加载中...
共找到 39,315 条相关资讯
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: Thank you for standing by, and welcome to the Harley-Davidson 2025 Third Quarter Investor and Analyst Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Shawn Collins. Thank you. Please go ahead. Shawn Collins: Thank you. Good morning. This is Shawn Collins, the Director of Investor Relations at Harley-Davidson. You can access the slides supporting today's call on the Internet at the Harley-Davidson Investor Relations website. As you might expect, our comments will include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in today's earnings release and in our latest filings with the SEC. Joining me for this morning's call are Harley-Davidson Chief Executive Officer, Artie Starrs; and Chief Financial Officer and President of Commercial, Jonathan Root, who is also the Chairman of LiveWire Group, Inc, and will be available to address any questions about LiveWire during the Q&A portion of today's call. With that, let me turn it over to Harley-Davidson CEO, Artie Starrs. Arthur Starrs: Thank you, Shawn, and good morning, everyone. I'm excited to be with you today and thrilled to be partnering with our Board, Jonathan and our leadership team, with the broader team here at Harley-Davidson and of course, with the Harley-Davidson dealer network. Over the past month, I've been truly energized by what I've experienced across the Motor Company at HDFS and dealerships and with the broader rider community. I'd like to take a moment to thank all the riders I've had the pleasure of meeting at dealerships and dealer events since joining the company. Your passion and connection to the brand are truly inspiring. On October 1, I started my HD chapter with the dealer network right here in Milwaukee at our Annual Dealer Forum, where over 1,500 of our global dealers came together in celebration of Harley-Davidson. During our time together, we reviewed our product launches and marketing strategies for 2026, celebrated the valuable role our dealers play in our business and most importantly, began our planning and alignment to deliver successfully in the year ahead. Since then, I've been working with our team of employees at Juneau Avenue and have visited company facilities in Wisconsin and Pennsylvania. I've been impressed with the level of talent, craftsmanship and the unwavering commitment to the brand from employees at all levels across the company. That resilience is part of what makes Harley-Davidson so special. On the road, I was pleased to meet with over 260 dealers from corner to corner across the country, listening and learning and beginning to shape our shared future together. It's clear that Harley-Davidson has the opportunity to improve dealer health across the network, and I'm committed to addressing it quickly. A healthy Harley depends on a healthy dealer network. And right now, we have work to do to strengthen that foundation, starting with dealer profitability. I've already made some quick decisions aimed at supporting the network in the immediate term. First, we're accelerating our focus on improving motorcycle inventory management. Jonathan will share more details in a moment, but our focus is on reducing overall inventory levels at dealerships, particularly in the touring and CVO segments to ensure a healthier, more balanced mix across the network. Second, we're introducing market-responsive customer-facing promotions. These are designed to drive traffic to our dealers, help close more sales and support the reduction of touring inventory by moving units through retail. But this is especially important given the challenging macro environment we're operating in. Third, we're assessing alternative approaches to e-commerce, working closely with our U.S. Dealer Advisory Council. The goal here is to better meet the expectations of today's consumer while maintaining the right balance with the needs of the dealer network. And fourth, we're reviewing fuel facility guidelines to provide more flexibility for dealers. While that review is underway, penalties for noncompliance will be suspended for 12 months. These are immediate actions, but they're also an important step towards strengthening our relationship with dealers while setting us up for a stronger, more resilient future together. Jonathan will get into more details on the quarter. And while we are disappointed by the results of the Motor Company, our Q3 results positively reflect the HDFS transaction, demonstrating the strategic value of HDFS as part of the overall business. Aligned to what you've seen in the numbers, I'd like to share some initial observations about the strengths and opportunities that I've seen since joining the company. Starting with the strengths. First, brand and community. As someone new to the sport of riding and to the Harley-Davidson community, having earned my motorcycle license this year, I'm blown away by the incredible camarderie that surrounds the brand. The support, passion and shared spirit among riders make it feel like more than just a community, it's a family. That passion is one of our greatest assets and a key driver of future growth for both the brand and business. Second, our product. Harley-Davidson is building the best bikes in the world. We'll continue to focus on delivering the best products for our customers and on strengthening our manufacturing capabilities to ensure excellence in every bike that leaves our facilities. Third, our dealer network. It's clear to me that the exclusive HD dealer network is a unique and powerful differentiator. As I said a moment ago, we need to build on that foundation. We'll continue to invest in supporting and strengthening the network as we all navigate the evolving commercial environment. And fourth, HDFS. The HDFS business continues to be a significant strength and asset to the company and to the HD dealer network. Post transaction, this will continue to be the case. Now turning to the opportunities. First, given the continued interest rate environment, affordability will be critical in winning in the market. Our product portfolio must balance aspiration with accessibility, finding the right mix across our future portfolio will ensure we don't over-index on one product family while continuing to appeal to new riders. Second, we must improve our speed to market. We're building the best bikes, but we need to move faster to bring innovation to market and capture new riders. That won't happen overnight, but the competencies and talent exist within Harley-Davidson to accelerate how quickly we bring new products and experiences to customers. Lastly, in the current demand environment, we must sharpen our focus on cost and capital efficiency. Before I hand it over to Jonathan, I want to say a few words on LiveWire. I want to congratulate Karim and the team for the successful launch of the S4 Honcho last month. The product has been met with a lot of positivity, and we look forward to seeing the bikes in the street next year. And with that, Jonathan, over to you. Jonathan Root: Thank you, Ari, and good morning to all. I'd like to start with an update on what we refer to as the HDFS transaction. On July 30, Harley-Davidson announced a strategic partnership with KKR and PIMCO to transform Harley-Davidson Financial Services into a capital-light derisked business model. The transaction includes 3 key components: back book sale, sale of approximately $6 billion of existing HDFS loan receivables, forward flow agreement, sale of future HDFS loan originations and sale of equity interest, sale of a 9.8% common equity interest in HDFS to KKR and PIMCO. At the end of October, we signed and completed agreements for each of these 3 components. I will go into each of these in more detail. First of all, the back book sale. In Q3, HDFS sold the majority of its residual interest, resulting in a gain of $27 million and the derecognition of $1.9 billion of net finance receivables and $1.7 billion of related debt among other assets and liabilities. HDFS classified $4.1 billion of finance receivables as held for sale during Q3, resulting in the reversal of the related allowance for credit losses and driving the $301 million benefit in the provision for credit losses. In Q4, the $4.1 billion of finance receivables previously classified as held for sale were sold on October 30 to strategic partners, KKR and PIMCO. After the loan sale, HDFS plans to continue the management of all finance receivables sold to the strategic partners, where HDFS will receive a servicing fee of 1% for prime rated retail finance receivables and 2.5% for subprime rated retail finance receivables. Secondly, the forward flow agreement. Starting in Q4 on a monthly basis, HDFS expects to sell approximately 2/3 of retail loan originations over the course of its 5-year agreement. This did not have an impact on the Q3 financial statements. The continued management of the finance receivables sold to the strategic partners will result in servicing fees for HDFS, where HDFS will receive a servicing fee of 1% for prime rated retail finance receivables and 2.5% for subprime rated retail finance receivables. And finally, the sale of equity interest. HDFS has sold a 9.8% common equity interest in the fourth quarter to investment vehicles managed by KKR and PIMCO, 4.9% to each based on a 1.75x post-transaction book value. We expect KKR and PIMCO to participate in 9.8% of future HDFS equity activity, including earnings and equity raises with strategic partners holding an exchange right into HOG stock after 7 years. Taking a step back, by executing these 3 components, including selling approximately $6 billion of loans in the back book sale at a premium to par and then with a portion of the proceeds paying off the HDFS debt that corresponds with the loans over the balance of Q4 and into Q1 of '26, this will rightsize the debt structure at HDFS. And as a result, the company expects the transaction to unlock $1.2 billion to $1.25 billion in discretionary cash through Q1 of 2026. In addition, as HDFS transforms to a capital-light model, HDFS will have reduced capital requirements as the KKR and PIMCO investment vehicles will be funding these assets. In return, we expect this will result in a higher return on equity for the HDFS business. At the HDI level or parent level, HDI expects to use the proceeds, first of all, to reduce HDI indebtedness; secondly, to buy back Harley-Davidson shares; and thirdly, for other corporate purposes. We expect that Artie will provide more details on these uses by spring of 2026. Stepping away from the numbers. We are excited to unlock some of the significant value of HDFS for our shareholders through the sale of a minority stake while transforming HDFS into a capital-light financing business. In addition, beginning in 2026, the transaction creates a path that we believe will grow HDFS operating income over the coming years through new loan origination fees and loan servicing fees. And with this transaction, we retain full control and majority ownership of HDFS, where there is absolutely no change to how our dealers or customers transact with or are serviced by Harley-Davidson and HDFS. Now I will turn to Q3 results at Harley-Davidson. I plan to start on Page 6 of the presentation, where I will briefly summarize the consolidated financial results for the third quarter of 2025, and subsequently, I'll go into further detail on each business segment. Consolidated revenue in the third quarter