe that our ability to pay an increased recurring dividend speaks to the health of the business and provides our shareholders with a moderate current cash yield on their investment while not degrading the strong cash flow characteristic and equity growth of the business, which supports our overall growth. With respect to leverage, as defined as total debt obligations, net of cash and restricted cash to equity, inclusive of preferred stock, our leverage ticked lower to 2.90x as compared to 3.48x at year-end 2024. The flexibility of our capital structure, our liquidity due to our $1 billion credit facility and $500 million warehouse facility as well as our current leverage profile provides us the flexibility to quickly and opportunistically access the market as we look to continue to build our lease portfolio and provide the best and most creative solutions to our customers. With that, I will now open the call to questions. Operator? Operator: [Operator Instructions] We'll move first to Louis Raffetto with Wolfe Research. Louis Raffetto: Scott, first, thanks for the clarification on the spares margin. I noticed that earlier. I guess it seems like the demand backdrop remains really strong. Austin, you mentioned about how the improving new aircraft delivery rates may help airlines get a better sense of how to sort of manage their current fleets. I think this will benefit you guys and your services offerings as airlines look to push out some of their full shop visits. But how do you see that potentially impacting legacy engine values, if at all? Austin Willis: Yes. Thanks. So there's a few things at play. But if the OEMs are able to increase aircraft at the rates that they're authorized to do, we think it's certainly going to provide some additional supply to the market, but it's still coming from a pretty big aircraft deficit. Keep in mind that there's something like 5,000 aircraft that are never going to be built between 2018 and 2030. That's a pretty big hole to dig out of. If you take that and divide it by the number of months between now and 2030, I think it's something like 80-some aircraft per month. So that's a long way to go. Now that being said, if the airlines are able to ramp up significantly, that will add additional supply to the market. And I think it will hasten the retirement of the current generation aircraft, which could have some downward pressure on values. But it's also going to really play well into our services businesses and also the programs that we offer. Like you mentioned, constant thrust for us where we do a sale leaseback and when an engine becomes unserviceable, we just replace it with one from our portfolio. Programs like that are really custom designed to help the airlines avoid having to make big expensive shop visits when they might only have a few years remaining on a lease. So I think that's a big part of it. And then we've also made ourselves ready for when that transition does come. We think it's still a pretty long way out, but it's not a coincidence that we've got a little over 53%, 54% of our portfolio is in future generation equipment. So that's LEAPs, GTS, GEnx. So the goal is really to ensure we always have the most in-demand asset types for our customers long term. Operator: We'll take our next question from Will Waller with M3F. William Waller: I've got a few questions. First, the common equity increased by $32.3 million based on my calculation, but reported earnings for common shareholders were only $22.9 million. You also paid out a $1.7 million dividend during the third quarter. So just curious if you could reconcile the difference there for me. Scott Flaherty: Sure. I think that walking through the different components that we have, Will, on the rec table that we have. I think that the different pieces that we have are obviously the net income that we have of $24 million. Then we're also going to have different components of paid-in capital, such as stock-based compensation expense. And when you aggregate those as well as the other small changes, we'll get to the number that you're referring to, Will. I could walk you through, if you want, on a very detailed basis in our schedule of our Q that comes out a little bit later today, all of those on a line-by-line item basis, if that's helpful. William Waller: Okay. Great. It might be helpful in the future to issue your 10-Q before you have this call because I think a lot of numbers you went through, there were so many of them. It was very hard to understand them. But my next question is on the general and administrative expense. It was $49.2 million versus if I just look at last quarter, second quarter of 2025, it was $50.4 million. So it was down by about $1.2 million. But last quarter, included in that was the severance related to your General Counsel of $6.8 million. And if I recall correctly, the reimbursement of the grant related to the SAF project of $6.2 million. So there was a fairly substantial increase in G&A costs. You walked through a couple of those items. But quite honestly, I was pretty confused by the numbers. Can you walk through and kind of walk us through what the compensation component line item of that was this quarter? Scott Flaherty: Sure. When you look at the compensation line item, I think if you reflect on the numbers that I discussed on the call, I was really comparing quarter-over-quarter numbers. So Q3 '24 as compared to Q3 '25. I think when you look at those numbers for the third quarter, incentive compensation, which is derivative of the company's performance was up about $1.6 million to $7.5 million as looking at Q3 '25 compared to Q3 '24. Share-based compensation, which, as you know, we've made changes to how we do share-based compensation earlier this year to reflect the increased share price that we have. And as we've discussed in the past, the effect of those changes in share-based compensation will wean off over the next several years, but they are noncash in basis -- they are noncash basis. Share-based compensation was $11.2 million or $11.3 million in the third quarter of '25, up $900,000 from $10.3 million in the same quarter of the prior year. And then all in personnel expenses, right, which those numbers were a part of because we've increased headcount as we've built out the business, was $32 million in the third quarter of '25 compared to $29.2 million in the third quarter of '24, so up $2.7 million. Austin Willis: Will, if I can add something to what Scott said, and forgive me for being a little bit redundant. But the stock-based comp is - it appears a little bit high because of the way we used to deliver our long-term equity awards. And I know Scott kind of touched on this. But historically, we would fix the quantity of shares but not grant them until the end of the performance period. And this resulted in increased expense if the stock price appreciated before that grant date, very much like it did in 2024. So even though it's not a cash expense, it will still take a few years to run off the P&L. And as Scott mentioned, we since rectified this by actually granting our shares at the beginning of the performance period, allowing them to be canceled if targets aren't met, which we understand is more commonplace. So I hope that helps. Scott Flaherty: And Will, and not to just maybe give you a little bit more because you mentioned the sequential performance. If you looked at the personnel expenses that I referenced on a quarter-over-quarter basis, sequentially, those personnel expenses went down a little over $8 million. William Waller: Okay. I'll study it a bit more in the 10-Q. There just isn't enough information in the press release to - the numbers just seem extremely high as they have for several quarters now. And then could you also walk through again the income tax expense of $18.9 million? Could you walk through what the Section 162 compensation treatment is and how that affected the tax levels? Scott Flaherty: Sure. Well, it's actually several items that affected the tax. So I think if you look at the third quarter, you're going to see a higher tax rate. Now that higher tax rate is temporary, and it was affected by - as it has been in the past by 162(m), but it was also affected by tax law changes. So the One Big Beautiful Bill, which had its benefits as long-term benefits, but it had a negative effect in the quarter on a net basis. So the long-term benefits are the bonus depreciation, which it introduced and we are taking advantage of in the quarter. But it also had -- and I don't want to get too nuanced on tax, but with respect to the GILTI and the 250 deductions, it had a negative effect in the quarter. . And that was because the One Big Beautiful Bill was implemented in July, so in Q3 of this year. I think as you look at the rest of the year and how the year will play out on a tax basis, you'll see more of a reversion to where we are on a year-to-date basis on a tax rate as opposed to where we were in Q3. Q3 is an anomaly. And I would say the anomalous characteristics of Q3 were more geared towards the tax law change rather than the 162(m) nuance. William Waller: Okay. And then one last question. You guys have about $650 million of stated common equity. At the end of 2024, you had about $600 million in value of engines that's not reflected in stated equity. And I would assume that's probably gone higher since the end of 2024. So if I just add the two of those together, I get well above $1.2 billion in value. If I look at the value of the company in the market today, it's about $850 million. So what are your views on the share repurchases? Scott Flaherty: Yes. So Will, I'll just say essentially what I've said in the past with this. We're always looking at ways to maximize shareholder value. Share repurchases are something that we have done in the past, and we would consider doing in the future. But we do appreciate that you acknowledge the inherent value in our portfolio relative to market, we agree. William Waller: Great. And that doesn't factor in you've got also an order book that should have quite a bit of value to it, it seems like. So we've seen AerCap and some others that have really walked through the math and then executed on it, and it seems like the market has really rewarded them for doing such. Operator: We'll take our next question from Eric Gregg with Four Tree Island Advisory. Eric Gregg: Congratulations on the strong top line and pre-tax earnings results for the quarter. I have three questions. First one I'll start with is for you, Scott. This is the third quarter in a row of a multimillion dollar write-down. Year-to-date, the write-downs are up, I think if my math is right, 26x the same year-to-date period in 2024. Keeping in context and what Will just said, a $24 million write-down is not a lot compared to $200 million higher appraised value you talked about at the beginning of the year on the year-end revaluation of the portfolio. But it's three quarters in a row of multimillion dollar write-downs. Is this just the new norm? Or why is it really so much higher this year, just from a higher level? And why are we seeing these write-downs so frequently? Austin Willis: So Eric, good to hear from you, and I appreciate the question. This is Austin, by the way. Let me jump in and field it quickly and then Scott can provide a bit more color. But write-downs are a little bit different in the engine space than they are in the aircraft space as it pertains to assets coming off of a long-term lease and just how reserves are treated and how impairments are treated. In this last quarter, we had a handful of engines coming off lease, the majority of which were in China, I believe. And we took some write-downs as we move those to held-for-sale as we look to take those assets and deploy them elsewhere. So that's a lot of what it is. But Scott, would you like to add to that? Scott Flaherty: Yes. I mean I don't think there's that much, Eric, to add to that other than, obviously, as you see increased utilization and increased run rate of these engines and short-term maintenance reserves as well. Engines are being utilized more. And at the end of the lease, quite often as we move an engine to the extent we're not moving it to a full performance shop visit restoration, you could see some incremental write-down. But the incremental write-downs pale in comparison to the short-term maintenance and long-term maintenance reserves that you're seeing. Yes. And again, oftentimes, at the end of the lease, you'll have EOL comp, which will go to long-term reserves and go to revenue. And then oftentimes, you'll also have commensurate write-downs associated with the value of the asset. Eric Gregg: My other two questions, I'll just give them both right now. Austin, you talked about taking aircraft leasing to the next level with Pascal hire. Is the plan to ramp up investment in aircraft and specifically aircraft leasing and start tilting more that way than engines? And so that's one question. Then the second question is about your SAF effort. Saw the press release about Wilton International being chosen for your SAF project. As I understand that building out a 14,000-ton SAF facility would cost a few hundred million dollars. And the question is, what is Willis' intention in terms of funding that? Is it having third parties providing the bulk of that? And if that's the case, how are those conversations going? Austin Willis: Yes. So on the aircraft leasing front, we are looking to get more involved in aircraft leasing, but we've been in aircraft leasing for a long time. We're certainly not looking to change the strategy. It's really just taking our existing strategy and expanding it. So right now, we've got, I believe, 20 aircraft, and we'd like to grow that. But it's -- we've got no intention of becoming sort of the next AerCap or Air Lease or NAVAIR, big aircraft leasing company. We want to get more into aircraft leasing where we can add value to the customers. And ConstantThrust, which I mentioned earlier, is a great example of that. It's really -- it's an aircraft lease, but what we're really doing is leasing engines and managing the maintenance of those engines within the context of an aircraft lease. So that's what we're planning to do. We will invest more heavily in this. But again, I wouldn't see it as a divorce from what we've done in the past. It's really just growing what we already do in a more thoughtful way. On the SAF side, yes, we did sign the lease for Wilton, and we're excited about that. It's a good site that's got a lot more infrastructure to be able to support the plant when we do get to the point of final investment decision and look to start developing it. We've got stage gates that we have in place that kind of take us from where we are now to really considerable additional expense for when the development does happen. But the intent is to invest not just on behalf of ourselves as equity, but to solicit third-party equity as well. I can't tell you exactly what that percentage or ratio is going to look like yet, but it's going to be on a conservative risk basis, I'll put it that way. Operator: Thank you. That will conclude our Q&A session and the Willis Lease Finance Corporation's third quarter 2025 earnings conference call. We appreciate your participation. You may now disconnect.
Operator: Greetings, and welcome to the Enpro Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, James Gentile, Vice President, Investor Relations. Thank you. You may begin. James Gentile: Thanks, Melissa, and good morning, everyone. Welcome to Enpro's Third Quarter 2025 Earnings Conference Call. I remind you that our call is being webcast at enpro.com, where you can find the presentation that accompanies this call. With me today is Eric Vaillancourt, our President and Chief Executive Officer; and Joseph Bruderek, Executive Vice President and Chief Financial Officer. During this morning's call, we will reference a number of non-GAAP financial measures. Tables reconciling historical non-GAAP measures to comparable GAAP measures are included in the appendix to the presentation materials. Also a friendly reminder that we will be making statements on this call, including our perspectives for full year 2025 guidance that are not historical facts and considered forward-looking in nature. These statements involve a number of risks and uncertainties, including those described in our filings with the SEC. We do not undertake any obligation to update these forward-looking statements. It is now my pleasure to turn the call over to Eric Vaillancourt, our President and Chief Executive Officer. Eric? Eric Vaillancourt: Thanks, James, and good morning, everyone. Thank you for joining us today as we review our third quarter financial results and provide an update on our strategic progress. We greatly appreciate your support. It certainly is an exciting time to be [indiscernible] Enpro. After a brief discussion of our quarterly performance and acknowledgment of the hard work ongoing across the organization, I will turn the call over to Joe for a more detailed discussion of our third quarter results and current guidance perspectives for the balance of the year. Now on to our third quarter performance. Enpro reported organic sales growth of nearly 10% during the third quarter with mid-single-digit revenue growth year-over-year in Sealing Technologies and more than 17% top line growth at AST. The strength of our business model was demonstrated again during the quarter with total Enpro adjusted EBITDA margin above 24%, which included increased operating expenses supporting growth initiatives in both segments. Complementing the strong quarterly performance, we continue to advance Enpro 3.0 strategy with the Overlook Industries acquisition and our agreement to acquire AlpHa Measurement Solutions, which we announced on October 13. Both of these acquisitions will expand our capabilities in critical growth areas of the portfolio without the use of excess leverage. We closed our acquisition of Overlook on October 8 and expect the acquisition of AlpHa to close during the fourth quarter of 2025. Once required regulatory approvals are received and other customary closing conditions are satisfied. AlpHa and Overlook are great examples of our ability to identify businesses that fit our strategic growth characteristics while meeting our stringent financial criteria. Both businesses have significant technical competence, customer intimacy and competitive differentiation while bringing strong business leadership, all characteristics reflective of an Enpro business. AlpHa's portfolio of liquid sensing capabilities complements our existing gas stream solutions acquired with AMI, broadening our portfolio of sensing technologies and instrumentation for compositional analysis in key end markets such as industrial process control, water and wastewater, laboratory and environmental monitoring. The sensing and measurement parameters brought together to further our compositional analysis strategy enable us to detect unwinded oftentimes trace compounds in a variety of processes, which in turn enable us to solve our customers' critical problems. Overlook specializes in engineering, design and fabrication of single-use technologies, another critical componentry that expands our position in biopharmaceutical manufacturing. Overlook's capabilities expand in liquid dose biologics, a secular growth area that continues to expand as liquid, single-use medicines are increasingly replacing those taken orally. These medicines target a number of evolving areas in oncology, immunology and dermatology, amongst many others, as the market is poised to accelerate over the next decade. Within our Garlock Hygienic Technologies business, Overlook furthers our technology expertise and customer intimacy by answering the industry's accelerating need for tailored single-use consumables as more stringent aseptic processing is essential to prevent contamination. Our business teams are continuing to identify acquisition targets that broaden our leading edge capabilities and bring them into Enpro as we strategically expand our portfolio of critical products and solutions. I would like to thank those involved in the preparation and execution of these transactions as we are excited to begin integrating these bright new colleagues and successful teams into our organization. Turning to our segment results for the quarter. In Sealing Technologies, sales increased 5.7%, highlighted by strength in aerospace and food and biopharma demand, firm aftermarket performance in general industrial and commercial vehicle markets and strategic pricing initiatives. Solid performance in these areas more than offset persistent weakness in commercial vehicle OEM market and soft overall industrial demand in Asia and Europe. Sealing segment profitability remained above 32%. In Advanced Surface Technologies segment, sales increased more than 17% led by growth in leading-edge precision cleaning solutions and improved demand for certain semiconductor tools and assemblies. AST segment profit increased double digits over the last year, though operating leverage was impacted by continued growth investments such as preparation for advanced chip production domestically and accelerating qualification work on new platforms and next node development. Slightly unfavorable mix was also a headwind, which Joe will discuss in greater detail in a moment. Across Enpro, we continue to pursue targeted incremental capacity expansions in areas where we are winning, preparing to solve critical problems for our customers and investing in and expanding our differentiated capabilities. Our aim is to unlock the compounding features of our business model and drive value creation into the second year of our 3.0 phase and beyond. In Sealing Technologies, for example, we are currently expanding capacity and investing resources to support future growth in compositional analysis, aerospace and commercial space applications. In commercial vehicle, we are making investments to support incremental market share gains with new products and expanding partnerships with key customers. We are readying our manufacturing processes to be well positioned for the inevitable recovery of the current trough and trailer builds. Across the Sealing segment, our teams are making strides to identify new market opportunities and specify our process solutions for critical positions in higher-growth markets, including life sciences, space, hydrogen, semiconductor, nuclear, energy storage and digital infrastructure applications. Our teams are excited about these efforts as we expand our capabilities and reinvest in growth opportunities to drive long-term profitable growth in Sealing Technologies. AST is busy, and we'd like to acknowledge our colleagues for their hard work. In AST, we offer critical products and solutions and our customers come to us to solve exacting problems that enable contamination control, efficient and chamber environments, process and equipment protection and economic yield optimization for semiconductor fabs. During the quarter, we experienced strong demand for our leading -edge precision solutions and some recovery in semiconductor tools and assemblies, while pursuing stringent qualifications for next-generation platforms. As we have said in recent quarters, we have been making disciplined investments in key areas of the business that will serve as growth platforms to support our long-term expectations for the segment. We continue to implement certain continuous improvement and optimization actions that can drive incremental margin expansion and a more robust overall semiconductor market recovery. As our pipeline continues to expand, we are well positioned to deliver. The Enpro 3.0 strategy is proceeding as planned as we approach our second year, and we are excited about the many opportunities ahead. The business is positioned to drive mid-single-digit revenue and growth in the Sealing Technologies segment and high single-digit, low double-digit growth in AST over time. Our programmatic M&A strategy has been additive to these organic growth perspectives over our 3.0 planning horizon. We are pleased with the Sealing segment's ability to consistently generate profitability towards the high end of our targeted ranges over the past 3 years and expect this level of impressive performance to continue. For AST, the segment has demonstrated its ability to generate profitability in the high 20% to low 30% range in the past, and we are taking steps to unlock value inherent within the segment and deliver more consistent performance at these levels as we continue to invest in the areas where we are strongest, while implementing our playbooks to continuously optimize performance over time. Before I pass the call over to Joe to discuss our results in more detail, I want to thank everyone at Enpro for your valuable contributions to our company, and I encourage each of you to continue investing in your personal and professional growth as we work toward to deliver the critically important solutions to our customers. Joe? Joe Bruderek: Thank you, Eric, and good morning, everyone. We are very pleased with our performance so far this year. Now let's get into the details of our third quarter results. In the third quarter, sales of $286.6 million increased nearly 10%. We saw continued strong Sealing Technologies performance overall and more than 17% year-over-year sales growth at AST, even as some of our markets remain choppy. Third quarter adjusted EBITDA of $69.3 million increased 8% compared to the prior year. Adjusted EBITDA margin of 24.2% was down slightly from last year. Ongoing investments in people and processes across the company to support future growth as well as unfavorable mix in AST absorbed the benefits from operating leverage during the quarter. Our corporate expense of $10.2 million in the third quarter of 2025 was essentially flat compared to last year. Adjusted diluted earnings per share of $1.99 increased more than 14%, largely driven by the factors that drove the adjusted EBITDA improvement year-on-year and lower net interest expense. Moving to a discussion of segment performance. Sealing Technologies sales increased 5.7% to $178.2 million. Strength in aerospace and food and biopharma applications, firm aftermarket demand in domestic general industrial and commercial vehicle markets and strategic pricing more than offset persistent weakness in commercial vehicle OEM markets. Nuclear orders were impacted by political uncertainty in France, which influenced funding and procurement and is expected to be temporary. Industrial demand in Europe and Asia was also tepid during the third quarter. Aftermarket sales comprised 65% of total segment revenue year-to-date. For the third quarter, adjusted segment EBITDA margin remained strong at over 32% despite growth investments mentioned previously. Segment profitability remains at the high end of our targeted range. We are excited about the number of drivers of long-term growth and value creation in Sealing Technologies as we focus on expanding opportunities through growth investments and strategic acquisitions. On the topic of strategic execution in Sealing, we are delighted to have found 2 great businesses in our recently announced transactions. We welcome the Overlook team into Enpro and are excited to begin working with our new AlpHa colleagues once that deal closes, which we expect to occur in the fourth quarter of 2025. As Eric talked about in detail earlier, these 2 organizations advance our capabilities in key growth areas of the Enpro portfolio and have all the hallmarks of an Enpro business. On a combined basis, we expect both businesses to achieve high single to low double-digit revenue growth rates at margins that meet or exceed our core. As well, we are excited to assist these talented teams to expand their reach and execute their respective growth strategies as they become part of our team to contribute to our value creation trajectory. Turning now to the Advanced Surface Technologies segment. Third quarter sales of $108.5 million were up 17.3% year-over-year. We saw an acceleration in certain areas of AST, including in precision cleaning solutions tied to advanced node chip production, supporting applications such as artificial intelligence and high-bandwidth memory. However, demand for capital equipment remains choppy with pockets of strength observed for certain lower-margin semiconductor tools and assemblies during the quarter. For the third quarter, adjusted segment EBITDA increased more than 13% and adjusted segment EBITDA margin was 20.1%. Operating leverage on sales growth was offset primarily by increased operating expenses supporting growth initiatives and the mix impact of increased sales for certain semiconductor tools and assemblies. There are several factors underlying AST performance currently that we expect to continue into 2026. We see momentum in our advanced node-facing precision cleaning solutions business. Consistent with that, we are seeing accelerated time lines for leading -edge node production, which have caused the need for increased labor investment in both Taiwan and the United States to meet the qualification demands for our customers, well ahead of time as demand for advanced node chips accelerates. These actions position us very well for growth into 2026 and beyond. At the same time, we are making considerable progress on new platforms and technological advancements for leading -edge processes in our pipeline, which is leading to additional qualification activities ahead of revenue generation and necessary to answer the exacting requirements of our customers. Semiconductor industry dynamics continue to evolve and regionalization of supply chains proceeds. In partnership with our customers, demand is shifting for certain legacy product lines from the United States to Southeast Asia. As we have mentioned before, we have expanded our capacity in that region over the past 2 years to support our customers on a number of platforms. In connection with this demand shift, $12 million of equipment supporting legacy platforms or approximately 3% of total AST revenue was produced and sold year-to-date in 2025 ahead of these transitions, which we do not expect to recur in 2026. Finally, near-term demand dynamics continue to be choppy in the third quarter, which will continue in fourth quarter and into the first half of 2026. although we are seeing signs of capital spending supporting leading-edge semiconductor capacity expected to accelerate into the back half of next year. These signals of a significantly improved demand environment are supported by secular technology transitions, driving the need for more advanced logic, artificial intelligence and high-bandwidth memory capacity. Over the mid and long term, our new platform pipeline remains robust and underscores our high single to low double-digit revenue growth expectations for the segment. Again, we expect segment margins can achieve 30% over time as new platforms begin to season from the investments we have made over the last 2 years. The market resumes a more consistent trajectory and continuous improvement initiatives take hold. Turning to the balance sheet and cash flow. Our balance sheet remains strong. At the end of the third quarter, our net leverage ratio stood at 1.2x trailing 12-month adjusted EBITDA. Following the completion of the transactions announced in October, we expect to exit 2025 at a net leverage ratio of around 2x. We generated $105 million in free cash flow year-to-date versus $83 million last year. Higher net income and lower interest payments were the primary drivers of the year-over-year increase. Also, we continue to expect capital expenditures to be around $50 million this year as we invest in future growth opportunities across the company at accretive margin and return thresholds. Finally, our strong balance sheet and cash generation provide us with ample liquidity to make these investments while continuing to return capital to shareholders. In the third quarter, we paid a $0.31 per share quarterly dividend with year-to-date payments totaling $19.7 million. We also have an outstanding $50 million share repurchase authorization expiring in October 2026. We are pleased with the consistent free cash flow generation and look to reinvest in organic growth opportunities across the business, while continuing to pursue strategic acquisitions that fit our rigorous financial objectives and expand our leading-edge capabilities. Moving now to guidance. We are updating our previous full year 2025 guidance ranges to the high end and now expect total Enpro revenue growth of 7% to 8%, adjusted EBITDA in the range of $275 million to $280 million and adjusted diluted earnings per share to be in the range of $7.75 to $8.05 per share. The anticipated partial quarter contribution from the 2 acquisitions announced in October is included in this range. We previously expected revenue growth of 5% to 7%, adjusted EBITDA in the range of $270 million to $280 million and adjusted diluted earnings per share in the range of $7.60 to $8.10. The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25% and fully diluted shares outstanding are currently 21.3 million. As we shared in our October announcement, the contribution from the acquisitions of AlpHa and Overlook should contribute more than $60 million in revenue and $17 million to $18 million in adjusted EBITDA in 2026, all included in the Sealing Technologies segment. In Sealing, we continue to expect strong performance year-over-year in the fourth quarter. The end market drivers underlying our guidance ranges remain largely the same. We expect continued strength in aerospace and food and pharma markets and a firm domestic aftermarket in general industrial and commercial vehicle. The commercial vehicle OEM markets are expected to remain at a low point for the balance of the year. We also expect slight variability in nuclear orders to continue based on near-term political uncertainty in France compared to our previous delivery schedules for the fourth quarter. In AST, we expect a sequential deceleration in sales growth for the fourth quarter, given the continued choppiness in overall semiconductor equipment spending, the previously mentioned regional transitions underway as well as the accelerating qualification work on new platforms ahead of revenue. Overall, for the year, we still expect Sealing segment profitability at the high end of our range of 30%, plus or minus 250 basis points, while AST segment profitability should finish slightly above 20% Total Enpro adjusted EBITDA margin is expected to finish 2025 above 24%. We are excited to continue executing our value-creating strategy into 2026 and beyond and look forward to our discussions with you all in future quarters. I will now turn the call back to Eric for closing comments. Eric Vaillancourt: Thanks, Joe. I'd like to thank our colleagues across Enpro for their inspiring work and dedication. We are also excited to welcome our new colleagues from AlpHa and Overlook to the organization. We are pleased with our performance so far in 2025 and are confident that we are taking the right steps to build on our Enpro 3.0 momentum. We are delivering on our growth targets for the first year of our strategy while empowering our team's personal and professional development and creating differentiated value for our customers and shareholders. Thank you for your interest in Enpro, and we now welcome your questions. Operator: [Operator Instructions] Our first question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Maybe start with acquisitions. I don't know if you can give us a sense of relative size of each. And I think you said margin and growth profiles are comparable, but just a little bit of breakdown. And then just on Overlook, it seems like a little bit of an adjacency. Just what gives you a right to win there? What do you see in terms of bolt-ons to kind of build scale around that business? Joe Bruderek: Yes. Jeff, yes, as you asked, right, the combined nature of both of them are about $60 million of revenue in 2026 and are expected to grow high single digit, low double digit over the next foreseeable future. So we're really excited about both acquisitions. They're both going to be combined accretive to Enpro's core. They're not too far from each other as far as profitability goes and growth rate expectations. And Eric can talk a little bit more about some of the capabilities they bring. Eric Vaillancourt: Actually, I'm going to introduce Mike Faulkner. Mike Faulkner leads our Sealing segment. And Mike was instrumental in both finding and acquiring these acquisitions and spend a lot of time with them, and he can speak about the adjacency and more about the strategy. Mike does an excellent job leading our Sealing Technologies segment and it's better to hear from him directly. So Mike, can you jump in? Mike Faulkner: Absolutely. Can you guys hear me okay? Okay. So Jeff, like other Enpro businesses, these are models in both that we know really well. Both Overlook and AlpHa have a high degree of recurring revenue that comes from strong, long-lasting customer relationships that are built on a track record of performance in critical applications. Overlook in particular, we are solving a problem that's worth solving in that large molecule liquid biologics pose unique processing problems for pharmaceutical manufacturers. And much like our other critical components, Overlook's design directly solves these problems in the fill/finish area and supports the growth and development of life-saving medicines. We see these as businesses that have the same characteristics of other winning businesses that we have within the segment. Jeffrey Hammond: Okay. And then just real quick 4Q revenue contribution that you put into guidance from the acquisitions? Joe Bruderek: Yes. So depending on the final timing for AlpHa closing, which we expect should be by the end of November, we included just under $10 million in revenue for the fourth quarter from both acquisitions and approximately $3 million in EBITDA. Jeffrey Hammond: Okay. Great. And then shifting gears to ASTI. You guys gave a lot of color around some of the moving pieces. But I guess my main question is when do we start to see better incrementals in that business and some of the investments start to normalize? And then just where is that $12 million, is that cleaning? Is that tools and assembly or something else? Eric Vaillancourt: I'll start and give just a little bit of color because things are really dynamic in that industry. You have 3 major things happening, one being tariffs, 2 being AI and data center demand and then third being export restrictions. So everything is really dynamic and things are moving around very, very quickly. So some of the things that are happening, and you can read the paper as well as we do, but the adoption of 3-nanometer production in the U.S. is being greatly accelerated as much as a year ahead of plan. So at the same time, things that we were expecting to generate revenue this year are being pushed off in terms of qualification because they're prioritizing other things. So we're not getting the revenue from some of the stuff that was anticipated while also spending more on others. But both are great projects and you want us to do it. It's just a question of when demand starts happening. And as you've heard from others as well, the first half of next year appears to be pretty choppy, but the second half looks to be more robust, and we can start to see some of that rolling in around there. Joe Bruderek: Yes. So we're excited about all of that work that we're doing, right? We're making good progress on both the cleaning side and our semiconductor capital equipment side. And we're accelerating qualification work on both, right? And so that's why you're seeing a little bit of an outsized impact right now. It impacted us about $3 million overall in the quarter for growth investments ahead of revenue. Those are expected to kind of start contributing in the middle to late part of next year, as Eric talked about, but positions us very well to capitalize on all of that advanced node work. Specific to your question on the $12 million, Jeff, that's in the tools and assemblies part of the business. And that really is to support our customers in the shifting movement of that business from U.S. to Asia. And so that's for them to build some inventory and get ahead of that. So that's $12 million that's pulling out of 2026 into 2025 on mostly legacy kind of equipment areas. It was most pronounced in the third quarter, but it impacted in pull-ahead demand really in the second quarter and the third quarter of this year. Eric Vaillancourt: Yes. Some of that, Jeff, is the in-region for-region sourcing that's going on in the legacy stuff. Some of that's being moved to Asia to be more competitive. Jeffrey Hammond: Okay. Just back on incrementals. So as we get into '26 and you see some of these investments maybe normalize or the programs come online, like what should we think of as incrementals in that business into '26? Joe Bruderek: Yes. I mean we're not ready to talk and give specific guidance yet for '26, but just a broader theme question, right? I mean we've seen, as I just mentioned, roughly $3 million, and you can do the math on kind of what we would be without that. But as we start to move forward and leverage some of those costs, right, we would expect to build on top of that. So historically, our incrementals for this business are somewhere in the 40% range. And as we start to grow into these investments that we make, I mean, that's what we should expect going forward. Operator: Our next question comes from the line of Steve Ferazani with Sidoti & Company. Steve Ferazani: I did want to follow up on the acquisitions. When we think about the initial year 1 revs and margin guidance, does that imply much efforts in terms of your usual integration process, continuous improvement, cost out, synergies, et cetera? I mean, long term, how do you think about the margins in those 2 businesses versus Sealing overall? Eric Vaillancourt: Margins of the businesses are healthy already. We expect we'll be able to get a little bit out of our playbook as we always do. And so we'll be a little bit more efficient, but there aren't a huge amount of synergies. It's more about growth. When we focus on Enpro 3.0, it's accelerating personal profitable growth, and these are growth investments, will help the segment grow faster essentially with margin profile that will be about the same as Sealing overall. Joe Bruderek: Yes. So Steve, we didn't contemplate any margin expansion from any Enpro-related activities we'd be able to bring in that first 2026 full year as they become part of the company. But as we just said, right, there are opportunities there, right? There's margin expansion opportunities that we see not only from the growth, but also from continuous improvement, strategic pricing, et cetera, things that we've been so successful at in the past. Steve Ferazani: Talk to me how you view the compositional analysis market. You made that AMI deal was going now back maybe 2 years, how that's played out and whether that gets you more intrigued with compositional analysis and what the opportunities are in that market? Eric Vaillancourt: Mike, why don't you weigh in again since you've identified the space and spent a lot of time there. Mike Faulkner: Yes, absolutely. I'm happy to. Yes, I'm happy to. We're tremendously excited about the compositional analysis space. AMI has been a fantastic entry point for us. And with AlpHa, we're adding 8 liquid parameters that go along with the 4 gas analytes that we have with AMI. And what we really see it doing is a couple of things. For our customers, it's helping to accelerate the process of Industry 4.0, so that they can know something more about what's going on in their systems and in their processes that helps them operate at the peak of efficiency and reliability without sacrificing process safety. The other thing it does for us because we're in a lot of these spaces already with different products and critical components that are going into to safeguard those processes. The information that comes off of this, the more we can understand and our customers can understand what's going through the process, the better we are at designing containment solutions to go along with it. And it kind of sounds simple, but whatever makes us better engineers makes us more invaluable to our customers. So we see the compositional analysis space as really being a great entry way into innovation for our critical component solutions. Steve Ferazani: Do you think there's more M&A opportunities in that area? Mike Faulkner: We definitely believe there's more M&A opportunities in this area, yes. Eric Vaillancourt: The other thing we're getting is 2 outstanding leadership teams. We picked up Saharra at Overlook and also Drew and their team at AlpHa . And those are outstanding leadership teams, will add to our talent as well. We're really excited about adding those folks to our team. Steve Ferazani: Excellent. That's great. We think about this was a slightly elevated CapEx year for you. You've talked about all the investments you're making. We know the growth opportunities with AST. Are you starting to think about CapEx for next year? Or are we too early? Are there continued investments that are going to be made into 2026 on the CapEx side on what we think is really strong growth over the next 5 years? Joe Bruderek: Yes. I mean, Steve, we're not ready to give a specific number yet for 2026. I mean we'll do that when we talk in February. But I think we're going to be in this range for a couple of years now in this kind of 3.5% to 4.5% of sales. I mean we continue to have good, strong areas of organic growth opportunity, and we're excited to invest behind them in both businesses. I mean, Eric talked about a few of them in Sealing, in aerospace, space, commercial vehicle for new platform innovation. These are all areas that are continuing to add to our Sealing growth algorithm. And then in AST, right, they're plentiful with what we're doing in Singapore, Taiwan, the U.S., continued build-out of next phases of Arizona. So we expect to continue to be in this range as long as we have a consistent pipeline of organic growth areas to invest in. Steve Ferazani: Can you talk about your outlook now for -- I know nuclear and commercial space were big contributors this year, nuclear, not so much this quarter, but that sounds like a timing issue. Can you talk about your positioning in those 2 markets? Eric Vaillancourt: Yes, we're still really excited about it. I can give you a little bit of a specific example. Brad Lodge leads our Technetics Group and they launched what they call Mission One. That's a couple of space companies that are doing some exciting work and recently challenged us with getting some new parts and new production up and out as quick as possible. And speed is very, very important because they're moving so fast. We are actually able to purchase equipment getting in place and produce new parts in 9 weeks, which is crazy. Usually, the thing is 26 weeks just to get material. But to be producing good parts in 9 weeks and ramping up production in that part of time is crazy fast. That team is doing outstanding, and those days are going to get better and better. So we're excited about our nuclear business and our space business. Operator: [Operator Instructions] Our next question comes from the line of Ian Zaffino with Oppenheimer & Company. Ian Zaffino: On -- I just kind of want to understand AST a little bit better here. Can you maybe tell us what the mix of leading edge is? And where is it currently versus, let's just say, a year ago as far as maybe the growth rates? Where do you actually see it eventually going? And when you look at the margins of each, I guess, call it, at ramp or at maturity or whatever word you kind of choose to use, what do you think margins could be on leading edge versus non-leading edge? Joe Bruderek: Yes. Good question. I think historically, we've been about 50-50 when you think leading edge and legacy platforms. Obviously, the legacy side of that is where you've seen the most depression of capital equipment spending over the last few years. At the same time, our Precision Cleaning business has been growing nicely, and we continue to make inroads both in Taiwan and qualification work on new leading-edge nodes as well as ramping up manufacturing in both Taiwan and in our Milpitas, California facility. So now we're a little bit leaned towards advanced node exposure overall. Although recently, the last couple of quarters for some of the supply chain transitions I talked about, but even so you're starting to see a little bit of increased semiconductor tools and assembly, that's eating into that a little bit. There is a differentiated amount of margin. So what we're now seeing is leading edge as that continues to grow, right? That mix is us up a little bit, but it is currently being offset by the semiconductor legacy tools and equipment that's been stronger in the last 2 quarters, right, which is still very choppy. I mean we've seen demand kind of choppy for the last few quarters. We expect that in 4Q. We expect that at least through the first half of next year. As I mentioned before, there are signs and signals of a much stronger WFE picture for the second half of next year. And then longer term, as we talked about, right, this segment has the ability to demonstrate sustainably high 20%, low 30% EBITDA margins, right? And we're focused on the actions necessary to do that. It will be some of that WFE-related capital equipment spending driving a more sustained growth of that part of the segment. There will be continued growth in Precision Cleaning that helps us get there as well as our continuous improvement initiatives and strategic pricing and all the rest of our playbook. Eric Vaillancourt: Also, the new stuff coming online is vertically integrated. The legacy stuff is not. So it's just precision machining, and that doesn't have the same margin profile as the stuff coming. So the stuff that's coming has still in qualification before revenue, but that will also help as we go forward. Ian Zaffino: Okay. And then on nuclear, how are we thinking about the non-French business where are you kind of seeing maybe potential pockets of strength or of future strength? And I guess what I'm asking is you mentioned data centers, nuclear is kind of -- they've been floating around things like small modular reactors. I know there's talk about an AP1000 coming online. Maybe talk about your view of that market in general? And where would you be on that value chain and where would you be as a player in that space? Eric Vaillancourt: We're excited about the market as it develops. Of course, it's still a ways away. When it comes, we're very well positioned to participate. Of course, as you know, we seal the reactor pressure vessels in the plants, and we'll continue to do that. We work with all the leading companies that do that work. And I just say we're well positioned as soon as it takes off. But there isn't anything that we need to do differently. We just need the market to develop and we'll develop along with it. Joe Bruderek: At the margin, when we see certain containment solutions on small modular reactors or new capacity, there's a general trend for those customers to come to us for certain containment solutions over time. Ian Zaffino: Okay. And just as a follow-up, does it matter if it's like an SMR or a larger like an AP1000 or anything like that? Does that matter and how that market kind of forms as it relates to Enpro in general? Eric Vaillancourt: Not really. The difference is, of course, the size of the sales is a little smaller. So it's not as large of a volume, but there's also more of. So not really -- I wouldn't say it has any significant impact just as the industry grows, we'll grow with it. Operator: Ladies and gentlemen that concludes our question-and-answer session. I'll turn the floor back to Mr. Gentile for any final comments. James Gentile: As you heard, I mean, it's such a pleasure to again report solid results. The energy around the organization is exciting. We're investing in a number of growth opportunities across the company, and we're excited to update you in February when we report Q4 and our perspectives for 2026. Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to the OMV Results January to September and Q3 2025 Conference Call and Webcast [Operator Instructions] please be advised that today's conference is being recorded. At this time, I would like to refer you to the disclaimer, which includes our position on forward-looking statements. These forward-looking statements are based on beliefs, estimates and assumptions currently held by and information currently available to OMV. By their nature, forward-looking statements are subject to risks and uncertainties that will or may occur in the future and are outside the control of OMV. Therefore, recipients are cautioned not to replace undue reliance on these forward-looking statements. OMV disclaims any obligation and does not intend to update these forward-looking statements to reflect actual results, revised assumptions and expectations and future developments and events. This presentation does not contain any recommendation or invitation to buy or sell securities in OMV. I would now like to hand the conference over to Mr. Florian Greger, Senior Vice President, Investor Relations and Sustainability. Please go ahead, Mr. Greger. Florian Greger: Thank you. Good morning, ladies and gentlemen, and welcome to OMV's earnings call for the third quarter 2025. With me on the call are OMV's CEO, Alfred Stern; and our CFO, Reinhard Florey. Alfred will walk you through the highlights of the quarter and discuss OMV's financial performance. After his presentation, both gentlemen are available to answer your questions. And with that, I hand it over to Alfred. Alfred Stern: Thank you, Florian. Ladies and gentlemen, good morning, and thank you for joining us. As we held our Capital Markets update at the beginning of the month, where we gave a comprehensive update on our strategy 2030, I will focus today on the third quarter. Let me start with a quick overview of the macro environment. Oil prices in the third quarter were impacted by additional OPEC supply. However, increased crude processing by refineries driven by strong refining margins provided some support. As a result, Brent prices were slightly above the previous quarter, but 14% lower compared to the third quarter of 2024. European gas prices have traded in a narrow range in recent months with muted Asian demand easing competition for flexible LNG and allowing prices to drift lower. Despite a significant year-on-year decline in inventory levels by the end of the third quarter, European gas hub prices decreased by 5% versus the prior year quarter. The OMV refining indicator margin rose strongly to $11.5 per barrel, thus more than doubled compared to the prior year quarter and was significantly higher than the previous quarter. This was driven by strong gasoline and diesel crack spreads with unexpectedly high gasoline demand and a shift towards diesel production. Reduced Russian exports and maintenance at the Dangote refinery provided additional support. European middle distillate margins were further boosted by limited imports and tighter access to Russian crude and products. In Chemicals, European demand remained weak due to economic headwinds and increased imports, particularly from China and the U.S. European olefin indicator margins decreased compared to the previous quarter, but remained about 10% higher than the prior year quarter, supported by lower Naphtha prices and industry outages. Polyolefin indicator margins in Europe showed a mixed picture. Polyethylene margins improved, while polypropylene margins declined versus prior year quarter. Both benefited from lower olefin costs, but polypropylene supply remained abundant due to continued high imports even as domestic producers reduced operating rates. In this mixed economic backdrop, OMV delivered very solid financial results. Our clean CCS operating result rose to almost EUR 1.3 billion, an increase of about 20% compared with both the prior year quarter and the second quarter of this year, demonstrating the benefits of our strongly integrated portfolio. Main driver was a very strong result of the Fuels segment, which more than doubled compared to the prior year quarter. Clean CCS earnings per share grew to EUR 1.82, driven by strong refining margins and increased E&P sales volumes. A lower tax rate and the positive onetime effect related to a litigation outcome in Romania provided further support. Cash flow from operating activities reached almost EUR 1.1 billion and thus was on a similar level as the previous quarter. However, it came in below the strong prior year quarter, primarily due to significant negative net working capital effects. Excluding net working capital effects, the operating cash flow was slightly higher than in the prior year quarter. Our hydrocarbon production was 8% down year-on-year, primarily related to the divestment of our Malaysian asset last year. Fuel sales volumes remained broadly stable. Polyolefin sales volumes, including joint ventures in the third quarter declined by 8% year-on-year, partly attributable to the implementation of a new ERP system at Borealis. The clean operating result of the Energy segment declined by 11% to EUR 622 million, mainly due to significantly lower oil prices, FX development and the missing contribution from the divestment of SapuraOMV. Increased sales volumes had a somewhat mitigating effect. The realized oil price fell by 15% to $66 per barrel, in line with the Brent price development. In contrast to the European benchmark prices, our realized gas price increased by 10% to EUR 27 per megawatt hour, primarily due to the changed portfolio composition following the divestment of SapuraOMV. The unfavorable exchange rate development weighed on the results by around EUR 70 million compared with the prior year quarter. Production volumes declined by 8% to 304,000 BOE per day. This was mainly a consequence of the divestment of the Malaysian assets, which had produced 33,000 BOE per day in the third quarter of 2024. The strong production increase in Libya to almost 40,000 BOE per day more than offset natural decline in New Zealand and Norway. Unit production costs slightly increased to $11 per barrel, predominantly due to the lower production volumes and the foreign exchange rate development, partly mitigated by reduced absolute cost. Sales volumes increased by 6,000 BOE per day due to substantially higher liftings in Libya, complemented by greater sales volumes in Norway and the United Arab Emirates, owing to favorable lifting schedules. The result of Gas Marketing & Power declined by EUR 25 million, driven by a weaker supply result and a lower sales result in Gas West, only partially offset by an improved LNG contribution. Gas East delivered a better result stemming from the power business supported by power market deregulation in Romania effective from July 2025. The Clean CCS operating result of the Fuels segment more than doubled to EUR 413 million, driven by substantially stronger refining indicator margins, a significantly higher ADNOC refining and trading result and improved utilization rates of our refineries. The European refining indicator margin rose sharply to $11.5 per barrel. We were able to benefit from the strong market environment through a high refining utilization rate of 91%. The contribution of the marketing business remained strong but was lower compared to the very high prior year quarter. Retail performance declined slightly, mainly due to reduced fuel margins driven by less favorable oil product quotations, partly offset by slightly increased sales volumes following the acquisition of retail stations in Austria and Slovakia. The result of the commercial business decreased as margins declined driven by slow economic development. The contribution of ADNOC Refining and Global Trading increased significantly to EUR 52 million, mainly due to a better market environment and stronger operational performance. The clean operating result of Chemicals increased significantly to EUR 222 million, driven to a large extent by the stop of Borealis depreciation. In our European business, we recorded positive market effects of EUR 35 million attributable to rising olefin indicator margins, while inventory effects had a negative impact of around EUR 10 million. The utilization rate of our European crackers was 84%, slightly higher than the prior year quarter level. The result of OMV base chemicals improved, driven by stronger olefin margins and higher steam cracker utilization rates. This was partly offset by weaker benzene margins. The contribution of Borealis, excluding joint ventures, increased by EUR 64 million, supported by the stop of depreciation. However, contributions from both base chemicals and polyolefins declined. The base chemicals result was affected by a significantly lower light feedstock advantage, a lower phenol margin as well as a slightly decreased utilization rate of the Borealis steam crackers. These effects were partly offset by improved olefin margins in Europe and less negative inventory effect compared to the third quarter of 2024. Polyolefin sales volumes of Borealis, excluding joint ventures, declined by 8%, largely attributable to the implementation of a new SAP system, which led to presales in the second quarter. Thus, when looking at the 2 quarters combined, polyolefin sales volumes at Borealis rose by 5% compared to the respective prior year period. The realized unit margins of standard products declined primarily due to stronger import pressure. In contrast, the realized unit margins of specialty products remained strong and stable, underscoring Borealis' strength in the specialty segment. The contribution of the JVs increased to EUR 73 million, even though Borouge delivered a lower result due to softer sales volumes and weak demand in Asia. The increase of the JV result is explained by the reclassification of Baystar, which is no longer consolidated and was negative in the prior year quarter. Turning to cash flows. Our third quarter operating cash flow, excluding net working capital effects, was very strong at around EUR 1.5 billion, an increase of almost 80% compared to the previous quarter. It was also 7% higher than the prior year quarter. Main drivers were strong refining margins and higher volumes in Libya. A positive onetime effect related to a litigation outcome in Romania was also supportive. In the third quarter of this year, we recorded a substantial net working capital build of about EUR 400 million, while in the prior year quarter, we had a small positive effect from net working capital. As a result, cash flow from operating activities for the quarter was around EUR 1.1 billion, in line with the previous quarter, but 23% lower than in Q3 2024. Looking at the 9-month picture, cash flow from operating activities came in at EUR 3.5 billion, representing a decrease of 20% compared to the first 9 months of 2024. Around half of the decrease is explained by a swing in networking capital effects, which were positive last year, but negative this year. Organic cash flow from investing activities in the first 9 months was around EUR 2.8 billion related to ordinary ongoing business investments and major growth projects such as Neptun Deep, the PDH plant in Belgium, the SAF/HVO plant in Romania and the green hydrogen plant in Austria. Free cash flow before dividends in the 9 months of 2025 was 5% lower than in the same period of last year. Our balance sheet continues to be very strong with a leverage ratio at 16%. In the third quarter, we redeemed EUR 750 million of hybrid notes at its first call date. The fair value of the hybrid bond was reclassified from equity to short-term bonds and consequently repaid, leading to an increase of the leverage ratio. At the end of September, OMV had a cash position of EUR 4.6 billion and EUR 4.2 billion in undrawn committed credit facilities. Let me conclude with an updated outlook for this year. We maintain our Brent oil price assumption of around $70 per barrel for full year 2025. However, geopolitical environment remains highly volatile. For gas, we now expect the full year average THE price to be slightly below EUR 40 per megawatt hour and the realized gas price is projected to be at the lower end of the EUR 30 to EUR 35 per megawatt hour range. In the fourth quarter of 2025, we anticipate E&P production to be around 300,000 barrels per day thus expect for the full year 2025 an E&P production of slightly above 300,000 barrels of oil equivalent per day. E&P production costs are anticipated to remain stable at around $11 per barrel. In fuels, the refining indicator margin rose significantly in the third quarter and the start to the fourth quarter has also been very positive with refining margins above $12 per barrel. As a result, we are upgrading our full year outlook to above $9 per barrel. Our refinery utilization is expected to be at the upper end of the 85% to 90% range. Retail margins have developed positively and are now projected to be slightly above 2025 levels, while we maintain our outlook for lower commercial margins. The European chemicals market continues to face significant pressure from persistent economic challenges and rising import volumes, driving further consolidation and ongoing cracker closures. Supported by lower naphtha costs, olefin margins in the fourth quarter are estimated to be at a similar level as the average of the first 9 months. However, current high discounts are anticipated to have a somewhat mitigating effect. Polyolefin indicator margins are expected to decline in the fourth quarter due to lower seasonal demand and destocking at year-end. Consequently, we now assume a lower utilization rate of our European steam crackers of around 85%. Polyolefin sales volumes at Borealis are expected to increase by 200,000 tonnes to around 4.1 million tons in 2025. However, not as strongly as previously anticipated. All other full year assumptions for the group remain unchanged. We continue to make good progress on the Borouge Group International deal. We remain confident in our expectation to close both transactions related to PGI within the first quarter of next year. Thank you for your attention. Reinhard and I will now be happy to take your questions. Florian Greger: Thank you, Alfred. Let's now come to your questions. [Operator Instructions] we start today's Q&A session with Josh Stone, UBS. Joshua Eliot Stone: Two, please. One on the very strong result for Fuels this quarter, which pretty much looks like it beat the refining benchmark despite retail and commercial being a bit weaker sequentially. So just expand on what's driving that very strong refining performance. And are you seeing some benefits if you think about specific to I'm thinking about some of the refinery outages we've read about in some of your neighboring countries and wondering if that's been helping some of the performance or is likely to help the performance this coming quarter? And then second, on chemicals. I don't know if I've observed this correctly, but it seems like your tone has become a bit more cautious on the European market, given the role of imports and noting you're guiding towards lower runs despite being one of the lowest cost producers. So just maybe just talk us through that. And you mentioned these discounts you're seeing on the chemical market. So maybe just expand on how significant those discounts are and your expectation around those? Alfred Stern: Yes. Thank you, Josh. Let me start with your question around Fuels. We -- the reception here wasn't very good. So I hope I got your full question. But yes, as you say, we more than doubled our fuels result in the last quarter. That was mainly driven by 2 different things, higher refining indicator margins and secondly, also a good capacity utilization in our refineries. The refining indicator margins drive was, in my view, result of multiple things happening. One is a supply-demand balance kind of thing. We saw strong gasoline demand in the driving season also in Q3. We saw healthy demand on the jet fuel side. And we also did see, let's say, demand-supply imbalance on the diesel side that was driving the diesel margins as well, which we could utilize in our refineries by making sure we are running them to also optimize the refinery margins. Quarter 4 started very strong. So the first days here in October, we are above the $12 per barrel that I mentioned. And I would anticipate that we continue to see a similar supply-demand kind of picture for the fourth quarter, which is then also why we increased our guidance outlook to over 9%. Let me also just mention here briefly the ADNOC refinery because also there, in the third quarter, we saw an improvement of the margins. Utilization there remains to be high, but the indicator margins helped to improve that and also the a strong start to the fourth quarter. On the -- your second question on the chemicals sector, indeed, we were very successful in driving the growth in the business in the first half of the year, partly driven by the SAP implementation. But as I said, we are still looking for the full year now at 4.1 million tonnes of sales, which compared to last year would be still about a 5% growth. So I would consider that rather healthy given the market circumstances. However, we are more cautious for the fourth quarter because we anticipate inventory management, cash management in the supply chain also with our customers and that we wanted to reflect in what I said here and in the outlook. Last but not least, on the discounts, this is a usual thing, the reported contract prices for olefins -- polyolefins usually have discounts associated in the specific sales contracts and with customers. And in particular, in situations where the markets are longer, these discounts or spot prices then can -- the discounts can widen a bit. I anticipate that this will be the case due to the given situation in Q4. Florian Greger: Thank you, Josh, for your questions. We now come to Alejandro Vigil from Santander. Alejandro Vigil: Two questions, please. The first one is about Libya. We have seen this volume increase year-on-year and quarter-on-quarter. If you can give us some color about the prospects for this country in your production profile? And the second question is about the Borouge-Borealis combination. You mentioned that everything is on track. If you can elaborate a bit about how you see all the regulatory -- potential regulatory issues and the fundamentals of the deal today. Alfred Stern: Okay. Let me maybe start with Libya. On the Libyan production, or maybe three things. First, we had a higher lifting from Libya that was partly a result that was pulled in from the second quarter, but also we can -- it's difficult to time exactly quarter-by-quarter the lifting. So that was one effect. The second effect was the higher production, which is actually driven by a very good operational performance in Libya and activity there that we have in Nafoora to actually increase the production. The second effect compared to last year there is also that last year, Q3, we still had reduced production from the unrest in Libya. On your Borouge Group international question, I want to report to you that we are actually making quite some good progress with regulatory approvals. We have received several of those -- of the required approvals. And at the moment, we are anticipating that we should be able to close that transaction by the first quarter of this year. So far, we have not encountered any kind of delays or issues in any of the approvals. But of course, in the end, right, we need all of the approvals in order to have that. But we expect that Q1, we should be ready to close the transaction. Florian Greger: [Operator Instructions] Now the next questions come from Gui Levy, Morgan Stanley. Guilherme Levy: Two questions from me, please. First one, you commented on refining margins so far this quarter. I was wondering if you can say a few words about early next year, how quickly do you expect margins to convert to the $6 to $7 per barrel level that you used in your plan? And then second one, in terms of upstream M&A, can you share any thoughts regarding the appetite from sellers at this point? And how quickly could you see -- could we see the company active on that front? It's part of your 2030 targets, but any update as to how quickly that might be addressed would be great. Alfred Stern: Yes. Thank you very much. On the refining indicator margins, at this moment, we have increased the outlook for this year to above $9 per barrel. The -- due to the -- as I said, right, we expect now in the fourth quarter, currently, we are even above $12 in the refining indicator margins just from experience this would look like a very high indicator margin and some normalization will happen on the way forward. At the same time, we have seen over the last years, in particular, since the Russian attack in Ukraine, we have seen a very volatile environment in the refining indicator margins, and we have also seen some supply-demand balances. So this will not go away immediately in my view. However, we would anticipate that for next year, it will normalize more and not stay at the Q4 level. On upstream M&A, what we said, key is that we want -- we are targeting now by 2030 about 400,000 barrel equivalent per day, and that would require some M&A because our organic activities and the projects that we have, they would result in some 320,000 to 330-ish BOE per day. So the first focus needs to be on successfully implementing and executing Neptun Deep and the other organic growth projects that we have. There, I can report that we are on track, in particular, also Neptun Deep for the 2027 start-up. On the inorganic activities, we are filling a pipeline of different ideas and thoughts, but our focus will be not on the volume per se, but on making an accretive deal here. And with this we will -- the timing will be depending on when we can make such a deal. At this point, we are not far enough in any of the opportunities that I could report anything specific. Florian Greger: Next is Mark Wilson, Jefferies. Mark Wilson: Okay I appreciate that. You've answered my questions on refining, I think. So could I ask -- could you just give us an update on the exploration that you're drilling, I believe, in the Black Sea in the Neptun area. Just remind us where that is and when that gets started, please? Alfred Stern: Yes. Thank you, Mark. So the project that we keep citing Neptun Deep, there, of course, we are in the full execution of the project. We are on track with our plan production for 2027. I think you are referring to the Black Sea exploration project that we have started talking about, and that was in Bulgarian waters where we have also started looking in this neighboring Black Sea geology for an exploration drill and that we will start still this year with the first exploration well. And what we have also done a few months ago, we brought NewMed into this project for this exploration activity. Mark Wilson: And if you could just remind us of what the target is, if that's going to happen this year or at least start this year, please? Alfred Stern: So the exploration drilling will start this year, but we will have to continue exploration activities also in 2026, starting, however, this year. Florian Greger: Thanks, Mark. We now come to Ram Kamath, Barclays. Ramchandra Kamath: I have a couple. First of all, on the refining side, this time, ADNOC Refining made a sizable contribution after possibly 4 to 5 quarters of weak set of numbers earlier. So could you perhaps clarify what has changed, how it could be able to capture margin in 3Q, while performance was substantially weak in 2Q, while the benchmark refining was still healthy. And on the chemical side, it looks like the contribution from Borealis, excluding joint venture increased by EUR 64 million, as you alluded in the remarks earlier, supported by stock of depreciation. Not adjusting for this depreciation, it looks like the unit performance was weaker than last year at the same margin level. Possibly, could you throw some light what is happening in the sector? And is it right assessment to say that the chemical margin is still facing challenges here? Alfred Stern: Ram, let me start with refining and then about the chemical market and then maybe Reinhard can also comment some on the specific results here. In refining, what has really changed is, first, in the OMV refineries, we were able to run a high utilization rate. Secondly, the market environment has changed in terms of refining indicator margins. And I think it's really the new sanctions that have come about and then some operational issues in the industry, I would say that are driving some of the supply squeezes. Dangote refinery is just one, but of course, also new kind of limitations on Russian crudes and things like this are driving refining indicator margins up. And that has been the case in all the refineries where we have participation, so not just in Europe, but also the ADNOC refinery. On the chemical question that you had, I would confirm your view of a more sideways move in the market side in Europe with the chemical margins still under pressure with high imports and lower economic activity in Borealis. And specifically, we see a difference between the productivity commoditized segment and the specialty segments. While we have seen some margin reductions in the commoditized areas and the specialty margins, we have actually seen continued demand combined with good margin stability and price stability. And maybe for the specific Borealis result, Reinhard wants to add something. Reinhard Florey: Yes, Ram, your question was a little bit about how this compares also to last year, given that margins were not significantly different. So first of all, of course, if you deduct the depreciation effect, which makes Borealis' result actually look quite good this year, you have a situation that you are in comparison lower. And the reason mainly is that the market conditions are lower. So even if margins being at around the same level, the pressure on discounts is higher in this year. And Borealis has been quite successful to defend the market shares and to make sure that sales volumes are up -- but of course, that does not mean that they were able to hold exactly the same net margin to the company in this difficult environment. So we are expecting still that there will be some recovery next year in the customer industries. But at the moment, this is a challenging market. And therefore, we are quite happy that Borealis with its ability, as Alfred mentioned, to also concentrate on specialty grades has still a good chance to provide profitability at the end. Florian Greger: We have a follow-up question from Alejandro Vigil from Santander. Alejandro Vigil: It's about the net debt of the company expectations for the end of the year. I know working capital is very volatile, but if you can give us some indication about that. And also about the cash payment you're expecting to equalize your position in BGI, this cash payment, we should expect this to happen in the first quarter next year, right? Reinhard Florey: Yes, Alejandro, absolutely right to start with your last comment, the cash payment in the magnitude of up to EUR 1.6 billion will happen only with closing of the transaction. We are expecting that to happen in the first quarter. And therefore, we're expecting that cash out also only in the first quarter. Regarding the net debt, -- it has been mentioned that the net debt level has increased simply from the payout of our hybrid bond in Q3 that was EUR 750 million. We also had a slightly negative free cash flow after dividends because there were some payouts from Borealis dividends as well as some hybrid bond dividends that were still there in Q3. So therefore, in total, net debt was increasing by about EUR 1 billion. However, we are seeing that the effect of the net working capital, which was quite negative in Q3 will be somewhat equalized in Q4. We are expecting that quite some of that will also flow back. The reason for the higher net working capital in effect have been on the one hand side, somehow elevated inventory levels, both in the fuels part as well as in the chemicals part due to a good production, but less sales activities at the end of the quarter. Then we have now more gas in storage, which is quite normal for this period of the year. And that, of course, also keeps some of the capital bound. And the third is a little bit of a special effect, which definitely will come back in Q4 in Borealis. And that's -- around half of that total effect of net working capital. We had lower securitization and factoring opportunities due to the change in our ERP system, the upgrading of the ERP system, not all of those could be yet transferred into the new net working capital programs that we have, and this will happen certainly in Q4. Florian Greger: The next questions come from Adnan Dhanani, RBC. Adnan Dhanani: Two for me, please. Just first on the gas market. Could we just get your views on pricing going into winter and how you see balances evolving, particularly as you mentioned, European storage levels currently are below where they have been at this point in recent years and just how that might impact your gas marketing results? And then second on the BGI deal, could we just get an update on where things stand as it relates to the recruitment effort for BGI's leadership given we're getting close to the targeted 1Q closure? Alfred Stern: Okay. Let me start with your question around the gas market. We have actually seen that -- we have actually seen gas prices trending a bit lower over the year. Initially, we were anticipating [ THE ] hub price in Germany of about EUR 40 per megawatt hour. We now think it's going to be slightly below that EUR 40. If you look at the third quarter, we ended -- the average in the third quarter was about EUR 33 and the quarter before was about EUR 36. So potentially, when the demand picks up in the winter months, that could provide for some upward movement, but let's see how that develops exactly. On the BGI development, selection of the leadership is, of course, one of the key activities that we do for getting ready for the closing of the transaction. Also, we are proceeding to plan. We have a selection process where we are looking at both the internal candidates from the three different companies, but we also are looking and comparing to potential external candidates. And what we have agreed with ADNOC is that we would make a merit-based selection. So from this pipeline, we will ultimately then select what we think are the best candidates. We are confident that we will be ready by the closing to have those appointments. Florian Greger: We currently have one more in the line. [Operator Instructions] The next question is from Sadnan Ali, HSBC. Sadnan Ali: Two, please. The first one is just bigger picture on OMV. If we look back to the CMD in 2022, I think that was the first time you made a big push into chemicals and started reordering the segments and putting chemicals first and upstream third. Now the CMD this year was the first time where energy was brought back to the forefront and now chemicals pushed back. So can you just talk about the thinking here and how you expect the market to think about OMV's identity bigger picture? And secondly, in refining, you touched upon it earlier, but can you just give us a bit more color on to the extent in which you are able to optimize your refineries to take advantage of the yields given the current market environment? Alfred Stern: Yes, Sadnan, let me -- thanks for your questions. Let me start with the first one on the big picture. So I think I want to point out that we are pursuing a strategy to have an integrated business of three different segments. We are looking to create a company with integrated energy, fuels and chemicals segment. And we do see chemicals as a growth opportunity for OMV. And indeed, as you said, in 2022, we had chemicals in the focus. And with this Borouge Group International deal, merging Borealis, Borouge and then adding Nova Chemicals to this, we believe we have made a major step forward in our chemical strategy. Now this Borouge Group International will require significant integration work. We have also said we want to extract synergies of at least EUR 500 million in this combination there, but there's also significant growth opportunities. So we said from a pro forma average EBITDA delivery of $4.5 billion in the last year. We want to push that to above $7 billion with the growth projects that we have, biggest one is Borouge 4, but also adding the synergies to it. So this will be a major growth step in a world-leading Polyolefins company that has excellent feedstock position with more than 70% in advantaged feedstock has an excellent share of innovative premium materials due to the innovation and technology capability of Borealis. So that's what we want to drive, and that will allow us to pay interesting dividend to OMV with a floor of $1 billion to -- for the OMV share of this, right? So this is what we will continue to push, and that will be the main growth vehicle at this point and the main focus for the chemical strategy. Then we have also seen that in our view, the demand for gas, in particular, will be stronger than it was anticipated previously. And we see this as an additional growth opportunity. We always had gas as a growth opportunity, but we see even more opportunity in this. Neptun Deep is obviously at the center of this, but we believe more growth can be added to this, and this is why we increased the production target in energy to 400,000 barrels from the 350,000, right? I think that's how you should look at that. At the same time, we want to maintain our integrated strategy across the three different segments. We believe that gives us financial performance and cash flow delivery capability to pay dividends and make investments, but we also think there is operational integration benefits, in particular, also in this transition phase. So we will continue to invest into the transformation such as sustainable fuels and in Petrom, in particular, also renewable power and in the longer run, geothermal heating and circular economy chemical recycling activities. I hope that answers your question or gives you a better feeling about this OMV identity, right? From our point of view, we continue in the direction of an integrated sustainable energy fuels and chemical company with our purpose being reinventing everyday essentials. So we will stick to our energy products, mobility products and chemical products. On the refining side, -- of course, what we have also part -- in our strategy is to adjust the, let's say, the input feedstock and the output product on our refineries. One piece is that more of the refinery output will go into the chemical integration. And -- the second piece is that more of the input raw materials will come from the sustainability side. So in the meantime, in the refinery in Schwechat, for example, we have a 160,000 ton coprocessing facility that inputs bio oils rather than crude oil. We have a 10-megawatt hydrogen facility in operation that provides green hydrogen rather than gray hydrogen. And the piece that we continuously always monitor is also the crude slate that we deploy and the operating conditions to optimize then shifting more to the chemical integration and making sure that we also get our split between the other products, diesel, gasoline, jet in the right way. We were able to get access to more airports and can also increase our jet sales from this. And in addition, as you remember, last year, we made some acquisitions of some fuel stations and also commercial retail networks that have also contributed positively to the sales in our retail network. Florian Greger: Thanks, Sadnan, for your questions. We now come to the end of our conference call. Thanks a lot for joining us today. If you have any follow-up questions, please contact the Investor Relations team. We are happy to help. Thank you again, and have a nice day. Goodbye. Alfred Stern: Thank you, and have a great day. Florian Greger: Thank you. Bye-bye.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the Intuitive Machines Acquisition Update Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would like to turn the call over to Stephen Zhang, Head of Investor Relations. Please go ahead. Stephen Zhang: Good morning. Welcome to the Intuitive Machines Acquisition Update Call. Chief Executive Officer, Steve Altemus; and Chief Financial Officer, Pete McGrath, are leading the call today. Before we begin, please note that some of the information discussed during today's call will consist of forward-looking statements, setting forth our current expectations with respect to the future of our business, the economy and other events. The company's actual results could differ materially from those indicated in any forward-looking statements due to many factors. These factors are described under forward-looking statements in the company's press release and the company's most recent 10-K and 10-Q filed with the SEC. We do not undertake any obligation to update forward-looking statements. We also expect to discuss certain financial measures and information that are non-GAAP measures as defined in the applicable SEC rules and regulations. Reconciliations to the company's GAAP measures are included in the acquisition update filed on Form 8-K. Finally, we posted an acquisition update call presentation to our website, which provides additional context. You can find this presentation on our Investor Relations page at www.intuitivemachines.com/investors. Now I'll turn the call over to Steve Altemus. Stephen Altemus: Thank you, Stephen. Good morning. I'm pleased to announce that Intuitive Machines has entered into a definitive agreement to acquire Lanteris Space Systems, formerly known as Maxar Space Systems from Advent in a transaction priced at $800 million, consisting of $450 million in cash and $350 million in Intuitive Machines Class A common stock. During our second quarter earnings call, I stated our long-term vision to become a new space prime, providing delivery, data and infrastructure services emphasizing growth in communications, navigation and space data networking services for defense, civil and commercial markets. We just did exactly that. With this acquisition, Intuitive Machines is positioned to become the next-generation space prime, applying our demonstrated agility and innovation with Lanteris' unmatched satellite production, scale and proven space flight reliability. The transaction represents the next step in Intuitive Machines evolution from a lunar-proven space infrastructure company to a vertically integrated space prime provider of choice, serving national security, civil and commercial customers across earth, ground, earth orbit, moon, Mars and beyond. Global demand for secure sovereign communications, missile warning and space domain awareness is increasing. U.S. defense and intelligence programs like Space Development Agency layered architecture require companies that can move fast, innovate and deliver at scale. Intuitive Machines brings a disruptive and innovative development approach in building unique, agile and highly specialized solutions in extreme firm fixed price environments. Over the past 2 years, we've proven our ability to build, fly, maneuver and operate in lunar space using our network of global ground stations and our near space data network. Our vision has always been clear to build the infrastructure that enables economic expansion in the space. To do that, we must move faster and operate at scale and that is what Lanteris brings. With over 65 years of experience, Lanteris has developed, delivered more than 300 spacecraft for critical national security, civil and commercial missions, supporting missile warning, space domain awareness and communication programs vital to the United States and its allies. The company maintains 99.99% on-orbit availability and operates world-class production facilities totaling over 560,000 square feet. Lanteris builds high-value spacecraft with a strong commercial focus, successfully operating in a cost-efficient competitive environment. In just the last 3 years, Lanteris introduced its 300 Series spacecraft as a leading platform for proliferated low earth orbit constellations. This record of performance cements Lanteris as a trusted provider of critical space defense capabilities for the U.S. government. We know the growing national security market is seeking commercial-minded solutions to address emerging complex missions. This acquisition allows us to apply ingenuity to proven delivery capability that distinguishes ourselves as a next-generation prime, coupling our collective expertise to address new demands across civil, defense and commercial sectors is a powerful combination we are pleased to bring to market. We believe this acquisition will strengthen the company's position to prime future national security space, including Golden Dome and Space Development Agency layered architecture, civil space such as Artemis, LTVS and Mars Data Relay and commercial space programs. This acquisition also enhances our competitiveness across several active opportunities where Intuitive Machines already leads. By integrating Lanteris' production scale and communications experience into our existing architectures, we strengthen our pursuit of our vision, expanding our lunar data relay constellation under the near Space network services contract and commercializing NASA's tracking and data relay satellite system. This integration can accelerate task orders and broaden our capacity to deliver value from every orbit. We believe this acquisition accelerates Intuitive Machines' transition into a company that can design, manufacture, deliver and operate missions across the entire space domain from earth orbit to lunar orbit and ultimately to Mars and Deep Space. Intuitive Machines is creating a new model for how space primes operate that intends to unlock diverse revenue streams that fuel a high-growth, high-margin portfolio. As mentioned, Lanteris positioned the company for sustainable growth by investing in the 300 class satellite and pivoting toward national security markets, including the Space Development Agency Tranche 1 and Tranche 2 awards for L3Harris in 2022 and 2024. That foundation unlocked the potential of Lanteris' 300 Series spacecraft for national security applications and established it as a trusted competitive supplier. We look forward to applying our innovation, speed of execution and services model to further amplify this momentum. I'll now hand it over to Pete McGrath to go over the Q3 financials along with details around the transaction. Peter McGrath: Thank you, Steve, and thanks to everyone joining us today. Starting with Q3 financials. Revenue was $52.4 million, driven primarily by OMES, CLPS and NSNS. We continue to monitor the government shutdown and budgetary processes where there is legislative language for the Defense Appropriations markup to fund OSAM-1 for the Space Force, which will shift this program from civil space to national security. Gross margin was $5.7 million, driven by continued focus on cost and execution of key programs. This was an improvement compared to Q2 2025, which included significant EAC adjustments on IM-3 and IM-4. Net loss for the quarter was $10 million, and adjusted EBITDA was negative $13.2 million in the quarter, an improvement in adjusted EBITDA of $12.2 million versus Q2 2025, driven by higher gross margins. We ended Q3 with a backlog of $235.9 million, which includes $9.8 million for the Definitized orbital transfer vehicle contract, $8.2 million for the follow-on in-space nuclear power contract and $7.5 million for a commercial rideshare customer on IM-4. Note that the backlog does not contain the remaining $123 million of the total $150 million initial value for NSNS 2.2, which is recognized on a task order basis. When looking at our Q3 2025 backlog, we expect to recognize approximately 20% of that in 2025. With the acquisition of Lanteris, we intend to provide updated backlog burn rates for 2026 and 2027 early next year. In August, we completed a $345 million gross convertible note offering with the intent to acquire a company that would transform us into a next-generation space prime. Lanteris is that company. We intended Q3 with a cash balance of $622 million. Our detailed financial tables will be provided next week in conjunction with our 10-Q filing. Moving on to outlook. The timing associated with our year-end revenue is impacted by uncertainty related to the government shutdown. Therefore, based on current backlog, we see Q4 revenue in line with Q3, and we remain confident in our ability to capture our identified near-term awards. Intuitive Machines expects to provide a new outlook for the combined 2026 combined company early next year. Now shifting to the Lanteris acquisition. The transaction is valued at $800 million and will be funded through $450 million of cash from our balance sheet and $350 million of Intuitive Machines Class A common stock, subject to adjustments. The deal uses a stock value of $12.34 based on the volume weighted average trading price for the 10 -- 10 trading days ending on October 31, 2025. As a stand-alone company, Lanteris is a cash-generating business. As a combined company, Intuitive Machines expects to have adequate cash on hand for continued operations. The transaction has been approved by Intuitive Machines Board of Directors as well as the seller's Board. We expect to close the transaction in Q1 of next year, subject to customary regulatory approvals and closing conditions. This acquisition will be immediately accretive to revenue, adjusted EBITDA and free cash flow. Following this transaction, we will remain in a position of financial strength as a combined entity with more than $850 million in revenue, positive adjusted EBITDA and $920 million in backlog based on Q3 2025 trailing 12-month financials. I will now pass it back to Steve Altemus for closing remarks. Stephen Altemus: Thanks, Pete. The new Intuitive machines will combine rapid innovation and precision spacecraft production to meet the growing demand for responsive, high-reliability space infrastructure and services. With Lanteris production scale, we gained the opportunity to deploy entire constellations that extend our lunar network to proliferated low earth orbit to MEO and GEO. We believe this acquisition adds immediate capability to deploy multi-mission, multi-domain data networks. We are defining the next generation of space prime that will operate and deliver faster and more affordably across the space domain. With that, operator, we're now ready for questions. Operator: [Operator Instructions] Your first question comes from the line of Austin Moeller with Canaccord. Austin Moeller: So just my first question here, what changes has Advent made within Lanteris to improve the margin profile of their manufacturing since they bought them? And are there any large, exquisite satellite programs in the backlog that still need to ship out? Stephen Altemus: So Lanteris is interesting. As you know, they were public. Maxar Space was publicly traded and then went private with Advent. And what you've seen is that they've had some programs that they have completed that we're struggling, I guess, with cost controls. All those are off the books, and they've since then invested in the 300 Series satellite, which actually serves Tranche 1 and Tranche 2 for the Space Development Agency. And so they're moving in a very positive direction moving forward with efficiencies that they've built into the company. So we're very pleased to see the momentum that they have and to capitalize on that momentum moving forward. I think this is an exciting acquisition. As far as your second question, I believe they're essentially nearing completion of the power propulsion element for NASA's Artemis program. And that's the most powerful satellite built in terms of propulsion and power generation to date for anyone, I believe. And that one is essentially complete and ready to ship certainly in the near future. Austin Moeller: Okay. And then I guess, should we frame the strategy here as looking to gain more manufacturing capability left of launch and then being able to drive margins with services revenues post launch using the ground stations and the op center? Stephen Altemus: Yes, that's correct. Our services model is a higher-margin business. And what we can do is use the manufacturing and production and the reliability that Lanteris brings to the table to feed our own networks, our data networks out to Sun space and then thinking about how we might replace the aging tracking data relay satellite service for the U.S. government and then out to Mars in terms of Mars data relay to replace that aging infrastructure. So it really is -- we are our own customer in some sense for our satellites and the high reliability of the track record that Lanteris has is just incredible in terms of how many satellites they've put into orbit, their operational life and their on-orbit availability. At 99.9% availability is just a market-leading capability. Operator: Your next question comes from the line of Edison Yu with Deutsche Bank. Xin Yu: Congratulations on the transformative deal. On Lanteris, first I want to ask, what do you envision as the sort of growth profile of it going forward? Obviously, it's gone private. It's been through kind of its own issues that you kind of alluded to earlier. Is this a business that can grow quite healthy going forward, assuming you can win some of these contracts? What's sort of embedded in your outlook for that? Stephen Altemus: Well, Edison, thanks for your question. Together, the combination of the company really is exciting. with the spark of innovation that Intuitive Machines brings and Lanteris' production scale and high reliability, we not only feed existing programs on both the Intuitive Machines side and the Lanteris side but we can actually feed to Austin's question, the near space network and our own network capabilities in terms of communication data relay satellites. But what's really powerful is a total addressable market that we can unlock and open up and the diverse revenue streams that we will create as taking the family of satellites that Lanteris currently builds and providing unique mission solutions to open up those markets and access those revenue streams. We talk about things like the SDA Tranche 3 tracking layer. We can talk about TedRS replacement. We can talk about Mars data Relay. We can talk about alternate GPS. Those are the kinds of things that aren't necessarily on the books today that are new markets that become available with this acquisition. Xin Yu: Understood. You disclosed the backlog number, obviously, for Lanteris. Is there any way to break that down in any deeper way, perhaps even by what programs would be the most in there in terms of customer exposure, anything you could share? Stephen Altemus: Well, I would say, if you look at the business today, they're roughly 25% defense 25% civil and 50% commercial is the way you break down their business. And I think you can look at the backlog in that way. I think that backlog will be changing over time as these pending new awards for Lanteris will change that mix to increase the defense or national security portion of their portfolio. Operator: Your next question comes from the line of Josh Sullivan with JonesTrading. Josh Sullivan: Congratulations there. Steve, in the past, you've talked a lot about how IM is a data company at its core. Can you just touch on how IM and Lanteris here scale some of the data opportunities, just what you're thinking about there? Stephen Altemus: Yes, Josh. What we've said since -- over the past year or 2 is you've seen us form the company Intuitive Machines in terms of delivery services, that's the transportation layer that takes us to the moon. The data services, which is the ground segment around the world, the global ground segment that communicates out towards the moon and beyond out to 2 million kilometers. That's the direct-to-earth kind of ground segment, coupled with our data relay network and position navigation timing around the moon, that constellation. So now if we have that in place, how might we extend that going forward. And then the third -- I'll come back to that. And the third one pillar is the infrastructure as a service, which you'll -- we're anxiously awaiting the outcome of the Lunar Terrain Vehicle services contract, and we expect that award later in this year based depending on the government shutdown. But as I think about the data services, the major expansion of the business will come in the data services and networks over time. As we see, there's a lot of opportunity, like I said, with the tracking data relay satellite services coming open and maybe potentially the deep space network commercialization as well as replacing the aging infrastructure across out at Mars and Mars data relay. In addition, there is the -- are the tracking layers for the SDA and the Golden Dome, which has opportunities for communications and navigation that directly is fed by the kind of capability that Intuitive Machines has, but now augmented by the amazing and reliable satellites that Lanteris bring to bear. So I think that coupling really does put us in a position to prime some of the opportunities coming out of Golden Dome and SDA. Josh Sullivan: Got it. And then I guess, Intuitive's historical knowledge base around Lunar operations and now the scale that Lanteris brings to bear, how might you be thinking about Artemis 3 or related tactical opportunities here? Stephen Altemus: Yes. We actually are in a fantastic position to offer -- build a team and offer solutions for the human landing system. NASA is keenly interested in finding a way to deliver that earlier and Intuitive Machines are going to throw our hat in the ring with Lanteris by our side and other companies joining our team. So you can expect an offering from Intuitive Machines. Operator: Your next question comes from the line of Jonathan Siegmann with Stifel. Jonathan Siegmann: Congratulations on the transaction. So there's been some news reports that the customer might be rethinking some of the Artemis missions and even rebidding portions of it. Can you comment a bit on how NASA's thinking may be evolving on the portions that you're involved with? And also, if I heard how you answered Josh's question, you still expect LTV to be awarded this year despite the shutdown? Stephen Altemus: Yes. Thanks, Jonathan. And I appreciate your coverage of Intuitive Machines moving forward. Thank you. So we see that the CLPS contract, Commercial Lunar Payload Services contract continues to move forward. We're expecting results of a solicitation for what they call CT4. Again, the government shutdown has put a little bit of a monkey wrench in that, not showing what the timing of that will be, whether that's supposed to be awarded by the end of the year. We do expect the LTVS demonstration mission to be awarded. From our understanding that, that solicitation is ready to award. Again, the government shutdown has put timing in question, but we do expect that, and that's part of the Artemis program to be awarded. And then you're hearing a lot of talk about moving faster with Artemis 3 and the human landed system. And so that essentially and the agency is looking for information to repost and reopen that solicitation. And I answered Josh there that we're going to throw our hat in the ring on that one. And then we're continuing to press forward with all speed on the Near Space Network services contract. That's a contract that not only supports Artemis program, but supports other government agencies and their needs for communications from earth all the way out beyond cislunar space. And so the future looks very bright for us in terms of the NASA customer. And then if you think about what I just was talking about, about in the national security space, we're exceptionally positioned to respond to opportunities that are coming out of SDA and in the Golden Dome programs. Jonathan Siegmann: And maybe if I could slip another one, just in the capacity, you were successful in adding to your footprint in Houston recently and now you have -- you will have a wider footprint with the acquisition. Is there -- I guess, does that change your plans on where you're going to be producing the own satellites in Houston? Or is there a chance to put these all pieces together differently? Stephen Altemus: Yes, it's good. The facility complement at Lanteris is incredible with 3 categories of satellites in their family, the 300, the 500 and the 1,300 series. Well-oiled machine out there in Palo Alto and San Jose. Here in Houston, we have some serious hardware to build also. We have the Nova-C for 2 additional missions. We have the Nova-D heavy cargo mission for LTV. We have the LTV to build, and we're building the first 3 satellites for our constellation around the moon for the NSNS. We are thinking about converting and building larger satellites for the fourth and fifth satellite in the constellation now that we plan to acquire Lanteris. So much more capable satellites that then can prove out the capability that -- for Mars data relay. And essentially, those satellites would be precursors to Mars data Relay satellites in the future. Jonathan Siegmann: Your next question comes from Alex Preston with Bank of America. Alexander Christian Preston: So you noted in the release, you're going to end the quarter with about $620 million of cash, deployed $450 million here. What's your comfort level given Lanteris' cash generation? Or would you maybe look for incremental financing? Stephen Altemus: Right now, we have enough capital on the balance sheet to fund operations moving forward, even considering the combination with Lanteris. Lanteris is a cash-generating business. And the combination, we expect continued operations with sufficient capital moving forward. Peter McGrath: Yes. We also are always being opportunistic looking at other M&A opportunities, which would be anything that would drive additional cash needs. But right now, we see adequate cash on the books to manage our operations. Alexander Christian Preston: Got it. Appreciate the color. And then maybe just a quick sort of housekeeping one. Steve, I think you talked about Lanteris' backlog is 25% defense, 25% civil, 50% commercial. Does that commercial portion include something like the work they do for L3 on the tracking layer? Or is that like strictly by end market or end use? Stephen Altemus: That's by end market. So the commercial work is really the GEO communications birds that they put up. That's really the 1,300 series satellite, the larger satellites. The tracking layer we call into the national security. Operator: Next question comes from Andres Sheppard with Cantor Fitzgerald. Anand Balaji: This is Anand on for Andres. Congrats on the news and the acquisition. Most of our questions have been asked but I was wondering if you could dive a little bit more on your recent statement and could help explain what this means for SDA and Golden Dome opportunities now as a combined company, especially with the regulatory focus and shift on this initiative? Stephen Altemus: Yes. So I think if you look at the capabilities of the -- and the investment that Lanteris made in the 300 series satellite, that is a very capable satellite for proliferated LEO constellation, which fits the need for the tracking layer. And so I think it's a strong offering in partnership with L3Harris that -- we're hopeful that, that will be awarded. So we're looking forward to that. And then as Golden Dome takes shape, the combination of the ingenuity and innovation that Intuitive Machines brings with its systems and communications and navigation scheme, coupled with the very capable satellite buses produced by Lanteris offer unique solutions that I don't think are in the market today with any other vendor or contractor. So we feel like we're in a good position here for the future opportunities coming out of Golden Dome. Anand Balaji: Got it. And I guess going forward, maybe what other news and opportunities do you expect to pursue and unlock? I know a lot were mentioned but what are you the most excited about? Stephen Altemus: Well, we were very excited last night to get to signing. We look to get to closing here in the next 60 to 90 days and really get the businesses integrated. And the possibilities that are associated with putting Intuitive Machines and Lanteris together really create some excitement in the aerospace sector. And so just working together and building a powerhouse new space prime is what I'm looking forward to that really kind of disrupts the paradigm that we've had for so many years and now provides an alternative offering with a commercial bent to it to provide lean, agile, affordable solutions to both civil space and national security space. That's the excitement. Operator: Your next question comes from Jeff Van Rhee with Craig-Hallum. Vijay Homan: This is Vijay Homan on for Jeff Van Re. Just had a quick one for you. I was kind of wondering, was Lanteris the kind of capability you guys were specifically shopping for? Were there other kind of potential targets that you were looking at to bring these capabilities in-house? Or was Lanteris kind of the only one and sort of an opportunistic buy? Stephen Altemus: We had an M&A strategy that we've been working on for some time. Now you saw the addition of Kinetics, which was a very capable, high-performance company that we added for precision navigation and constellation management and orbit determination. That was strategic. It was small but strategic, and they're brilliant people that we added to the company. Next on the list was Lanteris and building the production capability, the scale and the reliability. And we'll continue to look like this to