was up 17%, largely driven by the increase in revenue of 23% or up $198 million versus prior year at HDMC. HDFS revenue was down 3%, while LiveWire revenue was up 16%. Consolidated operating income in the third quarter was $475 million, primarily driven by HDFS operating income, which was favorably impacted by the HDFS transaction. At HDMC, operating income was down 2% relative to prior year. The LiveWire segment had an operating loss of $18 million. Consolidated operating income margin in the third quarter came in at 35.4%, up significantly relative to 9.2% in the third quarter a year ago, primarily due to the impacts associated with the HDFS transaction. I plan to go into further detail on each business segment's profit and loss drivers in the next section. Third quarter earnings per share was $3.10. In Q3, global retail was down 6%, with the North American market being down 5% and international markets down 9%, reflecting continued soft demand amidst unfavorable consumer confidence, high relative interest rates and inflation concerns. In North America, our dealers continued to experience lower customer traffic. We experienced this in a more dramatic manner in the first half of 2025, but adjusted our consumer marketing and go-to-market strategies at the end of Q2 and into Q3, which had a positive impact in Q3, evidenced by the sequential improvement in North America retail performance. On a positive note, the Softail family delivered strong growth of 9%, reflecting the strength of the revised product lineup. Non-core motorcycles in North America, including Adventure Touring and Nightster model motorcycles also saw solid gains. Specifically, Adventure Touring bikes were up 4% in Q3 of 2025, driven by the refreshed 2025 Adventure Touring lineup, where the Pan America 1250 ST was newly introduced. In EMEA, retail was down 17% after a comparatively strong first half. Core families, Touring, Trike and Softail were down more than noncore motorcycles, reflecting affordability and inflationary concerns in EMEA. This was partially offset by strong positive growth in noncore segments, including Adventure Touring and Nightster model motorcycles. From a country perspective, within EMEA, the cluster of Spain, Portugal and Italy performed strongest versus the rest of Europe, although it was still down modestly in Q3 of '25 versus prior year. In APAC, retail was down 3%, which is a relative improvement from the first half of 2025. The Softail family was up 6% as consumers responded positively to the updated Softail portfolio. There continues to be intense competition in the lightweight and smaller motorcycle segments. From a country perspective, we welcomed Japan turning in positive growth for the first time since Q4 of 2023. In addition, we saw positive retail performance in Thailand, Malaysia and Taiwan. In Latin America, retail was up 16%, where both Brazil and Mexico were up significantly in the quarter. This is the first quarter of growth for the region since Q3 of 2024 after 3 quarters of declines. Softails were the big positive standout in the region, while on the other hand, touring bikes were down low double-digit percentage points. In Q3, on a global basis, the Softail family delivered positive growth versus prior year. And as I mentioned earlier, Softails were up 9% in North America alone, reflecting the strength of the revised product portfolio and its appeal to core riders. In the U.S., market share for HD in the large cruiser category expanded from 61% in Q3 of 2024 to 68% in Q3 of 2025, underscoring the momentum behind our updated lineup. Moving on to dealer inventory. Global dealer motorcycle inventories were down 13% at the end of Q3 of 2025 compared to the end of Q3 of 2024. We continue to prioritize reducing global dealer inventory, and we are committed to supporting a significant year-over-year dealer inventory reduction by year-end with the continued goal of better matching inventory with demand. Looking at revenue. HDMC revenue increased by 23% in Q3. Focusing on the key drivers for the quarter, 20 points of increase came from increased wholesale volume at HDMC, where motorcycle shipments in the quarter were up 33%, coming in at 36,500 units. Pricing, net of sales incentives was flat in Q3, 2 points of increase came from mix as we balanced out the delivery of motorcycle models and markets. And finally, foreign exchange impacts resulted in 1 point of growth to Q3 revenue relative to prior year. In Q3, HDMC gross margin was 26.4%, which compares to 30.1% in the prior year. Third quarter gross margin was down 3.7 points versus prior year due to unfavorable operating leverage as higher unit cost is derived from production levels experienced in Q2 of 2025, but sold in Q3 of 2025. The cost of new or increased tariffs implemented this year, which came in at $27 million in Q3 of 2025 and unfavorable foreign currency impacts. These factors were partially offset by the favorable impact of net pricing and mix. Third quarter operating income margin was down 1.3 points due to the factors above, while operating expense was $20 million higher than a year ago due in part to higher marketing spend at the dealer level. Turning to Slide 11. In the year-to-date period, HDMC gross margin was 28.0%, which compares to 31.3% in the prior year-to-date period. The decrease of 320 basis points was driven primarily by the negative impacts of lower operating leverage and the cost of new or increased tariffs implemented in 2025. On their own, the cost of new or increased tariffs in 2025 resulted in $45 million of incremental costs in the year-to-date period, creating a headwind of 140 basis points to the year-to-date gross margin. This excludes operational costs of $7 million to mitigate tariff impacts. The year-to-date results include modest cost inflation of about 1%. The negative impacts I outlined are partially offset by the positive impacts to gross margin of pricing, mix and foreign currency. Operating expense in the year-to-date period came in approximately flat relative to prior year at $665 million, which resulted in a HDMC operating margin of 7.2%, which compares to 13.3% in the prior year-to-date period. Before we turn to the next slide, I would like to provide an update on our ongoing productivity cost program. We achieved $75 million of productivity year-to-date, primarily from logistics and supply chain initiatives and continue to expect to achieve $100 million for all of 2025. As a reminder, for the cumulative 3-year period of 2022 through 2024, we have achieved productivity savings of $257 million with another $100 million expected for full year 2025. In 2026, we have plans to achieve another $100 million, exceeding our target by over 10%, as mentioned last quarter. Turning to Slide 12. The global tariff environment remains uncertain, but we wanted to provide an update. In Q3 of 2025, the cost of new or increased tariffs was $27 million. As mentioned earlier, the cost of new or increased tariffs in 2025 through the end of Q3 was $45 million. This includes direct tariff exposure to Harley-Davidson importing and exporting product as well as indirect tariff exposure from suppliers. This excludes pricing mitigation actions as well as operational costs related to new or increased tariffs. Harley-Davidson is a business very centered in and around the U.S. 3 of 4 manufacturing plants are U.S.-based and 100% of our U.S. core product is manufactured in the U.S. We also have a U.S.-centric approach to sourcing with approximately 75% of component purchasing coming from the U.S. With that in mind, we estimate our full year 2025 impact from the direct cost of new or increased tariffs to be in the range of $55 million to $75 million. We have a number of actions underway to mitigate the impact, and we expect this situation will remain fluid given the uncertainty that still exists. Turning to Slides 13, 14 and 15 to touch on HDFS and its financial results. At Harley-Davidson Financial Services, Q3 revenue came in at $261 million, a decrease of 3%, where interest income was down $35 million and other income was up $26 million for a net result of down $8 million in Q3 of 2025 relative to Q3 of 2024. Interest income was down due to lower retail loan receivables at a higher average yield and lower wholesale receivables at a lower average yield. Q3 2025 other income includes a $27 million gain on the sale of 95% of HDFS' certificate interest in certain securitization residual interest, which closed in late August. HDFS' operating income increased by $362 million in the third quarter or 472% versus prior year, driven by the impact of the HDFS transaction. The increase was primarily due to a lower provision for credit losses and higher other income, partially offset by lower net interest income and higher operating expenses. The provision for credit loss expense was favorable primarily due to the reversal of the allowance for credit losses on held-for-sale retail finance receivables, which drove a $301 million benefit in Q3 of 2025 compared with an expense of $58 million recorded in the provision for credit losses in Q3 of 2024. In Q3, HDFS' annualized retail credit loss ratio was 3.2%, which compares to 3.1% in the year ago period. Retail credit losses were $35 million in Q3 of 2025. Total finance receivables at the end of Q3 of 2025 were $6 billion, a decline of 24% versus prior year, primarily due to the HDFS transaction. The $6 billion of quarter end finance receivables included $4.1 billion of finance receivables classified as held for sale, which resulted in the reversal of the associated allowance for credit losses during Q3 of 2025. The held-for-sale finance receivables were sold in October as part of the HDFS transaction. Total retail loan originations in Q3 of 2025 came in at $757 million, roughly in line with the $754 million of retail loan originations in Q3 of 2024. For the LiveWire segment, which is on Page 16, consolidated revenue increased in Q3 of 2025 compared to the prior year period, driven by an increase in electric balance bike and electric bike revenue for the quarter year-over-year. Selling, administrative and engineering expense was also lower by $9 million for the quarter year-over-year. In Q3, LiveWire delivered a 30% or $8 million improvement in consolidated operating loss and reduced its use of cash and cash equivalents through Q3 of 2025 by 39% or $31 million compared to Q3 of 2024. We now expect LiveWire's full year operating loss to come in between $72 million and $77 million. On a unit basis, LiveWire reported sales of 184 units in Q3 compared to 99 units sold in the prior Q3. This increase in unit sales for the quarter was driven by the Twist & Go promotion, which began on August 28. Wrapping up with consolidated Harley-Davidson, Inc. Q3 financial results, we delivered $417 million of operating cash flow in the Q3 2025 year-to-date period compared to $931 million in the Q3 2024 year-to-date period. The decline was due to new originations of retail finance receivables that were classified as held for sale, which is a change as this is classified as an operating activity under U.S. GAAP. As a result, the originations outflows reduced cash flow from operations as there were no comparative retail finance receivable originations classified as held for sale in the prior year. Total cash and cash equivalents ended at $1.8 billion, which was $469 million lower than at the end of Q3 prior year. This consolidated cash number includes $16 million at LiveWire. Additionally, as part of our capital allocation strategy, we remain committed to returning capital to shareholders. In Q3 of 2025, we bought back 3.4 million shares of our stock at a value of $100 million. For the Q3 2025 year-to-date period, we have bought back 6.8 million shares of our stock at a value of $187 million. Slide 18 outlines our aggregate capital return. Since the start of 2022, we have returned an aggregate of $1.7 billion through discretionary share repurchases and cash dividends. Given that the global tariff situation remains ongoing and uncertain, we continue to withhold our full year 2025 financial outlook for HDMC and HDI. We continue to expect HDFS to come in at approximately $525 million to $550 million of operating income for 2025. As we move into Q4 of 2025 and with the noted closing of the HDFS transaction, I will summarize the intended use of proceeds, which will support Harley-Davidson's capital allocation priorities. Cash is expected to be used for the following: first, approximately $450 million of debt reduction at the HDI level. Second, investment in HDMC and organic growth initiatives; and finally, continued share repurchases, evidenced by today's announcement where Harley-Davidson announced its plans to enter into an accelerated share repurchase agreement with Goldman Sachs to repurchase $200 million of shares of the company's common stock. This announcement is part of the previously announced plan to repurchase $1 billion in shares by the end of 2026. The company expects the transactions under the ASR agreement to complete by no later than the first quarter of 2026. And with that, I'll turn it back to Artie. Arthur Starrs: Thank you, Jonathan. Before we head to Q&A, I want to share some final observations of where we're at and what you can expect from us. We'll have much more to say about our go-forward strategy by next spring, both in terms of actions we are taking and our expectations about when those actions will deliver results. We're going to work quickly, but I fully expect that a number of the actions we will take will play out throughout '26 as we reset the company's trajectory for the future. In the meantime, there are several key focus areas that you can expect from us. First, dealers as our customer orientation. We succeed when our dealers succeed. Our efforts will prioritize dealer health, engagement and long-term profitability as the foundation of Harley-Davidson's success. Second, celebrating the joy of ridership and the experience of riding a Harley-Davidson. We need to bring more riders into the community while retaining those we already have. The emotion of being a Harley-Davidson rider is unmatched, and it's our job as a company to make that experience easier, more accessible and frictionless. Third, more simplified marketing programs, which will support local activations and events, ensuring that marketing investments hit nationally and drive local door swings. And lastly, fourth, analyzing and actioning our cost base for capital-efficient growth. We must ensure that every dollar we invest and every penny we spend drives value growth and sustainability for the long term. Since joining the community, one thing has become abundantly clear to me. There is no other brand that inspires the same level of passion, pride and pure enthusiasm as Harley-Davidson. I'm truly excited to begin this journey and look forward to what lies ahead. Thank you for your time this morning. And with that, we'll take your questions. Operator: [Operator Instructions] Our first question comes from Craig Kennison from Baird. Craig Kennison: Artie, nice to talk to you. Your second priority you mentioned was the joy of ridership and bringing more riders into the Harley-Davidson brand. Just as you've done your listening tour and some of the due diligence you did before taking the job, what were your thoughts around the demographic headwinds that Harley faces and ways that you can overcome what feels like a fundamental issue for the brand? Arthur Starrs: Sure, Craig. Great to be connected, and thanks for your question. I'm super excited to be here. And the getting riders into the brand and onto our bikes is I sort of have a unique perspective because I just went through that journey myself. I'll tell you that the inside of this brand, when you get into a dealership and you meet our people and they introduce you to the bikes is extremely warm and welcoming. And having gone through Rider Academy, it was an amazing experience. I think there's an opportunity that it can be a bit more fun. Young people are looking for something that's fun and maybe has seriousness to it, but maybe not as serious as we're currently presenting it. But some of the -- I think, the imagery that people have of Harley, we're reinforcing the fact that some of our riders are a bit more mature. And the legacy, if you look back at the 30, 40, 50 years of advertising that we put out -- and I had Bill Davidson do this for me recently, and he sent me a reel, which is just unbelievably inspiring when we were attracting young riders. There is immense joy. There was a tongue-in-cheek attitude. There was a playfulness in the work, and you can expect some of that to come back, and that's sort of on the brand front. Practically speaking, the product line that we have coming and specifically the Sprint bike coming in the second half of next year, I think, addresses 2 things. One is a bike that's lighter and easier to maneuver. And the second thing is a bike that's more affordable. So if you look in the -- if you walked into a Harley dealership right now, the price point is pretty high for a young rider to be interested in Harley. And I think the combination of brand, product and some augmentation to the experiential elements that make it more fun, I think we have a recipe to do that. Operator: Our next question comes from Stephen Grambling from Morgan Stanley. Stephen Grambling: In your intro remarks, Artie, you had talked about market responsive customer-facing promotions. I was wondering if you could just elaborate on how you're thinking about that? Is that through specific channels? Or are there any kind of investments that you need to make around technology or otherwise to be more responsive? Arthur Starrs: Yes, Stephen, thank you so much. I'll say a few words, and then I'll let Jonathan go into some of the specifics that we've actioned. I think the first thing I'd say is our inventory levels at dealers are too high right now. So it's something that we need to do and need to mobilize quickly against. I think as Jonathan mentioned in his remarks, specifically on the touring side. So we have some promotional activity that is communicated at the local level that's been in place. And then just this past weekend, we put in some more as it relates to touring specifically. And Jonathan, I'll let you go through some of the details. Jonathan Root: Okay. Sounds good. And Stephen, thank you for joining us. So I think a couple of details on that. As Artie talked about, as we go through and we take a look at sort of a pinpointed view on where do we have a concern from an inventory standpoint, one of the places that we have or probably the primary place that we have a little bit of concern is just around some pockets of buildup throughout the United States as we look at touring and maybe a couple of select places here or there from a CDO standpoint. We are making sure that we're passing along tools that support dealers in the way that they have the ability to move through those. There are things that we think that we can do that really inspire consumers to kind of drive door swings to our dealers. We know that when we get customers inside of our dealers, our dealers do an exceptional job of really engaging with that consumer, converting it through to a sale. And so I think some of the important elements are areas that we think are sort of building the brand and building the experience for customers. So looking at lower APR programs for consumers, making sure that those are programs that are extended out to 60, 72 months to really allow a customer to be able to get on to the bike and really address the affordability dynamic that you heard Artie talk about. So that's probably one of the best sort of near-term examples of some things that we are doing to make sure that we're driving sales. The last piece I'll touch on really quickly is that from a longer-term perspective, in 2025 calendar year and with the 2025 model year, we have experimented with some different price points to understand the impact that had from a consumer standpoint. So I think kind of magical price points of $99.99, $14.9, $19.9. And we do know that our customers have a psychological barrier around different price points for what they're willing to pay. That is something that you actually will see demonstrated a little bit more fully in what we're introducing in the 2026 model year. With that, I'll hand it back to Artie. Arthur Starrs: Yes. I think the only thing I would add is what we put into market with the financing support and some of the financial support on these bikes was in response to direct feedback from dealers. So we incorporated precisely what dealers thought they needed, and that's what Jonathan referenced. Operator: Our next question comes from Noah Zatzkin from KeyBanc. Noah Zatzkin: I guess, one, just on the impact of the transaction in the quarter. I think previously, you had kind of talked about expecting $275 million to $300 million of operating income benefit in the second half. I guess I suspect most of that or if not all of that impacted the third quarter. So just any thoughts around kind of the cadence of P&L impacts related to the transaction? And then just any color on how you're thinking about next year would be great. Jonathan Root: Okay. Great. Thank you, Noah. So as we look, I think as we laid out sort of 3 main elements to the HDFS transaction, the back book sale, the forward flow and the equity element, we are super, super excited to partner on this with both KKR and PIMCO investment vehicles. We're excited about getting some of their thoughts and thought leadership into the way that we run the business. The good news, I think, as we look at this transaction is that we have the structure in place where from a dealer and a consumer perspective, they'll see no sort of day-to-day impact in the way that any of that is run. Yet at the same time, we get some of the really solid thinking from a couple of market leaders inside of our business in a fairly thoughtful way that helps us understand credit dynamics across the consumer industry with a little bit more depth than where we are today. As you talked about, this transaction really does close over multiple quarters. So there's some Q3 kind of accounting preparation work that you saw in place that occurred in the quarter, and you'll see more details as we kind of get our final releases out over the next few days. And then we have some other elements that close over the coming quarters. So a little bit of kind of carryover from one quarter to the next. But you are right. We do still feel very committed to that $275 million upside figure that we talked about. And then in addition, as you think through some of the interesting dynamics, there's a lot that gets freed up from a balance sheet perspective. So although the $275 million is the upside from an operating income standpoint, I just want to reinforce that we do have the $1.2 