add on and fold in capabilities as we need to continue to evolve the company into this next-generation prime. Operator: Your next question comes from Greg Pendy with Clear Street. Greg Pendy: Can you just kind of highlight what maybe -- is there any regulatory risk on closing the deal or integration risk? And then also just in light of all the news about the EOCL potential budget cuts there, is there any kind of risks that we should think about with this deal? Stephen Altemus: Well, we'll go through a standard antitrust review by the government from a regulatory standpoint. We feel that's fairly standard. That will take 20 days to file and 30 days for the opinion from the government. We don't expect anything out of that. We'll see what the government thinks and how the government shutdown affects that timing. In terms of risks, I think we've looked at the structure of both companies. We've thought about it. We looked at financial risks is in a strong position with a lot of momentum. Intuitive Machines is in a strong position. And both companies have catalysts pending that really can even improve upon our strong financial position. So I'm feeling very confident about it. And over the next 9 to 12 months, we'll do a full integration of 2 companies. We'll go through those challenges and put together a very strong company here in the coming months. Operator: Your next question comes from the line of Griffin Boss with B. Riley Securities. Griffin Boss: So first, I just want to jump back, build off of another question that was asked a little bit earlier regarding just the integration of Lanteris and the implications for NSNS. So you talked about how potentially -- I think I heard you correctly that the fourth and fifth data relay satellite might now -- architecture might now look a little bit bigger with the addition of Lanteris' capabilities. But does this -- does that addition and the additional manufacturing capacity that it brings change your calculus with regard to the timing of deployment of those data relay satellites? You've talked about the first one going up on IM-3, subsequent two going up on IM-4 but maybe can you pull those forward and deploy that full 5 satellite constellation earlier than you might have otherwise anticipated? Stephen Altemus: Yes. Thanks for your question, Griffin. What we're finding in NSNS is that there's a demand for capability for the satellites that we're planning for up around the moon. And we anticipate in that Lunar constellation that there will be more demand and more customers for the satellites as we move forward over the coming 3, 4 years. And so we're anticipating that need and providing more capability for size, weight and power on those buses so that we can provide the space domain awareness capabilities in that Lunar constellation that we think the customers are going to want. So this is an opportunity for us to grow that constellation. As far as speed of delivery, we are always looking for a way to get that constellation up and flying sooner. Our cadence of missions currently, IM-3, IM-4, IM-5 are space where we're planning to put the satellites up on those missions. If we can bring IM-4 and 5 missions in, we would but I think they're potted. I think the alternatives to delivery is what we're focused on now in terms of other ways to put those satellites up as opposed to tying them tightly to the CLPS missions. So we're going to continue to study that and look for rideshare opportunities to get them in translunar injection and then off to the moon as soon as we can. Griffin Boss: Got it. Okay. Understood. And then, yes, just second one for me. I guess I'll shift over what I'll call legacy Intuitive Machines. I want to dig into this $8 million contract extension from AFRL for the in-space nuclear power tech. I think that's an extension on the Jetson program. But maybe you can just kind of dig into that and specifically in the context of this -- the new nuclear reactor on the moon, the proposals coming in for that 100-kilowatt reactor. Does this extension help in positioning Intuitive to win on that nuclear reactor contract as well potentially? Like is the technology similar that you can use for both of those programs? Stephen Altemus: Thanks, Griffin. Nuclear space is exciting right now, and Intuitive Machines has been well positioned. As you recall, we've been working the Fission Surface Power Phase 1 and Phase 1a for some time now. So we're already in the mix for developing that reactor and delivering it to the surface. And we will continue to go forward with that opportunity to develop and deploy the reactor. As that procurement takes shape, we're following that very closely with our teammates. The Jetson AFRL contract for that Stealth satellite keeps us in the nuclear space game with an alternative technology, that's the Sterling engine. And what we have is this follow-on contract to actually demonstrate the Sterling engine operations on the International Space Station. That's what this is for this next tranche, which actually advances the technology and the capability of operating a Sterling engine, which is part of the reactor technology on the International Space Station. So the technologies between FSP and Jetson are similar but not identical. I think we'll see whether the FSP solution is a breaking cycle or a Sterling cycle. But the Jetson right now and the way we're thinking about propulsion is with a stirling engine cycle. And so we'll test that out with AFRL. Peter McGrath: Just one note on the Fission Surface or FSP program. Maxar was -- well, Lanteris was one of our partners on that in the last phase, too. So we do have a long history of working with Lanteris over the last 3 to 5 years. Operator: And your last question comes from Suji Desilva with ROTH Capital. Sujeeva De Silva: Pete, congrats on the transaction here. Just a clarification on Lanteris and the asset acquired just versus Maxar. The revenue mix there, is there any recurring revenue or service revenue versus satellite product revenue in the acquired asset? Stephen Altemus: The way I see it today is that it's product-based revenue delivering the 300, 500 and 1,300 class satellites. There's very little subsystem delivery where they focus on developing the subsystems for themselves and their buses. And then what we'll introduce as Intuitive Machines is that higher-margin service model approach where we're actually flying and operating in space and delivering the data back in as a service. And so I think this is just such a smart and strong combination to put these 2 businesses together really will unlock the diverse revenue streams and higher margins. Peter McGrath: One other addition to that is as you see the government move towards the service model, this combination positions us well to be playing in that space because traditionally, government has bought satellites. Now they're looking to buy services. Sujeeva De Silva: Okay. That helps, Pete. And then my other question is, I saw in the presentation, you mentioned robotics. I'm wondering if that's just a complementary capability or that could be a category, how you see that landscape as a product? Stephen Altemus: Yes. I'll tell you something. I'm very excited about that. We've opened up a center of excellence for mechanisms and robotics in Maryland up near BWI Airport in Glen Burnie. That team is exceptional and then to incorporate the Lanteris robotics team with us is just a very strong and powerful combination. We currently have Lanteris or Maxar Space Systems on our LTVS team to provide the robotic arm for the LTVS. And so we're naturally working together already. And when you think about other opportunities that are coming down from the national security space, you look at RGXX and MGO, those programs require essentially highly agile enterprise-class satellites like the 1300 series with robotic arms that can grapple and manipulate other satellites to repair them and inspect them. So that's another offering of a new market that we putting these unique capabilities together that we can create and be very competitive with. Also, if you think about it, we teamed also on the OSAM mission. So the OMES contract and the on-orbit satellite servicing and manufacturing, Maxar built the bus out of the 1,300 series satellite for that mission. So as we fly that potentially for the Space Force, what are the follow-on OSAM-X missions that we can fly where we can reproduce that bus over and over again and deliver it for on-orbit satellite servicing and manufacturing and move towards in-space assembly, all brand-new markets that we have yet to tap into. So it's very exciting. Operator: Thank you. And with no further questions in queue, I'd like to turn the conference back over to Steve Altemus for any closing remarks. Stephen Altemus: Well, thank you, everyone, for joining us this morning, and welcome to the Lanteris team as part of the Intuitive Machines family. We're very excited and looking forward to the future in space. Thank you very much. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning. My name is Dan, and I will be your conference operator today. At this time, I would like to welcome everyone to Vertical Aerospace 2025 Third Quarter Earnings Call. [Operator Instructions] Now let's turn the call over to Gillian Levine, IR Lead at Vertical Aerospace. You may begin your conference. Gillian Levine: Good morning all. I'm delighted to welcome you to Vertical Aerospace's Third Quarter Business and Strategy Update Call. Before we get started, I would like to remind you that during today's call, we'll be making forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially. Any forward-looking statements we make are based on assumptions as of today. We undertake no obligation to update these statements as a result of new information or future events. We posted an accompanying slide deck to our Investor Relations website at investors.verticalaerospace.com, which contain detailed information on forward-looking statements. For a more complete discussion about these risks and uncertainties, we have filed our 2025 third quarter financial statements with the SEC earlier today. Please now let me hand it over to our Chairman, Domhnal Slattery. Domhnal Slattery: Good morning, and thank you all for joining the Vertical Aerospace third quarter business update call. Before we get started, though, I wanted to share with you a never before seen image of our new certification aircraft design and doesn't it look cool. We look forward to formally unveiling the full-scale aircraft on December 10 in London. And please reach out directly to our IR team if you would like to join us on what will be a very special occasion. I'm delighted to lead the call today with our Chief Executive, Stuart Simpson. My name is Domhnal Slattery, and I am the Chair of Vertical Aerospace. I've worked in the global aerospace industry now for nearly 4 decades and along the way, founded 2 of the top 3 aircraft lessors in the world today, including Avolon. During the call today, I want to share with you why we believe Vertical Aerospace is a leader in the eVTOL sector. We want to update you on our progress and importantly, outline the top priorities going forward for myself and the management team. On Slide 4, you will see we have 6 items to cover today. If Stuart and I do our job, you should walk away from this call with clarity on several key areas, and in particular, around our flight test progress and aircraft design. And we will also spend time on framing the valuation gap that exists between ourselves and our competitors. Turning to Slide 5. We've spoken extensively about the fourth and the final stage of our flight test program, the piloted transition flight and why this maneuver is so critical. So rather than just tell you, we'd like to show you what this entails. So let's take a look at this video. [Video Presentation] So what you saw there is the demonstration of end-to-end piloted transition and transition price is the critical derisking step for the VX4 developments and our certification program, it represents the most material milestone in our history. And importantly, this is a key point, all under the oversight of the U.K. CAA our home regulators. But the video showed this final phase, transition is actually the culmination of a 5-stage test flight campaign, which I'm glad to say will begin later this week, subject to receiving final permits to fly from the U.K. CAA. And we expect these stages to be completed across 11 test flights in total. Once all 5 stages are completed, Vertical will be the first eVTOL OEM of our aircraft size to have completed this step under U.K. CAA regulatory oversight. This is an industry first, and it is materially ahead of all of our competitors bar one. Turning to Slide 7. Vertical's approach has always been start slow to finish fast. From day 1, we have maintained a transparent, measurable and clear work scope. We are the only team in the industry with extensive aerospace certification experience. Our senior team has certified over 30 aircraft or propulsion systems, bringing decades of invaluable learning and experience. As you may know, we have flown under a permit to fly oversight by the U.K. CAA. It's important to understand this because it requires rigorous oversight, ongoing demonstration of compliance, routine inspections and joint accountability with our regulator. This approach fundamentally differentiates us from peers who currently operate under an experimental air ordinance approval with limited direct oversight by the FAA. This stringent oversight means that we have front-loaded our certification process with over [3,500] hours of CAA export review. One prerequisite for type certification in the U.K. and Europe is being awarded design organization approval, which we received in 2023. This approval affirms the regulators' confidence in our engineering, our design and our development processes. And our successful 2025 audit confirms the CAA's continued confidence in our operations. This level of regulatory engagement in turn allows for high confidence in our 2028 certification time line and importantly, the expected cost to achieve that certification. Now turning to Slide 8. At our Capital Markets Day last September, we highlighted that once an aircraft reaches certification, there are really only 2 metrics that become paramount, aircraft comfort and reliability and the profitability of our customers, the operators. We are confident in our certification plan. But when looking beyond certification, it is evident that our aircraft offers the most versatile eVTOL in the market. So today, I want to focus on our unique passenger comfort and operator profitability. These are the factors that will ultimately drive multi-decade commercial success. The reality is all of our competitors are physically constrained by the size of their aircraft and this provides Vertical with a unique competitive advantage. Turning to Slides 9 and 10. I'm truly delighted to share for the very first time the internal renders of our certification aircraft. As you will see on these slides, our cabin space is the biggest and the most spacious in the industry. We have over 70% increased passenger cabin volumes versus our competitors. Our aircraft was designed from day 1 with passenger and pilot comfort in mind. As you will see, the aircraft is divided into 3 distinct compartments: the passenger cabin, the pilot cockpit and the luggage hold. And you will see each one has a separate entry and exit, ensuring safety and comfort. We have a cockpit that is 50% larger than our competitors. And our luggage compartment is 200% larger than certain of our competitors. This allows us to check in 70 pounds of baggage -- personal baggage for each passenger. This makes our aircraft ideal for airport to central business direct transfer. Simply put, when you step back, no other eVTOL matches this combination of comfort, space and practicality, not one. On Slide 11, you will also see that the VX4 is unique in its ability to scale from 4 to 6 passengers. This flexibility was designed also from day 1, and it sets our aircraft apart in the market as no other competitor can scale to 6 passengers. This will make the VX4 the preferred aircraft for operators globally. Now turning to Slide 12. What I just described qualitatively puts it into clear metrics financially. Serving 6 passengers rather than 4 allows our operators to increase revenue by 50% and more than double annual operating profit potential. Scaling the 6 passengers reduces the cost per seat mile by 30% and obviously significantly improves margins with the potential for gross margins to range between 56% at an assumed 75% load factor. The reality is these unit economics are transformative for our operators, and they underpin our strong industry-leading order book. The step back here and the key message is actually pretty simple. Post certification, what matters is safety, which obviously we deliver to the highest standards and passenger comfort and operator economics, which the VX4 uniquely provides. I'll now hand over to our CEO, Stuart Simpson, who will provide more detail on our cost of certification and some of the key cost components. Stuart? Stuart Simpson: Thank you, Domhnal. 6 years ago, we made a strategic choice to focus on being a pure-play OEM and to largely avoid vertical integration. We source our parts from Tier 1 aerospace manufacturers globally, each one with decades of certification history. We are the only OEM with proven Tier 1 aerospace suppliers on safety critical systems, including flight control computers. This model is efficient, cost effective and positions Vertical as the best steward of capital. Turning to Slide 14. Our cost to certification is guided by confidence in the U.K. CAA process and time line. The key components are: first, $550 million of people and operating expenses. This is where the benefit of our OEM model really comes through, allowing a lean and cost-effective model. Additionally, being based in the U.K., we have significantly lower cost than U.S.-based competitors. Second, $225 million of nonrecurring costs, largely fixed through contracts with Tier 1 suppliers, 75% quoted or contracted and 25% estimated. As a reminder, these are onetime upfront costs to our partner suppliers that cover the initial design and development of key parts of the VX4, along with tooling costs to build our certification and production aircraft. These suppliers are leaders in their respective categories and understand certification, and we get to benefit from leveraging their engineers and [indiscernible]. Finally, $75 million of CapEx to cover investment in our initial production facilities at Cotswold Capital and an expansion of our Vertical Energy Center where we assemble batteries. As we raised at our Capital Markets Day in September, it is in our DNA to bring clarity to an opaque industry. We are the only OEM in the space with published financial and operating metrics through 2035. This speaks volumes to our business strategy and path to certification. Slide 15 shows that through Q3 2025, our spend was in line with expectations, and we maintain our full year guidance of USD 110 million to USD 125 million. This is 75% below our main competitors. Our tax position is $123.4 million as of the end of the third quarter. As of today, our cash position is $117 million. Our ATM facility put in place in September '25 contributed $7.2 million in the third quarter and $16.4 million year-to-date. Over the next 12 months, we anticipate spending $235 million. We will provide more granular 2026 spend forecast at our full year earnings call. Moving to Slide 16. Vertical clearly executes on its own operational milestones for 2025, including our piloted wing-borne test flights, flying real-world use cases, earning further DOA privileges from the CAA and initiation of our production steps are completed. From the 2 items outstanding, first, piloted transition has been discussed earlier today and will be completed within weeks. Second, the build of our third prototype is progressing well and again, will be completed in weeks, likely at the beginning of December and flying shortly thereafter. In 2026, this third aircraft is what will be retrofitted with the hybrid powertrain to begin hybrid flight test. Moving to Slide 17, you will see our high-level certification time line. The first point to note is that we have already completed the preliminary design review or PDR with 75% of our components already locked in for the certification aircraft. The next step is CDR expected in mid-2026. This will lock in the final 25% of the components for the final aircraft design and the supply chain, allowing us to move towards certification and then mass manufacture. After we complete CDR, nothing on the aircraft will change. We will not be tweaking landing gear or propellers. This is the final aircraft and enables us to begin delivering the 7 certification aircraft that we will test through to 2028 certification. Of course, this CDR is a significant milestone for the company, but also for our suppliers and customers as well. I'll now hand back to Dom. Domhnal Slattery: Thank you so much, Stuart. So let's turn to Slide 18. Now the first thing you will note on this slide is a lot of red access. And I'm often asked, why does Vertical trade at such a discount to its peers? The gap is simply cycling. Vertical's market cap is 3% of company A and 6% of company B. In our opinion, this gap is entirely unwarranted. So let me try and frame this for you from our perspective. On almost every valuation metric that matters, be it technology, capital efficiency, real tangible certification progress or customers, practical outperforms -- if you look at the key value drivers down the left-hand side of this page, it's obvious that Vertical has achieved or exceeded on all of these metrics, yet our valuation remains detached from reality. However, we believe upcoming milestones, including piloted transition will act as a significant catalyst to our share price. So turning to Slide 19. In our year-end and Q4 update, we will lay out a very clear set of objectives for 2026. However, as a step back, I see 2 key priorities for me as Chair. The first is to conclude a partnership and investment with a global strategic player and secondly, working with the team to significantly grow our order book. If you turn to Slide 20. Here, you can see the scale and depth and quality of our customer base. We have one of the industry's largest order books, globally diversified. Importantly, we are the only eVTOL OEM that has a Tier 1 global lessor on its program. This is a unique competitive advantage, giving us access to Avolon's global distribution capability. Our relationship with Bristow, the preeminent helicopter operator globally is also strategically compelling as it's the industry's only ready-to-fly partnership enabled by their global AOCs. Now our order book has been effectively closed for 2 years, but we will be reopening it selectively, targeting high-value geographies and end markets. And it will not surprise you that a key focus for me and the team will be to secure the first sale of our hybrid aircraft, which begins testing, as Stuart said, in 2026. Now finally, turning to Slide 21. Now that we are within weeks to completing a successful piloted transition, we and the Board now believe this is the moment to close an investment with a strategic industrial partner to tangibly support our ramp from certification to commercialization. Our ideal partner is a global player in aerospace, automotive or the defense sectors. Unquestionably, there is significant strategic investor interest in the sector. And Beta's successful IPO this morning is a clear demonstration of this. And let me, on behalf of the team, congratulate Kyle Clark and his team on their success. Vertical are in active dialogue led by me with several potential partners globally. And I am confident that we will conclude a transaction shortly. If we are successful, this partnership will be transformational, both for the business and our share price. Finally, turning to Slide 22. We hope that this call has given you clarity on our progress towards piloted transition, the industry-leading aspects of our aircraft and why we believe Vertical Aerospace is the absolute best steward of your valuable capital. With that, I'm going to hand back to the operator, and we will open the call to questions. Operator: [Operator Instructions] Your first question comes from the line of Austin Moeller from Canaccord Genuity. Austin Moeller: So my first question, where are we at on Aircraft 3 production and the development of the hybrid powertrain for early '26 flight testing? Stuart Simpson: Austin, thank you for the question. Aircraft 3 production is exactly in line with plan. And as I said earlier, will be completed in the first couple of weeks of December. So we're really pleased, we are exactly on plan with that. In terms of the hybrid, again, we're exactly in line with our plan for that. Everything is coming together for the aircraft to be flying in the middle of next year. So really pleased with everything that the team has been doing, and we're on track on both of those. Domhnal Slattery: Yes. And Austin, let me add to that as well. And I think this is important for people to understand. A lot of our competitors are talking about hybrid. But the reality is none of them have an airframe currently that works for a hybrid. Vertical is the only OEM that has an airframe that can take a gas combustion engine immediately without any amendments or adjustments to the airframe. That's the most important. So we are a major first mover in the flight test campaign, which will start, as Stuart said, middle of next year. Austin Moeller: Okay. And then just you talked about the hybrid powertrain aircraft and potentially getting an order there soon or announcing an order there soon. If we think about the defense market, when might the U.K. MOD or NATO MODs be interested in procuring aircraft for troop transport? It seems like there's a lot of opportunity there to sell this to European allies given the 5% spending commitment and the low acoustics and thermals of the aircraft. Domhnal Slattery: Yes. I think you're spot on, Austin. So the step back here is that the defense budgets in Europe are going to be at 8-decade highs, okay? We, as you can well imagine, are in direct dialogue with every major government in Europe about this aircraft and the interest in the airplane is exceptional. Given some of the touch points we have from our Board colleagues, particularly Lord Andrew, former Head of MI5, you can well imagine that we've got great access, particularly in the U.K. MOD. So we'll be working super hard going into 2026 to secure the first order, and I'm confident that we'll achieve that. Operator: Our next question comes from the line of Andres Sheppard from Cantor. Andres Sheppard-Slinger: Congratulations on the quarter. I was wondering if you can maybe talk a little bit about your manufacturing strategy. Will you be pursuing kind of a large OEM agreement partnership there to kind of help as you begin to ramp up the kind of the high-scale manufacturing process? Or kind of what's the strategy there? Domhnal Slattery: Yes. It's a good question, Andrew, right? And one we've thought about extensively over the years. So you can apply different approaches to this. You can do the sort of let's build the big huge factories, let's spend a lot of money doing that and hopefully, we can fill them at some point in the future or you can take a more prudent, more risk-adjusted approach, which is what we've done, okay? So you should expect to see our manufacturing cadence as follows. Phase 1 in the U.K. as we've outlined, and Stuart can give some color on that. Phase 2 is the turbocharge phase. And as I mentioned in my remarks, one of the key criteria for selecting an industrial partner with us is their ability to turbocharge our production capacity for this aircraft. What does that mean? What that means in practical terms is by the middle of the next decade, we will have 3 manufacturing facilities, one in the United States covering North and South America, which will be a major market, one in Europe and one in Asia. And I suspect by the middle of next year, we'll be coming back to the market with probably quite significantly ramped up production forecast for this aircraft, given the demand that I am seeing globally. I mean I spend my time talking to airline CEOs globally who are waiting to order our aircraft, but they want the aircraft earlier. And right now, we are production constrained under our current forecast. So clearly, the objective is to build more airplanes faster and more efficiently. Stuart, do you want to touch on the immediate plans because it's important. Stuart Simpson: Yes, of course. Andres, thanks for the question. As I mentioned at the Capital Market Day and just touched on here, $75 million we'll be spending gets our initial capacity up and running that takes us through 2030. That is expanding our footprint at the Cotswold Airport, where we'll be assembling the aircraft and expanding our facility at the Vertical Energy Center where we'll be assembling batteries. Hand-in-hand with that, we're in deep discussions with the U.K. government about where we locate the major U.K. facilities, the battery giga factory and a production facility for the aircraft of several hundred aircraft a year. Then exactly as Domhnal says, we will be ramping that across the U.S. facility and into Asia. Domhnal Slattery: We'll make a decision on the European location during the first quarter of next year. And whilst Stuart touched on it being in the U.K., it's highly likely to be in the U.K., but I wouldn't say we've made that decision yet. What we're seeing is pretty significant inbound from other European countries who are keen for us to base there, unquestionably, high-quality jobs and a lot of them. But from the market's perspective, that decision will be made during Q1 next year. Andres Sheppard-Slinger: Wonderful. Appreciate all that color. And maybe just a quick follow-up. I think a lot of your peers are pursuing the Middle East as a viable market, some of them even potentially targeting commercialization there over the next 6 months. It doesn't seem like Vertical is emphasizing or prioritized in this region. So curious to get your thoughts there. Is this another potential geography to pursue? Is this an opportunity perhaps in the more nearer term? Or is the goal to kind of stay focused on Europe and the U.K. and ramp up from there? Domhnal Slattery: Okay. Well, let me help break this down into its components because it is a really important point. First of all, GCC or the Middle East is broadly defined, is an extremely important marketplace. And for those of you that follow us closely, you will see that we had a very significant day in Saudi Arabia a couple of weeks ago, and Stuart Simpson was there with the U.K. government as part of the FII. So unquestioned, the Middle East is really important. But here's where it's not important and what I would call strategic tourism around certification searches. We do not believe there is any real validity in an eVTOL OEM seeking out some fanciful early-stage certification in the Middle East. It's not real, it's not tangible, and it's not portable globally. That's the reality, and that is based on my 4 decades of experience in this industry. Now you will have noted this morning that suddenly the authorities in the Middle East or there's at least news reports saying, oh, sorry, we don't expect to give "certification" until late '26. And you just referenced there that our competitors are talking about commercial operations as soon as the end of this year. It isn't happening. It is fanciful and it is not certification. Operator: Our next question comes from the line of Edison Yu from Deutsche Bank. Xin Yu: Congrats on all this progress. So first question about -- we saw the press release about funding both from U.K. Department of Transport under this OxCam AAM Corridor initiative. So could you clarify like what portion of the award is like directly attributable to Vertical and any technical milestones met before you can access that fund? Stuart Simpson: All right. Thank you, Laura. So I think what you're alluding to is the British government's desire to promote both Oxford and Cambridge Universities, which are 2 of the world's leading academic and research institutes, which both are producing incredible output of new businesses. And the opportunity to link those through a corridor of innovation and development is a fantastic -- fantastic initiative, of which we're very, very proud to be part of. Our aircraft will be able to fly between those 2, providing an utterly unique capability. Now in terms of accessing funding, it's gone into one big bucket, and we'll be making our pitch to make sure we can do the demonstrations of that capability over the coming 12 months. But it's a phenomenal, phenomenal step for the U.K. to be able to leverage those 2 institutions and grow them aggressively over the coming years, and we will be part of enabling that. So hopefully, that gives you a bit of color commentary, Laura. Xin Yu: Okay. Got you. Also for the $700 million [indiscernible] towards certification. So should we assume more spending on top of that for the hybrid powertrain -- or like would that be a material amount or like most cost for the hybrid already behind? Domhnal Slattery: Well, let's break that into 2 components, Laura, right? And Stuart will answer the components of 700. As I touched on, and I think it's really important for the market to understand this, there is a massive future and a massive opportunity on the hybrid side. There's also a massive cost for our competitors to build a hybrid. We don't have to incur that material cost because our aircraft is capable of taking that gas turbine without any major changes to the airframe. So we'll be first to the market with our flight testing in the middle of next year, as Stuart touched on. And as a consequence of that, we'll be the first to the market to sell a hybrid. With respect to the incremental cost with the 700, Stuart, you might want to touch on that? Stuart Simpson: So Laura, the $700 million includes everything we need to get the hybrid program up running and flying over the next 12 months. On the back of which, as Domhnal said, we are highly likely to get a sale. Now that sale will then be able to fund the balance of the program. Now interestingly, as Domhnal said, our airframe fits this hybrid powertrain. So the cost to actually take it from concept through to certification are relatively low. So that's the way to think about it. We've got everything we need for the next 12 to 15 months. Domhnal Slattery: And maybe to add to that a step back, we think about total cost of certification. By the time our aircraft is certified in the second half of 2028, our estimate is that we will have invested USD 1.1 billion to achieve that milestone. Our best guess is that our U.S. competitors will have spent a minimum of $2.5 billion by that time, and they still won't have achieved the certification of a hybrid aircraft. So there's a start reality there on investor capital allocation and getting a return on that invested capital over time. And I think the market should focus in on the efficiency of how we deal with our capital. Operator: Our next question comes from the line of Chris Pierce from Needham. Christopher Pierce: I just have one question. You talked about front-loaded certification given the regulations needed to get in the air and then building your certification plans by the mid-2026. I think I have that right. So can you just kind of sketch through like what will we hear from you guys or what happens over the next 2 years until certification in 2028? Is that just consistent flying and feedback? Or is there -- like is there a chance for that to be pulled forward? I'm just kind of thinking about where you guys are at and then your comments on front loaded. I just love to hear you expand on that. Domhnal Slattery: Yes. So there's no pulling forward, right? There's no fanciful time lines on certification. It will take what it will take. And we're highly confident in getting that achieved, as we said, at the second half of 2028. In our year-end earnings call, we will present to the market a forensic breakdown by quarter, starting in quarter 1, 2026 through to conclusion in second half '28, exactly what you should expect us to be doing each quarter as we go along the certification journey. The front-loading piece is really important for people to understand. And why it's important is as follows: in the U.K. and in Europe, the process is front-loaded in terms of the amount of interaction, the amount of oversight we have in the process with the regulator when the aircraft is still at early stage prototype development. So we get a lot of input, a lot of guidance, a lot of derisking from a safety regulatory perspective. And if you look at the Slide 7, which was originally presented at our Capital Markets Day by Patrick Kai, the former Head of EASA, who sits on our Board. What I tried to represent to you is a lot of the risk is taken out earlier in the program, unlike the United States, which is actually diametrically opposite. I mean we are the only aircraft manufacturer that has a means of compliance. What that means in simple terms is we know exactly what we have to do and when we have to do it to get the aircraft certified. So key messages are we will get there on time. There will be no pull forward. This will take until the second half of 2028 to get it done. No fanciful ambitions or throw away spend comments that we can get there earlier. Christopher Pierce: Okay. So just to clarify, there will be a schedule that because of what EASA has in place with CAA, investors will be able to see what you need to do, when you will do it, what boxes will be, et cetera... Domhnal Slattery: To a reasonable level of detail so that we can measure ourselves against performance and that you can measure us. Stuart? Stuart Simpson: Yes. And just giving you the high points on that, Chris, we do CDR the middle of next year that locks in 100% of the aircraft design and the supply chain. The engineers effectively put the pencil down at that point. That is our final aircraft, no change. And importantly, we've already locked down 75% of the final aircraft. We already know the design of it. We're showing that on the 10th of December. The CDR just locks in the supply chain. The design is there. The next aircraft we build, and we've already initiated production by ordering the long -- very long lead time items is a certification aircraft. It will be completed in Q1 '27 and flying. After that, we build 6 others and they constantly fly hand-in-hand with oversight from the regulator. So that is the process. And as Domhnal said, has no fanciful forward. This is a clear, transparent process, and we will be certifying in 2028. Operator: Our next question comes from the line of Savi Syth, Raymond James. Savanthi Syth: Just could you talk a little bit kind of given your differentiation of the bigger cabin, could you talk a little bit about the choices you've made versus kind of your competitors that enable that bigger cabin? Domhnal Slattery: Well, the first and I think the most important, before we ever designed anything, and that's taking us back really 5 years ago, we spent a great deal of time, and I was intimately involved in this exercise, speaking with our customers or potential customers globally, what was the best product market fit -- and there were a few key learnings and some obvious learnings. One was that the range wasn't going to be super important for the -- at least the initial phase of business, i.e., from central business district -- airport to central business district globally. And if you look at the 50 mega cities of the world where these aircraft will be flying, the average range from aircraft -- sorry, airport into town is about 50 kilometers, plus or minus. So range wasn't going to be a differentiator. Size of cabin was the absolute most important thing. And as a consequence of that, also the ability to check in luggage. And so that gave us a real engineering challenge 5 years ago. How do you design an aircraft of that size with the energy density you need for the batteries at a price point to the operator that can make sense. So that was the conundrum we were dealing with 5 years ago. We have definitely resolved it. So it was a customer-led design engineering process. And if you talk to the Airbuses and the Boeings of the world, they will tell you that it is the right and best way to design an aircraft. And the reality is, today, that airplane physically exists. If you come to London on the 10th of December, you will be able to sit in that cabin. It is comfortable, it's scalable. And if you compare and contrast our cabin to some of our competitors, it is demonstrably bigger. Savanthi Syth: Helpful. And then just on the battery side, I don't know if you can kind of speak to this. I'm kind of curious, I know you're several generations ahead of what is being fed in Aircraft 2 and Aircraft 3. I wonder if you can kind of talk about how much more development there is prior to kind of CDR and what the kind of the improved capability might be versus kind of what you're flying today. Stuart Simpson: Yes. Thanks, Savi. Thanks for the questions. You're absolutely right. The batteries that we have on Aircraft 2 that is flying, we are a couple of generations ahead as we look to the certification aircraft. And if I take you back to what I've said previously about our PDR, we have locked in the battery capability in that. We actually have a choice of a couple of cell suppliers because we have such a deep understanding. We've done over 5 million hours of testing on our batteries. So we have a great insight on to that. I don't think there's much more I can add on that at the minute, but we have great confidence line of sight through the PDR, through the supply chain to a battery cell and the battery pack that we build around that cell that is certifiable and gives us the payload and the range that we will be putting into the market and meet way over 90% of the customer launch routes. It's a phenomenal engineering achievement, as Domhnal said. It delivers exactly what our customers need in terms of cabin capacity and luggage capacity. Operator: Our final question comes from the line of Amit Dayal, H.C. Wainwright. Amit Dayal: Also great to see the new design guys, definitely a big differentiator for you. Domhnal, you commented on concluding a strategic partnership potentially in the very near term. I mean, can we assume this includes some level of investment? And can that investment carry you through 2027 or 2026 at least? Domhnal Slattery: I can't comment on the specifics on it, but I think it would be reasonable to assume that any conclusion of the transactional strategic will carry with it an investment quantum that would reassure the market, let me put it that way. Amit Dayal: Okay. Understood. Also just sticking on that topic, as defense needs [indiscernible] the European market, the U.K. market, et cetera, is there a path for nondilutive funding through [Technical Difficulty] from development purpose. Any clarity on that would probably be helpful for investors? Stuart Simpson: Yes, Amit, thank you. You're absolutely on point. There is opportunities for nondilutive funding for the development of hybrid aircraft. That's exactly how the defense market works as you get into negotiations with the government. So yes, there are plenty of opportunities for that. And as Domhnal said, we're having a lot of incoming and a lot of very good discussions across the European defense industry. Amit Dayal: Okay. And then on the defense side again, have any specifics emerged in terms of the aircraft capabilities, et cetera, that those essential customers may be looking for? Stuart Simpson: I think if you take a step back and look at the aircraft, it provides several things that the defense industry is extremely excited about. So first of all, you have silent takeoff and landing, which, as you can imagine, is extremely important. It also has a very low noise signature, so you can't hear the aircraft when it's coming in to land or taking off. And then once it's altitude, you can fire the gas turbine to travel up to 1,000 kilometers. That combination of low noise signature, low thermal signature and near silence is transformative in the military. So this is what underpins the incoming that we're getting. And really, the use cases are endless from logistics through to deployment, et cetera. So yes, we feel we have got the strongest product in the sector. We will be flying it next year, and we will be selling it next year. Operator: I will now turn the call back over to the Chairman of Vertical Aerospace, Domhnal Slattery for closing remarks. Domhnal Slattery: Okay. Thank you, operator, and thanks, everybody, for joining us this morning and the thoughtful questions. If I were to ask you to take one slide away as you think about our remarks today, Section 5, Slide 18. It's the only slide that matters. Have to think about that, think about the relative performance of this business relative to our competitors. Now I want to re-extend an invitation to come to London Canary Wharf to see our physical aircraft. And I'm an aerospace geek. I've been in the business 4 decades. I have seen this physical aircraft that we will be unveiling. It is simply -- the coolest thing imaginable. So if you want to see the future of flight and you want to see the Vertical VX4, it will blow your mind. So get your tickets, get on to the IR team and come to London on the 10th of December. We will also be bringing that aircraft to the United States immediately in Q1 2026. So thank you all. We look forward to our...
Operator: Good afternoon, everyone, and a very warm welcome to the Quarter 2 Analyst Meet of Mahindra & Mahindra Limited. For the main presentation today, we have with us our Group CEO and MD, Dr. Anish Shah; ED and CEO of Auto and Farm business, Mr. Rajesh Jejurikar; and our Group CFO, Mr. Amarjyoti Barua. Once the presentation concludes, we will start with the Q&A session. Just a reminder, this meeting is being recorded. For the purpose of completeness, I wish to read this out. Certain statements in this meeting with regard to our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. With that, I now hand over to Dr. Shah for opening remarks. Anish Shah: Thank you, Divya. Good afternoon, everyone. Just before this at the press meet, I started by saying that I'm delighted to announce results for this quarter. And as many of you know me well through many, many quarters, I don't think you've heard the word delighted from me so far as yet. It's always been good, steady performance. We are doing well. We are on track. But this one is different, because we've seen all our businesses come together. And take in the challenges of the quarter, it wasn't an easy quarter overall. But despite that, I would give a lot of credit to our teams across businesses. And therefore, you also see a simplified version of a key messages page, because sometimes when the numbers say what they have to, you don't need to say much beyond that. And what you see is a strong performance across businesses with Farm profits up 54%, with Auto at 14%, but impacted by the GST transition, because a number of vehicles were not delivered from September 8 onwards, or rather delivery was postponed to October. And 14% generally is a very good number, but in the context of our overall numbers, we feel that it could be higher, and that's again because of the transition. Mahindra Finance delivers. We've been talking about Mahindra Finance for some time, and we'll give more details on that. But I look at this as sort of the end of Phase 1 in terms of what we had to deliver for Mahindra Finance and a very strong quarter with 45% operating profit growth. TechM, on track, profits up 35%. This does include exclusion of a one-off gain from land sale last year, and that is, therefore, an operating number of 35%. Growth Gems are accelerating. As you heard before, I typically don't talk much about profits for Growth Gems, because we are looking at investing in these businesses and growing them multiples and therefore, we will look at profits for a few years down the road, not today. But despite that, we've got a good outcome for Growth Gems right now. And on balance, consolidated profit is up 28%. Accounting for three one-offs, first is gain from land sale last year. Second is gain from PLI this year in this -- what was recorded in this quarter, but for prior quarters. And therefore, we've countered the prior quarters' part obviously as a one-off and are not taking that gain into account. And third is the tax payment on SML Isuzu transaction of about INR 217 crores. So, those are the three that we've taken out. And therefore, we want to show the operating profit numbers, which is up 28%. ROE annualized is up 19%. With my standard caveat, which is, please do not expect 19% going forward, it will always be in the range of 18% and could be slightly higher or below that. Consolidated numbers, revenue up 22% year-over-year. Year-to-date, up 22% as well. So, it's not just a quarter. It is performance for the year. Profit operating up 28% for the quarter, 29% year-to-date. And therefore, I want to go back to the reason for the word delighted is, this time we've got all our businesses really contributing in a very meaningful way. It's not just the numbers, it's the quality of the numbers behind all our businesses contributing that delivers that outcome. Drivers of consolidated PAT. Auto and Farm up 28%. Tractor volume, strong at 32%. Auto volumes, given the transition, a little lower at 13%. You'll see a steady margin expansion, completion of the SML acquisition. And that has driven again a very strong outcome for the Auto and Farm businesses. TechM and Mahindra Finance, both businesses that are on a track to meet peer averages and then over time, exceed peer averages. I think Mahindra Finance has completed that first phase, as I mentioned. And what you see here, again, is great results for both businesses. And Growth Gems, where we've got a 5x growth challenge, what you see is 22% increase, a one-off here, which is not a one-off we captured in our overall numbers. There was a onetime tax impact, which we've just basically shown for the Growth Gems only, and because our overall numbers are smaller. But real estate is strong. Aero has continued strong wins. The Airbus helicopter fuselage, that we will supply globally, is a big win for the Aero structures business and Accelo has continued growth momentum. Auto, a little more details on the Auto business. Revenue up 25%. As you've heard from us before, there will be a mismatch between revenue and profit growth for a few reasons, and Rajesh will cover that in more detail as well. SUV penetration from an electric standpoint is 8.7%, up 90 basis points sequentially quarter-on-quarter. And export momentum is strong. This is a growth vector for us, and we are seeing a 40% growth in exports. And hopefully, we continue to see that be a meaningful growth vector as we go forward. Market share, this is a remarkable number, up 390 basis points from a revenue standpoint year-over-year for the same quarter, literally 4 percentage points of market share gain. LCV market share, despite it being 50% plus, has increased as well by 100 basis points to 53.2%. And that has resulted in the profit numbers that we've talked about. Farm, just outstanding execution on the ground. Premium segment growth, albeit from a small base. Operational execution driving both profits and cash. You'll see the cash numbers a little later as -- presents them. And we've completed the sale of SAMPO in Finland. We continue to maintain that discipline. And what we've always said is where we need to exit a business, we will. And this is what we've done with SAMPO. And market share up 50 basis points. Farm revenue starting to deliver the potential that we've been talking about for some time, up 30%. INR 330 crores of revenue for the quarter is starting to move towards profitable -- is profitable now as well. And therefore, you see again the remarkable number of profit after tax growth of 54% for the Farm business. As you think about achieving full potential, Mahindra Finance is one where, I look at this as a breakout quarter. We've talked earlier about improving asset quality, about tighter controls and technology and data being a key part of the business. All of that is done. Asset quality is maintained steadily at less than 4.5% for GNPA. It's at less than 4%, in fact, for this quarter. Controls, a lot of work has been done, and the business has a much stronger set of controls now. We are looking to pivot to growth. Because we've got technology and data also largely in place with the UDAAN stack that we've talked about in the past going live and very strong adoption across our teams for UDAAN, which is effectively creating a whole new system architecture, a much better customer experience and a much easier process that will result in not just customer delight, but also lower costs as we go forward. And that digital transformation is done. We also see a NIM improvement this time of 47 basis points. AUM growth of 13%. This is despite not really focusing on growth for the last couple of years, but we will, as I said earlier, pivot to growth now. And that has overall resulted in a very strong number of operational performance, 45% profit after tax growth for this quarter. Tech Mahindra, on track. Gains in BFSI, Manufacturing and Retail in a tough industry. Accelerated our AI effort have launched Orion. Margin progression is on track, it has been outlined by us as well. And therefore, we feel good about where this business is and again, reflected in some ways in the operational PAT number of 35% growth. As you look at our scalable Growth Gems. Logistics, with Hemant coming in has seen just a remarkable improvement across various parameters from an operational standpoint. We will start seeing the benefits of that from a financial standpoint as well, but that will take a little bit of time, not too long. But we're starting to see some very, very strong execution. And we see the first quarter for a positive gross margin for the Express business, white space reduction, which is excess warehouse space that we had has been reduced quite significantly, not at the level where we want it as yet, but still more work to be done on that. E-commerce segment growth, revenue is up 11%. EBITDA is up 70 basis points at 5% and putting the business on a very solid turnaround track that we'll start seeing more results for. Hospitality, occupancy hurt by some of the weather-related issues in this quarter. And that's been offset by average unit realization being much higher at 85%. We're starting to focus a lot more on quality and on the average unit realization as compared to just number of members. So, number of members, you will see 1% growth, but this is a key area for us. Some geopolitical headwinds for our Holiday Club business in Finland, but it's a business that's still profitable, a good asset overall, but it's one that we feel can do a lot more as we think about holidays going to the next level. Room inventory of 5% and on balance, what you'll see here is a good, strong business that delivers very well for its customers, has a potential to grow to a lot more. And we will come back with details on how we do that in not so distant future. Real estate on a very strong trajectory. You saw GDV last year being extremely strong. That trend continues this year as well. Last year, if you remember, we had the 37-acre land in Bhandup as part of our GDV and resulting in maybe somewhere around INR 18,000 crores. I don't have the exact number, but somewhere in that range. And this year is also on a very, very strong track. So, you're seeing this business be one that has broken out again the plan for GDV growth for -- of a presales growth rather, which is a key metric from a real estate standpoint for this decade is 14x, from what we had in fiscal '20 to what we planned for in fiscal '30. And the business is still looking at how do we grow faster than that. And that's really what we've seen here. The GDV that's required for the presales growth over the next 5 years is largely in place as well, which gives us confidence that the delivery is more based on execution now, not based on external market factors. And that's what you see in the launch pipeline. In addition to that, good realization from the IC business. So, residential presales up 89%. GDV acquired up 3x, still coming from a fairly good year last year. And that brings me to the slide that you've been very used to seeing. Consistent delivery on our commitments. ROE continues to be in the range of 18%. This quarter, it's 19.4% and EPS from the time we had committed 15% to 20% EPS growth, we've delivered a 35% EPS growth. So, all-in-all, very strong execution across businesses for us, and that's where the word delight comes from. And with that, Rajesh, over to you. Rajesh Kajuria: Hi, everyone. Thanks, Anish. Just a quick look. You've seen a lot of this. I'm just going to zip through quickly. The volumes were up 32% for the quarter. Of course, we had the preponement of the Navratras. So, it's not completely like-to-like, but still a very robust growth and gain in market share of 50 basis points. The trend continues to be a strong trend with 44% market share in the first half of this year. 70 lakh tractors rolled out between the two brands, of course, over decades, but 45 lakhs for the Mahindra brand and 25 lakhs for the Swaraj brand. Both milestones got achieved between September and August this year. Farm Machinery business saw a very good quarter, INR 330 crores. Every month clocked INR 100 crores plus. So, it was a very, very strong quarter performance. And we are seeing good momentum now kicking in into the Farm Machinery business. The farm margins were very strong. Core PBIT for -- core tractor PBIT was upward of 20% to 20.6%, which is a very strong performance and something which makes us feel good about -- normally, quarter 2 is not a very strong profit quarter. It's quarter 1 and quarter 3. So, 20.6% in quarter 2 is a very strong margin performance. This is the chart we normally show you with respect to market growth, how we are able to keep a band of margin. And we've seen now consistently last three quarters of 20% plus core tractor margin. The PBIT growth has been 44%. This is consolidated with a INR 1,600 crores profit. On the Auto side, 7% growth, as Anish mentioned, impacted by complex logistic issues starting right from 15th August and then the GST announcement on 4th September, after which we completely stopped all ICE products. So, we then had a huge bundling towards the end. But as you saw, the October numbers kind of made up for the loss in September billing numbers. Very positive trend that we are beginning to see on LCVs finally. Quarter 2 saw 13% growth for us, and we gained some market share. So, as you'll see, when we come to the LCV chart, after many quarters of flattish volume, we're finally seeing growth in the segment. The volume dip in quarter 2 is a reflection of the transition of GST and the billing. So -- but overall, depending on whichever cut you look at it, we are in the mid- to high teens. So, if you look at April to September, April to October, only festival days, retail, we are in the mid- to high teens irrespective of the cut by way of how our SUV growth has happened. Revenue market share still continues to be #1, come down marginally from the previous quarter, because of the reasons that we spoke, but otherwise, a strong performance. We introduced the two new Boleros. They got delayed a little bit because of liquidation of the older versions as GST transition was happening. But the response has been very, very strong. All versions are priced below INR 10 lakhs, which is a great opportunity to create category. And with the changes that we've made, we ourselves are pleasantly surprised with the kind of response that the market has brought forth for both of these changes and both the new versions that are out there. The Thar 3-door with the ROXX interiors coming in, some minor exterior changes, also has got a very good response. And the benefits of all of these, because both of these were mid-cycle, in the middle of festival transitions, we will see the benefits of that as we move into the next quarters. We sold 30,000 electric SUVs totally cumulative till date. Very good feedback from customers, very good word of mouth, very good analytics that we now have on the kind of usage, how much of it is more than 1,000 kilometers per month usage, 20 days more per month, so on and so forth. We will put out this analytics. We were thinking of whether we should do it today, but then we said we'll reserve that for 26th November, which is the first anniversary. And we will put out a more comprehensive customer understanding with numbers. Because, these are all connected vehicles, and we have some really good analytics on how the vehicle is being used and profile of people and percentage of customers who've run so many kilometers per day, so many times in their ownership cycle. So, there's some really good analytics. We'll put that out in a comprehensive release on the 26th of November. The Batman edition has been a huge revelation and a huge learning for us. It just shows us what -- it actually came out of customers who -- when they started seeing the Black BE 6, started calling it the Batmobile. That's what gave us the idea to do the Batman edition. And then, we tied up with it. We announced it at 300. We saw the demand is going to be way more. So, we increased that to 999, which got sold in no time. So, we're in the process of completing the deliveries. And it's -- we'll talk more as we go forward, but we've learned a lot out of how to use special editions out of the Batman experience. The penetration in our portfolio is now 8.7%, which we think is a very good number at this stage of the launch with the two products that are out. This should strengthen further as we introduce and add more products into the portfolio. In the first half, we've been at revenue #1. In quarter 2, we were #2. We had a competitor who had a new product in. And you can see that there's a small gap, but we were in the quarter marginally below #1. This is the point I was making on LCV. You see a reasonably large period of time, which was flattish. And then, we've seen 69,600 volume in one quarter as a very positive turn in the segment. The auto margins are -- this is a stand-alone without contract manufacturing. The next chart will explain this as a format we put out. So, 10.3% is, we believe, a very strong performance. This is how it breaks up. So, what you see as reported is 9.2%, which is 10.3%, which is a stand-alone business. Contract manufacturing, we make INR 10 crores on the INR 2,900 crores. So, that drops it to 0.3%. And the weighted of that is 9.2%. So, we will continue to show it like this, so that you are able to see the operating auto performance without the contract manufacturing getting merged into that. We'd also said that you will see the end-to-end of the electric performance. And hence, you see Mahindra Electric as a company, which had an EBITDA of INR 173 crores in the quarter. This only reckons the PLI for that quarter. As Anish mentioned, the PLI that we got for quarter 4 of last year and quarter 1 of this year is treated as exceptional. So, this is only the quarter 2 PLI accrued, which takes the EBITDA to INR 173 crores. And we earned INR 29 crores as contract manufacturing. So, the end-to-end of that is INR 173 crores plus INR 29 crores, which is the INR 202 crores that you see up. Last Mile Mobility had a very good quarter, 42.3% market share. And as you can see, a very strong electric volume of 32,000. The Auto consolidated, you've seen this. Revenue grew 25%, PBIT grew 14%. Coming to the event on 26, 27th, so this is my closing couple of videos. We see a huge opportunity to build on the equity we have around racing. India has become much more conscious of racing. Two things that changed. One is the Netflix show on Formula racing. The second is the movie F1. Both of these have heightened awareness around racing. We had a really good season last year. We were #4 ahead of many strong pedigree brands. So, we do want to leverage this as we start the new racing season in December in Sao Paulo. So, we have a video which we've been running over the last couple of weeks, leading into the 26th event, where we will reveal some of the new livery and the prep going into the December races. So, the first video is really about that. This is on air for the last few days. [Presentation] Rajesh Kajuria: So, this is one part of what's going to happen on 26th November in Bangalore. We've also started teasing the 9S, as we're now calling it. So, the first teaser was out yesterday, which I'll play for you now. [Presentation] Rajesh Kajuria: And the second teaser is just getting out as we speak. [Presentation] Rajesh Kajuria: So, thank you. With that, I'll hand over to Amar. We're excited about 26, 27 November. Amarjyoti Barua: Thank you, Rajesh. So, you've seen this chart, but I just -- after the media interaction, I got a few questions. So, I just want to reiterate a few things about how we call out one-offs. We don't call out something we hadn't called out last year when we are doing a comparison to last year. If you look at our charts for last year, we had the INR 304 crores gain for land sales called out last year, because it was truly a one-off event and is not likely to repeat. And so, the intent of showing that again this year is to make sure you have an operational baseline to compare to. Similarly, if you see, even though there was a big PLI gain in the current year, it was offset by the tax -- one-time tax we paid on SML, which is why that is -- the net impact of that is the INR 14 crores that's called out. You will see exactly these numbers reflected next year when you see that. So, we are very consistent in this. I just want to reiterate that, because I got a lot of questions on it after the media interview. And even the criteria for calling out something as a one-off, it is not a sub INR 100 crores or even sub INR 200 crores, we would typically take something which is above INR 200 crores as even for consideration in our one-offs, okay? So, I just wanted to clarify that. This chart gives you the picture that Anish showed on one page. So, I just wanted to reiterate again the key messages there. You see the Auto growth, you see the phenomenal Farm growth. Even in Services, you can see the TechM and Mahindra Finance. And as he called out on his chart on Growth Gems, that Growth Gems and investment line item does include a onetime charge we took for Mahindra Holidays. Details of which you can see from their reports. It is a -- truly a one-time, and it is a tax catch-up that we had to do. And we have proactively done that in line with our very strong governance standards, okay? And you can see that reflected here the big contribution from Farm, but also very meaningful contribution from Auto and the Services franchise. Stand-alone results, exactly same principle. You'll see the INR 201 crores out of the INR 304 crores, INR 201 crores was land sale of what we used to call K land, which is what was reflected last year as well. So, we've called that out. And the INR 219 crores is the tax we had on the SML transaction, that is also called out. As I mentioned, again, it's one-off. So, 23% year-to-date growth in revenue, 31% year-to-date growth in profitability, excluding those two one-offs that we have called out, okay? So, clearly, very, very strong performance. This is a chart that most proud of. Because, I think this reflects a lot of effort from the teams. Because you've got to keep both in sync. You've got good profitability, but if you don't have good receivable management, payables, et cetera, you could get out of sync. And this is something which reflects the strength of the results you have seen in the first half. You can see we started the year at INR 27,000 crores. We have spent close to INR 2,500 crores on CapEx. We have done the right -- three rights issues that you're well familiar with. We've done the SML transaction, and we paid out dividends, yet the total cash balance has increased in the first half. So, it reflects very, very strong operational results of -- across the group, but a special call out also for the Auto and Farm team for what they have done on working capital management through, as Anish mentioned, some very trying circumstances that we have seen at least in the second quarter. Okay? So, I'll wrap up with that, and we'll take questions from here. Operator: Okay. We can start with the Q&A. We'll take the first question from Kapil of Nomura. Kapil Singh: Yes. Thank,s, Divya. Congratulations team, I think it was a really tough quarter. So, solid performance. My first question is on the GST cuts, if you could just share your thoughts on what is the impact across your portfolio. So, on the Automotive side, we have the 40% GST bracket and the 18% GST bracket. What are your thoughts on how the consumers are reacting? Because some of your peers have said that the industry growth may be around 6% going ahead with 10% growth in small cars and not so much effectively growth coming from SUVs. And then, some -- maybe you can share some thoughts on LCVs and Tractors also, if you feel with the GST cut there will be some impact on demand there as well. So, I'll leave it open for you to share the details across the portfolio. Anish Shah: So, just a couple start with an overall view and then go to your question specifically, and we'll request Rajesh to answer that. Overall, I think this is a very, very good move by the government. Because for the longer term, it simplifies things as well as reduces GST. And there will be, in our view, fairly strong multiyear benefits from this move. In the shorter term, what we are seeing is the fact that the strong fundamentals of the economy were waiting for some stimulus to be able to translate that into optimism from an overall feeling standpoint, which is important as well. And we're seeing that happen right now. So, that's a shorter-term impact. And for this, I talk about across the economy, I'm not talking about Auto and Farm in particular. We operate in, as you know, in 70% of India's GDP. And we're seeing that across businesses right now as a very positive thing. So therefore, for both of those aspects, we think it's a very good step forward. Yes, little bit of pain in the short run, as we talked about, but that's fine. We'll take that any time for the benefits that we are seeing here. And with that, I'll request Rajesh to specifically answer your question. Rajesh Kajuria: Yes. So, I'll -- Kapil, I'd like to walk through all the three segments, because it's important to understand each. So, in a way Tractors and LCV, I'm first taking as one bucket. Over the last 5 years, customers have seen unprecedented price increases. At least I have been -- if you go back many years, not seen this kind of a price increase in such a short period of time, huge commodity increases that happened starting 2020, more like 2021, regulation change that kicked in, especially with BS6 and then BS6.2 and multiple other regulatory costs that got added. So, customers have seen more than 25%, 30% cost increases. This was having, especially in the LCV segment, a major drag on ability to grow. Because the fleet owner or the vehicle owner was not able to pass on that on a freight cost charge to customer. So, it was creating a drag. So, I think this was much needed to as a fillip to boost demand. And it's not a small -- I mean, I don't think any OEM could have taken a 10%, 12% price correction. It was just way too much for anyone to do to, kind of, trigger upside in demand. So, as Anish said, I think this is a very significant move from overall approach to boosting growth in the economy. So, I think LCVs will -- and we've already seen that through the festival period, but we'll see a lot of the latent demand over many quarters, which didn't kick in, probably start to kick in. That is accompanied with positive mandi arrivals and many other things. But we've been talking about mandi arrivals for a while, but I think both these needed to have come together and that's happening now. So, that's a positive enabler. On the Tractor side, again, the same thing. It is very, very high cost increases on the Tractor commodity and other things. So, it's quite a substantial reduction again for the farmer. So, it is that along with the mood right now in rural, many enabling factors. So, both of these are clear category enabler. In both these segments, these are clear category enabler in place for the GST. Coming to passenger vehicles, which is everyone has their point of view on how this story will play out. Whichever way it plays out, it's going to play out for good. Now whether some subsegment gains more or less, time will tell. Every customer set is looking for something in particular to their life when they're making a purchase decision. So, when we think of what you were calling the 40% slab, so if you think of vehicles at the 40% slab, they actually start from interestingly from even as low as INR 10 lakhs. In fact, we had done an analytics of volumes that happen in different GST slabs earlier, connected to size and price. And you'll find in the 40% of -- earlier 48% slab. Vehicles as low as INR 7 lakhs is going up all the way to INR 50 lakhs or INR 60 lakhs or more. So, now for a customer who is in the INR 12 lakhs, INR 15 lakhs, INR 17 lakhs bracket, they're still paying 40% GST and they're at a certain budget. Now, they are able to move up the ladder of feature offering for the budget they already had. So, they are not first-time buyers who are going to come into the category or not based on a certain price. But what they choose to buy, they will -- they can upgrade based on a certain price. So, there may be customers who were till now not thinking about buying, let's say, a bigger SUV. But today can, because we've enabled it. And I just spoke about an example of, let's say, Bolero or Bolero Neo. If that product was INR 1.5 lakhs, INR 2 lakhs more, it may have excluded some set of customers. But today, when they've gone below INR 10 lakh, and hence, we are also able to get the on-road benefit, because, as you all know, most states have a differential road tax above INR 10 lakhs, you start getting the multiplier effect on on-road price. This, along with reducing interest rates, creates a compelling package for those who are in the mid end of the market to upgrade either from what they were buying earlier. And as some of our peers referring to that comment would say for those who are not thinking of buying a car earlier and are now thinking of buying a car. Right? So, you have a spectrum of buyers who are going to be reacting differently. For some people, it's a question of should I buy a car or not. And the size of the overall passenger vehicle market goes up, because more people have come in, over a period of time, they're going to upgrade. And while we may not get that customer into our portfolio today, they will be our customers for the future. So, I think at the end of the day, I'm sorry, I'm giving you a very long answer to your short question, but I think this is going to be good for everybody. Kapil Singh: No, that was the intent. Actually, I wanted a more detailed answer. But can you cover EVs also within that answer? Is there an impact because the differential has changed? Rajesh Kajuria: So far, we are not seeing that. I still think the EV propositions. Firstly, most of our EVs are in the big size and hence, play against the big SUVs, right? So, the gap still is 5 to 40. We were not in the 5 to 28 category. We were in the 5 to 48 category. So yes, the gap has come down, but 5 to 40 is still a very substantial gap. Amarjyoti Barua: Sure. And can I just add one thing, which is a fringe benefit of this is the simplification on the working capital side for the Farm business is pretty significant. I don't know whether that was as obvious earlier. That is a business which used to have a 12, 18, 28 kind of structure, right? And now it's far simpler for the team to manage and working capital will be better managed as a result and should free up some as well. It's a big benefit. Kapil Singh: Yes. Sir, second question is on the CAFE norms. We saw some changes in the draft, particularly, I was a bit surprised to see lower credits for EVs than what was originally being proposed. Where are you placed on this? What is the EV penetration required now? Is this draft final? Do you need hybrids in your portfolio as well as you move forward? And also, if you can share some color on festive bookings since your portfolio is under transition, probably if you can share some numbers there would be helpful. Anish Shah: I'll just start again by saying that we don't believe the draft is final. There are a number of inputs that have been sent after that across the industry and SIAM also has sent or is sending a set of inputs on that. And our sense is the government will look at all of those before finalizing it. Rajesh Kajuria: So the fundamental word draft means it's not final, and we treat it as such. So, we -- there is a process of dialogue and discussion, which is on, which was the purpose of the draft. And that process is right now under discussion. In either case, as we've said, we will be ready to do what we need to do manage customer expectations and part of that is managing CAFE norms. I think the journey on CAFE is a while away. We feel comfortable that with what is likely to be an outcome, not necessarily the current draft and its process, we will be able to have enough EV in our portfolio along with any other fuel types that are needed to be able to meet the CAFE norm. So, that's the direction towards which we are working. But the draft is far from final. Kapil Singh: And sir, on the festive? Rajesh Kajuria: On the festive, I, in a way indicated that, Kapil, while I was presenting. So, there are multiple ways to cut it and everybody is cutting it in the data in different ways. There isn't any one simple way to look at it. So actually, we have eight cuts of whichever way you want to look at it. The reason I'm saying that is, this time, the first 7 days of Navratri were way better, because the period before Navratri, customers were not really buying at all. Compared to normally, pre-Navratri, you had Shraddh, but South was buying, who were not so much into the Shraddh mindset. Right? So, it's just very hard to compare anything. So, we're just looking at basically April to October as a period or quarter 2 as a period or we've also looked at only September, October. So, whichever way we look at it, we are mid- to high teens on our retails as a number. So, we are in line with what we've been thinking should be the offtake. I'm not getting into first day of Navratri to last day of Diwali, because this time demand has spilled over beyond last day of Diwali as well as we've all seen, when you look at Vahan. So, I don't think there's any one right way to cut it, and we've cut it multiple ways, but we feel overall comfortable. Given the limitations that were there of having the right product mix, because of dispatch delays and all of that. So given all of that, I think we feel comfortable about the way demand works. Not specifically reacting to bookings right now, because actually booking numbers are very, very healthy. Now it's just hard to say what of that is going to convert and we've decided not to get into sharing bookings. But booking momentum has been much stronger than retail momentum. Operator: Nitin, please proceed. Nitin Arora: Just on this consumer behavior, what you talked about, people might want to upgrade, because it's not like income is increasing. It's like the price is reducing part. How do you see that mix of -- because 1.5-liter diesel becomes very attractive, especially for the mid-SUVs versus a petrol when we look at the price bracket? And some of your competitors, especially Koreans are talking about a lot of bookings coming in the diesel in the midsize, and we have that very strong product there. So any transition, any consumer behavior you have seen a change where you see because the product is very well accepted, some market share gain can happen there, how consumer is behaving to that part, diesel versus petrol, especially in that particular segment? And second question to Anish, sir, I think as an investor, I -- 2023, I asked you a lot of questions about RBL. Anish Shah: We should have placed bets as to how soon that RBL question is going to come in. Nitin Arora: Finally, it's a very big strategy investor is there. How are you thinking about now? You already owns, I think, 60% of the bank. So just any input from your side? How you're now you're thinking about that part? So, those are the two questions. Anish Shah: So I'll start with that as a shorter answer, because as we said earlier, one of the key reasons was a treasury investment as well. We saw significant value there. And that has played out. So, if we just see the gains, it's probably more than 50%. I don't know the exact number. But for us, it is in a sense, a validation of what we had seen. And it's one that we will continue to look at as the treasury investment, make decisions on that basis from a treasury standpoint. In the previous session, with the press, I was joking and saying, someone should just do an analysis of how much timeshare this gets versus the really impact on M&M. And you'll see a huge inverse correlation from that standpoint, because everyone loves this question. So, that -- it's a good one to ask. Rajesh? Rajesh Kajuria: Your question is primarily around diesel, petrol? Nitin Arora: Diesel and petrol. [indiscernible] Rajesh Kajuria: Yes. So I'll just quickly walk through different parts of our portfolio. So, 3XO is primarily a petrol offering now more than 75%, 80% is petrol. We're not seeing -- at this point, at least, I have no input that there is a shift there towards diesel. There is a lot of shift there by way of which version becomes attractive, because as prices come down, a different version becomes attractive than what was so before the price change. So, in 3XO at least, I have not so far picked up that there's more diesel demand, because of a price drop. Though it's an interesting input, and we'll watch it on 3XO, but at least, so far, I don't have that input. On the rest of our portfolio, diesel is in the region of 70% to 75%. 25%, 30% is the gasoline. It varies from product to product. Diesel can be a compelling proposition now, because of the price drop and that puts us at a competitive advantage, clearly. So, in following up on Kapil's earlier question, different people are going to get different things out of the GST rate cut. I was earlier focusing on the ability to upgrade vertically, but an interesting perspective could be gasoline diesel as well, which will give us a competitive strength. But it's something, honestly, we'll not -- at least, we've not picked up yet, and it's some -- and thanks for sharing that. We'll watch for that more carefully. Operator: Raghu, please go ahead. Raghunandhan N. L.: Congrats on the results. Sir, firstly, on the LCV side, festive season, at least Vahan shows a very strong double-digit growth. And how do you see the full year outlook? And within LCD, for your customer set, would there be a sense on for how much of the customers would the GST be a pass-through and for how many of them would the GST reduction will actually be a benefit when they are purchasing the product? Rajesh Kajuria: Just to be clear on the second part of the question, you're talking about where they are able to get a GST set off, which is a company buying, right? That's the point. Yes. So, the second one is, let me just try and get that out of the way. For pickups, we have very reasonably large market operation buying, which are individuals are not buying in companies or small aggregators of three, four, five vehicles, who I don't think will be getting the GST tradeoff. Nal, do you want to -- you have a different take. 60% are market MLOs or whatever. So, it's a fairly large chunk, which retains the benefit. On the first question, everyone will have a different view on it. I'm sticking my neck out and saying that it's -- I think we'll -- the outlook will be a double-digit growth for the year. I think, if this momentum continues, which means not just the price impact, but there isn't too much of destruction because the late -- in crops, because of the late rains and mandi arrivals continue to be good and robust. So, the rest of the economic parameters play out the way they have played out in the last 2, 3 months, along with the rate cut. I think we'll end up the year at double digit, but some may argue that it will be high single digits. But at least, I would stick my neck out to say that, I would expect to see low double-digit growth for the category. Raghunandhan N. L.: And also on the Tractor side, now you are seeing a low double-digit growth for the full year. So, how are you seeing the mix between North and other regions, because other regions seem to be growing at a much faster pace. And also recently, there are some concerns in terms of like on the rain side, unseasonal rain side, cyclone side, anything we should read into it? So, that was the part. Rajesh Kajuria: Yes. So Maharashtra, Karnataka, in particular, have seen really strong growth this year. UP is -- UP and Rajasthan has not been all that bad, they are high single digits. So, there have been, I think, from what I remember, the 8%, 9% range. So in a way, from a market share weighting point of view, that's -- weighing point of view, that's good for, that's positive for us. These are very strong markets for both Mahindra and Swaraj, Maharashtra, Karnataka, Telangana, Andhra and so on. So, now whether this will continue, I think my sense it will continue, because some of these states were on a very low base. And including for the second half of this year. So, I would expect that this mix is not changing too much for the balance part of the year. The effect of rains, we are trying to assess. I have actually struggled to see in the past a correlation between significant off seasonal range. So often, we get this happening also in Feb, March. It's not very directly correlated to Tractor sales, it's kind of my intuitive judgment on this. But in this particular case, we need to wait and watch and see what's happening and how much damage -- the fact that there has been damage at this stage is uncommon. Normally, you get a little bit more of that in the Feb, March period, when you get the early rains and you get damage, which I have not seen too much of impact of that. Hopefully, this is not going to have too much. We are not factoring in a slowdown because of the delayed rain, which has just happened. Raghunandhan N. L.: I mean, it's delightful result. Just two, three concerns, I wanted your thoughts on that. One is that Nexperia, would it have an impact on production in Q3 or Q4. Second, on the SES refund. And third, commodity prices, precious metal has been going up. Rajesh Kajuria: Second was? Raghunandhan N. L.: SESZ refund. Rajesh Kajuria: Dealer SES? Raghunandhan N. L.: Dealer SES. Rajesh Kajuria: Yes. So, on the first one, we have a reasonably high confidence that quarter 3 is under -- fairly covered. We believe that the situation will ease out by quarter 4. If not, I'm sure you've been tracking Nexperia closely. It's a very low-value commodity kind of chip, so roughly $0.20. So, it's not hard to substitute. It's not like the semiconductor issue that was there through COVID, which were all very specialized and very hard to replace and needed extensive validation. These are more commodity-type chips. So, it's a question of finding substitutes, which -- for which we need a few weeks. We have, over the last 3, 4 weeks, already solved for many, many existing parts, which now gives us comfort that by and large this quarter is covered. Hopefully, by the time we come towards the end of November, we would have covered, with options, most of our portfolio. There is -- there are multiple stakeholders hoping to resolve this issue. It has impacted Europe OEMs quite significantly, and there's a lot of work happening between a couple of countries in Europe with China to unlock this problem. So, I don't think, as of now, we do treat it as an extreme risk and hence, extreme caution by way of mitigation. So, I hopefully, this should not be an issue. But that being said, we have to be very watchful. On the SES issue, we're just treating it right now as an issue dealers have to solve for it, sub-judice, as you all know, the FARDA has gone to the government. I mean, gone to the Supreme Court, arguing for why it can't be unilaterally discontinue. There is a valid -- they believe they have a valid case and we'll see how that plays out in court. Our view will be to wait and watch that out. In any case, it's a it's a dealer liability in the books of the dealer. Whatever we had to take by way of cost that we've incurred related to SES, we've built it in quarter 2. So, we are not carrying anything in our books over. But of course, this is a dealer point of view. Can you repeat the third question? Raghunandhan N. L.: On Material inflation, on precious metals. Rajesh Kajuria: So, precious metals had gone up. It started easing off a little bit as we all know, over the last week or 10 days. That's something that we need to watch for. Each of these are volatilities that come out of nowhere. So, we'll watch for that, is all I can say. I mean, this is all part of managing life today. You don't know what's coming at you from where. Anish Shah: Just if you don't mind me adding something on that. I just want you to although feel good that the team does have a very strong focus on this and we do hedge everything. So, there was a good anticipation by the strategic sourcing team. The precious metals will see some pressure. We have taken a hedge position from January to now, on average, three precious metals have gone up between 60% to 80%. So you're absolutely right. But we are not as exposed to this phase, because we have taken hedges. We've taken the offsetting gains for the expense that we have seen. But if, of course, the trend continues, then the hedging costs will go up and that will impact. Operator: I'll now just take a few questions online. This is from Arvind Sharma of Citi. Amar, the question is, where would PLI reflect in the stand-alone numbers? And what is the broad amount? Also, how much of it accrues to XEV 9 and BE 6? Amarjyoti Barua: So PLI actually doesn't come up in the stand-alone results because it goes into MEAL books. It is reflected as a revenue item. And the total amount for the quarter was around INR 460 crores, of which INR 150 crores pertain to INR 463 crores exactly, INR 150 crores pertains to -- INR 151 crores pertains to the quarter, and INR 312 crores pertains to prior period. That's what we have called out effectively. The tax impact of -- tax affected amount of that is what we have called out in our results. And it all is for the 9e, it's -- the 6 has not yet qualified for PLI. Operator: Okay. Next question, this is Pramod of UBS. Rajesh sir, there are three questions. Can you please share a full year guidance for SUV, LCV and Tractors? Second question, PLI by which year do you expect PLI incentives to fade for the EVs? And the third question, can you share any EV booking trend post the GST cut on the ICE vehicles? Rajesh Kajuria: Just to clarify the last question, EV booking trends or ICE? Operator: EV. Because GST has been cut on ICE vehicles, so has it impacted the EV booking? Rajesh Kajuria: Yes. So, on SUV for us, Pramod, we stay with mid- to high teens, which was what we said at the beginning of the year. We're not changing that. We believe mid-to-high itself was an aggressive outlook that we had put out, and we stay with that number. For LCV, we think it will be -- I just answered that, in a way to say, we think it will be low double digits for the full year. For Tractors, we had said in the region of 5% to 7%, I think at the beginning of the year, which we are now seeing as low double digits. So, we are upping the Tractor industry outlook from 6% to -- 5% to 7% to maybe like 10% to 12% kind of thing, so low double digits. PLI, it goes on till F '28. And we expect that will continue till then, if not longer, but hopefully, it should continue till then. The claims against PLI there's enough funds left. So, it should comfortably last us till '28. Operator: And there was one on impact on EVs. Rajesh Kajuria: Yes, the EV, it's too early to say right now, Pramod. But as you can see, even through the festival period, the overall EV segment has continued to grow rapidly with the new products coming in from competitors, the segment has continued to remain strong. And we believe that will continue, because as I mentioned, especially in the segment in which we play and some of the new products have come in, the gap between 5 and 40 is still very substantial. Of course, it has come down from 5 to 48 to 5 to 40. But 5 to 40 is still a very large gap, and we don't see that deteriorating. There have been one-off issues in Haryana, we are waiting for the EV policy to get affected, which affects the NCR region, because you have Gurgaon as part of that. So there has been an uncertainty on that. UP went through a few days of old policy to new policy. So some of the state level, things are also kind of getting clarified, which also makes a difference to on-road price. So, it's not just the GST. It's you to see it as a combination. So, the new UP policy, the benefit is only on EV and not on hybrid, which was there earlier from what came in, in October. So overall, too early to say if there is an effect, but we don't see that really having an effect on EV demand. Operator: Anish, there's a question, it stays you had expressed strong confidence that India will achieve 8% to 10% annual GDP growth. Can you please elaborate on impact of the revised GST and other government incentives and initiatives on the M&M businesses other than Auto and Farm? Anish Shah: So, not revising my 8% to 10% estimate. As I said earlier, the foundation is strong. The sentiment change with this is what we are seeing play out. And that's why we felt that the economy will grow at 8% to 10% for the next few years. M&M results as you've seen a fairly strong in this current quarter. And I can't say much for future quarters, but we will promise to deliver what is in our control and deal with things that are outside our control the best we can. Operator: There's another question there that, any further right issue capital investment planned in any of the listed or other subsidiaries in the near future? Anish Shah: There are no rights issues planned in the near future. Capital investments will be made in all businesses as we need them as part of our growth plans. Operator: Next question, this is from Chandra of Goldman. The first question there is BEV's PAC1 and PAC2. Can you please discuss how PAC1 and PAC2 mix is progressing after deliveries have commenced earlier this year? Can you also share some color on the drivers that can help raise our BEV mix towards the targeted range of CAFE 3 vis-a-vis the 8% to 10% BEV mix today? Rajesh Kajuria: PAC1 continues to be sub 10%, which is what we would desire by way of delivery. PAC2, we wanted PAC2 to be a significant PAC, because it creates the right price point, which is why we had introduced a PAC2 79, which is doing well. Right now, PAC2s are roughly 35%, 40% of each of the products. So PAC1 is sub-10%, then 35%, 40% and 50% to 60% is PAC3. Broadly that's the mix on -- to meet CAFE 3 percentage, it's going to depend on multiple things once we see the final policy get play out, whether it's going to be MIDC, WLTC cycle, whether tail pipe emissions on the WLTP cycle will be treated as zero or not. So, the percentages vary a lot. But we have new products coming in. So, the 8-odd percent penetration that has been achieved has been within 5 to 6 months of launch of being in the market with only two of our products, and there's a portfolio of products that will come. So, when we are talking about CAFE 3, we are talking about roughly 2 years away. So, we have a substantial time to get to whatever is the needed percentage from where we are today. Operator: There's another question, which says, we saw a decline in the monthly numbers for SML, last month, and a strong bounce back for the month of October. Were there any production bottlenecks or any process refinements? What was the reason for the decline in the month of September? Rajesh Kajuria: I think some of it was the transition issues around GST and getting the vehicles out, but nothing more to be read into that. Of course, the SML does very well when school bus season kicks in. So, we do see a big increase in market share in the quarters or months where school bus buying happens. They are very strong as we know, in the bus segment. Operator: Okay. This is from Gunjan at BofA. Some of these are taken. So, I'll take the ones which are not there. One, it's Tractors, solid momentum. Can you give more color on underlying trends supporting this euphoria, sustainability of this, an update on TREM 5 regulations. And the second question, how should we see the margin for MEAL trending ahead? Rajesh Kajuria: So TREM 5, Gunjan, firstly, TMA is aligned has had meetings with the Agri Ministry. TMA has also met more to kind of put reality of implications or moving to a very high level of technology from a serviceability in the marketplace. So everyone understands that implementing TREM 5 in a country like ours where you -- farmers have to have service capability or very high-end technology may not be practical. So, there is an understanding that we need the right solution for rural India, so that serviceability for farmers is not constrained. Right now, there's a dialoguing on, which is the TMA proposal to move the 25 to 50-horsepower from 2026 to 2028. That's the TMA proposal. And for the less than 25 horsepower, the date was April '26. Again, there's a conversation on to postpone that as well. Both of these are under consideration. In the less than 25-horsepower the unit cost is not that high and the technology needed is also not that hard to service. But there is a conversation on between Tractor Manufacturers Association and the rest of the stakeholders on what the implications of transitioning to TREM 5 are. On what you're calling euphoria, it has been a strong festive season for Tractors across the board. GST is, of course, one factor, but many underlying factors were building up. We've been saying over the last few quarters that the rural economy has been on a path to strong recovery. The rains have helped, reservoir levels have improved. The government spending, which is a key indicator of Tractor buying, as we've shared in the past, has been strong. Farmer terms of trade have not deteriorated. Export of crops from India have grown, which adds to cash flow to farmers. So, multiple on-ground factors have favored Tractor buying. And the GST has really enabled that process of buying. So, I think part of your question was how sustainable is that. It's really hard to give an outlook for next year, but we just stay with our outlook for this year moving up from 5% to 7% industry growth to 10% to 12% industry growth. Operator: There was another question on margin for MEAL. Rajesh Kajuria: Margin for MEAL, yes. So, margin for MEAL is going to be a series of things that kick in, which is what is the right PAC mix and pricing to enable growth in the segment. We are at that stage where we are into category creation. So, we do want to make sure that we don't lose the overall objective of driving electric vehicle penetration by way of not doing the right things that are needed to make that happen. We do have BE 6, which will, hopefully, by April 2026 meet PLI as well. So multiple localization actions are in place, which will all get executed in a way by which hopefully by quarter 1 of next year, BE 6 will also meet PLI. So that will be one positive enabler. And there is, -- some of the localization benefits also flow through to current portfolio products that are there, which is the 9e as well. So, multiple actions. But we just want to say that the -- a few quarters back, we said we will -- we have a path by which we want to go. And I think just a positive EBITDA was a very good surprise for all of you. Now we are seeing a healthy EBITDA. And we don't want to lose sight of the fact that we want to create this category and have to play a role in driving volumes in this category because that is what will fundamentally ensure long-term returns and long-term margins. So, we don't want to trade off the ability to grow for driving short-term margins. That does not mean we are not taking all actions to keep costs under control, but we do want to make sure that we are driving the adoption of the category in the most appropriate way. Operator: This is a question from BII. This is Adithya Banoth. Do you see any details on first buyer penetration for the 4-wheeler EVs? Any trends that you have noticed? Rajesh Kajuria: Sorry, I didn't understand. Operator: He's saying, details of first buyer. Rajesh Kajuria: First buyer. Okay. When we say first buyer, is that -- do you mean first-time vehicle buyer? No, very, very few. What we do see is a very substantial portion of non-Mahindra, almost 85% of our BEV buyers have not owned Mahindra earlier. So, it's a completely new target group that we're getting in. Fairly large number of multiple car ownerships, but we don't really have too much of -- never bought a vehicle earlier in our portfolio. Very small. Operator: This is from ICICI Prudential, Sakshat. He's asking, we had mentioned about three new ICE SUVs in calendar year 2026, two mid-cycle announcements and one new SUV, that was the composition we had mentioned. Does this include Bolero and Thar 3-door refresh, which we have launched recently? Can you share more details on these ICE launches in '26? Rajesh Kajuria: Unfortunately, we can't share more details. The reason we don't share more details on ICE is just so that, it doesn't look like we're evading the question is, because it does affect buying of current portfolio of products wherever there's uncertainty in customers. So, we are very mindful of that being a Core part of our product that we don't announce any new ICE product too much in advance for the year that is coming. So, we wait and wait and watch as we go ahead, but we have a couple of -- three, four interesting things happening in 2026. Nal, is that number about right? Operator: Yes. The question is also that the Bolero and the Thar 3-door refresh, was that a part of the three? Rajesh Kajuria: No. Operator: This is another question. Exports had a strong growth, both in SUV and Tractors. Which are the key markets showing high growth? Rajesh Kajuria: Yes. So for us, Auto -- firstly, on Auto exports, we're seeing very good response to 3XO both in South Africa and Australia. That's really very, very good momentum there. The 7OO is also doing decently in both these markets. So Australia, South Africa become two very important parts of the export leg. The neighboring countries, which had kind of gotten to a little bit of a slowdown for multiple reasons, money availability, so on and so forth, have all begun to open up. So, Sri Lanka, Bangladesh, all of these, Nepal as well have all opened up. We've sent our first lot of EVs to Nepal. They are on the way in this quarter. So, it seems to be very good demand. That's organically got generated in Nepal for the EVs, probably spillover out of the India story. So, that's broadly what's happening on the Auto side. On the Tractor side, the neighboring countries, again, have opened up, which Bangladesh was having a lot of issues for a while availability of LC, so on Sri Lanka had slowed down. Nepal had slowed down. So, all of those have come back. Algeria, we've started doing business. And so, that's which again was shut for a long period of time, because of the government not allowing imports in without a certain license. Most India exports to Algeria had stopped for almost 1.5 years or 2 years, which have started. By and large, covered it. Operator: Just taking this one last question. This is Amit of PhillipCapital. What is the company's strategy to grow the Farm implements business? And as this business is growing, how do we look at maintaining the margin in line with the Tractor margin? Rajesh Kajuria: Yes. Firstly, I must say that right now, the margin is not in line with the Tractor margin. We're just starting to make some money. So, we have a path to go. The competitive pool has reasonable margins. So, as we evolve our volumes, the margins should be much better than what we are making now. So, the peers that we have in that segment do make a decent level of margin. Unfortunately, there's no formulaic solution to growing in Farm Machinery. It is really to get behind the product category and then work at it and grow. One of the segments in which we haven't so far been in the past done as well as the Harvesters, which goes under the Swaraj brand. We've roughly had 4%, 5% market share. We now have an enhanced improved product, which is beginning to do well. And that hopefully will help us drive overall growth of per unit value. The harvest is about 20-odd lakhs. So, that does play a key role in driving top line. Operator: Great. Thank you, everyone. On behalf of M&M, I would like to thank you for joining us today. Please join us also for our Investor Day on 20th of November. It's a very exciting day ahead. And join us for snacks in the adjoining room. Thank you very much.