billion that gets freed up in cash by the time we get through Q1 of next year. And so with that, that obviously affords a tremendous amount of flexibility as Harley-Davidson, Inc. thinks about how to place priorities, where our smart capital investments, where are some smart areas of spend, what are some ways that we can really look at driving the business for growth as we move forward. So really, really excited about the optionality that the transaction enjoys. I hope that helps. Operator: Our next question comes from Robin Farley from UBS. Robin Farley: Great. Thinking about next year and what shipments could look like for 2026. I know you had a lot of inventory cleared at the dealers this year, but it sounds like you want to do more of that. So if we're thinking about -- so first of all, I don't know if you have a thought on where retail -- how retail might look going forward. And if you don't, even if you thought that was flat, if we were trying to think about you're comping some inventory reduction, so that could mean shipments up, but it sounds like you want to see further inventory reduction. So if you could help us quantify whether that will be a greater amount year-over-year, just again, kind of thinking about so we can all translate this into kind of shipment expectations for next year. Jonathan Root: Okay. All right. Thank you, Robin. So I'll just walk through a little bit of where we are and kind of what we've done on a year-to-date basis and provide a little bit of colored commentary, and then I'll pass it over to Artie for some thoughts. Obviously, he's done a coast-to-coast kind of North, South, East, West tour across the United States with a tremendous amount of feedback from our dealers. So overall, as we think about the progress that we've made on inventory throughout the year, in Q1, dealer inventory was down 19% versus same quarter prior year, Q2 down 28%, Q3 down 13%. And that's after last year where we actually worked things down a little bit to kind of across the full year spectrum. So if you recall, obviously, we've withdrawn guidance. But as we go through and look at some of the original guide, we had a 10% plus target of being down. We would envision being at that level or maybe slightly improved. One of the really important pieces that I think is there for us as we take a look at this is Artie kind of talked through the actions that we're taking to support the move through and sell-down of Touring. As we look at dealer inventory by family in Q3 of '25 versus Q4, every family is down by 20% to up to 45% with the exception of Touring and CVO, which is pretty flat. And so there certainly was some uniqueness as we look at 2024 due to the product launch of Touring that came out. So as we think through where we are from an inventory position, we're in a very, very healthy perspective across virtually all of the families. The one that in an era with slightly higher interest rates with a little bit more challenged consumer and the consumer affordability dynamic that Artie spoke about is really the touring side of things as we think through how we move people through that product in a way that works for them. So a little bit more color, I hope, helps understand the inventory position rather than just looking at a raw number. And then relative to 2026, we'll obviously issue 2026 guidance. as we move into the 2026 calendar year. But with that, I'll turn it over to Artie. Arthur Starrs: Yes. The only thing I'd add, Robin, is we're optimistic about the pricing ladder that Jonathan referenced earlier, starts with the 9 starts with the 14 starts with the 19, starts with the 24 on Nightster, Street Bob, Softail and Street Glide, coupled with the Sprint bike coming in the second half of next year. So it's -- the focus in the building right now is the inventory support and getting that down on the model year '25 so that these 26 models have the opportunity to be really successful. Operator: Our next question comes from Joe Altobello from Raymond James. Joseph Altobello: Just to put a finer point on that, Jonathan, so just so we're all clear. So you're saying this year, you expect global inventories to end at about 43,000 or so units. and that number comes down a little bit further next year? That's my first question. Second question, the HDFS normalized operating income post all of this noise this year, are you still thinking around, call it, $120 million to $130 million going forward? Jonathan Root: All right. Joe, nice to hear from you. So relative to dealer inventory, I think your math is probably about right as you look at how that reduction kind of translates through to units. Relative to the next calendar year, we're certainly not guiding on 2026 at this point. I hope that some of the commentary that I provided in terms of what we're seeing by family helps understand the uniqueness of the situation that we're in and certainly probably feels pretty consistent with the macro environment that we're operating in. I think as you look across sectors and across businesses, you see consumers who are sort of trading down rather than trading up in terms of products at this point from an overall consideration perspective. That really leans back into the elements that already talked about, the importance of us focusing on the affordability dynamics, really making sure that we are meeting our consumers where they're at. So that's something that you'll see us continue with and something that we're pretty excited about. Relative to the HDFS transaction, elements that we need to make sure that we're working through from a timing standpoint. So there are certain debt settlement elements that we're working through and contemplating right now. We'll see if we can get all of that squeezed into 2025 or how much of that carries over into 2026 So we'll have more when we're together in the next quarter, but certainly excited about everything that, that transaction does, the affordability that it offers up from strategic standpoint, and that's something that we'll be talking about more as we get together next time. Operator: Our next question comes from James Hardiman from Citigroup. Sean Wagner: This is Sean Wagner on for James Hardiman. I wonder if you can provide any color on how you're thinking about fourth quarter? What are you assuming for fourth quarter retail? And how did October retail perform? Jonathan Root: Sure. So I think as we look -- great question around what we're seeing from a quarter standpoint. Please do pass along our best to James too. So I think from a full year perspective, we obviously have withdrawn our guidance a couple of quarters ago. We do feel that it's important that we're sticking with that. The reason for that is obviously an environment that is very, very dynamic and moving and fairly responsive to what we see from an overall approach to tariffs, the environment that's in front of the consumers. We do see that there's consumer sentiment that bounces around from 1 month to the next. We are really, really proud of the way that our dealers are out there working with each of the consumers who are walking in. We have seen kind of sequential improvements in traffic that's flowing into our dealers. So one of the biggest things for us is we know that door swings at dealers end up driving sales. We're pleased with a lot of the dynamics and the metrics that we're seeing on that front. Something that we haven't talked about in our time together today is around the marketing development fund. As you may recall, we announced that right at the very beginning of this year. We knew that, that would take some time to really gain some traction with the dealer body, make sure that collectively, we understand the importance of the spend between where do we go on marketing dollars, where do we go on events and activations and activities. We've really kind of honed-in on a mix of those elements that drive the best performance. So we're excited about what we're seeing there. But again, probably not in the position that we're actually guiding on the calendar year in total or in part unless it's something a little bit with a little more certainty like the HDFS transaction that we've spoken. Operator: Our last question will come from Jamie Katz from Morningstar. Jaime Katz: I have more of a theoretical question. As we think about shipments rising this quarter, what kind of sales growth do you think would be reasonable? Or what level of shipments maybe for us to really start to see a little bit of Motor Company margin expansion? Jonathan Root: Yes, Jamie. So a lot to that one as we think through the theoretical possibilities of what you've spoken of. Obviously, as we think about the margin expansion dynamics and where we would go on that front, you effectively get there through the inverse of what you've been seeing in 2025. So if you think about the dynamics that we've called out that have made a year-over-year margin change line up in the way that it has, it's the flip side of that is how we would end up getting to something where we actually see margin expansion and margin growth. Again, one of the elements that I think is really important around there is some of the experimentation work that we've done with the price points. We are enthused about the early read on that and what some of that has done. That's a dynamic that we think will be really helpful across the business. We're also really, really excited about marketing development fund and as touched on, really gaining a more detailed understanding of the dynamics between events, activations, digital spend, marketing spend, how to get the different elements of sort of go-to-market balanced in the right way is something that we feel excited about how that can translate through supporting dealers at kind of at their dealership and really driving traffic and helping support sales. And then beyond the price points, as we think longer term about this business, product portfolio dynamics are elements that we certainly need to make sure that we're always thinking about. There are some pieces that I think Ari has touched on now and some more that you likely would hear from Arty as we move through spring of next year when you see an update and a refresh from a plan perspective. Artie, any other thoughts? Arthur Starrs: No, I think you covered it well, Jonathan. I think you covered it well. Operator: We have no further questions. I would like to turn the call back over to Artie Starrs for any closing remarks. Arthur Starrs: Great. Well, thanks, everybody, for participating today. I'm super excited to be here and look forward to engaging and meeting so many of you in the coming weeks and months, and we'll see you on the call in February. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Unitil Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Goulding, Vice President of Finance and Regulatory. Please go ahead. Christopher Goulding: Good afternoon, and thank you for joining us to discuss Unitil Corporation's Third Quarter 2025 financial results. Speaking on the call today will be Tom Meissner, Chairman and Chief Executive Officer; and Dan Hurstak, Senior Vice President, Chief Financial Officer and Treasurer. Also with us today are Bob Hevert, President and Chief Administrative Officer; and Todd Diggins, Chief Accounting Officer and Controller. We will discuss financial and other information on this call. As we mentioned in the press release announcing today's call, we have posted information including a presentation to the Investors section of our website at unitil.com. We will refer to that information during this call. The comments made today about future operating results or events are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that can cause actual results to differ materially from those predicted. Statements made on this call should be considered together with cautionary statements and other information contained in our most recent annual report on Form 10-K and other documents we have filed with or furnished to the Securities and Exchange Commission. Forward-looking statements speak only as of today, and we assume no obligation to update them. This presentation contains non-GAAP financial measures. The accompanying supplemental information more fully describes these non-GAAP financial measures and includes a reconciliation to the nearest GAAP financial measures. The company believes these non-GAAP financial measures are useful in evaluating its performance. With that, I will now turn the call over to Chairman and CEO, Tom Meissner. Tom Meissner: Thank you, Chris. Good afternoon, everyone, and thank you for joining us today. I'm going to begin on Slide 3, where today, we announced adjusted net income, excluding transaction-related costs of $0.4 million and adjusted earnings of $0.03 per share for the third quarter of 2025. This represents an increase of $0.01 per share compared to the third quarter of 2024. Through the first 9 months of the year, adjusted net income was $33.5 million or $2.03 per share an increase of $1.4 million or $0.03 per share compared to the same period of the prior year. During this call, I'll cover several business updates, including the successful integration of Bangor Natural Gas into our utility operations, the recent closing of our Maine Natural Gas acquisition, the status of the Aquarion Water transaction and our ongoing rate case in New Hampshire. In addition, in connection with our recent acquisitions, we recently completed a $72 million equity offering which strengthened our balance sheet and improved our credit metrics. As of September 30, our ratio of funds from operations to debt was approximately 17%. Looking ahead, we see continued strong execution of our plan and reaffirm our guidance for earnings growth, dividend growth and rate base growth. Turning now to the 3 acquisitions on Slide 4. We're pleased to have acquired 2 highly complementary natural gas companies in Maine and have now fully integrated Bangor natural gas into our existing operations. I'm extremely proud of our employees throughout the company, including our colleagues in Bangor, whose focus and dedication led to this successful outcome. With the integration now complete, we expect to file our first distribution rate case in early 2027. As noted earlier, we closed our acquisition of Maine Natural Gas on October 31. Having successfully integrated Bangor Natural Gas, we're confident the integration of Maine Natural Gas will also be completed efficiently and effectively. With that in mind, we currently plan to file a base rate case for Maine Natural Gas in mid-2027 somewhat after the Bangor Natural Gas filing. With regard to the Aquarion transaction, the regulatory approval processes are progressing as planned. The New Hampshire Public Utilities Commission approved the acquisition on October 7, and we expect orders in Connecticut, Massachusetts in Maine during the fourth quarter of this year. As I've said before, with their geographic fit, potential for synergies and strong growth profiles, these companies are ideal additions to our utility operations. We look forward to providing the excellent service that our customers throughout Maine, Massachusetts and New Hampshire have come to expect. Turning to Slide 5. As mentioned on our previous call, we expect the acquisitions to accelerate rate base growth to approximately 10% annually through 2029 supporting earnings growth in the upper half of our guidance range. Collectively, we expect the transactions to be earnings accretive once new distribution rates take effect. Turning now to Slide 6. Next, I'd like to provide updates on 2 significant electric investments, our Utility-scale solar project in Kingston, New Hampshire and our Advanced Metering Infrastructure or AMI project. The solar facility, which on Project of the Year at the New Hampshire Energy Week is fully operational and is producing energy consistent with or above our modeled expectations. This is a first of its kind project in the state of New Hampshire and is capable of powering roughly 2,000 homes, reducing the amount of energy we would otherwise import from the regional grid. We are currently seeking recovery of this investment in our New Hampshire rate case. Moving to our Advanced Metering upgrade. The project is progressing as planned, and the replacement in Massachusetts will be completed by year-end with our work in New Hampshire beginning next year. These meters increase the flow of actionable data to empower our customers and enable improved decision-making and grid optimization. The meter upgrades in Massachusetts and New Hampshire will require approximately $40 million of capital investment. In Massachusetts, a portion of this investment is eligible for accelerated cost recovery. Moving on to Slide 7. We recently released our 2025 corporate sustainability report and remain on track to reduce company-wide direct greenhouse gas emissions by 50% by 2030 and to be net-zero by 2050. This pledge underscores our continued commitment to environmental stewardship sustainability and corporate responsibility. Our safety metrics are excellent. Our customers are highly satisfied with our service, and our employees are proud to work for Unitil. One example of an operational initiative we undertook to improve efficiency and reduce emissions is leveraging fleet data using telematics to support effective and sustainable decision-making. This initiative collects and analyzes performance data, including driver behavior and fuel consumption to optimize fleet performance. We have been working diligently to improve fleet performance over the years and believe this will enable us to make beneficial changes that will improve efficiency, lower costs and support our greenhouse gas reduction goals. With that, I'll now pass it over to Dan, who will take us through greater detail on our third quarter financial results. Daniel Hurstak: Thank you, Tom. Good afternoon, everyone. I'll begin on Slide 8. As Tom mentioned, Today, we announced third quarter adjusted net income of $0.4 million and adjusted earnings per share of $0.03, representing an increase of $0.01 per share compared to the same period in the prior year. For the first 9 months of the year, adjusted net income was $33.5 million and adjusted earnings per share were $2.03, representing an increase of $1.4 million or $0.03 per share compared to the corresponding period in 2024. Moving to Slide 9. I will discuss our electric adjusted gross margin. For the 9 months ended September 30, 2025, electric adjusted gross margin was $86.4 million, an increase of $4.7 million or 5.8% and compared to the same period in 2024. The increase in electric adjusted gross margin reflects higher distribution rates and customer growth. The company added approximately 560 new electric customers compared to the same period in 2024, including 126 new commercial and industrial customers. As noted during prior calls, electric distribution revenues are substantially decoupled which eliminates the dependency of distribution revenue on the volume of electricity sales. Turning to Slide 10. I will discuss our gas adjusted gross margin. For the 9 months ended September 30, 2025, gas adjusted gross margin was $134.7 million, an increase of $19.1 million or approximately 16.5% compared to the same period in 2024. The increase in gas adjusted gross margin reflects higher distribution rates, customer growth and the effects of colder winter weather in 2025. The company added approximately 9,400 new gas customers compared to the same period in 2024, including approximately 8,800 customers from the acquisition of Bangor Natural Gas. As of September 30, 2025, approximately 55% of the company's gas customers were under decoupled rates. When excluding banger natural gas, gas adjusted gross margin was $127.3 million, an increase of $11.7 million or 10.1% compared to the corresponding period in 2024. This increase in gas adjusted gross margin, excluding Bangor, is in large part due to higher distribution rates and customer growth as well as an increase in weather-normalized sales of 2.4% for our Northern Maine division. On Slide 11, we provide an earnings bridge comparing the results of the first 9 months of 2025 to the same period in 2024. As I just discussed, adjusted gross margin for the first 9 months of 2025 increased by $23.8 million, primarily driven by higher distribution rates, customer growth and colder winter weather. Bangor Natural Gas accounted for $7.4 million of total gas adjusted gross margin for the first 9 months of 2025. Operation and maintenance expenses increased $8.7 million compared to the same period in 2024. This increase in operation and maintenance expenses includes $2.6 million related to Bangor Natural Gas operating expenses and $2.3 million of transaction costs. Transaction costs are excluded from adjusted net income and adjusted earnings per share. Excluding Bangor Natural Gas and transaction costs, operation and maintenance expenses increased $3.7 million primarily reflecting higher utility operating costs and higher labor costs. In addition, certain transmission expenses were higher in 2025 based upon approved formula rates in our Fitchburg service area. Depreciation and amortization expense increased by $10.5 million, reflecting higher depreciation rates from recent base rate cases, additional depreciation associated with higher levels of utility plant and service and higher amortization of recoverable storm costs and other deferred costs. Depreciation and amortization expense for Bangor Natural Gas was $2 million. Taxes, other than income taxes increased $0.5 million primarily due to higher local property taxes on higher utility plant and service. Interest expense increased $5.2 million, reflecting higher levels of long-term debt and higher interest expense on regulatory liabilities, partially offset by lower interest expense on short-term borrowings. Other expense decreased by $1 million, reflecting lower retirement benefit costs. Income taxes increased $0.2 million, reflecting higher pretax earnings. And lastly, transaction costs of $2.3 million are added back to GAAP net income to arrive at adjusted net income of $33.5 million for the 9 months ended September 30, 2025. We believe excluding transaction costs when reviewing earnings provides a better representation of the company's ongoing financial performance. Turning to Slide 12. As discussed on previous calls, on May 2, 2025, we filed a base rate case for Unitil Energy Systems, our electric distribution company in New Hampshire. The proposed permanent rate increase is $18.5 million. Our requested temporary rate increase of $7.8 million, which was approved as filed, took effect July 1, 2025. In New Hampshire, permanent rate case awards are reconciled back to the effective date of the temporary rate award. The pro forma rate base included in this filing is $289 million and includes the company's solar facility that was placed into service in June. Similar to previous New Hampshire rate cases, we have proposed a 2-year rate adjustment plan to provide for accelerated cost recovery of 2025 and 2026 capital investments. The deadline for discovery on the company's initial testimony is today and the deadline for intervenor testimony is set for December 11. We have been able to settle prior base rate cases in New Hampshire and settlement discussions for this proceeding are scheduled for early 2026. We expect permanent rates will take effect in the second quarter of next year. Moving to Slide 13. Our balance sheet strength continues to be a top priority. The equity offering completed in August with net proceeds of approximately $72 million enhance the strength of our balance sheet and fulfill the equity need for the Bangor Natural Gas and Maine natural gas transactions. We have committed debt financing in place for the pending Aquarion transaction, and we expect to ultimately capitalize acquired companies in a credit-supportive manner with capital structure similar to our existing regulated subsidiaries. With our current funds from operations to debt ratio of nearly 17%, we are firmly above our downgrade thresholds in the average FFO to debt ratio of other utility companies. Turning to Slide 14. Our capital spending for the year is consistent with expectations, and we continue to expect to fund the majority of our capital plan with operating cash flows less dividends. Our current 5-year capital plan, which now includes the 2 main gas companies and the pending Aquarion acquisition totals approximately $1.1 billion and is 19% higher than the prior 5-year plan. Consistent with prior years, we anticipate providing a full update to our investment plan during the fourth quarter earnings call. Moving to Slide 15. We are reaffirming our 2025 earnings guidance range of $3.01 to $3.17 per share with a midpoint of $3.09 per share on an adjusted earnings basis. We expect recent acquisitions once new distribution rates take effect to support long-term earnings growth in the upper half of our earnings guidance range of 5% to 7%. I will now turn the call back to Tom. Tom Meissner: Thanks, Dan. Ending on Slide 16, we are on pace for yet another successful year and remain laser-focused on executing our strategic priorities. We've successfully integrated Bangor Natural Gas completed the purchase of Maine Natural Gas and have maintained the operational excellence we are known for. We're focused on sustainable growth and remain confident in our execution and our ability to provide strong shareholder returns for many years. With that, I'll pass the call back to Chris. Christopher Goulding: Thanks, Tom. That wraps up the prepared material for this call. Thank you for attending. I will now turn the call over to the operator who will coordinate questions. Operator: [Operator Instructions] Our first question comes from Matvey Tayts with Freedom Broker. Matvey Tayts: So my question is about -- so if you compare Slide 19 and Slide #5, so you'll see that base rate -- total base rate is $1.152 million as of 9 months 2025. And on the Slide #5, it says that 2025 forecast is $1.4 million, which looks like significantly more than we already have on the Page #19. So is it a function of M&A to be consolidated. This is my first question. And also -- the second one is also regarding this Slide #19. So if you compare this slide to the previous one in the second quarter, so the total rate base change like just by $1 million. But at the same time, we see that like CapEx net of depreciation was like $33 million. So is it also a function of later revision by the regulator. So that's my question. Daniel Hurstak: Sure. Thanks. Well, I guess, we'll take those in order. So the difference between the $1.2 million in rate base on Slide 19 and the $1.4 million of rate base on Slide 5 reflects the additional rate base for the acquired companies, Maine Natural Gas, Bangor Natural Gas and Aquarion. The difference in CapEx versus rate base increase is a function of when capital projects are closed and placed into service and when the initial capital expenditures are paid or funded. So for a lot of the projects that we have on an annual basis, those capital expenditures will go into construction work in progress during the year, and it closed out later in the year once the assets are placed in service. Matvey Tayts: Yes. Okay. So -- but just one more additional follow-up on the first one. So this $1.4 million, it's it includes additional base rate for all 3 companies, which will be acquired, right, not for the one which will be acquired by the end of 2025. So there is also some implications for future M&As, right? Daniel Hurstak: Correct. The amount here in the light blue shaded box would capture all 3 acquisitions. Operator: [Operator Instructions] I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.
Guilherme Paiva: Good morning, ladies and gentlemen, and thanks for standing by. As a reminder, this conference is being recorded. Its broadcast is intended exclusively for the participants of this event and may not be reproduced or retransmitted without the express authorization of Embraer. This conference call will be conducted in English, but please let me say a short announcement for Portuguese speakers. [Foreign Language] My name is Gui Paiva, and I'm the Head of Investor Relations, M&A and Venture Capital for Embraer. I want to welcome you to our third quarter earnings conference call. The numbers in this presentation contain non-GAAP financial information to help investors reconcile Eve's financial information in GAAP standards to Embraer's IFRS. We remind you, Eve's results will be discussed at the company's conference call. It is important to mention that all numbers are presented in U.S. dollars as it is our functional currency. This conference call may include statements about future events based on Embraer expectations and financial market trends. Such statements are subject to uncertainties that may cause actual results to differ from those expressed or implied in this conference call. Except in accordance with applicable rules, the company assumes no obligation to publicly update any forward-looking statements. For detailed financial information, the company encourages reviewing publications filed by the company with the Brazilian [Foreign Language] or CVM. [Operator Instructions] Participants on today's conference call are Francisco Gomes Neto, President and CEO of Embraer; Antonio Carlos Garcia, Chief Financial Officer; Pau Cesar Souza, Corporate Communications Manager; and myself. This conference call will have 3 parts. In the first part, top management will present the company's Q3 results. In the second part, we will host a Q&A session only for investors. And last but definitely not least, in the third part, we will host a dedicated Q&A session only for the press. It is my pleasure to now turn the conference call to our President and CEO, Francisco Gomes Neto. Please go ahead, Francisco. Francisco Neto: Thank you, Gui, and good morning, everyone. It's a pleasure to be here with you to share Embraer's third quarter 2025 results. Embraer is currently experiencing a highly positive phase, a strong indication that our strategy driven by efficiency and innovation is delivering solid results and effectively supporting our sustainable growth. In Commercial Aviation, highlights include new orders for Avelo for 50 E195-E2s plus 50 options and LATAM for 24 E195-E2s plus 50 options. These achievements have increased the division's backlog to $15.2 billion with an impressive 2.7:1 book-to-bill ratio. In Executive Aviation, we achieved an all-time high for third quarter revenues, reaching approximately $580 million. We also celebrated a historic milestone, the delivery of our 2,000th business jets, marking a record for year-to-date deliveries. Our backlog in Executive Aviation now stands at $7.3 billion, supported by a robust 2.4:1 book-to-bill ratio, reflecting continued strong demand for our aircraft. In Defense & Security, we continue to reinforce our global presence. Portugal confirmed the purchase of its sixth KC-390, including additional 10 new options to support future European acquisitions. We also signed new agreements for the A-29 Super Tucano with Panama and Sierra Nevada in the U.S., reinforcing the aircraft's relevance and versatility. The division closed the quarter with a $3.9 billion backlog and 1.3:1 book-to-bill ratio. Our Services & Support business maintained its accelerated growth path with expanding capabilities. We signed a new maintenance agreement with CommuteAir and launched Starlink connectivity solutions for Praetor and Legacy operators. As a result, the business unit finished the quarter with a 4.9 billion backlog and 1.8:1 book-to-bill ratio. At Embraer, continuous improvement is more than a process. It is a mindset. We successfully completed more than 800 Kaizen projects over the past 12 months. And now by combining our lean culture with AI tools, we are moving forward more rapidly in achieving productivity gains. Our production level initiatives and the implementation of our perfect station concept led to a 16% increase in aircraft deliveries this year. From 2026 onwards, we expect even greater production stability in all product lines. The implementation of our zero-defect methodology reducing our cost of poor quality by 12%. Another initiative that has been delivering significant results is the production lead time reduction. We have achieved important improvements such as reducing the production time of Praetor's by 40%, KC-390 by 33% and E-Jets by 27% compared to 2021 levels, more production with lower work in progress. We made significant progress with new and expanded facilities at key locations in the United States and Brazil, including new hangars, painting booth and final assembly areas. These investments are designed to enable higher production volumes and faster deliveries, fully aligned with our growth strategy. At the same time, we are transforming our supply chain through supply chain management 2.0, a comprehensive initiative that integrates digital technologies, proactive risk management and the deployment of artificial intelligence for smarter planning and forecasting. These efforts have already started to pay off. Aircraft deliveries increased by 16% and average shortage decreased by 25% compared to last year. I will now move on to operational results by segment. All figures are based on year-on-year comparisons. In Commercial Aviation, revenues increased a significant 31% because of better product mix and higher volumes and prices. Adjusted EBIT margin improved from minus 4.8% to plus 1.3%, supported by operating leverage and lower other operating expenses. In Executive Aviation, revenues increased 4%, helped by higher prices. Adjusted EBIT margin decreased 4.2 percentage points because of product mix, U.S. important tariffs, 2.6 percentage points and higher costs. Moving to Defense & Security. Revenues grew 27% because of higher KC-390 volumes and a one-off positive contract-related adjustment. Adjusted EBIT margin improved from 7.2% to 12.9% as a consequence of operating leverage and client mix. In Service and Support, revenues rose 16%, driven by higher volumes and the ramp-up of the OGMA GTF engine shop. Adjusted EBIT margin decreased 5 percentage points because of services and materials delays. Before I conclude, I'd like to share a brief update on Eve's steady progress. The first full-scale engineering prototype test flight is planned for late 2025, early 2026. With that, I will now hand it over to Antonio to walk us through the key financial highlights of the quarter. Antonio Garcia: Thank you, Francisco. Good morning, and good afternoon to everyone. Turning to the quarter. All my comments will be based on year-over-year comparisons unless noted. But before we dive into our financial results for the third quarter of 2025, I'd like to start reiterating our 2025 guidance. We expect to deliver between 77 and 85 aircraft in Commercial Aviation and 145 and 155 in Executive Aviation from an operational point of view. Meanwhile, we expect to achieve between $7 billion and $7.5 billion in revenues, 7.5% and 8.3% in adjusted EBIT margin and more than $200 million in adjusted free cash flow from a financial perspective. This forecast may appear conservative at the first glance, but they reflect the supply chain risks we still face in Q4. Having said that, I'd like to reinforce our estimates reflects our confidence in our operational progress and the resilience of our business model. We remain comfortable with our outlook and feel confident we are on track to meet our full year guidance. That said, let's take a look at our financial results for the quarter. In Slide 12, deliveries -- Embraer delivered 62 aircraft in the third quarter '25. 