Operator: Good morning. My name is Steve, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade 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 Chris Forrey, Vice President, Finance and Investor Relations. Mr. Forrey, you may begin your conference. Chris Forrey: Thank you, Steve, and good morning, everyone. We'd like to welcome you to Boise Cascade's Third Quarter 2025 Earnings Call and Business Update. Joining me on today's call are Nate Jorgensen, our CEO; Jeff Strom, our COO; Kelly Hibbs, our CFO; Troy Little out of our Wood Products operations; and Joe Barney, Head of our Building Materials Distribution Operations. Turning to Slide 2. This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that the appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income or loss to segment EBITDA. I will now turn the call over to Nate. Nathan Jorgensen: Thanks, Chris. Good morning, everyone. Thank you for joining us on our earnings call today. I'm on Slide #3. September 2025 U.S. housing starts data has not been released by the U.S. Census Bureau. However, when comparing July 2025 and August '25 housing starts to the same periods in '24, total U.S. housing starts increased 2%, while single-family housing starts decreased 3%. Our consolidated third quarter sales of $1.7 billion were down 3% from third quarter 2024. Our net income was $21.8 million or $0.58 per share compared to net income of $91 million or $2.33 per share in the year ago quarter. As expected, in Wood Products, we experienced sequentially lower sales volumes and competitive pricing pressure in EWP. Plywood markets like other commodities continue to experience weak pricing given the underlying demand environment. In BMD, our customers' expanded reliance on us for next-day delivery service across a range of products helped to mitigate the otherwise subdued environment. Given this backdrop, we were still able to post good earnings for the third quarter. We have great clarity in our business model and the strength of our financial position and unwavering commitment to our core values enable us to remain focused on the execution of our strategic priorities. Our 2-step distribution model in tandem with our market-leading EWP and plywood franchises will continue to deliver exceptional value to both our customers and vendor partners, providing reliable access to products, responsive service and operational flexibility that are vital in dynamic markets. Kelly will now walk through our segment financial results, capital allocation priorities and guidance on our fourth quarter results, after which I'll make closing comments before we take your questions. Kelly? Kelly Hibbs: Thank you, Nate, and good morning, everyone. Wood Products sales in the third quarter, including sales for our distribution segment were $396.4 million, down 13% compared to third quarter of 2024. Wood Products segment EBITDA was $14.5 million compared to EBITDA of $77.4 million reported in the year ago quarter. The decrease in segment EBITDA was due primarily to lower EWP and plywood sales prices and sales volumes as well as higher per unit conversion costs that were influenced by decreased production rates in the quarter. In BMD, our sales in the quarter were $1.6 billion, down 1% from third quarter of 2024. BMD reported segment EBITDA of $69.8 million in the third quarter compared to segment EBITDA of $87.7 million in the prior year quarter. Gross margin dollars decreased $10.6 million from the third quarter of 2024. In addition, selling and distribution expenses increased $7.8 million from the year ago quarter, partly due to organic and inorganic growth initiatives we have executed upon in the last 12 months. Turning to Slide 5. Third quarter I-joist and LVL volumes were down 10% and 7%, respectively, compared to the year ago quarter. As expected, third quarter EWP volumes were down 15% sequentially as distribution and dealer partner inventories were drawn down to targeted levels with seasonal slowing anticipated. On a year-to-date basis, our I-joist and LVL volumes were down 6% and 1%, respectively. As it relates to pricing, competitive pressures drove sequential declines for I-joist and LVL of 6% and 5%, respectively. Turning to Slide 6. Our third quarter plywood sales volume was 387 million feet compared to 391 million feet in the third quarter of 2024. Sequentially, our plywood sales volumes were up 9% from second quarter 2025, driven by diverting less veneer into EWP production given the muted EWP demand environment and higher production rates at our Kettle Falls and Oakdale facilities. The $325 per thousand average plywood net sales price in the third quarter was down 2% on a year-over-year basis and down 5% compared to second quarter of 2025. We have to look back to second quarter of 2020 to find a lower average quarterly price realization in plywood. The longevity and levels of recent tariff announcements on plywood imports from South America remain in question and have yet to create any meaningful impact on plywood growth. Moving to Slide 7 and 8. BMD's year-over-year third quarter sales decline of 1% was driven by a 1% decrease in price and sales volumes were flat. By product line, commodity sales decreased 3%, general line product sales increased 6% and sales of EWP decreased 11%. Sequentially, BMD sales were down 4% from second quarter 2025, driven by a 2% decline in both sales price and volume. Our third quarter gross margin was 15.1%, a 60 basis point year-over-year decline. Commodity price headwinds and EWP competitive pricing pressures impacted our margins on these product lines. However, margins on general line products remained stable despite the subdued demand environment. BMD's EBITDA margin was 4.5% for the quarter, down from both the 5.6% reported in the year ago quarter and the 5.7% reported in the second quarter. Sequentially, our EBITDA margin was negatively impacted by a 30 basis point reduction in gross margins and decreased sales volumes had the effect of lowering gross margin dollar opportunity and deleveraging of our cost base. BMD's third quarter EBITDA margin is below our normalized level of earnings power, but a very good result given demand and pricing dynamics in today's marketplace. While these results reflect strong execution across product lines by our team, growth in our general line products has been a focus for us, where our proven performance and nationwide distribution capabilities enable us to provide a leading selection of general line products. The recent announcement with James Hardie is an example where we are happy to be expanding product offerings in several specific markets. At the same time, it's important to note that this announcement does not displace any existing market coverage we have with Trex. I'm now on Slide 9. We had capital expenditures of $187 million in the 9 months ended September 2025 with $99 million of spending in Wood Products and $88 million of spending in BMD. We remain committed to the capital plan presented earlier in the year with our capital spending range for 2025 at $230 million to $250 million. In Wood Products, that range includes the multiyear investments in support of our EWP production capabilities in the Southeast referenced on prior calls. The Oakdale modernization is complete, and we continue to make progress on optimization activities. Spending on the Thorsby line will largely be complete by year-end, and the line is expected to be operational in the first half of 2026. In BMD, part of our capital deployment strategy is to solidify and expand our market-leading national distribution presence. In August, we opened the doors at our greenfield distribution center in Hondo, Texas and are excited for the opportunity to better serve customers across Austin, San Antonio, Corpus Christi and the Rio Grande Valley. Looking forward to 2026, we expect our capital spending to be between $150 million and $170 million. Speaking to shareholder returns, we paid $27 million in regular dividends in the 9 months ended September 30, 2025. Our Board of Directors also recently approved a $0.22 per share quarterly dividend on our common stock that will be paid in mid-December. Through the first 10 months of 2025, we repurchased approximately $120 million of Boise Cascade common stock, which includes approximately $25 million in the third quarter and another $9 million in October. In addition, our Board of Directors recently authorized up to $300 million of common stock repurchases under a new share repurchase program. This new authorization replaced our prior share repurchase authorization. In summary, we continue to be dedicated to a balanced deployment of capital by investing in our existing asset base, by pursuing value-enhancing organic and M&A growth opportunities and returning capital to our shareholders. We are fortunate that our solid financial foundation and resilient free cash flow allow us to simultaneously advance each of these objectives. I'm now on Slide 10. Looking forward to the fourth quarter, demand weakness, trade policy uncertainties and the impact of seasonal factors will influence our financial results. Presented in the table are a range of potential EBITDA outcomes and related key driver assumptions. For Wood Products, we currently estimate fourth quarter EBITDA to be between breakeven and $15 million. We expect our EWP volumes to decline in the low double digits to mid-teens sequentially as the pace of starts moderates. EWP prices have recently stabilized, but we do expect low single-digit sequentially declines due to market adjustments previously taken in third quarter. In plywood, we expect sequential volume decreases at or near double digits. On plywood pricing, October realizations were consistent with the third quarter average with the balance of the fourth quarter market dependent. As is typically the case during the fourth quarter, we will take maintenance and capital project-related downtime across our manufacturing system and may also take market-related downtime to align production rates and inventory positions with end market demand. Important to note that although masked at seasonally weak demand levels, our number of site-specific cost improvement measures in Wood Products that when coupled with our division-wide innovation initiatives will benefit our EWP and plywood franchises into the future. For BMD, we currently estimate fourth quarter EBITDA to be between $40 million and $55 million. BMD's daily sales pace in October was approximately 5% below the third quarter sales pace of $24.3 million per day and is expected to decline further as the quarter progresses. Our recent volume changes have compared favorably to single-family starts data, a trend we would expect to continue and an indication of the 2-step value proposition and our customer partners' reliance upon us for next-day out-of-warehouse service. In addition to limited near-term clarity for end market demand, pricing volatility for plywood, lumber and other commodity products is likely given ongoing trade policy uncertainty and a number of recent capacity curtailment announcements. Lastly, we expect our fourth quarter effective tax rate to be between 26% and 27%. This is lower than our third quarter rate of 29%, which was adversely impacted by the effect of permanent tax differences on decreased pretax book income for 2025. I will turn it -- now turn it back over to Nate to share our business outlook and closing remarks. Nathan Jorgensen: Thanks, Kelly. I'm on Slide #11. Now more than ever, our experienced team remains committed to creating value for our shareholders, customers and suppliers by staying resilient, adaptable and focused on delivering exceptional products and services. Our integrated model provides increased channel inventory visibility, enabling us to better navigate market uncertainty by aligning production rates and inventory strategies with end market demand. Cross-divisional efficiencies supported by our robust balance sheet allow us to maintain our dedication to executing our strategy and creating long-term value for all stakeholders. Early industry projections for 2026 are consistent with 2025 housing start levels. Demand expectations are characterized by a cautious market in the first half of the year with gradual improvement expected later in the year, driven by interest rate cuts and normalized homebuilder inventory levels. In EWP, our planning assumption is that prices have bottomed, and we will have an opportunity to move prices higher as 2026 progresses. The extended weakness in the residential market has highlighted the resilience of our distribution business. We have seen an increased customer reliance on our auto warehouse business across our full suite of products. As the uncertainty continues headed into 2026, we stand ready to continue to demonstrate the value of 2-step distribution. Looking beyond the near-term environment, we remain confident in the long-term demand drivers of residential construction, including the persistent undersupply of housing, aging U.S. housing stock and high levels of homeowner equity. Generational trends, including millennials and Gen Z reaching peak age for household formation and more seniors choosing to age in place continue to support household formation growth. Additionally, continued declines in mortgage rates should encourage buyers who have been waiting on the sidelines to enter the market. In the repair and remodeling space, activity has been limited by low levels of home turnover and homeowners delaying major projects due to high borrowing costs and economic uncertainty. However, we anticipate consumer confidence will improve as interest rates decline and economic policy becomes clearer, creating a long runway for growth in repair and remodel projects. Strong fundamentals for both new residential construction and repair and remodeling are the foundation for the industry's robust pathway ahead. And make no mistake, investments we have made in recent years have positioned us well to capture significant upside when the market turns. Thank you for joining us today and your continued support and interest in Boise Cascade. We welcome any questions at this time. Steve, would you please open the phone lines. Operator: [Operator Instructions] First question comes from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is on the general line part of the business. Can you talk to the share gains that you are realizing in there? How you're working with the various partners in this kind of an environment? And what that suggests for your ability to continue to see growth next year even if housing and the macro stays more challenging? Joanna Barney: Yes. So this is Joe. I'll start with that one. What I'll tell you is that demand held up really well with our general line product categories in the third quarter. Part of the reason, I think, is that we've made significant investments across our footprint in out of capacity, right? We've put really at most of our locations, we've added laydown space, we've added warehouse space. And we've done it intentionally so that we could bring in a broader mix of general line products, carry them on a deeper scale. Our suppliers that we work with, our key partners are consistently adding new products to their -- to what they bring to the market. And we want to make sure that we have the ability and the capacity to support their growth as well as support our own. So we've invested in that. We've also looked at bringing new products in the general line category to market. We've taken some risks there. We are -- have been focused on and achieved growth with our home center business, the special order business that we do at the home centers. So that's helped us with the general line categories. We focused on and grown our specialty dealer business certainly in third quarter. So that's been a focus for us. We've been successful at that. And we've grown in the multifamily category, and that's been a focus for us. As single-family housing starts have been flat or depressed, we focused significantly into the multifamily arena. We're going to continue to focus on the growth of our multifamily business in the quarters to come. And I would tell you that our -- we believe that our market share growth in certain general line categories that we think we've captured market share. There have been competitors of ours who have exited different product categories across the country, and they've left a void in the market as they've exited, and our teams have done a really good job of stepping in and filling that void and taking that market share. And so we expect now that we have that capacity, and we will continue to see that growth in the quarters to come. And then lastly, I think I mentioned our door and millwork business and the investments that we've made there, and we do continue to strengthen and improve our operations from a door and millwork standpoint as well as our sales growth and margin opportunities that we see there. Susan Maklari: Okay. That's great color. And then maybe moving over to EWP. It's great to hear that you think that price there has bottomed and there's the potential for some growth next year given what we're hearing and seeing from the builders. Can you talk to the competitive dynamics that you're seeing with the EWP? What gives you that confidence on the pricing side? And any thoughts on the upside or downside to that, just given the affordability pressures the builders are facing? Troy Little: Sue, this is Troy. I'll start with kind of what we're seeing -- what we've seen and what we're seeing this year and then turn it over to see if Nate or Kelly have anything. As we noted, we were down 5% or 6% quarter-over-quarter, and that was primarily due to 2 things. Early in the quarter, it was continued price pressure and matching competitive issues. And then the other one was we had the tariff of product we were shipping from U.S. into Canada. That was a 25% tariff, and we weren't able to fully pass that on. And then starting -- it looked like about August, the prices started to stabilize, and they continued to stabilize since that time, similar to what others have reported. So that's where we're seeing that maybe we've reached the bottom there. And then looking into Q4 and kind of how we started the quarter, prices have remained flat, and we would expect to continue that throughout the quarter as we don't have those other 2 issues as it appears right now. Nathan Jorgensen: Yes. I think, Sue, it's Nate. Yes, I think Troy, yes, described that well. And I think as we think about 2026, I think the backdrop is setting up okay in terms of what the demand environment is expected to be. And I think we continue to get builders really insistent in a great way on cycle times. So that's been an area of focus for them over, as you know, over the last couple of years. And as we think about EWP, it's absolutely part of that answer to make sure that cycle times continue to be -- perform at a high level for the builders and they can turn that land into cash that much quicker. So again, I think it's set up well for next year. And to Troy's comments, we feel like we're at a bottom, and we can move higher here at some point in '26. Susan Maklari: Okay. Great. Good luck with the quarter. Nathan Jorgensen: Thanks, Sue. Operator: The next question comes from Michael Roxland with Truist Securities. Michael Roxland: First question I had is, obviously, just following up on the BMD question and the mix up in general line. As you think about margins in BMD, what do you think are the constraints as you see it in terms of generating even higher margins -- EBITDA margin that is, in terms of maybe high single digits or low double-digit type margins as some of your distributor peers currently are? Nathan Jorgensen: Yes. Mike, thanks for the question. So I guess I would start with on gross margins for BMD near term here, we feel really good about our ability to maintain the 15-plus percent margins that we've been putting up of late. As you know, in markets like this, the reliance and dependency of customer base on out-of-warehouse service is certainly relevant. And again, we continue to see a good pull-through there. And then to your point, where might we go from here? Again, we continue to look to richen the product mix and that's more general line products, which do give us more gross margin opportunity. And at the same time, I don't want to discount our teams in terms of what we've been doing in terms of EWP sell-through and also commodities where we've been doing a really nice job in a really tough environment, in particular, in commodities. And with commodities at the very low levels that they are today, certainly, near term here, we -- if we get any energy in the commodity markets, we could see some near-term tailwinds in terms of our margin profile. And then I guess maybe one final point would be, as you know well, but I guess I'll just verbalize the fourth quarter as we see seasonally slower sales, as you'd expect to see, again, feel good about the gross margin percentage, but the gross margin dollar opportunity will come off as a function of just lower sales dollars. Joanna Barney: So I'd jump in there as well and just say that as our general line business becomes a larger percent of our overall sales volume, and we have seen that happening quarter-to-quarter, that's room for margin improvement there. As we become better operators in our door and millwork investments and we have -- quarter-to-quarter, we continue to move in that direction. And as we become better operators and as we invest in our pre-finished business that brings higher margin opportunities to our business, as we bring our lead times in check, as we become better operators, we are finding that we are growing in the success in our millwork business, which will add to our margin opportunity. As we push into multifamily and make a broader push there, we're seeing more margin opportunity. And to Kelly's point, I would reiterate, we are pretty good at our commodity business. And we have a line of sight across the country. We've built systems in that make us really flexible and we are able to move quickly both into a rising market and into a falling market, so we can reduce and mitigate our losses in a falling market, and we can take advantage of opportunities in a rising market, and we do it really quickly. So I wouldn't discount our ability to make margin on commodities as well. Michael Roxland: That's very helpful. Appreciate the color there, Joe and Kelly. Second question is realizing that you're beholding to the single-family housing market to some degree. Is there anything that you can do in this environment to further improve mill profitability? You highlighted a number of times how you're basically the mill -- because of the capital investments you made over the last couple of years, the mills themselves are ripe to generate significant profitability when single-family returns. But is there anything you can do now, additional cost takeout, other things that you can do that could situate the company for even greater margin expansion when the cycle turns? Troy Little: Yes, this is Troy. I'll look at it from the standpoint of the cost improvement activities that we're doing at the mill level, that's something that probably has got muted in the third quarter and may continue to get muted with the lower volumes, market-related downtime volumes. But behind that, the operations have what we call our site improvement plans. And each of the locations are definitely working on a very detailed plan for 2026 to address our site improvement plans. We are making sure that we're filling all our process improvement positions. Those are support type functions, but instrumental in our process improvement to reduce our cost, increase our efficiencies. And then we also have our group working on innovation. And so we do actually have a couple of technology-type projects planned that we're looking at for 2026 and beyond. And all of those should help contribute to improving our cost structure at the mill level as well as just operationalizing the capital projects that we've had over the last couple of years. Kelly Hibbs: So Nate, the only thing I would add to that -- to Troy's comments on cost is as you think about the market, to your point, single-family has been steady, not great. But I think the opportunity for us continues to be how do we continue to grow our presence in multifamily. And that's -- we're very good at that in terms of our EWP Key franchise. That's just, I think, an area of focus for us as we transition out of '25 and in '26, making sure that we create the right opportunities with the multifamily segment, and that goes really in some cases, beyond EWP, but it touches other product categories in BMD as well. So as we think about single-family, that's a big driver for our business, but multifamily is an important engine too, and that has our focus and resources as well. And I guess as Nate... Michael Roxland: Got it. And... Kelly Hibbs: Sorry, Mike, maybe one thing I'd add to both Troy and Nate's comments would be we've been trying to be very thoughtful in terms of not making any knee-jerk or quick reaction that we may regret later, right? I mean we feel still good about the medium to long term. And so we really need to be thoughtful about how we manage our capacity, including our crews so that when the market turns, we don't get caught behind the curve. So that always has to be part of our nuclei, our algebra, if you will. Michael Roxland: Kelly makes a ton of sense. And just one last one, I'll turn it over. Where you said growing presence in multifamily. Can you just remind us right now where that presence stands currently in multifamily, whether it be maybe through EWP or if you want to talk about the whole portfolio and where you expect it to be, let's say, in 2026 and maybe provide like a 5-year outlook? Kelly Hibbs: Yes. So it's not a large part of either of our businesses today. I don't have a number right at hand, probably, Mike, but we're probably in the -- we're probably -- single-family is still the big driver for us in terms of -- it's probably 75% to 80% of our business. And then we're probably something like 10 and 10 there between home center channel and multifamily. Operator: The next question comes from Kurt Yinger with D.A. Davidson. Kurt Yinger: Troy, I just wanted to go back to the discussion around competitive dynamics in EWP. And if I heard you right, you kind of talked about a stabilization kind of coming through in August. Can you maybe just put a little bit more color around that? Is that less dealer and builder business being put to bid? Is that maybe a little bit more of a balance in terms of the trade-off between pricing and volume? What do you think was really the catalyst there to kind of reach the stabilization? Troy Little: Yes. I think as the markets started slowing coming out of Q2 and into Q3, there was capacity available. And so I think there was room to move on price in the industry and people were out there trying to preserve and/or grow share as things came off. We continue to see that for several quarters now. And I think we just got to the point where we addressed the markets where that was necessary for us to maintain our volumes. And we were able to do that by and large. And now we're in a position -- the costs have come up during that time and now prices moved to a point where I think the industry itself is in a position where there's not a lot left there to go. And so now it's just kind of the seasonal impacts as we kind of finish out the year. And so right now, we're just seeing that less of a pressure as people have adjusted production to the demand. Nathan Jorgensen: Kurt, it's Nate, maybe just to add to Troy's comments is as you think about the fourth quarter and as we head into the first quarter, working capital is always a focus for our customers. And so in EWP, but all product categories, having world-class distribution and support EWP really matters as that next-day service is important on EWP, and we have seen that we'll continue to see that going forward. So as we think about the competitive dynamics, volume and price, having world-class distribution and support EWP really matters in these moments. And so we feel good about how we're set up there to execute to that standard as we close out 2025 and head into 2026 as well. Kurt Yinger: Okay. That's super helpful. And it sort of ties into my next question. I think realistically, right, like pricing is difficult to predict, but a lot of it comes back to single-family activity. But it does seem like channel inventories are lean. Is there a scenario where seasonally we get into the spring period next year? And even if structurally housing activity isn't significantly stronger, you feel like there could really be some tension there in the market just based on what you see in terms of your customer inventories at this stage? Nathan Jorgensen: Yes, Kurt, it's Nate, I'll start. To me, the channel, I think, is really well balanced in terms of inventory levels and kind of that risk reward, both on demand and anything else. And so I think people are positioning as we close out this year and head into next year, I think the marketplace, if there's demand that shows up that's somewhat unexpected or there's maybe a supply disruption, to your point, Kurt, I think there could be maybe some different urgency in the marketplace that we haven't seen for a period of time, which would include price, I think, as part of that. So I think to me, the backdrop is, I think, set up well because it's -- there's not a lot of excess that needs to get worked out of the system. And to your point, it all it takes is a maybe a demand event we weren't expecting or a supply event we weren't expecting on the downside to kind of quickly kind of tension things up in the marketplace. So I think it's set up well, not perfectly, but I think we're -- as we think about 2026 and I think about the homebuilders, they've been pretty active in working their new home inventory levels down. That's been an area of focus for them for a period of time. And as we transition into maybe 2026, Kurt, at some point, a new home sale has to equal a new home start. And we haven't been in that kind of math for a period of time. And so I think in '26, that gets a better balance as well. So I think it's just shaping up to have more normalcy than we've frankly experienced for the last year or so. Kurt Yinger: Yes. That all makes sense. And then lastly, I just wanted to go back to the door and millwork performance. Can you just talk about, I guess, the sales performance thus far in 2025? And as some of these new facilities get up and running, is that something where you would expect even in a tepid demand environment, just given the capacity that you have and the focus there that you could really drive a healthy amount of kind of above-market growth? Or how dependent on that is underlying demand from here? Jeff Strom: Kurt, it's Jeff. I'd say overall, it's -- millwork has been challenging this year with the price pressures and everything else. There's no ends about that. However, we have a lot of new facilities, and we have a lot of new locations that we're working into this business. And every day that goes by is the day that we get better and we improve and we get the right people in place and the opportunities that's there. So we're definitely expecting to see more growth regardless of what the market does just because we're going to operate significantly better. Additionally, we have some locations that are constrained space-wise, and we are addressing those. So we're excited for what the upside is for us on the door business for sure. Kurt Yinger: All right, okay. Appreciate all the color, guys. Jeff Strom: Thanks, Kurt. Operator: The next question comes from George Staphos with Bank of America Securities. Bradley Barton: This is Brad Barton on for George. Just if we go back to the AZEK announcement, when we think about the genesis of the deal, can you just talk to the puts and takes that you were considering on the move? And then did AZEK come to you? Did you go to them? And then how do you kind of see that impacting your Hardie lineup in those specific markets and maybe even across the whole network as well? Joanna Barney: Yes, I will start with that one. So let me just first say that we are very excited about the opportunity to partner with Hardie in the Baltimore market. It's a big decade market. So we see it as a big opportunity. We have not had in a decade in that market before. So this is net new revenue for us. It's not a revenue shift from a different product category. We haven't has it. So this is net new revenue, and it's a big opportunity for us. So we're excited about that. We're excited about the full suite of products that we're going to be able to offer in that market. So we see a lot of upside revenue potential for us, specifically to the Baltimore, Pittsburgh market. Saying that we also have grown our market share with Trex across the country. So we've done really well with that brand. So our plan is to continue to support both partners, continue to grow our market share as we have in all of those markets across the country. Bradley Barton: Okay. Great. And then you -- I guess one follow-up, and I think you guys touched on this a little bit, but are there any kind of -- any signs that you're seeing early in the quarter that you can kind of point to as signs of life or green shoots, not just for the remainder of the quarter and into next year, but maybe even for the spring building season? Jeff Strom: Yes. It's Jeff. I'd just say one thing that we are seeing and experiencing is that there have been some green shoots in the multifamily space. And we're seeing some activity. We're seeing a lot of quoting that's going on. We have some projects that we know that are going to kick off to get us through the balance of the year and into the beginning of next year. So we feel good about that. Operator: The next question comes from Jeff Stevenson with Loop Capital. Jeffrey Stevenson: How much of an impact did the operating inefficiencies related to the ramp in production at your Oakdale facility have on Wood Products margins in the third quarter? And will that continue to be a drag on segment margins over the next several quarters? Troy Little: Yes. This is Troy. Yes, it's a little bit hard to tell because we've had that market-related downtime in there. But that team has been trying to work on all the machine centers, when we essentially touched all the machine centers. And so honestly, working through that, which I would describe as the operational issues coming out of a large project that they've been working through in the third quarter. So we didn't see a huge difference specific to Oakdale, say, Q3 impacts versus the first 2 quarters. But moving forward, we would expect them to continue to improve their operating efficiencies, lower that cost structure. That was a high-cost mill before. Once we get that capital in there or working, we should see the improvements there. I'd hate to put a number on it because I don't know the specifics. And then we have -- you're moving into Q4 seasonal issues. You've got the shorter months in November and December and then any market-related downtime, it's going to be dependent on what that looks like specific to Oakdale. Jeffrey Stevenson: Got it. Got it. And then over the past year, you've announced multiple expanded partnership agreements to strengthen your distribution relationship with key suppliers and the most recent one, obviously, is James Hardie. And I wondered if you could talk more about how these agreements have better positioned the company's general line distribution business moving forward and whether there could be additional opportunities to expand partnerships with other key suppliers. Joanna Barney: Yes, I'll start there. I think we're always looking for opportunities to expand partnerships, but we're also very focused on the partnerships that we've got and the new products that they bring to market. Trex is a great partner for us. We've grown market share with them. We're going to continue to grow market share with them across the country. Hardie has been a great partner for us in siding across the country, and now we're exploring a new opportunity with them in the Baltimore market. Again, I'd just reiterate, it's a significant decking market and that we haven't had that category before there. So looking at that, we're looking at new partnerships as far as doors and millwork go. So we are always absolutely looking to expand. We've added the space and the capacity to do it. So we are going to continue to look into whatever partnerships we have available that we think we can generate sales growth, revenue growth and margin growth. Jeffrey Stevenson: Makes sense. And then one last one, just on how you're planning to balance M&A with share repurchases moving forward given the market pullback. Would you expect to be aggressive with the new $300 million share repurchase program? Kelly Hibbs: Yes. Jeff, I'll take that one. So I guess just stepping back briefly, our priorities are very much the same in terms of capital allocation in priority order, invest in our existing asset base, look to do organic growth projects and then also M&A if the fit and the price is right. But I would say, absent any meaningful M&A, we would expect to continue to be active with share repurchases here moving forward. Jeffrey Stevenson: Got it. Operator: [Operator Instructions] The next question comes from Reuben Garner with Benchmark. Reuben Garner: Let's see. So if I'm doing the math right, and I know you didn't explicitly give top line guidance, but it looks like the distribution segment's EBITDA margin is going to dip into the 3s for the first time in a while. The third quarter was obviously lower than the second. And I get that there's some seasonality. How should we think about what's going on there? Like has competition picked up? Where do we think that things will stabilize? And how do we think about next year, assuming that the housing market in general is kind of consistent with what we've seen of late? Kelly Hibbs: Yes, good question. And I guess I would start with saying this isn't a market share degradation or anything like that. I feel really good about how we're positioned and how 2-step distribution shows up in these sorts of markets. So really, what's embedded in the guidance really is really truly a function of just seasonal slowing that we expect to see. November and December, you got -- you've only got 18 sales days in November and 21 sales days in December, you got weather. So you've got some seasonal events. So yes, could we dip into the high 3s in terms of EBITDA margin? Yes, sure, we could, just given the seasonal nature of it. But I wouldn't -- I would not pull back from what we view as the -- when we get to a normalized cycle over a normalized year that we can be -- it can start with a 5% in terms of our EBITDA margin. So I feel really good about how we're positioned there, Reuben. It's really just a seasonal event that you're seeing in the fourth quarter. Reuben Garner: Okay. Great. That's really helpful. And then how do we think about -- it looks like your inventory, I guess, at the Inc. level, we don't have segments on that, but your inventory as a percentage of revenue ticked up the last couple of years. Is that a function of some of the investments in distribution and growing general line? Is that some kind of signal that you're optimistic about the market coming back as we get closer to '26 and you want to make sure you have the materials? Or is there some other factor driving that delta? Kelly Hibbs: Yes, I think it's a function of the growth that we've done. We've added a handful of locations, including via M&A and via organic growth opportunities. And then it really comes back to our stated goal that we always want to be in stock and be able to serve the marketplace, especially in times like today. And so we feel good about our inventory position. We're not too heavy. I think we're in a good spot. And yes, and then we do feel good, obviously, about the -- here come back half of 2026, we are very well positioned if we start to see some more energy here in the spring building season in 2026. Reuben Garner: Okay. Great. Good luck. Kelly Hibbs: Thanks, Reuben. Operator: The next question comes from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Maybe to start with on the EWP side, Troy, I mean, your volumes in 2025 are still kind of higher than what it was in 2021, 2022 when housing demand was stronger. Can you talk about kind of what is driving there, whether there's some share gains or things that you are doing differently? Troy Little: Yes. I'd say throughout 2025, in terms of looking for opportunities, we believe we have some share gains that we're trying to maintain. Our order files throughout Q3 comparatively were lower but consistent throughout the quarter. And as we move into Q4, other than the seasonality around that, it still seems to be fairly consistent in what we've seen so far. Ketan Mamtora: Okay. Got it. And then just switching to the distribution side, really nice to see that growth in general line. You talked earlier about sort of doors still being under some pressure. Can you talk about sort of what is -- where you are seeing sort of growth in the general line business? Kelly Hibbs: The question is where are we seeing growth in the general line business. You guys can take that. Joanna Barney: Yes. I think we're seeing growth in the general line, again, market share gains in certain product categories, decking being one of them. So we've seen market share gains as some of our competitors or other distributors have exited different categories across the country, we've stepped in and filled those voids. And so we've seen market share growth that way in multifamily business. And I really think in the door and millwork side, we're starting to see gains, and we're moving forward, moving that capacity and our ability there forward. Nathan Jorgensen: Ketan, it's Nate. Maybe just to add to Joe's comments. is that when you think about general line, and Joe mentioned this earlier, the new SKUs that are showing up and the SKU complexity that comes from our suppliers is something that we enjoy, we're really good at. And so we certainly have experienced that in '25, and we're expecting that in '26 as well. So as they bring out new products, that creates, I think, really an important opportunity and responsibility for us to not only serve our customers but serve our suppliers as well. So I think that's the other component on the general line that continues to play in our favor, and we expect that going forward as well. Ketan Mamtora: Got it. No, that's helpful. I'll turn it over. Good luck. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Nate Jorgensen for any closing remarks. Nathan Jorgensen: We appreciate everyone joining us on our call this morning for our update, and thank you for your continued interest in supporting Boise Cascade. Please be safe and be well. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Pawan Kedia: Good evening, ladies and gentlemen. I'm Pawan Kumar, General Manager, Performance Planning and Review Department of the Bank. On behalf of the State Bank of India, I'm delighted to welcome the analysts, investors, colleagues and everyone present here today on the occasion of the declaration of the quarter 2 financial year '26 results of the bank. I also extend a very warm welcome to all the people who are accessing the event to our live webcast. We have with us on the stage our Chairman, sir, C.S. Setty at the center, our Managing Director, Corporate Banking and Subsidiaries, Sri Ashwini Tewari; our Managing Director, Retail Banking and Operations, Vinay M. Tonse, our Managing Director, Risk, Compliance and SARG, Sri Rana Ashutosh Singh; our Managing Director, International Banking, Global Markets and Technology, Sri Rama Mohan Rao Amara, our Deputy Managing Director Finance, Srimati Saloni Narayan. Our Deputy Managing Directors heading various verticals and Managing Directors of our subsidiaries are seated in the front rows of this hall. We are also joined by Chief General Managers of different verticals, business groups. To carry forward the proceedings, I request our Chairman, sir, to give a summary of this Bank's quarter 2 financial year '26 performance, and the strategic initiatives undertaken. We shall thereafter straightaway go to question-and-answer session. However, before I hand over to Chairman, sir, I would like to read out the safe harbor statement. Certain statements in today's presentation may be forward-looking statements. These statements are based on management's current expectations now subject to uncertainty and changes in circumstances. Actual outcomes may differ materially from those included in these statements due to a variety of factors. Thank you. Now I would request Chairman, sir, to make his opening remarks. Chairman sir, please? Challa Setty: Thank you, Pawan. Good evening, ladies and gentlemen. Thanks for your interest in SBI. I would like to start by thanking the support of all of our stakeholders, including our customers, shareholders, employees and the broader ecosystem are supporting us all through our journey. Fairness to all our stakeholders remains at the cuts of the bank's culture, which in turn has helped us in creating sustainable value and contributing to nation's success. Let me first start with a brief description of the present global and domestic economic scenario. The global economic outlook for 2025 presents a picture of modest but uneven recovery. The IMF's world economic outlook, October 2025 projects world GDP growth at 3.2% in 2025 and 3.1% in 2026, reflecting steady but subdued momentum amid persistent structural challenges. Regarding inflation, though it has broadly moderated across most economies, the pace of disinflation remains slow. Against this global backdrop, India's macroeconomic outlook remains one of cautious optimism, underpinned by robust domestic demand and easing inflationary pressures. The RBI projects real GDP growth at around 6.8% for FY '26 and 6.6% for FY '27. Growth is being supported by strong investment activity, recovery in rural consumption and buoyancy in services and manufacturing. The GST 2.0 reforms are expected to boost private consumption and domestic demand. On banking front, scheduled commercial bank's credit growth is slowly picking up and grew by 11.5% year-on-year. Last year, it was at the same level of 11.5% for the fortnight ended 17th October 2025, while deposit growth remains sluggish at 9.5%, which was 11.7% last year. Going forward, we expect demand for credit to continue in the second half. By looking at the trend, deposits and credit growth of scheduled commercial banks may remain in the range of 11% to 12% during FY '26. However, risks persist from volatile global commodity markets and potential spillovers from the trade disruptions. Overall, India's near-term outlook is strong with macroeconomic stability providing space for sustained medium-term growth. In the above economic backdrop, let me now highlight a few key aspects of bank's performance in the half year and the second quarter of FY '26. Our Q2 FY '26 results and of several quarters before this underscore a simple point. State Bank of India is compounding on durable structural advantages, scale with discipline, growth with quality, returns with resilience. The current quarter demonstrates industry-leading credit growth at SBI scale, market share gains in chosen segments such as current account, home loans, auto loans, stable asset quality and disciplined pricing. Our domestic NIMs for the quarter improved by 7 basis points quarter-on-quarter to 3.09%, driven by repricing of deposits. Operating leverage from technology, distribution and procurement. The flywheel is clear. Our strength in low-cost liabilities derived from our brand, customers' trust in SBI and our extensive reach. These advantages allow us to expand liabilities significantly, which are then utilized to finance strategic growth with careful pricing discipline. This focus on pricing and robust risk management supports our leading return on risk-weighted assets, RORWA. A well-capitalized balance sheet enables us to achieve top-tier return on equity, which in turn helps in compounding our book value while maintaining stable capital ratios. In this quarter, we also raised INR 25,000 crores of equity capital by way of qualified institutional placement with a demand book of more than INR 1.1 trillion. This was the largest ever QIP offering in India. We thank our investors for supporting us in the capital raise. The issue was oversubscribed 4.5x with significant interest from both domestic and foreign institutional investors. What are our strategic anchors? They are brand trust and customer value. SBI is the reference brand in Indian banking. We earn trust by creating value for customers through transparent, efficient service and optimal pricing across deposits and lending. Relationship depth drives balanced stability and lowers risk through cycles. Institutionalization at scale. SBI runs on codified processes in credit, risk, collections, treasury, technology and procurement while allowing innovation at all levels. Execution is consistent and repeatable across businesses and regions. Fair outcomes for all stakeholders is the third anchor. We balance customers, employees, investors and society. Capital is allocated where risk-adjusted returns are sound. We price risk fairly, invest in people and systems and support the real economy while protecting depositors and shareholders. Fourth anchor is liability franchise strength. I think I mentioned earlier also, our total deposits of INR 56 lakh crore, CASA deposits of more than INR 21 lakh crores with CASA ratio at 39.63%, while CASA market share, 23% versus overall deposit market share of more than 22%. This granular low-cost funding is a structural advantage and the engine for disciplined growth. And finally, the anchor, which I want to mention is leadership where roadway is attractive. We lead by a wide margin in lending and liability products with superior risk-weighted returns. We choose segments where unit economics are strong and price up are deemphasized where capital is not adequately compensated. We believe SBI is positioned to grow faster than the industry at this scale and to deliver higher ROE than the industry. We will attempt to deepen the liability engine and sustain the CASA outperformance, allocate capital to high RORWA businesses and maintain pricing discipline, use technology to lower cost to serve and lift service quality and further improve capital turns. Keeping in view a customer-centric approach, bank has launched Project Saral, I think I did mention last time also, on the 31st July 2025, aligning with this year of simplification, an ambitious vision of a complete revamp and redesign of operational processes in our retail banking territory. The aim is not only to reengineer the existing processes, but also to make the bank future-ready for the evolving financial landscape and changing market dynamics. So as we augment and enhance our digital capabilities further, Bank will shortly launch the next version of YONO platform YONO 2.0, which is not just an upgrade to the previous version but a leap forward in digital banking. With state-of-the-art journey designs and supporting tech architecture, our customers can bank with confidence and in a more seamless manner. Although the current valuations of SBI are a conundrum, considering our return on equity and growth metrics, we are confident that they will eventually align with our fundamental and operational metrics, the institutionalized nature of our business and our market leadership in the coming years. SBI's path is clear. We will defend and extend the liability franchise, grow faster than industry where RORWA is superior, institutionalize execution and deliver fair outcomes for all stakeholders. To conclude, I thank you all for your continuous support to the bank. We remain committed to rewarding your trust in us with sustainable returns over the long term. I wish everyone here the best of health and happiness. My team and I are now open to taking your questions. Thank you very much. Pawan Kedia: Thank you, Chairman, sir, for the presentation. We now invite questions from the audience. For the benefit of all, we request you to kindly mention your name and company before asking the questions. To accommodate all the questions, we request you to restrict your questions to maximum 2 at a time. Also, kindly restrict your questions to the financial results only. And no questions be asked about specific accounts, please. In case you have additional questions, the same can be asked at the end. We now proceed with the question-and-answer session, please. Unknown Analyst: Congratulations, sir, for yet another good quarter of good set of numbers. And I pick up your point, which you said our valuations. So here, I would like to give some comparison. Our business is now INR 10 trillion, INR 10 trillion bank for the first time and congratulations for this again, and against the Bank, which we compare of about INR 57 trillion. But our market cap is only INR 8.82 lakh crores against the market cap of that bank of INR 15.1 lakh crores. So even GNPA now almost 1.7 to 1.2. Net NPA is only 0.4. The only difference is now in, I think ROA. But for that, whether we should be so undervalued as compared to -- with a price to earning of almost INR 22 and here INR 11, INR 11, INR 11.5. So definitely, we deserve much higher valuations on our working and the way you said on the fundamental structures, our digital existence in the road map, definitely, we deserve much higher valuations and compliments to you and your entire team for this same. Having said that, sir, in this quarter, particularly, I think, -- but for that exceptional item of, I think, Yes Bank sale of shares of INR 4,593 crores, we are down in our operating profit and net profit substantially. Now one item, which I have noticed is that while the exceptional income in the stand-alone is INR 4,593 crores in the consolidated, it is only INR 3,000 crores. So it means one of the subsidiary also booked a loss of -- exceptional loss or some of the subsidiaries or maybe associate businesses. So I would like to know about that. What is that? And sir, the profitability, of course, you already said reply. Then there was a report and recommendations, which I read in the newspaper, even your own statement also that you all appeal to the RBI for making funding available for the corporates, at least listed corporates for M&A activities and the capital. So on that, any progress -- further progress? And are we moving in that direction? And is there any immediate positive results going to be there because of that? Then, sir, this quarter, we have a little bit fallen short in the recovery and upgradation numbers also, which are almost 55% or 60% lower is -- I mean, 40%, 45% lower than the last quarter. So some color on the recoveries. And one last is that the treasury has been the biggest, which, of course, in some of the other banks also. So if you look at the segment-wise results, our treasury profit has gone down by almost 50% from INR 8,082 crores to INR 4,011 crores. So going forward, for the next 2 quarters or for the FY '26, how do we look at it with, of course, second half is expected to be a little better and maybe 20 bps more rate cut might come in. So these are my few questions and some observations. You are very comfortable on SMA, NIM is good. So there is nothing much on that. And last, as generally I ask is that in the first 6 months, our credit growth is only 3.88%. Though annualized basis, you can say it is 12%. But to get the 12%, we'll have to disburse the loan of INR 307,000 crores in the remaining 5.5 months or maybe 6 months, if you take it. So how do we plan to achieve those target numbers, targeted numbers? What is the sanction pipeline or some activity which might have been done in last 1 month. So these are the -- in first round of my questioning and observations. Challa Setty: First round is it? Okay. Thank you, Ajmera-sab, for your compliments. On the consolidation number, I think they will clarify that number. The net profit on the transaction is not INR 4,593 crores. It is lower than that, post-tax. But they will clarify in terms of what are these consolidation numbers. As far as the M&A activity is concerned, I -- more than the opportunity in the M&A transactions, it's a confidence, which the regulators have reposed are reposed in us as Indian banking system. Indian banks were not allowed to fund the local M&A transactions for so long. And the current guidelines are a matter of trust in the banking system. And as far as what SBI -- obviously, SBI has been doing outbound M&A activity financing for quite some time. This is not new to us. And we will definitely take up the suitable transactions. But current guidelines are basically draft guidelines. We have to get the final guidelines to take up any transaction. But in the meantime, we are setting up our teams to ensure that they are ready when the guidelines are released. As far as recovery numbers are concerned, I think recovery -- in written-off accounts, I think we have done fairly well in this quarter. You want to add anything... Unknown Executive: So upgradation and recovery figure is combined. So if you see the slippage itself in the previous quarter is much higher. So if you compare it, this number is better. And AUCA recovery, Chairman guidance was INR 2,000 crores per quarter. We have done INR 2,400 crores and the guidance continues. Challa Setty: On the treasury gains, Rama, you can... Rama Rao Amara: Yes. I think your observation is correct. If we exclude the exceptional items, I think Q2, the trading profit is almost 50% of Q1. But we need to be reminded that Q1 has the OMO operations from RBI and switch operations were also there, which is available to the entire industry, and we have made use of, which was not available in Q2. So that was the reason why I think that the same performance we could not repeat. But there are several. I think strategically, we are doing several things. We are taking larger positions in trading portfolio. And we do have certain investments, which are like depending on the opportunity, depending on the price that is available, we will continue to offload. So that way, we are reasonably confident that a large portion of this -- whatever we have performed in Q2, we will be able to repeat in Q3 as well. No, we don't have any losses. Rather, our AFS reserve has increased actually quarter-on-quarter. There's no MTM loss. There is no MTM loss treasury side. Challa Setty: But one thing I would like all of you to look beyond the net profit number. Obviously, the Yes Bank transaction aided us to post a good number in a difficult treasury quarter. I think what we have focused on that how do we balance your resource cost. If you have seen the cost of borrowings as well as cost of deposits have come down. And we not only have focused on reducing the reliance on the wholesale deposits where the market was going berserk in terms of pricing those deposits, we stayed away from there. And number two, that we focused on the daily average balance improvement in the current account and savings bank account. And that has contributed to the reduction in the cost of deposits and cost of resources. So your NIM uptick is basically on account of that despite that 100 basis point reduction in the interest rates on the asset side. Just to answer your credit growth, the pipeline, I think Mr. Tewari will answer. The credit growth is secular. If you see from the Q1 itself, we have had almost 1 to 2 percentage point increase across the business segment, whether you take retail personal, agriculture, SME, corporate for the first quarter after March '25, we have reversed the trend and have posted a good 7.1% credit growth. And with the pipeline, what we have the visibility of at least reaching 10% corporate credit growth in the next 2 quarters. Would you like to supplement something? Ashwini Tewari: Yes. So the pipeline is INR 7 lakh crores, INR 7 trillion, which is a consistent number across quarters. Half of it is already sanctioned and awaiting disbursement and half is in the discussions. And the other point which has to be made is in the quarter 1 and also in quarter 2, we had a lot of payments which were a result of either a large IPO being raised or an equity raise, which was used to repay loans or sometimes converted into bonds as well. A couple of airports were like that. And then there were also the large payments done by some of the government entities, which got cash up front. So these were the reasons. But as, sir, has said, that we would expect a much better performance in quarter 3. The negative growth has been reversed. So we look forward to a better performance. Unknown Analyst: Congratulations. Sir, I just had a few questions. Firstly, on margins. So what has been the interest on tax refunds this time for the quarter? That's the first question. And the second question is that usually, there's a seasonality in your miscellaneous operating expenses in the second quarter. This time, it looks higher maybe because of a low base. So if you can give the breakdown of those miscellaneous operating expenses for this quarter and the previous quarter, so Q2 '26, Q1 '26 and Q2 '25, so that will really set everything clear. And just the last one in terms of CASA, if you could give the average CASA growth. You said your average daily balances have been good. So any growth numbers you could share? Challa Setty: So in terms of margins, interest on tax refund is miniscule, some INR 200 crores, INR 300 crores or something, that's not a big -- INR 340 crores. So that is not contributing any significantly to the margins. And on the seasonality, miscellaneous operational expenses, you can... Saloni Narayan: The major hit here is actually GST on expenses, which was INR 662 crores in Q2 of FY '25, which is INR 1,180 crores this year -- this quarter. Last quarter also, it was INR 588 crores. So there's a large difference there. Apart from that, actually, software expenses for software. Challa Setty: No, not many items... Saloni Narayan: These are very small amount. Challa Setty: Very small. Saloni Narayan: Of course, they aggregate to a large number, but actually, individually, they don't add up so much. The main thing is this. And the next is the mobile banking. Unknown Analyst: Okay. But GST, why such a big rise? Saloni Narayan: GST on expense that we have -- we recover and pay that is taken on both sides. Challa Setty: Yes, you get input tax credit also. Unknown Analyst: Got it. Got it. Challa Setty: CASA daily average balance we'll give separately. Unknown Analyst: Sir, congrats on very good numbers. Sir, firstly, we did a very good job in recovery from written-off this quarter. It was almost doubled quarter-on-quarter. Sir, how much of that would be parked into interest income line this quarter versus last quarter? So there is some apportionment which happens, right? Challa Setty: Not much. Unknown Analyst: Not much. Okay. Challa Setty: Most of that has gone into the P&L directly. Unknown Analyst: Understood, sir. Yes. And sir, on ECL, as sir, your initial assessment would help. And given SMA 1 and 2 would be charged at 5% odd as per the proposed guidelines, so would we see an inch up in credit cost on a sustainable basis after the implementation of these guidelines? Challa Setty: So I think on the ECL front, we need to be a little patient. I did mention earlier that the impact on our balance sheet would be limited for 2 reasons. One is the long road map, which is given, while we have to assess the overall expected credit loss requirement on the 1st of April '27, we will have time up to 31st March 31 to take that. And we want to utilize that road map, which is going to be given to us. So which means that the impact is going to be not significant. And we will wait for the final guidelines to come to you what would be the impact and how we would like to handle it. As I mentioned, whatever is the impact, we are going to take that 4-year road map, which is given to us and to ensure that the balance sheet is not impacted in one go. And the second thing is, yes, the major impact would come from the SMA 1 and 2, which are not significantly provided now. We do have some buffers as shown here on the excess provisioning on the standard assets. What we believe that the impact can be reduced by strengthening our collection mechanism. Today, the rollbacks in SMA-1 and 2 are significant for us. They're temporarily SMA-1 and SMA-2. So while we are presenting to the regulator that in terms of the rollback -- frequent rollbacks of this category does not require such a high floor rates on the ECL but there are so many other things which we need to present to them. So I don't want to comment at this juncture. But structurally, what we are focusing is strengthen our collection mechanism. Today, in our retail side, 70% of the collections happen automatically. It is just sweeping from a savings account to the loan account. Over the years, we have focused on this rest of the 30% where