20 commercial jets and 41 executive jets and 1 KC-390 military plan. This represents a 5% increase compared to the same period last year, with Commercial Aviation deliveries up 25% year-over-year and Executive Aviation is stable. More importantly, for the first 9 months, we have delivered 46 commercial jets, which is 57% of the midpoint of our guidance and 2 percentage points above our 5 years average for the period. In Executive Aviation, we have delivered 102 executive jets or 68% of the midpoint of our guidance and 11 solid percentage points higher than the 57% average from the past 5 years, which demonstrates our strong execution. In Slide 13, backlog and revenue. Our company-wide backlog reached $31.3 billion during the quarter, up a significant 38% and higher than our previous historical record. Looking at each division, Executive Aviation and Service & Support led the pack with their backlogs up 65% and 40%, respectively, followed by Commercial Aviation up 37% and Defense & Security up 8%. I'd like to highlight the significant volumes of purchase options currently held by our customers, which total roughly $20 billion. These are not firming orders yet, but they provide substantial upside potential for our backlog in the next few years, which could increase towards $50 billion. Moving to revenues. Our top line was close to $2 billion for an increase of 18%. For a business perspective, the breakdown appears well balanced. Commercial and Executive Aviation each contributed circa of 30%, followed by Service and Support with 25% and Defense & Security with 14%. Moving to the next slide. We generated $236 million in adjusted EBITDA in the third quarter '25 with an 11.8% margin. Now adjusted EBIT for the quarter was $172 million with an 8.6% margin. This compared to $147 million or 8.7% margin in the third quarter '24, if we exclude the onetime impact of the Boeing agreement, which boosted the adjusted margin by approximately 900 basis points. For the first 9 months of the year, the adjusted EBIT margin stands at 8.6%, a significant improvement of the 2.9% average over the last past 5 years. However, it's important to mention we still expect a relevant impact from U.S. import tariffs, which should weigh on our Q4 margin, along with additional costs related to our return to office initiative. Let's move now to the next slide. Embraer generated $300 million in adjusted free cash flow in third quarter '25. Mainly supported by operating activities, $224 million in EBITDA and lower accounts receivable. Looking now at our investment, excluding Eve, we allocated a total of $99 million during the quarter, slightly lower than last year. The figures includes $39 million in CapEx, $37 million in addition to intangibles, $10 million in the pool program to support new contracts and $13 million in research. Year-to-date, research investments have reached $33 million or 12% of the $284 million in total investment. These resources are focused on supporting sustainable growth and innovation. Slide 16, net income. Let me walk you through the financial bridge from our reported EBIT to both reported and adjusted net income. We started with the quarter with almost $160 million in EBIT. After accounting for $53 million in net financial expenses, $22 million tax credit and $12 million in minority interest, we arrived at $117 million in reported net income, then adjusting for extraordinary items such as $30 million in deferred taxes and $32 million from Eve's results, we get to $54 million in adjusted net income. We closed the quarter with an adjusted margin of 2.7%, a sharp decline from 13.1% last year. I'd like to emphasize this $167 million reduction was mainly driven by the onetime positive impact of $150 million from Boeing agreement recorded last year as well as less favorable net financial results. Looking at the evolution of earnings per share, we have seen solid sequential improvement over the past few years. Our EPS totaled $1.7 per ADS over the past 12 months or substantially higher than negative $0.20 reported in 2021. Let's move to the next slide. First of all, I'd like to start this slide talking about our liquidity position. Embraer's stand-alone net debt position decreased by $646 million to only $439 million in the third quarter of '25 as the company continued to implement its debt liability strategy and reduce its financial gearing. We ended the quarter with a net debt-to-EBITDA ratio of only 0.5x, excluding Eve for a significant improvement from 1.3x a year earlier. It is important to note this, the increase in leverage compared to year-end 2024 is temporary because of the business seasonality. We do expect to finish the year in a net cash position. Our liability management strategy remains focused on extending debt duration and reduce our cost of debt. The average loan maturity is now 5.9 years with 96% of our debt in long-term contracts. To conclude, I'd like to remind you, we announced a new liability management initiative in third quarter '25, which will be fully concluded in November. The company issued $1 billion long 12 years bond at 5.4% coupon, and we will repurchase a total of $809 million from 2028 and 2030 bonds. We will share an updated debt maturity profile and average cost of debt with our full year financials. Slide 18, shareholder remuneration. Before I finish my presentation, I'd like to take a moment to thank our shareholders for their trust and highlight recent developments in our shareholder remuneration initiatives. First, I want to share an exciting milestones. Yesterday, we officially update our ticker symbol to EMBJ, which means Embraer jets to better reflect the company's current strategy and vision for the future. Second, Embraer declared nearly BRL 210 million in interest on equity over the past 2 quarters, which translates into BRL 0.28 per share for a 0.35% dividend yield. Just a quick reminder, this amount may be complemented by a top-up dividend if needed to meet the minimum 25% net income distribution required by Brazilian corporate law. The full amount will be paid in a single installment after our 2026 Annual Shareholders Meeting. With that, I will hand it back to Francisco for his final remarks. Thank you very much. Francisco Neto: Thank you, Antonio. I'd like to take a moment to reflect on our recent key achievements and share a few final thoughts. In Commercial Aviation, strong E1 sales and the continued consolidation of the E2 platform marked our best sales year. Executive Aviation continues to see robust demand across its entire portfolio, reflecting the strength of our products and customer relationships. In Defense & Security, the KC-390 is gaining traction in key global campaigns, including India and NATO, with Sweden's recent order reinforcing its growing international relevance. Meanwhile, Services & Support continues to expand, highlighted by the groundbreaking of a new MRO facility in the U.S., further strengthening our global footprint. Looking forward, we expect substantial midterm growth while strategically investing in new technologies to prepare the company for a more ambitious and long-term expansion, always grounded in our culture of safety first and quality always. With that, I would like to move on to the Q&A session. Operator: We remind you again, this conference is being recorded. Its broadcast is intended exclusively for the participants of this event and may not be reproduced or retransmitted without the express authorization of Embraer. We also highlight this conference call is being conducted in English with translation to Portuguese. Please let me say a short announcement for Portuguese speakers. [Foreign Language] [Operator Instructions] The first question comes from Kristine Liwag with Morgan Stanley. Kristine Liwag: So first, I mean, Antonio, the balance sheet and the financial strength of the company is pretty remarkable, especially with what we saw in 2020 with COVID and all the changes. With the net cash position slated for the company by year-end, I was wondering how you guys think about future return to shareholders, especially if you're not going to build another big R&D cycle, would you consider share buybacks or increasing dividends? How do we think about returns to shareholders? Antonio Garcia: Thanks, Kristine, for the great question. I was expecting this already. I would say we -- to be honest, we start to repay or resume dividends this end of last year. Now we -- I would say, we are very happy that we are able to do it, point one. Point two, we are evaluating our capital structure is a valid question we are raising right now. We do not have today a firm opinion on how to move forward. I do not see additional dividends at this point in time. We are already paying 25% of the net income of the year, which is already for a heavy intensive business, already a lot. I would say, we do not have a response right now, but we are evaluating further move on this direction in order, for example, buyback is something that's on the table right now to be discussed. But we do not have an answer right now. But we are really taking -- paying attention to this point as well. Kristine Liwag: Great. And if I could do a follow-up. A few weeks ago, American Airlines announced that they're retrofitting their E-Jets fleet. And to do the overhead bin, I think you guys are doing the work on that. But I was wondering, since they want to do a full interior refresh, is there an expansion of work scope that you can now address, especially as you've increased your services offering? Are you doing the complete retrofit for American? Or are you only doing portions of it? And how do we think about if other airlines in the U.S. decide to also retrofit their fleet with your more expanded services capability, how do you think about that market? And could you capture more of that? Francisco Neto: Francisco speaking, Kristine, thanks for the question. And well, this is part of our initiative to improve the E175-E1. I mean this first movement to was with the interior and this includes not only the bins, but includes seats, new seats, Recaro seats. This includes