the delays happen. The delay is not necessarily that the customer is delaying. It is also because salaries get delayed. We are trying to see how do we address this category. Structurally, we will be strengthening our collection mechanism intensely so that we will not have SMA 1 and 2 situation. They are not bad assets, except that they just roll forward and roll backward frequently. We need to address that issue. So ECL, I think, is too premature to talk about the impact at this juncture. Unknown Analyst: And sir, lastly, sir, you mentioned. Challa Setty: I gave a little longer answer so that, again, this question on ECL doesn't come. Unknown Analyst: Just one last question. Sir, your borrowings as that's up 12% quarter-on-quarter. And yes, as in there has been a very sharp improvement in interest on borrowings, interest expense borrowings, it is down from INR 6,000 crores to INR 12,000 crores over the last year. Sir, any insights there would be helpful. And was this INR 60,000 crores of incremental borrowings back-ended? Any color there? Challa Setty: The second part, I did not understand but the interest on borrowings is a market function. As the liquidity improved and the rates have moderated, I think the costs have come down. What was your second question? Unknown Analyst: The borrowings, we saw like 12% quarter-on-quarter inch up. So I just wanted to understand if it was back-ended or was through the quarter. Challa Setty: And borrowings -- overall borrowings. Unknown Analyst: Yes, overall borrowing. Challa Setty: Anything, Ravi, you want to say? Unknown Executive: Throughout the quarter, the liquidity was in surplus. So borrowings were very few. Only in the last week of September, we had to do some borrowing. That's why the price is low. Saloni Narayan: And interest on borrowing has also gone down by 26%, yes, while we have borrowed less, the cost has also gone down. Jai Prakash Mundhra: This is Jai Mundhra from ICICI Securities. Sir, a question on your NIM trajectory, right? So this quarter was supposed to be tough for NIM because you had the residual impact of 50 basis point rate cut but you have done phenomenally well. The margins are up. Now going ahead, sir, you would have some tailwind from continued repricing on borrowing, maybe CRR benefit, of course. And then on the opposite side, you may have some MCLR deceleration. So on balance, sir, would you believe that MCLR deceleration would be more than offset by TD repricing and maybe CRR benefit and NIM should inch up from here at least the same way what we have seen in 2Q or they can be slightly even better? What would be your sense, assuming there is no further rate cut? Challa Setty: Yes. That's the last one, which you mentioned. The caveat is that if there are no rate cut in December, we believe that -- I did mention about the U-shaped curve of the recovery of NIM and slightly front-loaded on the Q2 because of our liability management, better liability management, both on cost of deposits coming down and cost of borrowings come down. Yes, there are some definite tailwinds. How much it plays out, we'll have to see. Obviously, the CRR full cut benefit will be available by the end of November. So that will give some pickup on the net interest margin side. We will continue to focus on the CASA. CASA is a very critical component in terms of bringing down the costs. Fixed deposit repricing is -- generally takes about 12 to 14 months. That means we are -- we have completed 6 to 8 months, another 1 or 2 quarters, the repricing will continue to be there on the stock. The flow is not getting too much repriced because I don't think any of us would be relooking at adjusting the fixed deposit rate of interest unless there's a rate action by the RBI. So our guidance still stands good that we will be above 3% in Q3 and Q4. Jai Prakash Mundhra: Sure. And sir, on your core fee, right? So this has been up 25%, and there is a decent 30%, 31% growth in remittance and processing fee. Is this volume only or you have done some fee structure change also because for the last 3, 4 years. Challa Setty: It is purely volume. I think it is mainly coming from the debit card spends and interchange fee, which we got on the debit cards, very significant amount uptick. I don't know whether it is sustainable or not. One is the cards issuance itself has gone up but that is a function of how many savings accounts that we've opened. But I think the spends have gone up and the interchange fee on the debit cards has gone up. It's not about fee structure being changed. It's just volumes have contributed. Jai Prakash Mundhra: Last question, sir, on Yes Bank transaction, right? So other banks, which have sold the stake, they had very small stake but they have routed it through reserves, right? We have shown in P&L. So any insights that you can offer, plus the residual stake, which is there, right? So as per my -- I mean, the plain reading of RBI circular stated that MTM, you can actually route either through reserves or through P&L, right? So you have done the P&L for the realized amount. This is my understanding. But the unrealized understanding, could you have done or that is still pending? Challa Setty: Unrealized, we will not do because we have a significant control by having a Board seat there, which means that we don't have to -- we are not using the MTM on the residual portion. So on the other transaction, would you like to explain in terms of S Bank transaction? Even CFO can explain. Unknown Executive: We were holding this as an investment in associates, sir. And stake sale, which was sold is mark-to-market as per our we have done it. Challa Setty: We follow the same regulatory process. The one which is actually realized is routed through the P&L. And unrealized, we continue to not mark-to-market because of our control, which is still there by way of it. Jai Prakash Mundhra: And sir, on the same logic, I mean, does this new guidelines actually creates less volatility in P&L because if there is an MTM loss on bond, it will not be part of P&L, right? But if you realize, then, of course, it will come in P&L. So in a way, these new guidelines makes P&L less volatile, especially at the time of hardening of yields. Is that a right understanding? Challa Setty: I don't -- in terms of the corporate bonds? Jai Prakash Mundhra: Yes, sir, G6 bonds. Challa Setty: G6, yes. That was the purpose of that. Anand Dama: Sir, this is Anand Dama from Emkay Global. Sir, my question was related to your Express credit. So last quarter, you said that incrementally, we will see growth coming back in that. So are we on to it? Now we will see further acceleration in the second half of the year? Are you getting more comfortable in terms of the asset quality over there? If you can comment on that. Plus the mortgages. So obviously, we are growing at a relatively faster pace versus the peers. Can we see further acceleration on that front? And that basically should fuel the growth target basically, which we have increased now from 11% to 13% to 12% to 14%. Challa Setty: So the 12% to 14% guidance is because of -- across the segments, not necessarily home loans. Home loans, 15% is a good growth. I -- while we may have potential -- see, in case of home loans, our catchment is fairly large. We have set up almost more than 420, 425 home loan centers across the country, processing only the specialized sales only for home loan processing. And our acquiring the customers is also robust. So that is contributing to the home loan growth. But I think 15% to 16% growth, I would place that as the portfolio grows, 14% to 15% stability will be achieved there. And Express credit is one segment we would like to further grow. Currently, we expected this express credit to reach double digit. We were wishing for that. But the gold loans, I think some movement is there from Express credit kind of customers. Unsecured personal loan is moving to secured gold loan because the amount of gold loan is higher now because of the value and the lower rate of interest, I think, contributing to that. As the gold prices moderate, we hope that Express credit will grow. But our sanctions and disbursements have been very significant in the Express credit. It's a high churning product. You need to constantly acquire the customers. Anand Dama: Sure. Sir, the customer segment is similar, particularly when you look at your express credit and gold loan because otherwise, why would the shift happen? Challa Setty: Some overlap is there. Some overlap is there. Some of those non-CSP customers, that is corporate salary package customers only will take express credit. Non-CSP customers could be their gold loan customers but a fair amount of customer base of gold loans may not be the common customer base. Anand Dama: Sir, secondly, on your overseas credit. So that book also is now growing pretty fast. You said that you are more focused on the RORWA-based lending. How does the overseas corporate book lending places, particularly in terms of the RORWA versus the domestic credit? Is not dilutive in terms of the RORWA? Challa Setty: Foreign book growth rate in dollar terms is just about 8.7%. What you see 15% growth rate because of the rupee depreciation when we convert into rupees. So our IBG -- our international book growth is opportunistic. If we see the good value, we will do that. Otherwise, we'll just ramp up. In the past also, we have demonstrated in quarters where we feel that pricing is not attractive, we just ramp down that. So we will be comfortable. I think the IBG book constitutes about 15% of our credit portfolio. I think that is a level which we would like to maintain. Sushil Choksey: Sushil Choksey from Indus Equity. Congratulations on all your milestones. Sir, first question, recent event of the newspaper, you highlighted that you have INR 5,500 crores of human resource spend for training. And second thing, you highlighted you would not spell out or SBI doesn't talk on digital spend what they do on the CapEx side on an annualized basis. Can you elaborate on that INR 5,500 crores, which is... Challa Setty: INR 50 crores, INR 550 crores. Sushil Choksey: INR 550 crores. How does it enable our bank? The performance speaks for itself. So the steps what you've taken for today and with cybersecurity and many other measures which are required, how are we going to be future enabled with all these with all these measures? Challa Setty: So this spend on training is significant for us because most of the people who join SBI are not bankers to start with. We take mainly from the people who are writing exam and joining the bank, whether it is a clerical position or officer position. But their career paths are defined, and we prepare them for various assignments as you are familiar with. And this training system today has 2 components. We have one of the largest physical training systems in the country. Almost 55 training colleges and centers are available. The second important element, which we have done. While the physical trainings are important to bring people together, exchange of ideas happen, we have launched what is called Spark. This is a digital platform, not only provides online training for -- across the section, they can choose their training package. We have international agencies providing the inputs along with our own inputs. But more importantly, we are creating a skill inventory. And based on the skill inventory, the job profile is defined and where people want to go. And every training modules are available in this Spark, the knowledge base, which we have created. And we are using AI extensively to offer what they're looking for, and they can build their own training module. So a combination of physical training, on-the-job training and online training aided by the AI is going to be the way forward. And as you mentioned, I think we are also having a specialized training, job families so that the specialized areas of treasury, technology, are constantly improved. We have, for the first time, had undertaken the largest technical recruitment of 1,500 people. And these are the people who have not come from the market. They are from colleges and people who have first time are entering the technical jobs. And we have completely created a training module for them internally. And these are some of the investments, which we are making, so that we have the industry best attrition rate. I think we have 0.5% -- less than 0.5% attrition rate because of our investment in human resources. Sushil Choksey: Sir, you churn out a lot of CEOs and top management people from many other entities, you answered for new recruits, but the top layer of SBI management, you've specified in that event about IMs, Harvard, MIT, various other things. So these initiatives, what you spend is immaterial, but what makes the bank capable for future-ready like AI. You may not spell out the digital CapEx number or annual digital number. How are we transforming from current, like you said, 2 is going to come up. Now you have set up a global capability center or you can say back office in Delhi, agriculture and other products. A lot of other things initiative, whether your retail credit processing and this back -- so you have a 24/7 working bank, it's not necessarily you have to only do within the bank. And the cost will be far lesser and productivity may be large there. So the initiatives, which you are enabling today because your profit numbers can support any kind of future projections which you want to make? Challa Setty: Absolutely. I think today, we made a big beginning. I don't know whether I've mentioned to you, we had 17 trade finance processing centers in the country, 17 of them. We have moved to 2 global trade finance centers, one in Kolkata and Hyderabad, which is completely digital. And across the country, the global trade finance is handled by these centers. This is a beginning of our centralization aspect. And -- the Project Saral, which I mentioned in my speech, the simplification project has 4 elements. One is you identify a process and simplify it. After simplification, if it is possible, automate it and if possible, centralize it. And fourth element is that if it can be outsourced, you outsource it. This is a new paradigm, right? When you are looking for doubling your balance sheet every 6 years, the scale what we have, this scale requires out-of-the-box thinking. And this is what we are going to do through the Project Saral. And if Project Saral believes that a centralization by way of global capability center is the need, we will definitely look at it. Sushil Choksey: SBI as a parent has achieved many milestones. It will continue to figure with much higher milestones in years to come. We have very formidable subsidiaries. I'm not critical of the performance. But when will you find those milestones visible where SBI Mutual Fund is the largest, I understand. SBI Cards is concerned, a lot of concerns and ups and downs keeps coming. SBI Trusteeship, SBI Capital Markets, Insurance, it's underpenetrated market. The amount of CASA customers you have, I'm sure your fees can be 5x than where it is today. So improve all these areas, what enabling steps or how are we going to improve upon that the consolidated number of some of the members are saying we are not performing to the private bank Possibly, we are not listed on ADR, maybe one answer. Maybe you're holding now you've given a QIP done. But the underlying assets have much more strength than what we are showing today. How does it take to the next level? Challa Setty: So in case of subsidiaries, as you see, SBI Life Insurance today is the largest private insurance company. And in case of SBI Card as a stand-alone card company, the performance is always under the focus. We are working on that in terms of addressing the asset quality issues, in terms of the spends, in terms of the new card issuance. I think many things are being done in the SBI Card. AMC, as you mentioned, is the largest AMC in the country. And the General Insurance is moving up the ladder and has a great potential in terms of the non-property -- non-life insurance company. Merchant Banking unit of SBI caps is a different ballgame altogether. I don't think we should be looking at the valuation there. But among these 4 major subsidiaries, we definitely would be looking at, as I mentioned several times, SBI AMC and SBI General are right candidates for listing in our stable. It also provides some value unlocking and more importantly, value recognition for the industry. We would soon be working on that. It is also important that SBI conglomerate is leveraging one SBI value, one SBI in the sense that if any customer walking into SBI branch, he has provided the gamut of services, which manufactured by the conglomerate itself. And that has been successful, yes, if you see our cross-sell income. But more important than income, we are trying to provide one-stop solution for our customers. So we'll continue to do that. Yes, we can do better, we can do more, and we will definitely work on them. Sushil Choksey: Does it mean that CASA customers, we are able to sell 5 products, 3 products, 4 products? Challa Setty: So our PPC at this juncture is about 3.5. Sushil Choksey: Can we have 5%? Challa Setty: We can definitely move to 5. Sushil Choksey: Okay. Sir, moving back to today, RBI is indicating the deposit rates have stabilized. So how do you see the environment at least for the current year? Second thing, rupee is a little volatile and G-sec is also volatile. So what's your outlook on the next 6 months on that? Challa Setty: Deposits, what did you ask? Sushil Choksey: Deposit has stabilized. The rates have stabilized, what RBI articles... Challa Setty: I think the deposit rates have stabilized. The further deposit repricing or recalibration will only happen if there is any monetary -- I mean, repo rate action. Otherwise, I think more or less the deposit rates have stabilized. As far as treasury related, you can respond. Unknown Executive: I think your question is around the G-Sec where it is going to be a 10-year I think we have seen a lot of volatility and also specific actions from RBI, where they convey to the market that they're not comfortable at certain yields, right? I mean -- so that may happen by way of canceling some auctions. So that was taken note of by the market on that particular day when the yields came down by around 4 to 5 basis points. I think it is now range bound. We feel like the range can be 6.2% to 6.65% kind of range for the 10-year G-sec. It's just an internal house view. Sushil Choksey: Last question again. Government may have to push up bigger ticket CapEx for infrastructure because you're seeing some noise being made about nuclear tie, hydrogen and many others and SBI caps have come out with a lot of reports on solar, hydrogen. So solar integration more on backward going up to polysilicon. So these larger ticket sizes are moving up, there is no INR 1,000, INR 2,000, there's INR 10,000 crores, INR 20,000 crores. Are we getting any sense for next year, if not for this year, of some kind of a discussion on a pipeline coming up? Challa Setty: From the government side? Sushil Choksey: Government and private. Challa Setty: No, no. private side, I think we have a very robust pipeline. Our aggregate corporate credit pipeline is around INR 7 lakh crores. So this is a mix of working capital underutilized and term loans under disbursement, the new projects which are being discussed. So both in the public sector and private sector but predominantly private sector. So that pipeline is very strong. And this pipeline will -- a part of it will get converted into reality this year, and there will be a spillover to the next year in some of the projects. Sushil Choksey: You indicate that there is positivity on private CapEx? Challa Setty: Yes. Not necessarily across the sectors, but most of the sectors, yes. Sushil Choksey: This new policy about capital market funding and M&A, the yields on capital markets are much higher than home loan and car loans and any other loans which you might be disbursing today, at least from the other banks and the M&A activity, can we build INR 40,000 crores, INR 50,000 crores overnight on this? Challa Setty: I mean, see... Sushil Choksey: 40,000 crores, INR 50,000 crores. Challa Setty: Today, I think the draft guidelines put some cap on that 10% of our capital. Sushil Choksey: Capital market is possible to say. Challa Setty: Capital market, yes, I think we have done one product, which is loan against mutual funds. We have never been active on loan against shares. While we have adequate room on the capital market exposure, is underutilized cap room available there. We will see. I think we need to assess our own risk appetite for this kind of activities. And also, I think most of these activities also have to be end-to-end digital. Unless we get that right, we will not be moving there. On the capital market broker side, I think we have significantly scaled up that. Sushil Choksey: The share advance can be a 10% yield on current conditions. And second thing, you or 2 can plug in... Challa Setty: Yes. So we are -- we will develop that product mostly on the self-consuming platform. Sushil Choksey: Good luck for many milestones for the year to come. Pawan Kedia: Due to paucity of time, we will take up 2 more questions, followed by a few questions coming in through online webcast, which will be addressed by the Chairman sir. Kunal Shah: This is Kunal Shah from Citigroup. So firstly -- so firstly, with respect to standard asset provisioning, almost INR 1,200-odd crores, and this is after some release from the restructured account of INR 1,100-odd crores against INR 165,000 crores of increase in the loan book. So is there any accelerated provisioning, which has been done towards the standard assets during the quarter? Challa Setty: There's no accelerated provision. Kunal Shah: Some additional standard asset provisioning, it seems to be a slightly higher quantum. Saloni Narayan: Yes, we have done some -- for 2 accounts actually, we have done some DCCO extension. Challa Setty: This is basically whenever there's an extension of commercial -- date of commercial production, there's a requirement of making provision. And some of the reversals, what you see also related to the DCCO. The moment DCCO is achieved, the provision gets written back. So there has been some write-back and there is an additional provision, which is made where the DCCO dates are extended. Kunal Shah: And that quantum was on couple of... Challa Setty: I think, INR 750 crores or something additional provision. Saloni Narayan: INR 200 crores was write-back, sir. So INR 500-odd crores is our... Kunal Shah: Net was INR 550-odd crores. And second question is on subsidiaries. So monetization, as you indicated, SBI Mutual Fund and SBI General. So what would actually trigger that decision? The capital market environment is conducive, market sentiments are good. So should we expect it sooner? Or maybe we have just done the fund raise very recently, so we would want to wait for some time and then explore that option? Challa Setty: We are not waiting because we have done the QIP. I think we need to just look at -- see, one is, as I mentioned earlier also that these 2 companies don't require capital at this juncture, neither the parent requires because we just raised INR 25,000 crores. But we are serious about listing them. And the Boards will -- respective Boards will take a call in terms of the timing, quantum. The reasons, whatever you mentioned, all of them are applicable. Pawan Kedia: One last question, please. Okay. I'll squeeze in 2. Piran Engineer: Sir, just on -- this is Piran Engineer from CLSA. On Project Saral, how do we like measure what the outcomes will be and what the timelines would be? That's point number one. Point number two, in our current account ratio, we've seen like a steady improvement for the last 4, 5 quarters. It's growing faster than the overall deposits. Just some flavor on what's going on there. Are we gaining market share in terms of accounts or higher wallet share of existing customers, more retail SME push, what's going on there? That's it. And congrats on the good quarter. Challa Setty: Yes. The second one, I think I did mention in terms of what we are doing on the CASA side. One is you're all very familiar that when we open savings bank account, we don't have minimum balance requirement. That is USP of SBI. And we were the first bank not to charge on the minimum balance not being maintained, which also means that the customers who are -- have the ability to fund the account also so many time don't fund. So we have started a large-scale campaign to educate our staff who are opening the accounts that you politely ask the customer that whether you can fund the account. Today, the simple nudge has ensured that 70% or 75% of such account get funded within 45 days, which means that your balances are going up, otherwise, which would have remained unfunded for a long time. That is on the savings bank side. And on the current account side, I think our focus on business current accounts and focus on ensuring that you give different variants of current account to business customers based on the balance maintained, which is the usual stuff everybody does but we have intensified our effort in terms of providing services, which are linked to the balances which are maintained. And this has helped us, and we have opened a lot of a few transaction banking hubs, which were primary owners of opening the current accounts and ensuring that a solution is given, not merely opening an account. That is also contributing to CASA daily average balances going up. And we did acquire market share in the current account and 85 bps... Saloni Narayan: 185 bps. Challa Setty: So it's a significant market share acquisition there. And mind you that the largest current account balances are with us and growing on that is important. On the savings bank account, another thing I would like to say, in the overall deposit construct, what we have told all our regional managers, we have more than 730 districts in the country. And in many districts, SBI, you will be surprised, have market share more than 60% in deposits. But we said that despite whatever dominant market share you have, the focus is at least get 1% additional market share, get additional acquired market share of 1%, irrespective of what is our market share in that district. That is also contributing to the savings bank growth rate. I think these are a few things. There are many strategies which we are adopting, but there are 2 things which I wanted to call out. And on the Project Saral, I think the primary aim of Project Saral is to reduce the drudgery at our branches. We -- whatever we talk about technology, digitalization, this is a bank which we would like to position as digital first, consumer first, our customer first, which means that we would like to leverage our large physical presence and large employee base to provide that human touch. But many a times, the branches are overcrowded, branches are -- people are not able to spend enough time with the customers. We would like to focus on reducing that treasury. So the outcomes could be taking some time. Ultimately, of course, it has to be measured in terms of whether it is adding to my productivity, reducing my costs. There are definite outcomes are defined there, but we will not be discussing them at this juncture, probably the first drop from this Project Saral, is 1st of April 2026. I think April quarter, we would talk more about what are those benefits we are getting out of this project. Pawan Kedia: We have a few questions coming in through the online webcast. Now these will be addressed by the Chairman, sir. Challa Setty: Yes. First question, Kiran Shah, written-off account and recoveries from accumulated written-off. Recovery from written-off accounts, as we have presented here, INR 2,480 crores. This question on the -- what is that technically written-off portfolio is likely to give recovery rate, I think, discussed earlier also. We placed it around 6% to 8%. We started saying about 10% but as the security value is coming down based on the security value, and the accumulated written-off accounts, our recovery rates are likely to be around 8%. [indiscernible] On slippages and portfolio quality in Express credit, the GNP is showing a sharp rise. Any signs of concern there? Not showing any sharp rise. I think quarter-to-quarter, it has come down, if I remember correctly. So as the denominator, the portfolio increases, in absolute terms, there is no major concern in terms of the express credit. Abhishek Kumar, gross NPA and AUCA book position. Gross NPA as on 30th September is INR 76,000 crores and AUCA is INR 163,000 crores. Ujjwal Kumar, SBI should implement Tab Banking for onboarding of customer, either individual or nonindividual, why is SBI not taking such initiatives? I'm glad to announce that Tab Banking, we have launched last quarter. And this Tab Banking is launched initially for the corporate salary package customer onboarding. And as we fine-tune that, and there's a good number of customer accounts are being opened under Tap Banking. So the first phase we launched on the 1st of July 2025. This journey, onboarding journey takes just about 5 to 7 minutes because if it is -- most of the customer data is collected from various sources. Similarly, in the current account also, we have already started Tab Banking. Ankit Ladhani from IndusInd Nippon Life, any guidance on NIM? I think we have talked enough on the NIM. And we still are holding that our guidance, long-term NIM above 3% through the cycles. Ashish, can you provide a share of MCLR, EBLR and other loans and advances? As on 30th September, EBLR is 31%, MCLR is 29%, fixed rate is 22% and T-bill is 15%. Tarun Lala, what amount has been earmarked for pension provision? The pension provision for half year '26 is INR 6,672 crores. For the quarter, it was INR 3,525 crores. Prashant, this sector industry has maximum proposals in pipeline. This is a little diversified. I think pipeline is both in terms of capital expenditure and as well as NBFC portfolio. So from a capital expenditure point of view, power, renewable energy, commercial real estate and a bit of iron and steel. Vishal Gupta from Ak Investment. Any plans to monetize your subsidiaries in near term? I think we have had enough discussion on this but just to answer your question, these are the 2 companies we will be seriously considering and the timeline and when we are likely to go will be decided by the respective Boards. How much is the LCR of the bank? LCR of the bank is 143.8%, up from 139% as on 30th June. What is the impact of Yes Bank's stake sir on your return on assets? If we do not consider the profit in Yes Bank, the ROE is still above 1%. It would be around 1.04%. Thank you very much. Pawan Kedia: Thank you, Chairman, sir. I trust all the questions have been addressed. Challa Setty: If anybody wants to ask questions, we still can give 5 more minutes. Otherwise, we can close. But just see that you're not repeating the same question. Unknown Analyst: I just had a data keeping question. The extraordinary gains because of Yes Bank stake sale, gross of tax was around INR 4,500 crores. What is this amount net of tax? Challa Setty: INR 3,386 crores. Prakhar Sharma: Sir, Prakhar Sharma here from Jefferies. Just wanted to check, your fee growth in this quarter has been phenomenal. You haven't seen 20% plus numbers for a long time on a big number. Can you just elaborate what has helped? And what do you think is this start of a new run rate, maybe not 20%, but double digit, et cetera. So if you could just help. Challa Setty: So most of the lines of other income seem to be good ones like either in the government business or cross-sell I believe they are stable, even loan processing charges. Much of the loan processing charges are not one-off or bulky one. They're all widespread across the retail segments. The only thing which I mentioned is on the debit card interchange fee. I don't know how it is going to play out. But otherwise, I think other income streams are seem to be stable. Pawan Kedia: Okay. I trust all the questions have been addressed. We'll be happy to respond to other questions in offline mode. Let me end the evening with thanking Chairman, sir, MD sir, DMD Madam, top management team, analysts, investors, ladies and gentlemen. We thank you all for taking time out of your schedule and joining us for this event. To round off this evening, we request you all present here to join us for high tea, which is arranged just outside this hall. Thank you. Thank you so much.
Operator: Good morning. Good evening, everyone. Welcome to Catena Media's Q3 Interim Report. I am Manuel Stan, and today, I'm joined by our Chief Financial Officer, Mike Gerrow. Today, we will be speaking to our Q3 interim report, related financials and our strategy and outlook going forward. We will start today's presentation with a high-level summary of the most important developments in the quarter. I am pleased to see a solid quarter with growth in both revenue and earnings. Q3 amounted to EUR 11.6 million. This represents an improvement of 9% versus Q3 2024 and 22% versus Q2 2025. Adjusted for the weaker U.S. dollar, our primary invoicing currency, revenue increased by 15% from Q3 2024. The adjusted EBITDA improved to EUR 2.9 million, more than double from the previous quarter as well as Q3 2024. The adjusted EBITDA margin improved to 25%, a significant improvement from 14% in the previous quarter and 13% in Q3 2024. During the quarter, we continued to focus on operational efficiency and diversification. From a revenue diversification perspective, Q3 represented another step in the right direction as our performance marketing verticals, CRM, sub-affiliation and paid media, all continue to increase their share of group revenue. The full financial effect of our cost optimization program is now visible in our financials with notably lower personnel and other operating expenses. The full cost base was down 6.9% year-on-year despite the higher direct costs coming primarily from sub-affiliation growth. [indiscernible] resulted in improved efficiency across all areas of the business. While the growth of these channels comes at a lower margin, we are pleased to see the group's overall reduced reliance on the search channels. From a geographical perspective, the share of revenue coming from North America increased to an all-time high of 96%, reflecting our focus on this geography. While we evaluate other geographies, North America remains our core focus for the immediate future. While the quarter was overall positive for us, we recognize the regulatory uncertainty surrounding social sweepstakes casinos and the continued drive of generative search, both of them present headwinds for future quarters. Moving on to operational developments. One of the highlights of the quarter was the launch of our best-in-class sub-affiliation platform, Marketplace. The platform is designed to connect affiliates and operators in a modern and streamlined ecosystem. It replaces manual processes with a scalable infrastructure that enhances service delivery. It equally empowers affiliates to grow their network and operators to expand their footprint in North America. We have seen good results from our diversification efforts as both CRM and sub-affiliated verticals recorded new highs during the quarter. From a tech perspective, we have made great progress as we continue the migration of our top-tier brands to our central platform. Our search rankings improved on the back of the June Google Core update and the trend held firm throughout the quarter. We will go into more details on the next slide. The teams worked diligently to finalize the early December Missouri launch. In October, [indiscernible] return-to-office program in our Malta headquarters, which sees the majority of our workforce back in the office for at least 3 days a week. A similar strategy will be implemented in the beginning of 2026 in our North American Miami hub. Moving on to the organic search score. In Q3 last year, we started showcasing our average ranking score for the most important keywords across Catena Media's owned and operated products. The report, keyword list and criteria are continuously redefined to improve both the structure and relevance. From Q3 2025, the report includes an extended set of 100 keywords and updated logic. This was applied retroactively from March 2025 to continue to show the movement over the last quarters. We are pleased to see that the uplift showed after Google's June algo update was continued throughout Q3, reflecting the strength of our products and validating the team's strategy and execution. At the end of the quarter, we have registered the best average score for the last 6 months. Another notable success during the quarter was passing Google's Core Web Vitals assessment for all our top-tier products. Lastly, it is important to note that generally conversational dynamic has a direct impact on click-through and traffic. This is a threat for our industry as well as the wider affiliate base, but equally represents an opportunity to shift focus towards building brands and loyal communities. I will now hand off to Mike to give an in-depth update on our financial performance. Michael Gerrow: Thank you, Manu, and good day. Looking into our Q3 financials. Q3 was a strong quarter. Revenue was EUR 11.6 million, representing a 9% increase year-on-year and a 22% quarter-on-quarter increase. Adjusted for foreign exchange rate fluctuations, year-on-year revenue was up 15%. This represents our first year-on-year revenue growth since Q1 of 2022. Adjusted EBITDA was EUR 2.9 million, an increase of 119% in the same period previous year and a 12 percentage point increase in margin. Adjusted EBITDA increased 112% versus Q2 2025. The quarter-on-quarter and year-on-year EBITDA growth was an encouraging step-up driven by both revenue growth and our cost optimization program implemented in recent quarters. NDCs decreased 12% year-on-year, driven by lower sports performance and shift towards casino revenue. North America contributed 96% of group revenue, up from the 89% in the previous year. Please note that given the decreased contribution of products outside North America, we've reduced our focus on the geographical reports going forward. The sustained underperformance in legacy Rest of World casino assets and our North American sports [indiscernible], a [ $16.5 million ] impairment loss recorded during the quarter. Moving on to our segment performance. In Q3, our Casino segment contributed 85% of revenue with sports contributing 15%. I am pleased to see that our Casino revenues grew by 20% versus Q3 2024 and by 26% versus Q2 2025. This growth came from both improvements in our soft tier products and positive developments in our diversification efforts to grow paid media, CRM and sub-affiliate channels as noted by the increase in direct costs. Casino NDCs increased by 1% versus Q3 2024 and by 23% versus Q2 2025. Adjusted EBITDA in our Casino segment decreased by 4% versus Q3 2024 and increased by 82% versus Q2 2025. The year-on-year decrease is mostly [indiscernible] portion of our shared costs to the now much larger casino business as well as FX fluctuations and our efforts to diversify our revenue streams to lower-margin sources, including CRM, paid media and sub-affiliation. Our sports revenue decreased 28% versus last year to EUR 1.8 million. There was a marginal 2% increase versus Q2 2025. The slight quarter-on-quarter growth is mostly attributed to seasonality. However, the overall performance in our owned and operated sports brands remained unsatisfactory and will require more time to turn around as we continue to invest in our core sports products to improve long-term competitiveness. New depositing customers decreased by 40% versus Q3 2024, but increased by 5% versus Q2 2025, again, due to the regular sports seasonality. Adjusted EBITDA in sports grew significantly versus last year's losses and our breakeven results in Q2 2025 to a healthy 25% margin. The growth in adjusted EBITDA is primarily related to the delivery of our cost optimization measures. Please note that the Sports segment loss in Q3 2024 was also partially attributed to the remaining media partnerships that were operating at a loss for part of the quarter. Continuing on to our cost development. We decreased our cost base by 6.9% versus Q3 2024 with a slight increase versus Q2 2025, driven by our increasing direct costs. Our direct costs increased by 145% versus Q3 2024 and by 50% versus Q2 2025. This reflects our positive momentum in diversifying our revenue to include a larger mix of performance marketing channels, including paid media, CRM and sub-affiliation. In line with our communicated cost optimization program, our personnel expenses decreased by 39% versus Q3 2024 and decreased by 8% versus Q2 2025. And other operating expenses decreased by 27% versus Q3 2024 and 21% versus Q2 2025, mainly due to optimized SEO activities and lower professional fees and IT support costs. Total items affecting comparability were EUR 200,000 in the quarter. This was primarily related to movement associated with divestment of minor assets and an adjustment of H1 2025 revenues due to invalid player activity. Moving on to our financial position. Total operating cash flow from continuing operations was EUR 2.1 million in the quarter, increasing from EUR 1.8 million in Q3 2024. Our resulting cash and cash equivalents balance at the end of September was EUR 8.4 million. We do not have any remaining debt instruments, but our hybrid capital security with a nominal value of EUR 44 million has interest costs of approximately EUR 1.4 million per quarter. As mentioned in the press release before the Q1 report, we do not intend to redeem the hybrid capital security in the short term, and we have deferred making interest payments on this instrument. So far, we have deferred the July and October 2025 interest payments, and the accumulated deferred interest now totals EUR 2.5 million. Following our annual asset value review, we have recognized an impairment of our North American sports assets of EUR 10.5 million and our Asia Pacific casino assets of EUR 6 million. This is a noncash affecting impairment, reflecting the poor performance in these areas over the past number of quarters. I will now hand back over to Manu to give us an update on the strategy and outlook. Manuel Stan: Thank you, Mike. We will now have a look into the strategy and outlook for the next quarters. Status quo in terms of new marketing openings. Overall, market penetration remains at approximately 50% for online sports betting and only 16% for online casino, indicating a remaining sizable future opportunity. As Missouri is approaching the December 1 go-live date, our teams are working diligently to prepare the launch. While this is the first launch of a legalized online sports betting market in the U.S. since North Carolina in Q1 of last year, due to the specific nature of Missouri, i.e., the 19th largest U.S. state by population surrounded by legal sports betting in 6 out of the 8 neighboring states, we expect the revenue uplift to be moderate. Alberta's iGaming bill was approved in May 2025, and the province is expected to go live at some time in 2026. There is no concrete launch date at this time. Alberta will follow a model similar to Ontario, including both online sports betting and online casino. Moving on to the strategic focus areas. As laid out in the previous reports, our 2025 strategy is focused on 3 key pillars: people, product and profit. From people perspective, the key initiatives in the recent periods included rightsizing the organization by eliminating more than 50 roles in Q2. Q3 was the first quarter where the full financial effect of this action and resulted in a year-on-year personnel cost reduction of 39%. The implementation of OKRs was partly delayed during -- due to the Q2 layoffs and was fully rolled out throughout the organization during Q3, ensuring alignment and accountability. The hubs build-out continued in Q3 with no roles being advertised or hired outside our 2 hub locations. And in early October, we rolled out the return-to-work initiative in our Malta HQ that will be also implemented in our Miami North American hub in early 2026. From a product perspective, the key initiatives included performance marketing verticals, paid media, CRM and sub-affiliates continue to grow their share of revenues for the company. This contributed to the revenue mix diversification and also equally important, helped offset the SEO reliance. The launch of Marketplace during the quarter showed strong interest from prospective sub-affiliates, and we are well positioned to grow this area further in the coming quarters. The ongoing tech consolidation work includes bringing all our product to a central platform. The top-tier products that have benefited from this work during the quarter have shown encouraging performance improvements. Our third and last strategic pillar is profit. We are pleased to see the outcome of our efforts on both revenues as well as costs, as our adjusted EBITDA margin almost doubled from previous quarter and corresponding quarter previous year, up to 25%. Direct costs are expected to trend slightly upwards as our performance marketing channels continue to grow and the cost will follow directly. The remaining cost base is unlikely to see any significant movement in the near term as we expect to see a relatively flat -- we expect it to stay relatively flat moving forward. Lastly, let us recap the key takeaways from our report. Revenue was up 9% year-on-year, 15% when adjusted for our primary currency USD, showing positive signs of operational stabilization. Adjusted EBITDA margin almost doubled to 25%, driven by both increased revenues as well as the cost optimization initiatives. Q3 had the full impact of our cost optimization measures, and we expect the personnel and other operating expenses to remain relatively flat in the near future. Our core search channel has seen good development during the quarter reaching the best average position for our top 100 keywords in the last 6 months. The focus on revenue diversification paid dividends during the quarter with all our performance marketing channels, paid media, sub-aff and CRM showing good progress. The launch of the next-generation sub-affiliate platform, Marketplace, represents a great opportunity to develop this vertical even further in the next quarters. While the performance in Q3 was a welcome step, positive step forward, we remain cautious for the future quarters due to the potential headwinds, both by social sweepstakes casino regulatory pressures and the impact of generative search trends. We have deferred the July and October 2025 hybrid interest payments and have accumulated deferred interest, and our accumulated deferred interest now totals EUR 2.5 million. Thank you very much for listening. I will now hand over back to Mike to move on to the Q&A section of our call and open up for questions. Michael Gerrow: Thank you, Manu. I'll open up for questions now. [Operator Instructions] All right. I have a question coming in from Pontus. I'll let him in now. Operator: The next question comes from [ Pontus Wachtmeister ] from PWA. Unknown Analyst: Great stuff, seeing some double-digit growth, very exciting. I just wanted to know on sub-affiliation, you mentioned it's best in class. What should we look at in terms of metrics to back that up and so to say, and [ performance ]? And what is the ambition would you say of that vertical, given it's kind of slightly lower gross margin? If you can -- I know it's early days, but given your kind of talking about it as a very good product in the market, can you tell us anything about that? Manuel Stan: Pontus, I'll take a first stab and Mike, if you want to fill in the gaps, please do. I think one interesting anecdote is that, obviously, as a marketplace between operators and sub-affiliates, we have to earn the trust of both sides. And it happens relatively frequent that we actually get recommended by operators in North America to sub-affiliates to work as a partner bridging that partnership between operators and sub-affiliates. That is a great testament that we have built a trust to operators by being a great partner when it comes to doing the proper due diligence, being transparent and being a helpful part in that whole journey. When it comes to us saying that it's a best-in-class, I think from any perspective, you're looking at the platform, again, you're looking at the functionalities, you're looking at speed, you're looking at user experience, you're looking at a transparency. We built that platform with the idea of making it a marketplace where eventually operators and sub-affiliates can come and self-serve directly as much as possible, making that process as automated and as smooth as possible. So I don't think we have any -- well, we don't -- I'm sure we don't have any third-party opinions or user research to say particular on this criteria as the best-in-class. But subjectively speaking, when we're comparing the platform with whatever else we see out there in the market and knowing what we try to achieve, and we managed to achieve when we launch this, we're confident to say that from our perspective, this is a best-in-class platform. Unknown Analyst: Okay. And the ambitions there, would you say it's a complement? Or is it potentially a kind of substantial business in a few years? Or how do you see it when you -- it's hard for us, I think to -- it's kind of a new effort for most players. It's interesting to hear your views on it, but maybe it's too early to kind of point to that. Manuel Stan: I think I can answer the first part for sure. I think it's complementing our business. It's not replacing our current -- our existing business model. We remain a media company, and we -- our first and most important focus is to grow our owned and operated product and brand. But this is a very nice way to complement that and to diversify our revenue streams to make sure that we're well protected against anything that may change the landscape. I think, obviously, you have the direct costs in the report, and you can make an estimation of how much this is growing quarter-on-quarter, and you can understand that it's becoming a relatively important revenue stream and a focus area for us going forward. But I do see it in the short, medium term, at least for sure that it is a complementary business to our core owned and operated brands. Unknown Analyst: Okay. Good. Just a quick one on the potential impact of prediction markets. Could you say anything about that? Like is it positive or negative or no impact to go -- because there's so much noise going on there and a lot of kind of revenues going there. So can you just comment on that? Manuel Stan: Yes, of course. Thank you, Pontus. So far, we have not disclosed any particular revenues coming from this subsegment per se. We have launched our activities on different products or different brands and trying to work with the top operators in the production market space. I think it will continue to grow, and we will continue to invest in this. So related to what are the strategies for 2026, prediction market is definitely one of the areas where we want to continue to invest, and we want to grow. We see that as a good opportunity. I think there are key unit economics to take into account. The CPA for prediction market is substantially lower than sportsbook or than the casino verticals in general, which means that it's more a play of volume rather than seeing the same revenue per customer that we see in other verticals. But our products are well positioned to tap into this market. And as I said, I think it will be one vertical where we'll continue to invest into the rest of 2025, but also 2026. Michael Gerrow: And I think I'll add a little point -- I'll add a little clarification there as well for you, Pontus, which is that we report any revenue that comes in through the prediction market at this stage through our sports segment. So as a portion of that, as you can tell, with an 85% split on casino versus sports, it's a portion of the smaller portion of our revenue base at the moment. Thank you. I think that's all the questions we have on the line. So I have a few questions that are -- came in from written format. So I'll start asking a couple of those towards you now, Manu, if that's all right. So the first question, probably generic is, just are you satisfied with the performance in Q3? Manuel Stan: Thanks, Mike. I think, absolutely, there is no way to go around it, both from revenue as well as cost perspective or adjusted EBITDA perspective, we have seen growth in the quarter. The revenue -- the most pleasing thing for me to see is that the revenue came from a variety of initiatives. It was not just based on diversification or based on strength in rankings, but it came from all over the place. It came from our continuous improvement in Google rankings throughout the quarter. It came from the diversification of our revenues. It came from sub-affiliates as well as CRM. So we've seen really nice development there. And then, as you pointed out in your part of the presentation, Mike, we have seen the first year-on-year growth since Q1 2022. So that's the first year-on-year after 14 quarters of relative struggles, I guess, for us as a company. So seeing the revenue increasing year-on-year as well as quarter-on-quarter is fantastic. And again, looking at the FX, removing the FX from calculation on a year-on-year growth, we're looking at the 15%. Secondly, we've done this while putting the business in a stronger operational place with a lower cost base than we had last year. So that's also great to see and that added to having a pretty healthy EBITDA -- adjusted EBITDA margin at 25%, as we said, pretty much doubled from previous quarter in 2024 as well as Q2 2025. So all in all, I think good development across the entire P&L. That being said, realistically speaking, we appreciate the pressures that are coming from sweepstakes. We appreciate how the impact of California then will play in the short term, but also throughout 2026, how that impact may have additional effect in other states and how that will impact our business. We appreciate the challenges coming from the zero click and generative search threats. So we do have a reasonable amount of headwinds in front of us, and we have to be able to navigate that and continue to strengthen our position. But talking about Q3, I think, overall, I am pleased to see the progress that our teams have made. Michael Gerrow: All right. Thanks, Manu. Kind of related to a question Pontus asked, but I guess I'll ask that. But what is -- what initiatives do you have ongoing to reduce the dependency on Google Search? Manuel Stan: Yes. I think, first and most importantly, we've talked about diversification for a few quarters now. And we talked about the investments we're making into CRM. We talked about the investments we've made into building our Marketplace platform. We've talked about us investing more in paid media. So that's definitely one of the key focus areas for us in to reducing the dependency on Google Search. Secondly, I think very important for us, we're investing into customer engagement initiatives. Those include stuff as loyalty programs, gamification, product features and so on. Those are all a part of our wider strategic shift towards building brands and products that emphasize on customer added value and loyalty. So instead of putting all our force into acquiring new customers, we do realize that we have an equally strong opportunity to retain the customers, to engage with the customers and build our own communities and build the loyalty towards our brands and be in a much better position to extract value from those customers in a longer period of time. Michael Gerrow: Thanks, Manu. And one more for you, which is that the direct costs grew noticeably during the quarter. Why is this? And is it a concern from a margin perspective? Manuel Stan: Absolutely. Thanks, Mike. I think this is pretty much related to Pontus question about sub-affiliation. And obviously, as this grows for us, as the share of the revenues coming from sub-affiliate platform grows for us as a company, so will the direct cost. So on the positive, this is obviously a cost that's proportional to the revenues. It's a performance-driven costs, so we're pleased to see the development. But we equally appreciate that it's a lower margin than the rest of the business. I think all in all, I am happy to see this keep on growing. And the more we grow, the more it benefits us on the bottom line also. And I think it's a scalable platform, and it's a scalable part of the business that should not have any ceiling, and we should be happy to see it growing even further. Michael Gerrow: All right. We actually have, I think, a clarification question coming in from Pontus again, so I'll activate him and let him ask a follow-up here. Manuel Stan: Sure. Operator: The next question comes from [ Pontus Wachtmeister ] from PWA. Unknown Analyst: Sorry, to -- but I had a more -- one more question. You mentioned this Rest of the World assets basically. Some are now written down historically, and you're also very much a U.S. business at the moment. Would you say -- I guess, you still have these assets? Could we see like a selling or total closing of the Asia and European pages? Or doesn't it work like that? Or is that something you just kind of run in the background? Can you just explain what that will be in the future? Manuel Stan: Thanks, Pontus. So I think we're talking about some European assets and some assets that are targeting Lat Am, some assets that are targeting Southeast Asia. Overall, we do not see these assets performing as there -- as we would like them to perform. So over the last few quarters, one of our key initiatives that we talked about was reducing our focus when it comes to products, when it comes to brands, when it comes to geographical assets. So a lot of these products did not get the much-needed love for them to continue to perform. But going forward, for us, as we're trying to make sure that our organization is well set up and we're doing the right things for North America, we may try to duplicate some of those things in other geographies or on other products. But that is a secondary thought once we're confident that doing the right things for North America. I don't see in the near future any sizable effect of those. I don't think that we will spend significant time resources, investments outside North America, at least in the near future. That being said, for the long run, we still have a number of assets that can become at some point -- at the right time, they can become valuable for us. We did divest over the last few quarters, a few smaller assets for different geographies. And that remains part of our ongoing strategy. But I don't think that we have anything big there that it should be a game changer either as a divestment cash coming in, either as operational generating significant revenue stream. Mike, if there's anything you want to add on top of that, please do. Michael Gerrow: No, I'd say that's about right with it representing 4% of our revenue in the most recent quarter is not an area of focus, but at the same time, we would only look at divestments if they make sense, if it's still financially viable products, it makes sense to operate them even at only 4% of our current revenue base. All right. Thank you again, Pontus. Just a couple of more questions, which came in or more kind of focused in my area. So I'll ask those and answer those, which is regarding the deferred hybrid capital security interest payments, are there any plans to resume payments soon? And should investors be concerned for the future? So the short answer on that is no. According to the terms of the hybrids, we're allowed to defer the payments indefinitely, and there's no kind of default risk or anything like that towards shareholders. So I just want to make that one very clear. Our role from a cash planning perspective is to try to sustain recent growth in the healthy cash generation before making any further decisions on our capital structure. That includes any resumption of the hybrid interest payments. Building up the cash by deferring the payments, it gives us flexibility. And flexibility is important when it comes to seeing whether we should invest more tech-facing investments, strategic initiatives, and also lets us adapt as the market does change quite rapidly that we work in. And then another question that I had was that the margins have improved significantly since Q2. And can these levels be maintained going forward? And on that one, I'll say that Manu already spoke a little bit to the fact that we're trying to keep our cost base relatively flat with the exception of the direct costs, which follow the revenue streams. But overall, we're cautiously optimistic that the margins can be maintained. The improved margins reflect both the revenue growth and also the cost discipline that we've put in place. But this is only one quarter of improved results. So we need to sustain this, knowing that there are headwinds that are coming forward in the next quarter as we talked about the increased regulatory pressure on social sweepstakes, casinos. We talked about the fact that generative search is definitely highly impact across affiliation, not specific to iGaming. So we know those are in front of us, so we need to make sure that we can withstand [ those ]. The other thing is that quarterly revenue and the cost variations are always possible, but the business is now operating from a much stronger base with a more efficient structure. So I don't see significant variance coming in unless there's an adverse revenue item that happens, with one potential exception that the current cost structure could change a little bit just based on the fact that we haven't had any performance-based incentive programs that have been very, very minimal in the recent years. So that's one area that could potentially bring that up. And that's all the questions that we have that have come in today. So I guess I'll hand it back over to you, Manu, and you can handle the closing remarks. Manuel Stan: Thanks, Mike. We'll wrap up today's call with some quick closing remarks. Revenue was up 9% year-on-year, 15% when adjusted for our primary currency USD, showing positive signs of operational stabilization. This represents our first year-on-year revenue growth since Q1 2022. Adjusted EBITDA margin almost doubled to 25%, driven by both increased revenues as well as the cost optimization initiatives. Q3 had the full impact of our cost optimization measures, and we expect the personnel and other operating expenses to remain relatively flat in the near future. Our core sales channel has seen good development during the quarter, recording a 6-month high performance. The focus on revenue diversification paid dividends during the quarter with all our performance marketing channels showing good progress. That being said, while the performance in Q3 was a welcome positive step forward, we remain cautious for the future quarters due to the potential headwinds posed by social sweepstakes casino regulatory pressures and the impact of generative search trends. We have deferred the July and October 2025 hybrid interest payments, and the accumulated deferred interest now totals EUR 2.5 million. Thank you all for joining today's call. Thank you for the questions. And looking forward to hosting you for the year-end Q4 report on 10th of February 2026. Thank you very much.
Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindblad Expeditions Third Quarter Earnings Call. [Operator Instructions] I would now like to turn the conference over to Rick Goldberg, CFO. You may begin. Rick Goldberg: Thank you, operator. Good morning, everyone, and thank you for joining us for Lindblad's Third Quarter 2025 Earnings Call. With me on today's call is Natalya Leahy, our Chief Executive Officer. Natalya will begin with some opening comments, and I'll follow with details on our Q3 financial results and updated expectations for the full year before we open the call for Q&A. As always, you can find our latest earnings release in the Investor Relations section of our website. But before we get to all of that, I'd like to remind everyone that the company's comments today may include forward-looking statements. Those expectations are subject to risks and uncertainties that may cause actual results and performance to be materially different from these expectations. The company cannot guarantee the accuracy of any forecast or estimates and we undertake no obligation to update any such forward-looking statements. If you would like more information on the risks involved in forward-looking statements, please see the company's SEC filings. In addition, our comments may reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in the company's earnings release. With that out of the way, I'll turn the call over to Natalya. Natalya Leahy: Thank you, Rick, and welcome, everyone, to our third quarter earnings call. I want to start a bit differently today. Our guests are in the center of everything we do, and I want to share a remarkable highlight from this quarter. We achieved our highest guests Net Promoter Scores ever, both for quarter 3 and year-to-date since we began measuring them. That milestone made me pause and reflect on where we came from on the history and legacy that make us who we are today and differentiate us and set us up for success going forward. In January 1966, Lars-Eric Lindblad led to very first nonscientific expedition to Antarctica, followed a year later by the first citizen voyage to the Galapagos. These were the expeditions that started it all, the beginning of expedition travel and in many ways, the birth of ecotourism, now one of the fastest-growing segments in global travel. That legacy still defines us in our industry, experience and expertise truly matter and those take decades to build. It's this foundation built over nearly 60 years of pioneering exploration that continues to drive the exceptional guest experiences and results we are seeing today. Talking about results. We are pleased to report another quarter of very strong performance with revenue and adjusted EBITDA both exceeding expectations. Consolidated revenues increased 16.6% with our Lindblad and Land Segments growing 13.4% and 21.1%, respectively. Within our Lindblad segment, occupancy reached 88%, 6 points higher than last year on a 5% increase in capacity in the quarter, resulting in a record level of available guest nights of any quarter of our company's history. Net yields increased 9% to $1,314, the higher third quarter yields in the company's history. We were particularly pleased to see our core Alaska trade performed exceptionally well, achieving almost 16% yield growth. This result demonstrates that travelers truly appreciate the unique intimate and highly differentiated experiences we provide, thanks to our unparalleled expedition expertise. We will continue to look for opportunities to increase capacity to meet demand in popular destinations like Alaska. From a profitability perspective, we produced the highest level of adjusted EBITDA in a company history with adjusted EBITDA increasing 25% to $57.3 million and margins expanding 160 basis points to 23.8%. These results are proof that our commercial strategy to drive occupancy and maximize revenue is working and gives us strong confidence that we are on our way to achieve historical occupancy levels in 2026 and beyond. Looking ahead, our net booking costs remained strong for 2026 in both segments and are taking significantly ahead of prior year. We've seen a very encouraging uptick in 2027 bookings as well as we just launched our 2027 deployment. Supporting our optimism marketing conditions in the luxury travel segment remain highly favorable. According to a recent McKinsey study, demand for luxury tourism is expected to grow faster than any other travel segment with a projected 10% CAGR through 2028. These industry tailwinds reinforce our confidence in our positioning for sustained growth. Focusing on our 3 strategic pillars continues to be essential in our path forward: number one, maximizing revenue generation through occupancy, pricing and deployment optimization; number two, optimizing financial performance through cost innovation and fixed asset optimization; and number three, exploring and capitalizing on accretive growth opportunities, including growing our portfolio. Let me begin with our first pillar, which focuses on maximizing revenue generation. Our Disney relationship continues to introduce the National Geographic Lindblad brand to new audiences and expanded distribution channels. In partnership with National Geographic, we successfully relaunched our youth travel program called Explorers in Training, targeting core family-friendly destination. This program combined with other marketing initiatives to drive multigenerational travel has generated encouraging early results with travelers 18 years and younger, increasing 24% this summer versus prior summer. Our efforts will drive occupancy and yield optimization in family-friendly destinations such as the Galapagos, Alaska and Iceland. Our Disney Vacation Club activation continues gaining momentum as DVC members can now redeem points for National Geographic Lindblad expedition cruises. Our expedition team had an opportunity to sail with and present our brand to guests of the 4,000 passenger Disney Dream, generating not only media and bookings for members, but also significant interest and leads. This represents the beginning of a significant opportunity to introduce expedition cruising to DVC's most loyal and engaged member base. We continue to see strong momentum from earmark Disney travel advisers with bookings increasing 42% year-to-date. We are seeing higher adoption from this distribution channel as we educate and market our brand to these highly productive advisers, representing a large opportunity to deepen our penetration. Regarding our sales initiatives. In August, we fully rolled out on board dedicated expedition sales specialists. For the quarter, our onboard sales program performed exceptionally well, with bookings as a percentage of total more than tripled year-over-year as our expedition experts effectively introduce guests to new destinations, converting them into repeat customers at the height of their excitement. This program not only drives higher repeat rates, but also expand booking windows, which is so important for pricing optimization. Similarly, our recently expanded outbound sales program is gaining significant traction with year-to-date sales increasing approximately 80% versus the prior year. We believe we're still in the early stages of optimizing this high potential distribution channel. In our Land segment, we delivered strong quarter 3 performance with our portfolio of premium adventure destinations continuing to exceeding guest expectations. We appointed a dedicated sales leader to capitalize on cross-selling opportunities between our Land segment and expedition cruise offerings, creating additional revenue synergies across our platform. Moving to our second pillar, which focuses on optimizing financial performance through cost innovation. We continue to build cost innovation capabilities throughout the organization. This ongoing initiative helps us well on our way to meeting our cost efficiency targets this year while kicking off the next round of cost innovation projects. Among our accomplishments this quarter, we renegotiated corporate leases and port agreements, generating hundreds of thousands in cost savings. We also recently hired a Senior Vice President of Supply Chain and Procurement, who brings years of world-class experience across multiple industries, including cruise operations. Additionally, we successfully refinanced our debt, extending maturities and lowering our interest rate by approximately 75 basis points, a very meaningful achievement that strengthens our balance sheet flexibility and enables us to continue investing strategically across both our Lindblad and Land Experience segments. Rick will share more details on this in his section. Our third pillar focuses on accretive growth opportunities. The sustained strength in demand for our product presents compelling opportunities to strategically expand our capacity, including through new builds and charter partnerships. To that end, we continue to strategically expand our charter offerings. Our inaugural European river cruising program exceeded expectations, prompting us to increase the number of voyages for 2027. We've added spring and summer departures, as well as new in-demand Christmas market and holiday sailing offerings. In fact, we just announced our 2027 River collections this morning, including European, Egypt, India and Vietnam itineraries. Charters provide a very efficient, capital-light approach to enter high demand markets for the right season. We are also actively evaluating accretive acquisitions, both with Lindblad and Land segments. As always, I want to briefly highlight our why because while these 3 strategic pillars drive our operational excellence and growth, our success is equally rooted in our unwavering commitment to our purpose of responsible exploration. During the quarter, we held our Arctic Visiting Scientist program in collaboration with National Geographic Society. Our ships hosted 10 projects, 6 of which were led by National Geographic explorers and funded by the Lindblad Expeditions-National Geographic Fund. Participating scientists surveyed glaciers to study the stability and structure, monitor changes in sea temperature and collected seawater to understand how small microbes survive in dynamic and extreme environments. Guests traveled alongside the scientists and learn about their work in real time, exemplifying how our collaborative impact programs with National Geographic Society differentiate us in the marketplace. Turning to guidance. Given the strength of our performance, we are raising full year guidance for net yields, revenue and EBITDA. Rick will take you through the specifics of our outlook in his remarks. These results reinforce our confidence that we are executing successfully on our strategic plan and are well positioned to capitalize on the significant opportunities ahead. In closing, I want to express my sincere appreciation to our crew, our field experts, the incredible founders of our land companies and the entire team who worked tirelessly to deliver extraordinary guest experiences at the highest standards. This unwavering commitment to excellence is reflected in our results and is built into our DNA. As we look ahead, we remain committed to building on this momentum, continuing to invest in our people and operations and delivering the transformative travel experiences that sets Lindblad apart in the marketplace. Thank you for your continued confidence. We look forward to updating you on our progress in quarters ahead. And now I'm turning the call over to Rick for his remarks. Rick Goldberg: Thank you so much, Natalya. This was an outstanding quarter with strong top line growth as we continue to drive occupancy back to historical levels and solid bottom line performance as we advance our cost innovation initiatives to improve margins. Total company revenues for Q3 2025 were $240 million, an increase of $34 million or 16.6% versus Q3 2024. Lindblad segment revenues were $138 million, an increase of $16 million or 13.4% compared to the prior year. Occupancy increased 6 percentage points from 82% to 88% despite a 5% increase in available guest nights, and net yield per available guest night increased 9% to $1,314, the highest third quarter yield in company history. Land Experience segment revenues were $103 million, an increase of $18 million or 21.1% compared to Q3 2024, driven by a 12% increase in guests and an 8% increase in revenue per guest. Turning now to the cost side of the business. Operating expenses before stock-based compensation, transaction-related expenses, depreciation and amortization, interest and taxes increased $22.7 million or 14% versus Q3 2024. Specifically, cost of tours increased $14.6 million or 13%, driven by operating additional voyages and trips. Fuel costs were 4.5% of Lindblad segment revenue, which was flat to Q3 2024. Sales and marketing costs increased $5.1 million or 20%, primarily due to higher royalties and commission expense and investments in demand generation efforts. We expect marketing expenses to remain elevated in Q4, reflecting investments in initiatives designed to drive growth into 2026 and 2027. General and administrative costs, excluding stock-based compensation and transaction-related expenses increased $1.7 million or 7% versus a year ago, driven by higher personnel costs, partially offset by $1.8 million of employee retention tax credits realized in Q3 2025. Adjusted EBITDA for the quarter was $57.3 million, the highest quarterly result in our history and an increase of $11.5 million or 25% versus the prior year. This was driven by a $6.5 million and a $4.9 million increase in the Lindblad and Land Experience segments, respectively, with both segments growing EBITDA by 25% year-over-year. This includes the impact of $1.8 million of employee retention tax credits realized in Q3 2025, which brings the year-to-date impact of this program to $5.3 million. We also continued to deliver margin improvement this quarter, driven by greater leveraging of our fixed cost infrastructure and our cost innovation initiatives with adjusted EBITDA margins expanding 160 basis points year-over-year to 23.8%. Net income available to stockholders for the third quarter was roughly breakeven or $0.00 per diluted share, reflecting $23.5 million in debt refinancing expenses. Turning to the balance sheet. We ended the quarter with total cash of $290.1 million, an increase of $74 million versus the end of 2024. The increase reflects $97.1 million in cash from operations due primarily to the strong results of the business and increased bookings for future travel. We used $54.1 million of cash for investing activities, which includes the acquisition and refurbishment of 2 Galapagos vessels. Year-to-date, we've generated $60.4 million in free cash flow. During the quarter, we completed a comprehensive refinancing of our debt, a significant milestone that strengthens our balance sheet and enhances our financial flexibility to support strategic growth initiatives. As part of the refinancing, we issued $675 million of new senior secured notes to replace our 2027 and 2028 notes. This transaction simplifies our capital structure, extend our maturities and lower our cost of debt. The new notes were priced at 7%, approximately 75 basis points lower than our prior blended rate, reflecting strong investor confidence in our business. In conjunction, we upsized and extended our revolving credit facility to $60 million with a new 5-year term, further improving our liquidity position. We've now delivered 10 consecutive quarters of deleveraging, driven by continued EBITDA growth and our net leverage stands at 3.1x. Reflecting this progress, S&P Global recently upgraded our corporate credit rating, citing Lindblad's strong operating performance and healthy forward book position. With a stronger balance sheet and ample liquidity, we're well positioned to aggressively pursue accretive growth opportunities, including fleet expansion through charters, acquisitions and/or new builds and adding [ to our ] portfolio of world-class land-based experiences. Turning to our full year outlook. I'm pleased to share updated guidance for 2025. Our demand generation efforts continue to drive strong booking momentum across 2025 and 2026 as well as for our recently launched 2027 itineraries. As a result, we now expect net yield per available guest night to increase 12.5% to 14% year-over-year, up from our prior range of 9% to 11%. In line with this performance, we are raising our full year revenue guidance to a range of $745 million to $760 million, up from prior guidance of $725 million to $750 million. We are also raising our full year EBITDA guidance to a range of $119 million to $123 million, up from our previous range of $108 million to $115 million. This increase reflects the continued strength of our business and our disciplined execution against our 3 strategic pillars. In closing, Natalya and I have now been on board for 10 months, and we couldn't be more encouraged by the progress our teams have made in such a short time. We remain confident in our ability to deliver sustained growth and long-term value for our shareholders. With that, we would now be happy to take your questions. Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Steve Wieczynski with Stifel. Steven Wieczynski: So Natalya or Rick, you gave some high-level color around '26 bookings, and I think you noted bookings for next year in 2027 are running. I don't remember what your adjectives were, but it sounds like well ahead of this point last year. So just wondering if you could give a little more color around those booking trends, maybe where demand is right now across maybe some of your different itineraries, maybe your more important itineraries in next year. And then maybe also some color -- a little bit more color around your commentary about the uptick in bookings from your Disney travel partners, which I think is -- which is obviously pretty important. Natalya Leahy: Steve. Well, thank you. Great question as usual. So we are not giving '26 guidance yet. It's coming next time, but I will give you a little bit more of a commentary. So as I mentioned, our booking cost [ side had on ] '26 in both segments, and it's important to note is quite significantly and actually seeing some recent uptakes which are encouraging. On Lindblad segment, as we mentioned several times, we are working with all the commercial initiatives. As you know, we just implemented them throughout this year. So they have a lot of run rate to deliver results. We are working towards delivering historical occupancy levels, which are around 90%, and we are, I would say, well on track for that, which will result definitely into yield growth combined with managing pricing. As of Disney relationships, we are just starting to see the fruits of all the initiatives that we're implementing there. So we are seeing some results that are coming this year, and I certainly expect more to come in forward years. Steven Wieczynski: Okay. Got you. Second question is also going to be kind of a '26 question, so you might not answer this one, but I'm going to ask it in a way that hopefully, you give some kind of answer. So based on where you guys are booked today, obviously, as we kind of think about yields and pricing next year, you're going to be coming off of a -- what Rick say, 12% to 14% kind of growth year from a yield perspective. So not sure if you can kind of help us think a little bit more about maybe how pricing, how yields potentially could look into next year? Just I guess, coming off 12% to 14% growth, what could that potentially look like? Natalya Leahy: Yes. Well, as you are mentioning, we are coming out of double-digit yield growth year-to-date, which is very largely driven by a step change increase in our occupancy in addition to pricing integrity. Obviously, [ anniversarying ] it will normalize yield growth as we'll continue to increase occupancy, but it's not going to be double-digit increases that we've seen this year. So hopefully, it gives you some confidence. In terms of pricing, we continue to maintain price integrity as we increase occupancy. Operator: Our next question comes from the line of Eric Wold with Texas Capital Securities. Eric Wold: I guess first question, kind of a follow-up on the last one. Natalya, kind of on the maintaining price integrity as you kind of go into next year, is that more -- as you think about that, should we think about that more as kind of the avoidance of discounting as you move into next year? Or do you think you actually have pricing power as you move into next year and the ability to actually take price up in both the Lindblad and the Land-based segments as you look into next year? I guess as you -- as your price, as you think about what you've been booking and how things are priced into next year, maybe talk about what the pricing has been looking like next year versus this year? Natalya Leahy: So again, we will be guiding for '26 during next earnings call. I think, Eric, we are clearly communicating that we are seeing an uptick in demand. We've been increasing our capacities through charter additions, through new ships we added this year. We have been communicating that we're actively looking to expand our capacity, whether it's through adding more charters or new builds or buying ships. And that's because we are seeing a demand, particularly for some of our very popular destinations such as Alaska. We had a giant waitlist in Alaska this year, and delivered exceptional pricing power. Our [ flight ] cruise in Antarctica have been doing extremely well and pretty much selling out the moment we deploy it, and we continue to take price increases there. Galapagos is doing very well, and we now have 4 ships operating there where we basically increased capacity by 40% this quarter versus last quarter and continue to see this momentum. So we sell to over 100 destinations. Of course, there is a variable demand for each one of them. But overall, I think we are seeing exceptional demand for our product. Rick Goldberg: Yes. And if I can just add a couple of quick things. I mean, we're also continuing to build out our revenue management function, which is going to be critical to building out our price growth over time on the expedition cruise side. And then our Land Experiences segment experienced an 8% increase in revenue per guest here in Q3. And so we feel really good about our continued ability to take price in that segment as well. Eric Wold: And then my second question. Rick, on the guidance, I think [indiscernible] the updated EBITDA guidance still does imply a decline in Q4 EBITDA compared to last year's Q4, even with revenue up materially. I know on the last call, you noted expectation for some pressure in second half EBITDA. We obviously didn't see that in Q3. So maybe help us bridge kind of what you expect in Q4, what may be causing the expectation for Q4 EBITDA pressure. Rick Goldberg: Yes. So I think there's 2 important dynamics happening in Q4. The first is a shift in the timing of our marketing spend in order to set the stage for wave season. And the second is an increase in the number of dry and wet docks in Q4. We had 6 happening in Q4 2025 versus only 2 in Q4 of 2024. Eric Wold: Got it. And just quick, should we assume that's a recurring schedule going forward? Or is that more of a '25 specific? Rick Goldberg: What I would say is the timing of dry and wet docks is variable every year based on our decisions around deployment as well as shipyard availability. Operator: Next question comes from the line of Eric Des Lauriers with Craig-Hallum. Eric Des Lauriers: Congrats on strong results. So the increase in occupancy in guest nights, obviously, very impressive here. It's clear that all the changes you've made since joining and the expanded NatGeo Disney partnership are providing some nice tailwinds here. On the flip side, are you guys seeing any headwinds at this point from the macro environment? Obviously, your customers are typically higher net worth so less sensitive to the macro. But just wondering if you're seeing sort of any offsetting headwinds to call out amid all the sort of positive news otherwise. Natalya Leahy: Eric, I think that -- I mean, we are always very mindful of geopolitical environment and always watching that. Our guests are a bit more resilient to economic vulnerabilities. And we've seen that this year as the economy kind of changed that the demand remained pretty stable. So we hope that it will continue moving forward. We always watch for macroeconomic environment. The only headwinds I will remind everyone is, as Rick mentioned several times, we do expect a step up in royalties in '26. Eric Des Lauriers: Yes. No, that's clear. And I think, I mean, if '26 is anything like what we've seen very early on from this expanded partnership, those royalties will be well worth it. Next question for me. So you mentioned the benefit from increasing the mix of charters for a few quarters now. You also stated, Rick, that you expect to aggressively pursue accretive growth opportunities, including Land Experiences. So just kind of a bit of a higher-level question here, but how do you view your current mix of revenues? And is there anything that you would like to sort of increase or decrease from a mix perspective as you look out over the next 5 years or so, whether that's different channels or charters or what have you? Rick Goldberg: So I'll start by saying we're very comfortable with the mix that we have today. We currently have 10 charter ships that will operate in 2026. These are a great way for us to deliver our product in unique destinations at attractive margins without capital intensity. There are natural limitations of expanding capacity through this channel as there are just a limited number of ships available to satisfy our guest experience criteria. However, along with new builds and acquisitions, this is an important tool in our toolbox as we think about growing capacity and we're especially excited to launch a handful of innovative charter voyages this morning for our 2027 season, including on European Rivers, Egypt, India and Vietnam. Operator: Next question comes from the line of David Hargreaves with Barclays. David Hargreaves: Congrats on getting your bond refinancing done. And thinking of growth opportunities, I'm just wondering how you're thinking of financing alternatives and where you feel comfortable with leverage? Rick Goldberg: So I'd say we're very pleased with the results of our recent financing. And as we sit here with a strengthened balance sheet, we feel like that positions us well to aggressively pursue expansion opportunities, whether that's on the expedition cruise side, through charters, acquisitions and/or new builds or expanding on our portfolio of world-class Land Experience companies. David Hargreaves: I guess I'm wondering [indiscernible] thinking bite-size type of expansion opportunities like the last couple of ships you acquired? Or I think you mentioned possibly new builds. Which way are you leaning? Natalya Leahy: I think that this is our -- we are evaluating and considering various different types of opportunities again. It is charter businesses, which have very great way to, as Rick mentioned, to expand capacity in specific destinations. But there are some limitations to that. We are definitely looking at buying existing tonnage if we find something that is accretive as a return on investment and satisfies our brand criteria, and we are evaluating new build opportunities as well. So I would say stay tuned, and you will hear more on that. David Hargreaves: And sorry, Rick, I kind of cut you off. Were you going to say something on leverage sort of where your comfort zone is? Would you consider taking leverage higher? Rick Goldberg: I would say we now have delivered 10 consecutive quarters of deleveraging, and we're confident in our ability to continue to delever as we drive EBITDA growth. Operator: [Operator Instructions] There are no more further questions at this time. I would like to turn the call back over to Rick Goldberg for closing remarks. Rick Goldberg: Just want to thank everyone for your continued interest and support of Lindblad Expeditions. Have a great day. Bye now. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good afternoon, everyone, and a very warm welcome to the Quarter 2 Analyst Meet of Mahindra & Mahindra Limited. For the main presentation today, we have with us our Group CEO and MD, Dr. Anish Shah; ED and CEO of Auto and Farm business, Mr. Rajesh Jejurikar; and our Group CFO, Mr. Amarjyoti Barua. Once the presentation concludes, we will start with the Q&A session. Just a reminder, this meeting is being recorded. For the purpose of completeness, I wish to read this out. Certain statements in this meeting with regard to our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. With that, I now hand over to Dr. Shah for opening remarks. Anish Shah: Thank you, Divya. Good afternoon, everyone. Just before this at the press meet, I started by saying that I'm delighted to announce results for this quarter. And as many of you know me well through many, many quarters, I don't think you've heard the word delighted from me so far as yet. It's always been good, steady performance. We are doing well. We are on track. But this one is different, because we've seen all our businesses come together. And take in the challenges of the quarter, it wasn't an easy quarter overall. But despite that, I would give a lot of credit to our teams across businesses. And therefore, you also see a simplified version of a key messages page, because sometimes when the numbers say what they have to, you don't need to say much beyond that. And what you see is a strong performance across businesses with Farm profits up 54%, with Auto at 14%, but impacted by the GST transition, because a number of vehicles were not delivered from September 8 onwards, or rather delivery was postponed to October. And 14% generally is a very good number, but in the context of our overall numbers, we feel that it could be higher, and that's again because of the transition. Mahindra Finance delivers. We've been talking about Mahindra Finance for some time, and we'll give more details on that. But I look at this as sort of the end of Phase 1 in terms of what we had to deliver for Mahindra Finance and a very strong quarter with 45% operating profit growth. TechM, on track, profits up 35%. This does include exclusion of a one-off gain from land sale last year, and that is, therefore, an operating number of 35%. Growth Gems are accelerating. As you heard before, I typically don't talk much about profits for Growth Gems, because we are looking at investing in these businesses and growing them multiples and therefore, we will look at profits for a few years down the road, not today. But despite that, we've got a good outcome for Growth Gems right now. And on balance, consolidated profit is up 28%. Accounting for three one-offs, first is gain from land sale last year. Second is gain from PLI this year in this -- what was recorded in this quarter, but for prior quarters. And therefore, we've countered the prior quarters' part obviously as a one-off and are not taking that gain into account. And third is the tax payment on SML Isuzu transaction of about INR 217 crores. So, those are the three that we've taken out. And therefore, we want to show the operating profit numbers, which is up 28%. ROE annualized is up 19%. With my standard caveat, which is, please do not expect 19% going forward, it will always be in the range of 18% and could be slightly higher or below that. Consolidated numbers, revenue up 22% year-over-year. Year-to-date, up 22% as well. So, it's not just a quarter. It is performance for the year. Profit operating up 28% for the quarter, 29% year-to-date. And therefore, I want to go back to the reason for the word delighted is, this time we've got all our businesses really contributing in a very meaningful way. It's not just the numbers, it's the quality of the numbers behind all our businesses contributing that delivers that outcome. Drivers of consolidated PAT. Auto and Farm up 28%. Tractor volume, strong at 32%. Auto volumes, given the transition, a little lower at 13%. You'll see a steady margin expansion, completion of the SML acquisition. And that has driven again a very strong outcome for the Auto and Farm businesses. TechM and Mahindra Finance, both businesses that are on a track to meet peer averages and then over time, exceed peer averages. I think Mahindra Finance has completed that first phase, as I mentioned. And what you see here, again, is great results for both businesses. And Growth Gems, where we've got a 5x growth challenge, what you see is 22% increase, a one-off here, which is not a one-off we captured in our overall numbers. There was a onetime tax impact, which we've just basically shown for the Growth Gems only, and because our overall numbers are smaller. But real estate is strong. Aero has continued strong wins. The Airbus helicopter fuselage, that we will supply globally, is a big win for the Aero structures business and Accelo has continued growth momentum. Auto, a little more details on the Auto business. Revenue up 25%. As you've heard from us before, there will be a mismatch between revenue and profit growth for a few reasons, and Rajesh will cover that in more detail as well. SUV penetration from an electric standpoint is 8.7%, up 90 basis points sequentially quarter-on-quarter. And export momentum is strong. This is a growth vector for us, and we are seeing a 40% growth in exports. And hopefully, we continue to see that be a meaningful growth vector as we go forward. Market share, this is a remarkable number, up 390 basis points from a revenue standpoint year-over-year for the same quarter, literally 4 percentage points of market share gain. LCV market share, despite it being 50% plus, has increased as well by 100 basis points to 53.2%. And that has resulted in the profit numbers that we've talked about. Farm, just outstanding execution on the ground. Premium segment growth, albeit from a small base. Operational execution driving both profits and cash. You'll see the cash numbers a little later as -- presents them. And we've completed the sale of SAMPO in Finland. We continue to maintain that discipline. And what we've always said is where we need to exit a business, we will. And this is what we've done with SAMPO. And market share up 50 basis points. Farm revenue starting to deliver the potential that we've been talking about for some time, up 30%. INR 330 crores of revenue for the quarter is starting to move towards profitable -- is profitable now as well. And therefore, you see again the remarkable number of profit after tax growth of 54% for the Farm business. As you think about achieving full potential, Mahindra Finance is one where, I look at this as a breakout quarter. We've talked earlier about improving asset quality, about tighter controls and technology and data being a key part of the business. All of that is done. Asset quality is maintained steadily at less than 4.5% for GNPA. It's at less than 4%, in fact, for this quarter. Controls, a lot of work has been done, and the business has a much stronger set of controls now. We are looking to pivot to growth. Because we've got technology and data also largely in place with the UDAAN stack that we've talked about in the past going live and very strong adoption across our teams for UDAAN, which is effectively creating a whole new system architecture, a much better customer experience and a much easier process that will result in not just customer delight, but also lower costs as we go forward. And that digital transformation is done. We also see a NIM improvement this time of 47 basis points. AUM growth of 13%. This is despite not really focusing on growth for the last couple of years, but we will, as I said earlier, pivot to growth now. And that has overall resulted in a very strong number of operational performance, 45% profit after tax growth for this quarter. Tech Mahindra, on track. Gains in BFSI, Manufacturing and Retail in a tough industry. Accelerated our AI effort have launched Orion. Margin progression is on track, it has been outlined by us as well. And therefore, we feel good about where this business is and again, reflected in some ways in the operational PAT number of 35% growth. As you look at our scalable Growth Gems. Logistics, with Hemant coming in has seen just a remarkable improvement across various parameters from an operational standpoint. We will start seeing the benefits of that from a financial standpoint as well, but that will take a little bit of time, not too long. But we're starting to see some very, very strong execution. And we see the first quarter for a positive gross margin for the Express business, white space reduction, which is excess warehouse space that we had has been reduced quite significantly, not at the level where we want it as yet, but still more work to be done on that. E-commerce segment growth, revenue is up 11%. EBITDA is up 70 basis points at 5% and putting the business on a very solid turnaround track that we'll start seeing more results for. Hospitality, occupancy hurt by some of the weather-related issues in this quarter. And that's been offset by average unit realization being much higher at 85%. We're starting to focus a lot more on quality and on the average unit realization as compared to just number of members. So, number of members, you will see 1% growth, but this is a key area for us. Some geopolitical headwinds for our Holiday Club business in Finland, but it's a business that's still profitable, a good asset overall, but it's one that we feel can do a lot more as we think about holidays going to the next level. Room inventory of 5% and on balance, what you'll see here is a good, strong business that delivers very well for its customers, has a potential to grow to a lot more. And we will come back with details on how we do that in not so distant future. Real estate on a very strong trajectory. You saw GDV last year being extremely strong. That trend continues this year as well. Last year, if you remember, we had the 37-acre land in Bhandup as part of our GDV and resulting in maybe somewhere around INR 18,000 crores. I don't have the exact number, but somewhere in that range. And this year is also on a very, very strong track. So, you're seeing this business be one that has broken out again the plan for GDV growth for -- of a presales growth rather, which is a key metric from a real estate standpoint for this decade is 14x, from what we had in fiscal '20 to what we planned for in fiscal '30. And the business is still looking at how do we grow faster than that. And that's really what we've seen here. The GDV that's required for the presales growth over the next 5 years is largely in place as well, which gives us confidence that the delivery is more based on execution now, not based on external market factors. And that's what you see in the launch pipeline. In addition to that, good realization from the IC business. So, residential presales up 89%. GDV acquired up 3x, still coming from a fairly good year last year. And that brings me to the slide that you've been very used to seeing. Consistent delivery on our commitments. ROE continues to be in the range of 18%. This quarter, it's 19.4% and EPS from the time we had committed 15% to 20% EPS growth, we've delivered a 35% EPS growth. So, all-in-all, very strong execution across businesses for us, and that's where the word delight comes from. And with that, Rajesh, over to you. Rajesh Kajuria: Hi, everyone. Thanks, Anish. Just a quick look. You've seen a lot of this. I'm just going to zip through quickly. The volumes were up 32% for the quarter. Of course, we had the preponement of the Navratras. So, it's not completely like-to-like, but still a very robust growth and gain in market share of 50 basis points. The trend continues to be a strong trend with 44% market share in the first half of this year. 70 lakh tractors rolled out between the two brands, of course, over decades, but 45 lakhs for the Mahindra brand and 25 lakhs for the Swaraj brand. Both milestones got achieved between September and August this year. Farm Machinery business saw a very good quarter, INR 330 crores. Every month clocked INR 100 crores plus. So, it was a very, very strong quarter performance. And we are seeing good momentum now kicking in into the Farm Machinery business. The farm margins were very strong. Core PBIT for -- core tractor PBIT was upward of 20% to 20.6%, which is a very strong performance and something which makes us feel good about -- normally, quarter 2 is not a very strong profit quarter. It's quarter 1 and quarter 3. So, 20.6% in quarter 2 is a very strong margin performance. This is the chart we normally show you with respect to market growth, how we are able to keep a band of margin. And we've seen now consistently last three quarters of 20% plus core tractor margin. The PBIT growth has been 44%. This is consolidated with a INR 1,600 crores profit. On the Auto side, 7% growth, as Anish mentioned, impacted by complex logistic issues starting right from 15th August and then the GST announcement on 4th September, after which we completely stopped all ICE products. So, we then had a huge bundling towards the end. But as you saw, the October numbers kind of made up for the loss in September billing numbers. Very positive trend that we are beginning to see on LCVs finally. Quarter 2 saw 13% growth for us, and we gained some market share. So, as you'll see, when we come to the LCV chart, after many quarters of flattish volume, we're finally seeing growth in the segment. The volume dip in quarter 2 is a reflection of the transition of GST and the billing. So -- but overall, depending on whichever cut you look at it, we are in the mid- to high teens. So, if you look at April to September, April to October, only festival days, retail, we are in the mid- to high teens irrespective of the cut by way of how our SUV growth has happened. Revenue market share still continues to be #1, come down marginally from the previous quarter, because of the reasons that we spoke, but otherwise, a strong performance. We introduced the two new Boleros. They got delayed a little bit because of liquidation of the older versions as GST transition was happening. But the response has been very, very strong. All versions are priced below INR 10 lakhs, which is a great opportunity to create category. And with the changes that we've made, we ourselves are pleasantly surprised with the kind of response that the market has brought forth for both of these changes and both the new versions that are out there. The Thar 3-door with the ROXX interiors coming in, some minor exterior changes, also has got a very good response. And the benefits of all of these, because both of these were mid-cycle, in the middle of festival transitions, we will see the benefits of that as we move into the next quarters. We sold 30,000 electric SUVs totally cumulative till date. Very good feedback from customers, very good word of mouth, very good analytics that we now have on the kind of usage, how much of it is more than 1,000 kilometers per month usage, 20 days more per month, so on and so forth. We will put out this analytics. We were thinking of whether we should do it today, but then we said we'll reserve that for 26th November, which is the first anniversary. And we will put out a more comprehensive customer understanding with numbers. Because, these are all connected vehicles, and we have some really good analytics on how the vehicle is being used and profile of people and percentage of customers who've run so many kilometers per day, so many times in their ownership cycle. So, there's some really good analytics. We'll put that out in a comprehensive release on the 26th of November. The Batman edition has been a huge revelation and a huge learning for us. It just shows us what -- it actually came out of customers who -- when they started seeing the Black BE 6, started calling it the Batmobile. That's what gave us the idea to do the Batman edition. And then, we tied up with it. We announced it at 300. We saw the demand is going to be way more. So, we increased that to 999, which got sold in no time. So, we're in the process of completing the deliveries. And it's -- we'll talk more as we go forward, but we've learned a lot out of how to use special editions out of the Batman experience. The penetration in our portfolio is now 8.7%, which we think is a very good number at this stage of the launch with the two products that are out. This should strengthen further as we introduce and add more products into the portfolio. In the first half, we've been at revenue #1. In quarter 2, we were #2. We had a competitor who had a new product in. And you can see that there's a small gap, but we were in the quarter marginally below #1. This is the point I was making on LCV. You see a reasonably large period of time, which was flattish. And then, we've seen 69,600 volume in one quarter as a very positive turn in the segment. The auto margins are -- this is a stand-alone without contract manufacturing. The next chart will explain this as a format we put out. So, 10.3% is, we believe, a very strong performance. This is how it breaks up. So, what you see as reported is 9.2%, which is 10.3%, which is a stand-alone business. Contract manufacturing, we make INR 10 crores on the INR 2,900 crores. So, that drops it to 0.3%. And the weighted of that is 9.2%. So, we will continue to show it like this, so that you are able to see the operating auto performance without the contract manufacturing getting merged into that. We'd also said that you will see the end-to-end of the electric performance. And hence, you see Mahindra Electric as a company, which had an EBITDA of INR 173 crores in the quarter. This only reckons the PLI for that quarter. As Anish mentioned, the PLI that we got for quarter 4 of last year and quarter 1 of this year is treated as exceptional. So, this is only the quarter 2 PLI accrued, which takes the EBITDA to INR 173 crores. And we earned INR 29 crores as contract manufacturing. So, the end-to-end of that is INR 173 crores plus INR 29 crores, which is the INR 202 crores that you see up. Last Mile Mobility had a very good quarter, 42.3% market share. And as you can see, a very strong electric volume of 32,000. The Auto consolidated, you've seen this. Revenue grew 25%, PBIT grew 14%. Coming to the event on 26, 27th, so this is my closing couple of videos. We see a huge opportunity to build on the equity we have around racing. India has become much more conscious of racing. Two things that changed. One is the Netflix show on Formula racing. The second is the movie F1. Both of these have heightened awareness around racing. We had a really good season last year. We were #4 ahead of many strong pedigree brands. So, we do want to leverage this as we start the new racing season in December in Sao Paulo. So, we have a video which we've been running over the last couple of weeks, leading into the 26th event, where we will reveal some of the new livery and the prep going into the December races. So, the first video is really about that. This is on air for the last few days. [Presentation] Rajesh Kajuria: So, this is one part of what's going to happen on 26th November in Bangalore. We've also started teasing the 9S, as we're now calling it. So, the first teaser was out yesterday, which I'll play for you now. [Presentation] Rajesh Kajuria: And the second teaser is just getting out as we speak. [Presentation] Rajesh Kajuria: So, thank you. With that, I'll hand over to Amar. We're excited about 26, 27 November. Amarjyoti Barua: Thank you, Rajesh. So, you've seen this chart, but I just -- after the media interaction, I got a few questions. So, I just want to reiterate a few things about how we call out one-offs. We don't call out something we hadn't called out last year when we are doing a comparison to last year. If you look at our charts for last year, we had the INR 304 crores gain for land sales called out last year, because it was truly a one-off event and is not likely to repeat. And so, the intent of showing that again this year is to make sure you have an operational baseline to compare to. Similarly, if you see, even though there was a big PLI gain in the current year, it was offset by the tax -- one-time tax we paid on SML, which is why that is -- the net impact of that is the INR 14 crores that's called out. You will see exactly these numbers reflected next year when you see that. So, we are very consistent in this. I just want to reiterate that, because I got a lot of questions on it after the media interview. And even the criteria for calling out something as a one-off, it is not a sub INR 100 crores or even sub INR 200 crores, we would typically take something which is above INR 200 crores as even for consideration in our one-offs, okay? So, I just wanted to clarify that. This chart gives you the picture that Anish showed on one page. So, I just wanted to reiterate again the key messages there. You see the Auto growth, you see the phenomenal Farm growth. Even in Services, you can see the TechM and Mahindra Finance. And as he called out on his chart on Growth Gems, that Growth Gems and investment line item does include a onetime charge we took for Mahindra Holidays. Details of which you can see from their reports. It is a -- truly a one-time, and it is a tax catch-up that we had to do. And we have proactively done that in line with our very strong governance standards, okay? And you can see that reflected here the big contribution from Farm, but also very meaningful contribution from Auto and the Services franchise. Stand-alone results, exactly same principle. You'll see the INR 201 crores out of the INR 304 crores, INR 201 crores was land sale of what we used to call K land, which is what was reflected last year as well. So, we've called that out. And the INR 219 crores is the tax we had on the SML transaction, that is also called out. As I mentioned, again, it's one-off. So, 23% year-to-date growth in revenue, 31% year-to-date growth in profitability, excluding those two one-offs that we have called out, okay? So, clearly, very, very strong performance. This is a chart that most proud of. Because, I think this reflects a lot of effort from the teams. Because you've got to keep both in sync. You've got good profitability, but if you don't have good receivable management, payables, et cetera, you could get out of sync. And this is something which reflects the strength of the results you have seen in the first half. You can see we started the year at INR 27,000 crores. We have spent close to INR 2,500 crores on CapEx. We have done the right -- three rights issues that you're well familiar with. We've done the SML transaction, and we paid out dividends, yet the total cash balance has increased in the first half. So, it reflects very, very strong operational results of -- across the group, but a special call out also for the Auto and Farm team for what they have done on working capital management through, as Anish mentioned, some very trying circumstances that we have seen at least in the second quarter. Okay? So, I'll wrap up with that, and we'll take questions from here. Operator: Okay. We can start with the Q&A. We'll take the first question from Kapil of Nomura. Kapil Singh: Yes. Thank,s, Divya. Congratulations team, I think it was a really tough quarter. So, solid performance. My first question is on the GST cuts, if you could just share your thoughts on what is the impact across your portfolio. So, on the Automotive side, we have the 40% GST bracket and the 18% GST bracket. What are your thoughts on how the consumers are reacting? Because some of your peers have said that the industry growth may be around 6% going ahead with 10% growth in small cars and not so much effectively growth coming from SUVs. And then, some -- maybe you can share some thoughts on LCVs and Tractors also, if you feel with the GST cut there will be some impact on demand there as well. So, I'll leave it open for you to share the details across the portfolio. Anish Shah: So, just a couple start with an overall view and then go to your question specifically, and we'll request Rajesh to answer that. Overall, I think this is a very, very good move by the government. Because for the longer term, it simplifies things as well as reduces GST. And there will be, in our view, fairly strong multiyear benefits from this move. In the shorter term, what we are seeing is the fact that the strong fundamentals of the economy were waiting for some stimulus to be able to translate that into optimism from an overall feeling standpoint, which is important as well. And we're seeing that happen right now. So, that's a shorter-term impact. And for this, I talk about across the economy, I'm not talking about Auto and Farm in particular. We operate in, as you know, in 70% of India's GDP. And we're seeing that across businesses right now as a very positive thing. So therefore, for both of those aspects, we think it's a very good step forward. Yes, little bit of pain in the short run, as we talked about, but that's fine. We'll take that any time for the benefits that we are seeing here. And with that, I'll request Rajesh to specifically answer your question. Rajesh Kajuria: Yes. So, I'll -- Kapil, I'd like to walk through all the three segments, because it's important to understand each. So, in a way Tractors and LCV, I'm first taking as one bucket. Over the last 5 years, customers have seen unprecedented price increases. At least I have been -- if you go back many years, not seen this kind of a price increase in such a short period of time, huge commodity increases that happened starting 2020, more like 2021, regulation change that kicked in, especially with BS6 and then BS6.2 and multiple other regulatory costs that got added. So, customers have seen more than 25%, 30% cost increases. This was having, especially in the LCV segment, a major drag on ability to grow. Because the fleet owner or the vehicle owner was not able to pass on that on a freight cost charge to customer. So, it was creating a drag. So, I think this was much needed to as a fillip to boost demand. And it's not a small -- I mean, I don't think any OEM could have taken a 10%, 12% price correction. It was just way too much for anyone to do to, kind of, trigger upside in demand. So, as Anish said, I think this is a very significant move from overall approach to boosting growth in the economy. So, I think LCVs will -- and we've already seen that through the festival period, but we'll see a lot of the latent demand over many quarters, which didn't kick in, probably start to kick in. That is accompanied with positive mandi arrivals and many other things. But we've been talking about mandi arrivals for a while, but I think both these needed to have come together and that's happening now. So, that's a positive enabler. On the Tractor side, again, the same thing. It is very, very high cost increases on the Tractor commodity and other things. So, it's quite a substantial reduction again for the farmer. So, it is that along with the mood right now in rural, many enabling factors. So, both of these are clear category enabler. In both these segments, these are clear category enabler in place for the GST. Coming to passenger vehicles, which is everyone has their point of view on how this story will play out. Whichever way it plays out, it's going to play out for good. Now whether some subsegment gains more or less, time will tell. Every customer set is looking for something in particular to their life when they're making a purchase decision. So, when we think of what you were calling the 40% slab, so if you think of vehicles at the 40% slab, they actually start from interestingly from even as low as INR 10 lakhs. In fact, we had done an analytics of volumes that happen in different GST slabs earlier, connected to size and price. And you'll find in the 40% of -- earlier 48% slab. Vehicles as low as INR 7 lakhs is going up all the way to INR 50 lakhs or INR 60 lakhs or more. So, now for a customer who is in the INR 12 lakhs, INR 15 lakhs, INR 17 lakhs bracket, they're still paying 40% GST and they're at a certain budget. Now, they are able to move up the ladder of feature offering for the budget they already had. So, they are not first-time buyers who are going to come into the category or not based on a certain price. But what they choose to buy, they will -- they can upgrade based on a certain price. So, there may be customers who were till now not thinking about buying, let's say, a bigger SUV. But today can, because we've enabled it. And I just spoke about an example of, let's say, Bolero or Bolero Neo. If that product was INR 1.5 lakhs, INR 2 lakhs more, it may have excluded some set of customers. But today, when they've gone below INR 10 lakh, and hence, we are also able to get the on-road benefit, because, as you all know, most states have a differential road tax above INR 10 lakhs, you start getting the multiplier effect on on-road price. This, along with reducing interest rates, creates a compelling package for those who are in the mid end of the market to upgrade either from what they were buying earlier. And as some of our peers referring to that comment would say for those who are not thinking of buying a car earlier and are now thinking of buying a car. Right? So, you have a spectrum of buyers who are going to be reacting differently. For some people, it's a question of should I buy a car or not. And the size of the overall passenger vehicle market goes up, because more people have come in, over a period of time, they're going to upgrade. And while we may not get that customer into our portfolio today, they will be our customers for the future. So, I think at the end of the day, I'm sorry, I'm giving you a very long answer to your short question, but I think this is going to be good for everybody. Kapil Singh: No, that was the intent. Actually, I wanted a more detailed answer. But can you cover EVs also within that answer? Is there an impact because the differential has changed? Rajesh Kajuria: So far, we are not seeing that. I still think the EV propositions. Firstly, most of our EVs are in the big size and hence, play against the big SUVs, right? So, the gap still is 5 to 40. We were not in the 5 to 28 category. We were in the 5 to 48 category. So yes, the gap has come down, but 5 to 40 is still a very substantial gap. Amarjyoti Barua: Sure. And can I just add one thing, which is a fringe benefit of this is the simplification on the working capital side for the Farm business is pretty significant. I don't know whether that was as obvious earlier. That is a business which used to have a 12, 18, 28 kind of structure, right? And now it's far simpler for the team to manage and working capital will be better managed as a result and should free up some as well. It's a big benefit. Kapil Singh: Yes. Sir, second question is on the CAFE norms. We saw some changes in the draft, particularly, I was a bit surprised to see lower credits for EVs than what was originally being proposed. Where are you placed on this? What is the EV penetration required now? Is this draft final? Do you need hybrids in your portfolio as well as you move forward? And also, if you can share some color on festive bookings since your portfolio is under transition, probably if you can share some numbers there would be helpful. Anish Shah: I'll just start again by saying that we don't believe the draft is final. There are a number of inputs that have been sent after that across the industry and SIAM also has sent or is sending a set of inputs on that. And our sense is the government will look at all of those before finalizing it. Rajesh Kajuria: So the fundamental word draft means it's not final, and we treat it as such. So, we -- there is a process of dialogue and discussion, which is on, which was the purpose of the draft. And that process is right now under discussion. In either case, as we've said, we will be ready to do what we need to do manage customer expectations and part of that is managing CAFE norms. I think the journey on CAFE is a while away. We feel comfortable that with what is likely to be an outcome, not necessarily the current draft and its process, we will be able to have enough EV in our portfolio along with any other fuel types that are needed to be able to meet the CAFE norm. So, that's the direction towards which we are working. But the draft is far from final. Kapil Singh: And sir, on the festive? Rajesh Kajuria: On the festive, I, in a way indicated that, Kapil, while I was presenting. So, there are multiple ways to cut it and everybody is cutting it in the data in different ways. There isn't any one simple way to look at it. So actually, we have eight cuts of whichever way you want to look at it. The reason I'm saying that is, this time, the first 7 days of Navratri were way better, because the period before Navratri, customers were not really buying at all. Compared to normally, pre-Navratri, you had Shraddh, but South was buying, who were not so much into the Shraddh mindset. Right? So, it's just very hard to compare anything. So, we're just looking at basically April to October as a period or quarter 2 as a period or we've also looked at only September, October. So, whichever way we look at it, we are mid- to high teens on our retails as a number. So, we are in line with what we've been thinking should be the offtake. I'm not getting into first day of Navratri to last day of Diwali, because this time demand has spilled over beyond last day of Diwali as well as we've all seen, when you look at Vahan. So, I don't think there's any one right way to cut it, and we've cut it multiple ways, but we feel overall comfortable. Given the limitations that were there of having the right product mix, because of dispatch delays and all of that. So given all of that, I think we feel comfortable about the way demand works. Not specifically reacting to bookings right now, because actually booking numbers are very, very healthy. Now it's just hard to say what of that is going to convert and we've decided not to get into sharing bookings. But booking momentum has been much stronger than retail momentum. Operator: Nitin, please proceed. Nitin Arora: Just on this consumer behavior, what you talked about, people might want to upgrade, because it's not like income is increasing. It's like the price is reducing part. How do you see that mix of -- because 1.5-liter diesel becomes very attractive, especially for the mid-SUVs versus a petrol when we look at the price bracket? And some of your competitors, especially Koreans are talking about a lot of bookings coming in the diesel in the midsize, and we have that very strong product there. So any transition, any consumer behavior you have seen a change where you see because the product is very well accepted, some market share gain can happen there, how consumer is behaving to that part, diesel versus petrol, especially in that particular segment? And second question to Anish, sir, I think as an investor, I -- 2023, I asked you a lot of questions about RBL. Anish Shah: We should have placed bets as to how soon that RBL question is going to come in. Nitin Arora: Finally, it's a very big strategy investor is there. How are you thinking about now? You already owns, I think, 60% of the bank. So just any input from your side? How you're now you're thinking about that part? So, those are the two questions. Anish Shah: So I'll start with that as a shorter answer, because as we said earlier, one of the key reasons was a treasury investment as well. We saw significant value there. And that has played out. So, if we just see the gains, it's probably more than 50%. I don't know the exact number. But for us, it is in a sense, a validation of what we had seen. And it's one that we will continue to look at as the treasury investment, make decisions on that basis from a treasury standpoint. In the previous session, with the press, I was joking and saying, someone should just do an analysis of how much timeshare this gets versus the really impact on M&M. And you'll see a huge inverse correlation from that standpoint, because everyone loves this question. So, that -- it's a good one to ask. Rajesh? Rajesh Kajuria: Your question is primarily around diesel, petrol? Nitin Arora: Diesel and petrol. [indiscernible] Rajesh Kajuria: Yes. So I'll just quickly walk through different parts of our portfolio. So, 3XO is primarily a petrol offering now more than 75%, 80% is petrol. We're not seeing -- at this point, at least, I have no input that there is a shift there towards diesel. There is a lot of shift there by way of which version becomes attractive, because as prices come down, a different version becomes attractive than what was so before the price change. So, in 3XO at least, I have not so far picked up that there's more diesel demand, because of a price drop. Though it's an interesting input, and we'll watch it on 3XO, but at least, so far, I don't have that input. On the rest of our portfolio, diesel is in the region of 70% to 75%. 25%, 30% is the gasoline. It varies from product to product. Diesel can be a compelling proposition now, because of the price drop and that puts us at a competitive advantage, clearly. So, in following up on Kapil's earlier question, different people are going to get different things out of the GST rate cut. I was earlier focusing on the ability to upgrade vertically, but an interesting perspective could be gasoline diesel as well, which will give us a competitive strength. But it's something, honestly, we'll not -- at least, we've not picked up yet, and it's some -- and thanks for sharing that. We'll watch for that more carefully. Operator: Raghu, please go ahead. Raghunandhan N. L.: Congrats on the results. Sir, firstly, on the LCV side, festive season, at least Vahan shows a very strong double-digit growth. And how do you see the full year outlook? And within LCD, for your customer set, would there be a sense on for how much of the customers would the GST be a pass-through and for how many of them would the GST reduction will actually be a benefit when they are purchasing the product? Rajesh Kajuria: Just to be clear on the second part of the question, you're talking about where they are able to get a GST set off, which is a company buying, right? That's the point. Yes. So, the second one is, let me just try and get that out of the way. For pickups, we have very reasonably large market operation buying, which are individuals are not buying in companies or small aggregators of three, four, five vehicles, who I don't think will be getting the GST tradeoff. Nal, do you want to -- you have a different take. 60% are market MLOs or whatever. So, it's a fairly large chunk, which retains the benefit. On the first question, everyone will have a different view on it. I'm sticking my neck out and saying that it's -- I think we'll -- the outlook will be a double-digit growth for the year. I think, if this momentum continues, which means not just the price impact, but there isn't too much of destruction because the late -- in crops, because of the late rains and mandi arrivals continue to be good and robust. So, the rest of the economic parameters play out the way they have played out in the last 2, 3 months, along with the rate cut. I think we'll end up the year at double digit, but some may argue that it will be high single digits. But at least, I would stick my neck out to say that, I would expect to see low double-digit growth for the category. Raghunandhan N. L.: And also on the Tractor side, now you are seeing a low double-digit growth for the full year. So, how are you seeing the mix between North and other regions, because other regions seem to be growing at a much faster pace. And also recently, there are some concerns in terms of like on the rain side, unseasonal rain side, cyclone side, anything we should read into it? So, that was the part. Rajesh Kajuria: Yes. So Maharashtra, Karnataka, in particular, have seen really strong growth this year. UP is -- UP and Rajasthan has not been all that bad, they are high single digits. So, there have been, I think, from what I remember, the 8%, 9% range. So in a way, from a market share weighting point of view, that's -- weighing point of view, that's good for, that's positive for us. These are very strong markets for both Mahindra and Swaraj, Maharashtra, Karnataka, Telangana, Andhra and so on. So, now whether this will continue, I think my sense it will continue, because some of these states were on a very low base. And including for the second half of this year. So, I would expect that this mix is not changing too much for the balance part of the year. The effect of rains, we are trying to assess. I have actually struggled to see in the past a correlation between significant off seasonal range. So often, we get this happening also in Feb, March. It's not very directly correlated to Tractor sales, it's kind of my intuitive judgment on this. But in this particular case, we need to wait and watch and see what's happening and how much damage -- the fact that there has been damage at this stage is uncommon. Normally, you get a little bit more of that in the Feb, March period, when you get the early rains and you get damage, which I have not seen too much of impact of that. Hopefully, this is not going to have too much. We are not factoring in a slowdown because of the delayed rain, which has just happened. Raghunandhan N. L.: I mean, it's delightful result. Just two, three concerns, I wanted your thoughts on that. One is that Nexperia, would it have an impact on production in Q3 or Q4. Second, on the SES refund. And third, commodity prices, precious metal has been going up. Rajesh Kajuria: Second was? Raghunandhan N. L.: SESZ refund. Rajesh Kajuria: Dealer SES? Raghunandhan N. L.: Dealer SES. Rajesh Kajuria: Yes. So, on the first one, we have a reasonably high confidence that quarter 3 is under -- fairly covered. We believe that the situation will ease out by quarter 4. If not, I'm sure you've been tracking Nexperia closely. It's a very low-value commodity kind of chip, so roughly $0.20. So, it's not hard to substitute. It's not like the semiconductor issue that was there through COVID, which were all very specialized and very hard to replace and needed extensive validation. These are more commodity-type chips. So, it's a question of finding substitutes, which -- for which we need a few weeks. We have, over the last 3, 4 weeks, already solved for many, many existing parts, which now gives us comfort that by and large this quarter is covered. Hopefully, by the time we come towards the end of November, we would have covered, with options, most of our portfolio. There is -- there are multiple stakeholders hoping to resolve this issue. It has impacted Europe OEMs quite significantly, and there's a lot of work happening between a couple of countries in Europe with China to unlock this problem. So, I don't think, as of now, we do treat it as an extreme risk and hence, extreme caution by way of mitigation. So, I hopefully, this should not be an issue. But that being said, we have to be very watchful. On the SES issue, we're just treating it right now as an issue dealers have to solve for it, sub-judice, as you all know, the FARDA has gone to the government. I mean, gone to the Supreme Court, arguing for why it can't be unilaterally discontinue. There is a valid -- they believe they have a valid case and we'll see how that plays out in court. Our view will be to wait and watch that out. In any case, it's a it's a dealer liability in the books of the dealer. Whatever we had to take by way of cost that we've incurred related to SES, we've built it in quarter 2. So, we are not carrying anything in our books over. But of course, this is a dealer point of view. Can you repeat the third question? Raghunandhan N. L.: On Material inflation, on precious metals. Rajesh Kajuria: So, precious metals had gone up. It started easing off a little bit as we all know, over the last week or 10 days. That's something that we need to watch for. Each of these are volatilities that come out of nowhere. So, we'll watch for that, is all I can say. I mean, this is all part of managing life today. You don't know what's coming at you from where. Anish Shah: Just if you don't mind me adding something on that. I just want you to although feel good that the team does have a very strong focus on this and we do hedge everything. So, there was a good anticipation by the strategic sourcing team. The precious metals will see some pressure. We have taken a hedge position from January to now, on average, three precious metals have gone up between 60% to 80%. So you're absolutely right. But we are not as exposed to this phase, because we have taken hedges. We've taken the offsetting gains for the expense that we have seen. But if, of course, the trend continues, then the hedging costs will go up and that will impact. Operator: I'll now just take a few questions online. This is from Arvind Sharma of Citi. Amar, the question is, where would PLI reflect in the stand-alone numbers? And what is the broad amount? Also, how much of it accrues to XEV 9 and BE 6? Amarjyoti Barua: So PLI actually doesn't come up in the stand-alone results because it goes into MEAL books. It is reflected as a revenue item. And the total amount for the quarter was around INR 460 crores, of which INR 150 crores pertain to INR 463 crores exactly, INR 150 crores pertains to -- INR 151 crores pertains to the quarter, and INR 312 crores pertains to prior period. That's what we have called out effectively. The tax impact of -- tax affected amount of that is what we have called out in our results. And it all is for the 9e, it's -- the 6 has not yet qualified for PLI. Operator: Okay. Next question, this is Pramod of UBS. Rajesh sir, there are three questions. Can you please share a full year guidance for SUV, LCV and Tractors? Second question, PLI by which year do you expect PLI incentives to fade for the EVs? And the third question, can you share any EV booking trend post the GST cut on the ICE vehicles? Rajesh Kajuria: Just to clarify the last question, EV booking trends or ICE? Operator: EV. Because GST has been cut on ICE vehicles, so has it impacted the EV booking? Rajesh Kajuria: Yes. So, on SUV for us, Pramod, we stay with mid- to high teens, which was what we said at the beginning of the year. We're not changing that. We believe mid-to-high itself was an aggressive outlook that we had put out, and we stay with that number. For LCV, we think it will be -- I just answered that, in a way to say, we think it will be low double digits for the full year. For Tractors, we had said in the region of 5% to 7%, I think at the beginning of the year, which we are now seeing as low double digits. So, we are upping the Tractor industry outlook from 6% to -- 5% to 7% to maybe like 10% to 12% kind of thing, so low double digits. PLI, it goes on till F '28. And we expect that will continue till then, if not longer, but hopefully, it should continue till then. The claims against PLI there's enough funds left. So, it should comfortably last us till '28. Operator: And there was one on impact on EVs. Rajesh Kajuria: Yes, the EV, it's too early to say right now, Pramod. But as you can see, even through the festival period, the overall EV segment has continued to grow rapidly with the new products coming in from competitors, the segment has continued to remain strong. And we believe that will continue, because as I mentioned, especially in the segment in which we play and some of the new products have come in, the gap between 5 and 40 is still very substantial. Of course, it has come down from 5 to 48 to 5 to 40. But 5 to 40 is still a very large gap, and we don't see that deteriorating. There have been one-off issues in Haryana, we are waiting for the EV policy to get affected, which affects the NCR region, because you have Gurgaon as part of that. So there has been an uncertainty on that. UP went through a few days of old policy to new policy. So some of the state level, things are also kind of getting clarified, which also makes a difference to on-road price. So, it's not just the GST. It's you to see it as a combination. So, the new UP policy, the benefit is only on EV and not on hybrid, which was there earlier from what came in, in October. So overall, too early to say if there is an effect, but we don't see that really having an effect on EV demand. Operator: Anish, there's a question, it stays you had expressed strong confidence that India will achieve 8% to 10% annual GDP growth. Can you please elaborate on impact of the revised GST and other government incentives and initiatives on the M&M businesses other than Auto and Farm? Anish Shah: So, not revising my 8% to 10% estimate. As I said earlier, the foundation is strong. The sentiment change with this is what we are seeing play out. And that's why we felt that the economy will grow at 8% to 10% for the next few years. M&M results as you've seen a fairly strong in this current quarter. And I can't say much for future quarters, but we will promise to deliver what is in our control and deal with things that are outside our control the best we can. Operator: There's another question there that, any further right issue capital investment planned in any of the listed or other subsidiaries in the near future? Anish Shah: There are no rights issues planned in the near future. Capital investments will be made in all businesses as we need them as part of our growth plans. Operator: Next question, this is from Chandra of Goldman. The first question there is BEV's PAC1 and PAC2. Can you please discuss how PAC1 and PAC2 mix is progressing after deliveries have commenced earlier this year? Can you also share some color on the drivers that can help raise our BEV mix towards the targeted range of CAFE 3 vis-a-vis the 8% to 10% BEV mix today? Rajesh Kajuria: PAC1 continues to be sub 10%, which is what we would desire by way of delivery. PAC2, we wanted PAC2 to be a significant PAC, because it creates the right price point, which is why we had introduced a PAC2 79, which is doing well. Right now, PAC2s are roughly 35%, 40% of each of the products. So PAC1 is sub-10%, then 35%, 40% and 50% to 60% is PAC3. Broadly that's the mix on -- to meet CAFE 3 percentage, it's going to depend on multiple things once we see the final policy get play out, whether it's going to be MIDC, WLTC cycle, whether tail pipe emissions on the WLTP cycle will be treated as zero or not. So, the percentages vary a lot. But we have new products coming in. So, the 8-odd percent penetration that has been achieved has been within 5 to 6 months of launch of being in the market with only two of our products, and there's a portfolio of products that will come. So, when we are talking about CAFE 3, we are talking about roughly 2 years away. So, we have a substantial time to get to whatever is the needed percentage from where we are today. Operator: There's another question, which says, we saw a decline in the monthly numbers for SML, last month, and a strong bounce back for the month of October. Were there any production bottlenecks or any process refinements? What was the reason for the decline in the month of September? Rajesh Kajuria: I think some of it was the transition issues around GST and getting the vehicles out, but nothing more to be read into that. Of course, the SML does very well when school bus season kicks in. So, we do see a big increase in market share in the quarters or months where school bus buying happens. They are very strong as we know, in the bus segment. Operator: Okay. This is from Gunjan at BofA. Some of these are taken. So, I'll take the ones which are not there. One, it's Tractors, solid momentum. Can you give more color on underlying trends supporting this euphoria, sustainability of this, an update on TREM 5 regulations. And the second question, how should we see the margin for MEAL trending ahead? Rajesh Kajuria: So TREM 5, Gunjan, firstly, TMA is aligned has had meetings with the Agri Ministry. TMA has also met more to kind of put reality of implications or moving to a very high level of technology from a serviceability in the marketplace. So everyone understands that implementing TREM 5 in a country like ours where you -- farmers have to have service capability or very high-end technology may not be practical. So, there is an understanding that we need the right solution for rural India, so that serviceability for farmers is not constrained. Right now, there's a dialoguing on, which is the TMA proposal to move the 25 to 50-horsepower from 2026 to 2028. That's the TMA proposal. And for the less than 25 horsepower, the date was April '26. Again, there's a conversation on to postpone that as well. Both of these are under consideration. In the less than 25-horsepower the unit cost is not that high and the technology needed is also not that hard to service. But there is a conversation on between Tractor Manufacturers Association and the rest of the stakeholders on what the implications of transitioning to TREM 5 are. On what you're calling euphoria, it has been a strong festive season for Tractors across the board. GST is, of course, one factor, but many underlying factors were building up. We've been saying over the last few quarters that the rural economy has been on a path to strong recovery. The rains have helped, reservoir levels have improved. The government spending, which is a key indicator of Tractor buying, as we've shared in the past, has been strong. Farmer terms of trade have not deteriorated. Export of crops from India have grown, which adds to cash flow to farmers. So, multiple on-ground factors have favored Tractor buying. And the GST has really enabled that process of buying. So, I think part of your question was how sustainable is that. It's really hard to give an outlook for next year, but we just stay with our outlook for this year moving up from 5% to 7% industry growth to 10% to 12% industry growth. Operator: There was another question on margin for MEAL. Rajesh Kajuria: Margin for MEAL, yes. So, margin for MEAL is going to be a series of things that kick in, which is what is the right PAC mix and pricing to enable growth in the segment. We are at that stage where we are into category creation. So, we do want to make sure that we don't lose the overall objective of driving electric vehicle penetration by way of not doing the right things that are needed to make that happen. We do have BE 6, which will, hopefully, by April 2026 meet PLI as well. So multiple localization actions are in place, which will all get executed in a way by which hopefully by quarter 1 of next year, BE 6 will also meet PLI. So that will be one positive enabler. And there is, -- some of the localization benefits also flow through to current portfolio products that are there, which is the 9e as well. So, multiple actions. But we just want to say that the -- a few quarters back, we said we will -- we have a path by which we want to go. And I think just a positive EBITDA was a very good surprise for all of you. Now we are seeing a healthy EBITDA. And we don't want to lose sight of the fact that we want to create this category and have to play a role in driving volumes in this category because that is what will fundamentally ensure long-term returns and long-term margins. So, we don't want to trade off the ability to grow for driving short-term margins. That does not mean we are not taking all actions to keep costs under control, but we do want to make sure that we are driving the adoption of the category in the most appropriate way. Operator: This is a question from BII. This is Adithya Banoth. Do you see any details on first buyer penetration for the 4-wheeler EVs? Any trends that you have noticed? Rajesh Kajuria: Sorry, I didn't understand. Operator: He's saying, details of first buyer. Rajesh Kajuria: First buyer. Okay. When we say first buyer, is that -- do you mean first-time vehicle buyer? No, very, very few. What we do see is a very substantial portion of non-Mahindra, almost 85% of our BEV buyers have not owned Mahindra earlier. So, it's a completely new target group that we're getting in. Fairly large number of multiple car ownerships, but we don't really have too much of -- never bought a vehicle earlier in our portfolio. Very small. Operator: This is from ICICI Prudential, Sakshat. He's asking, we had mentioned about three new ICE SUVs in calendar year 2026, two mid-cycle announcements and one new SUV, that was the composition we had mentioned. Does this include Bolero and Thar 3-door refresh, which we have launched recently? Can you share more details on these ICE launches in '26? Rajesh Kajuria: Unfortunately, we can't share more details. The reason we don't share more details on ICE is just so that, it doesn't look like we're evading the question is, because it does affect buying of current portfolio of products wherever there's uncertainty in customers. So, we are very mindful of that being a Core part of our product that we don't announce any new ICE product too much in advance for the year that is coming. So, we wait and wait and watch as we go ahead, but we have a couple of -- three, four interesting things happening in 2026. Nal, is that number about right? Operator: Yes. The question is also that the Bolero and the Thar 3-door refresh, was that a part of the three? Rajesh Kajuria: No. Operator: This is another question. Exports had a strong growth, both in SUV and Tractors. Which are the key markets showing high growth? Rajesh Kajuria: Yes. So for us, Auto -- firstly, on Auto exports, we're seeing very good response to 3XO both in South Africa and Australia. That's really very, very good momentum there. The 7OO is also doing decently in both these markets. So Australia, South Africa become two very important parts of the export leg. The neighboring countries, which had kind of gotten to a little bit of a slowdown for multiple reasons, money availability, so on and so forth, have all begun to open up. So, Sri Lanka, Bangladesh, all of these, Nepal as well have all opened up. We've sent our first lot of EVs to Nepal. They are on the way in this quarter. So, it seems to be very good demand. That's organically got generated in Nepal for the EVs, probably spillover out of the India story. So, that's broadly what's happening on the Auto side. On the Tractor side, the neighboring countries, again, have opened up, which Bangladesh was having a lot of issues for a while availability of LC, so on Sri Lanka had slowed down. Nepal had slowed down. So, all of those have come back. Algeria, we've started doing business. And so, that's which again was shut for a long period of time, because of the government not allowing imports in without a certain license. Most India exports to Algeria had stopped for almost 1.5 years or 2 years, which have started. By and large, covered it. Operator: Just taking this one last question. This is Amit of PhillipCapital. What is the company's strategy to grow the Farm implements business? And as this business is growing, how do we look at maintaining the margin in line with the Tractor margin? Rajesh Kajuria: Yes. Firstly, I must say that right now, the margin is not in line with the Tractor margin. We're just starting to make some money. So, we have a path to go. The competitive pool has reasonable margins. So, as we evolve our volumes, the margins should be much better than what we are making now. So, the peers that we have in that segment do make a decent level of margin. Unfortunately, there's no formulaic solution to growing in Farm Machinery. It is really to get behind the product category and then work at it and grow. One of the segments in which we haven't so far been in the past done as well as the Harvesters, which goes under the Swaraj brand. We've roughly had 4%, 5% market share. We now have an enhanced improved product, which is beginning to do well. And that hopefully will help us drive overall growth of per unit value. The harvest is about 20-odd lakhs. So, that does play a key role in driving top line. Operator: Great. Thank you, everyone. On behalf of M&M, I would like to thank you for joining us today. Please join us also for our Investor Day on 20th of November. It's a very exciting day ahead. And join us for snacks in the adjoining room. Thank you very much.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Natural Resource Partners L.P. Third Quarter 2025 Earnings Call. [Operator Instructions] It is now my pleasure to turn the call over to Tiffany Sammis, Investor Relations. Please go ahead. Tiffany Sammis: Thank you. Good morning, and welcome to the Natural Resource Partners Third Quarter 2025 Conference Call. Today's call is being webcast, and a replay will be available on our website. Joining me today are Craig Nunez, President and Chief Operating Officer; Chris Zolas, Chief Financial Officer; and Kevin Craig, Executive Vice President. Some of our comments today may include forward-looking statements reflecting NRP's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in NRP's Form 10-K and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP measures are included in our third quarter press release, which can be found on our website. I would like to remind everyone that we do not intend to discuss the operations or outlook for any particular coal lessee or detailed market fundamentals. Now I would like to turn the call over to Craig Nunez, our President and Chief Operating Officer. Craig Nunez: Thanks, Tiffany, and good morning, everyone. NRP generated $42 million of free cash flow in the third quarter of 2025 and $190 million of free cash flow over the last 12 months. We continue to generate substantial free cash flow despite significant headwinds for all 3 of our key commodities: metallurgical coal, thermal coal and soda ash. Metallurgical coal markets are challenged by slowing global growth and soft steel demand. Thermal coal markets are struggling with muted demand caused by mild weather, cheap natural gas, slowing global growth and renewable energy adoption. While the prospects for a more accommodating regulatory environment and increased electricity demand from data centers have increased market optimism for thermal coal, we have not yet seen any material support for prices or demand. While we acknowledge that these factors offer the potential for a more bullish long-term outlook, we will continue to manage the partnership in accordance with the thesis that North American thermal coal remains in long-term secular decline until we see evidence to the contrary. As we've seen previously, we believe -- as we've said previously, we believe most coal operators are struggling to make money with most producing at razor thin margins and a growing number operating at a loss. We are seeing this play out in the announced results of publicly traded companies and recent bankruptcies of several smaller producers. While we have not identified a catalyst to turn the market around, we continue to believe that the vast majority of our lessees are in better financial shape than in previous downturns. We believe these factors, combined with our relatively robust free cash flow generating capability, solid and improving capital structure and conservative management philosophy, position us well for navigating a very difficult coal market. The soda ash market remains oversupplied due to capacity additions and slowing global growth. International prices are below cash production costs for most producers. While we were early to share publicly our concerns regarding the potential for the supply-demand imbalances now plaguing the market, the depth and potential duration of the current downturn is more significant than we initially expected. We are in a generational bear market for soda ash, and there will be more pain to bear before the situation improves. If there is a silver lining to the cloud hanging over the soda ash market, it is that this dynamic is unsustainable in the long term. We expect producers will rationalize supply at some point, but we don't know when or how that will occur. Rebalancing supply and demand will likely take several years before prices return to levels enjoyed historically. As one of the world's lowest cost producers, Sisecam Wyoming continues to navigate this downturn well. In addition to aggressively managing costs and inventories, Sisecam is maintaining its focus on safety and system integrity, 2 areas that are sometimes overlooked during periods of challenging financial results. Our soda ash investment is a long-term asset with durable competitive advantages that will produce an essential global commodity for many years in the future. We are quite pleased that our managing partner is committed to maintaining the long-term integrity of our shared asset even when near-term financial performance is down. We did not receive a distribution from Sisecam this quarter after receiving $8 million in distributions during the first half of the year. While we expect Sisecam Wyoming to remain profitable through the downturn, we do not expect it to resume distributions for the foreseeable future with cash retained used for investments in safety and system integrity. The carbon-neutral industry continues to struggle. Oxy notified us during the quarter that it was dropping its subsurface CO2 sequestration lease on 65,000 acres of floor space we own in Polk County, Texas. You'll recall that Exxon dropped its CO2 sequestration lease on 75,000 acres we own in Baldwin County, Alabama last year. As of now, none of our 3.5 million acres of CO2 sequestration pore space is under lease. You've heard me describe these sequestration rights as out-of-the-money call options on greatness. They cost us nothing to hold, they never expire, and we benefit if the market for CO2 sequestration goes up. I do not believe our leases were dropped due to any problems associated with our specific acreage. On the contrary, I think the locations leased to Oxy and Exxon are some of the highest quality CO2 pore space in the Gulf Coast. The entire CO2 sequestration industry remains burdened by high capital and operating costs, insufficient and inadequate revenue streams and the lack of a consistent regulatory framework. These factors have created formidable economic barriers that operators are either unable or unwilling to overcome. Our call options on sequestration pore space will remain out of the money until and unless these industry challenges are resolved. In conclusion, coal and soda ash prices are down, and we do not see near-term catalysts for market improvement. Our coal lessees are operating at or near their cost of production, and our soda ash investment is experiencing the lowest international sales prices in decades. Despite this, NRP continues to generate robust free cash flow and make progress toward our goal of retiring all outstanding debt. Over the past 12 months, we have retired nearly $130 million of debt with only $70 million of debt remaining as of the end of the quarter. We continue to believe that we will be in a position to increase unitholder distributions in August. However, I caution that the longer we slog through the depths of bear markets for all 3 of our key commodities, the greater the likelihood that some event occurs that pushes that timing back. Rest assured, however, that we will continue to manage the partnership with a conservative mindset in order to protect your investment and be best prepared for negative events that may arise. And with that, I'll turn it over to Chris to cover the financials. Christopher Zolas: Thank you, Craig. In the third quarter of 2025, NRP generated $31 million of net income, $41 million of operating cash flow and $42 million of free cash flow. Of these consolidated amounts, our Mineral Rights segment generated $41 million of net income, $44 million of operating cash flow and $45 million of free cash flow. When compared to the prior year third quarter, our Mineral Rights segment net income remained flat, while operating and free cash flow each decreased $9 million. Decreases were primarily due to weaker metallurgical coal markets resulting in lower sales prices. Regarding our third quarter 2025 met thermal coal royalty mix, metallurgical coal made up approximately 70% of our coal royalty revenues and 50% of our coal royalty sales volumes. For our soda ash segment, net income decreased by $11 million compared to the prior year third quarter, while operating and free cash flow each decreased by $6 million. These decreases were primarily due to lower international sales prices driven by weakened glass demand from the construction and automobile markets, combined with new natural soda ash supply from China. We did not receive a distribution from Sisecam Wyoming in the third quarter of 2025 and do not expect distributions from Sisecam Wyoming to resume until soda ash demand rebounds or there is a more significant supply response to this weakened market, most likely from higher cost synthetic production. Moving to our Corporate and Financing segment. Q3 2025 net income improved $3 million and operating cash flow and free cash flow each improved $2 million as compared to the prior year period due to significantly less debt outstanding, resulting in lower interest cost and less cash paid for interest. We used the free cash flow generated from our business segments to repay $32 million of debt during the third quarter, over $70 million through the first 9 months of 2025, and we remain on track to accomplish our deleveraging goals next year. Regarding our quarterly distributions, in August of 2025, we paid the second quarter distribution of $0.75 per common unit. And today, we announced the third quarter 2025 distribution of $0.75 per common unit that will be paid later this month. And with that, I'll turn the call back over to our operator for questions. Operator: [Operator Instructions] Our first question comes from the line of [ Dan Adler ]. Unknown Analyst: This is Dan Adler. Thank you for all you're doing for shareholders. My question revolves around leasing for lithium mining in the Smackover region. And if you could provide any information on acreage that has been leased or potential for revenue from that leasing. Craig Nunez: Thank you for your call, Dan, for your question. Yes, we are active in leasing acreage in the Smackover formation for lithium production to multiple lessees. We don't comment on terms of leases and that type of thing. I will say that the activity in the area has been -- has varied from robust to lukewarm at various periods over the last several years. But yes, we're active in the Smackover in Southern Arkansas and in Northeast Texas. Operator: Our next question comes from the line of David Spier with Nitor Capital. David Spier: Just first, a bit of a housekeeping question. Just given the passive nature of the partnership, just the operating and maintenance expense, what goes into those expenses? And is there any ability given the environment to reduce that expense line? Christopher Zolas: Sure. Salaries and compensation is a big part of that. We also have a variety of other general corporate costs, insurance, legal, accounting. So there's a variety of general corporate type of costs that flow in there. David Spier: We have -- those aren't in general and administrative expenses. I'm talking about the operating and maintenance expense line. Christopher Zolas: Sure. We also have those same type of expenses in the operating expense for the Mineral Rights segment. But there's also things such as property taxes, which is a big one and royalty expenses as well. We have some royalty costs as well that go in there. Craig Nunez: We have a zero-based budgeting approach so that every year, we -- the goal is to make the total cost as low as possible rather than simply look at increases of costs from year-to-year. So I won't say that we don't sharpen our pencil whenever times are lean because we do. But the reality is we sharpen our pencil all the time. And we have long-term cost management goals that we follow. David Spier: Got it. And then just a general question regarding the company's mineral rights. Are the majority of the company's mineral rights specific to certain minerals? Or are they general subsurface rights where royalty opportunities exist on anything that comes out of the ground? Just some better insight there would be helpful. Craig Nunez: It is generally for specific minerals. David Spier: Understood. And then so with that, are there any opportunities given the growing demand or interest in nat gas? Are there any additional production opportunities that might be arising that didn't previously when the company -- the partnership didn't previously thought existed over the past year? Craig Nunez: I'm not sure I understand your question. You referred. David Spier: Maybe some higher cost -- there were some higher cost natural gas plays that the company has mineral rights on that in the past few years didn't seem like a possibility for production where now these plays are now in the money and there's increased interest of producers. Craig Nunez: In other words, call options moving in the money is what you're describing. Yes. The vast majority of our oil and gas mineral rights are in the Haynesville, in North, Central and West -- North Central and Northwest Louisiana. And that's a pretty active basin right now. And so I would say drilling has picked up a bit in the Haynesville. And to the extent that it does, we benefit from that. I will say that while -- I will say that those numbers are -- those production amounts and those revenues that we can receive from oil and gas minerals, they're not as that material to the partnership. David Spier: Got it. And then just regarding capital allocation, looking at the cash on hand and the debt outstanding, it seems like 1, maybe 2 quarters away from being in a net cash position. Is that the right way to look at it? Craig Nunez: You're looking at it correctly. As we've said, we believe that we will be in a position where we will have the majority -- the vast majority of our remaining debt paid down and be able to increase distributions in the third quarter next year. That's the plan, and that's the forecast. The issue comes in with -- as we continue in this difficult market, are there going to be things that will happen that will change that. We don't know that there will be, but we're just warning everybody that there could be. Operator: Our next question comes from the line of [ Ken Ack ]. Unknown Analyst: [ Kenny Ackerman ]. A question, again, regarding capital allocation. I mean, you guys retired the warrants, have retired substantial amounts of debt, almost all of it, as was just discussed. What kind of would be the criteria to start unit repurchases? Or I mean, what are the thoughts surrounding that? I know this isn't the first time this has been asked, but just considering you're getting closer and closer to a net cash position. I mean, is there anything that would inspire you guys to repurchase your units? Or is there anything prohibiting? I know there's one large owner of the partnership. Just didn't know if unit repurchases were even possible. Craig Nunez: So let's think of it instead of thinking about being in a net cash position, let's think about how we, at the company, think about our balance sheet and what the signals we look forward to being able to do -- to deploy cash in some way other than just paying down debt. We're looking to establish what we define as an NRP fortress balance sheet. And to us, that means 2 things. It means, number one, no permanent debt in the capital structure. And permanent debt, we define as debt that we do not have the ability or intent to repay prior to maturity with internally generated cash. And then in addition to no permanent debt, we want to have $30 million of cash on the balance sheet. And that also means at the same time that we'll have our revolving credit facility in place. Once we're in that position, we feel that we have what we believe is a fortress balance sheet. And then we can feel free to allocate capital as we see best. And what are our priorities for allocating capital? Number one, unitholder distributions. Number two, unit repurchases at material discounts to our estimates of intrinsic value. And number three, if they come along, opportunistic acquisitions where we can acquire assets that are within our circle of competence at what we consider to be bargain prices. And there are no impediments to us being able to buy back units other than can we acquire them for a price that we think is a sufficient enough discount to our estimates of intrinsic value to want to do it. Unknown Analyst: Got it. No, makes total sense. And just one follow-up. I mean, can you give any color around what you consider intrinsic value? I mean just what -- I mean, broad question, but just what would the company consider intrinsic value just to get a decent sense of what would kind of qualify for unit repurchases and what wouldn't? Craig Nunez: No, we're not going to guide on that. Sorry about that. I would encourage you to go back and read our unitholder letters that are published each spring with the annual report with the 10-K, especially this most recent one. But each one of them talks about how we think in terms of intrinsic value and the process we use to value the company because intrinsic value per unit is a very important component of all of our management decisions that we make. And so we've explained in writing how we go about doing that. We just don't tell you exactly what our assumptions are and what the numbers are that we think are in place. Operator: Our next question comes from the line of Neil Patel with Sawgrass Beach. Neil Patel: Congrats on the progress, especially with the debt paydown to $70 million. It's been quite the journey over the last 10 years. Thanks for the comments on thermal coal. I had a question on that. It seems that every day we're hearing more about data center CapEx being at just very extreme levels. I understand you're not seeing that demand come through to your thermal coal assets yet. But if that does next year, is there infrastructure and capacity in place for the producers on your thermal coal properties to scale up? Or would that require a lot of additional CapEx on their side? Craig Nunez: Good question. And I don't know that we completely know the answer to your question because, as you know, our operators are our operators. We don't operate and they don't necessarily share everything with us. But I can give you my educated guess on it, my best judgment. I do believe that if the increased power demand from data centers that is forecasted to result from all of the CapEx that's now planned over the next 5, 10 years, I do believe there will have to be material amounts of capital invested in the thermal coal infrastructure, both to bring new production online and to process it and transport it. I don't know what those dollars are, and I don't know to the extent that, that capital would involve mines that are on NRP or on other acreage elsewhere in North America. Operator: And with no further questions in queue, I will turn the call back over to Craig Nunez for closing remarks. Craig Nunez: Thank you, operator, and thank you, everyone, for joining our call today. Thank you for your questions. And as I look over the list of participants here, the vast majority of you have been with us for quite a while. So thank you for your support over the years, and we look forward to talking to you next quarter. Take care. Operator: Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.