the lightning, a new modern lightning and also available a better connectivity for the aircraft. So I mean, yes, we have a program with American Airlines, but this -- I would say, this kit is available for other customers, and we can do it if they want at our new MRO in Dallas. Operator: The next question comes from Marcelo Motta with JPMorgan. Marcelo Motta: My question is regarding the EBIT margin on the Executive segment. I mean you commented about the impact of product mix and higher costs. So just wondering when we look at the component of higher cost, if you think this is more structural, it's more like a one-off on this quarter? And then if you could explain also what helped the Defense EBIT margin, that would be great as well. Guilherme Paiva: Marcelo, this is Gui. Thanks for the question. In Executive Aviation, we have seen like in other business, cost inflation. That's something that has been a trend in the industry for the past few years. And we would expect that to continue. We have been obviously being very resilient in protecting our margins in the business, but we obviously will see some fluctuations on a quarter-to-quarter basis. Regarding Defense, there was an impact on higher KC volumes and just the client mix where we had a higher participation of foreign clients. Antonio Garcia: And Marcelo, just to complement you in regards to Executive Aviation, please take into account that 1 year ago, we didn't have tariffs. And they have impact in the Executive Aviation margins also the tariffs more is eating up some 2%, 2.5% of our margin in a comparable basis. I would say that explains the deviation as well. Operator: The next question comes from Lucas Marquiori with BTG Pactual. Lucas Marquiori: My question is just on the one-offs on the margin as well, especially on Commercial Aviation, just trying to understand what are these tax credits that you guys mentioned you guys had on this Q, I mean, particularly to what they relate to? And how should we think about, I mean, their recurrency going forward? And also on the Defense as well, what exactly is this one-off contract-related adjustment? Is this a change in the contract of a foreign client that helped on the margin? I mean just trying to kind of clear that out. Guilherme Paiva: Lucas, Gui here. Thanks for the question again. So in Commercial Aviation, the tax credits are related to some import parts that we did a study and we're able to kind of claim these credits, okay? And on Defense, we reassigned a plane in the production to a different client that was already let's call it, halfway in its production. So given that it is a percentage of completion, we recalculate the revenues and the profitability of the contract given that it was already halfway through. Operator: The next question comes from André Mazini with Citi. André Mazini: So my question is on the state of the Pratt GTF engines. So the competitor A220 product is having some major issues with the Pratt. We read in a piece of news saying that 17% of the A220 fleet is grounded because of the Pratt GTF. We understand the engines are not the same, right? The A220 uses the PW1500, while the E2 PW1900. But the question is if the PW1900 is indeed having no issues whatsoever. So that's the first one. And the second one, if I may, a totally different topic. This November, of course, the world is looking to Brazil for the COP and the Amazon. So I wanted to ask about an old program, the SIVAM program, the Amazon surveillance system that you guys participated, call it, 25 years ago. The planes from that program were Embraer's 145s. So if there's any renewal program for -- or plan for those planes and the status of the Amazon surveillance systems and Embraer's participation overall? Francisco Neto: Andre, Francisco speaking. Thanks for your question. So first, start with the E2 GTF. I mean, the E2, I mean, used the third generation of the PW1900G engine, which has incorporated several upgrades and improvements. And on top, the E2 is a lighter, much lighter aircraft compared to the others. So which makes -- which means less demand on the engines. So that's why the E2 has suffered much less than the competition. And now I mean, the engines are getting better and better with new improvements being implemented. So we expect much better performance and durability of the engines going forward for the E2s, which is a good news for the airlines. About this Amazon program, I mean we don't have any project at this point of time with this project. I mean we are working with the Brazilian force in some projects, but not this one as far as I know. Operator: The next question comes from Andre Ferreira with Bradesco BBI. Andre Ferreira: I have two here. So first one, going back to the tax credits in Commercial Aviation. We saw BRL 56 million in the quarter, looking at the ITR. So I just wanted to make sure if that is all in the Commercial Aviation segment, which would mean that the tax credits were more or less 1.5% in terms of EBIT -- positive impact on EBIT margin. And also a second point about the tariffs. So the total impact, so adding Executive Aviation and Service was, if I'm correct, $17 million, right? Which seems lower than initial expectations, but there could be some help from inventories here. So you expect a higher impact in the fourth quarter? Or I mean, not just from seasonality, but also even on a more comparable basis. That's it from my side. Guilherme Paiva: Thanks for the question. This is Gui here. In terms of the tax credits, it's going to be low single-digit value. So it's less than the BRL 56 million that you alluded to. And in terms of -- what's the second question, sorry, on the tariffs. The tariffs in the quarter were $17 million and a total of $27 million year-to-date. We originally mentioned after Q1 results that we expect it to be around $62 million to $65 million for the full year. So that would imply that we still have about $35 million, $38 million to go, but the company has been working hard to reduce its exposure and we hope that we can finish the year under the original amount that we mentioned. And it was -- yes, the inventory cycle has played a role so far. Antonio Garcia: Just to complement, this one-off is the second question you are getting about the same issue is a normal business as usual. We have temporary importation -- when we have changes in the supply chain here, we get the credit. There's nothing that is something special. It's just part of the daily life here. Just that you guys don't believe is something extraordinary. Operator: The next question comes from Gabriel Rezende with Itaú BBA. Gabriel Rezende: I would like to make -- just to touch on the company's guidance, especially on the profitability side. Just wondering how relevant could be the supply chain risks for the fourth quarter as well as the impact from U.S. tariffs that made the company choose to not revise its guidance upwards, especially considering that you have already delivered in the year-to-date figure, this very high EBIT margin, which is already above what you're expecting for the full year. So just trying to understand which one of these effects to be more relevant, either the potential delays on deliveries due to supply chain issues or the U.S. tariffs impact for the fourth quarter? Francisco Neto: Gabriel, I will answer half of the question, and then Antonio will complement the answer. Well, regarding the supply chain, I mean, the risk for the supply chain in 2025, I mean, is over. I mean we have all the parts we need to assemble the aircraft. Now it's up to us to assemble the aircraft, but we have a concentration of aircraft to be delivered in the next 2 months. That's why we decided to keep the guidance as it is. Again, no risk of with supply chain at this point of time. Now we are working hard to make sure we have a better 2026 in terms of production stability, production level than it was in 2025. About the EBIT, Antonio, do you want to comment? Antonio Garcia: Just to complement what Francisco is saying, assuming that we will be able to get the aircraft out of the door, I would say we look more from the high end than for the lower end, I would say. As I mentioned in my first comments, we calculated the risk. You could take 0.3% EBIT margin comparing with the 8.6% we have in the last 9 months. If everything goes well, I would say there's nothing that goes against that we may be able to even surpass the high end of the margin. But we need to deliver. There's a lot of aircraft to be delivered to end of December just because of it. And please do not forget our guidance was not contemplated the tariffs. It seems to be conservative, but we were able to offset the guidance. We are still there. And more or less, I would say, looking for the high end and the lower end, I would say, is a remarkable achievement for our company here. Operator: The next question comes from Lucas Laghi with XP Investments. Lucas Laghi: I would like to focus on the Services division. I mean we have been seeing this increasing profile of agnostic revenues and acceleration of GTF engines contracts on OGMA. I guess you guys were very clear during the Investor Day on the potential for this top line pocket that you guys are aiming. But could you please elaborate on the profitability profile of this division going forward? I mean should the margins be lower or higher considering this shift in top line new profile towards this agnostic revenues? Just getting to know, I mean, a bit more about profitability given this new profile of revenues? And thinking specifically on the third quarter, I mean, we saw this decline on EBIT margin on Services. We know it's hard to -- I mean, to get all the factors on a quarter-on-quarter basis. But was this related to this different revenue stream, I mean, that you're seeing with this increase in revenues from other sources? Or was it a matter of conjunctural factors as you highlighted in the release, just to clarify on profitability here as well. Antonio Garcia: Lucas, thanks for the question, Antonio speaking here. I'm going to answer the Q3, and then Francisco is going to complement the long-term view for the margin. What has happened on the Service, we have some bad guys throughout the year, especially also in Q3, means if you delay parts to the customer having to pay -- giving credit or paid peanuts, and then we get the, I would say, liquidate damage from suppliers in Q4. It's just, in my opinion, a time lapse from bad guys to good guys, I would say, we should be fine with the normally 14%, 15% EBIT margin for Services for this year, I would say, around 15%. It's just, I would say, a timing window here between Q3 and Q4. Francisco Neto: And for the future, Lucas, we -- the Services and Support is one of our most important growth drivers in the organization. That's why we have been investing a lot I mean, last year, we duplicated our structure to support our business jet in the U.S. This means more service at Embraer MROs, more revenues, more profit. And now we are doing the same with commercial jets with this project in Dallas, Texas. So again, we expect an important growth in terms of revenues and profitability in the next 5 years from our Services and Support division. Operator: The next question comes from Alberto Valerio with UBS. Alberto Valerio: I focus on the bottom line, just to see some recurring and nonrecurring items going forward. Financial expenses come a little bit above what we were expecting. Wondering whether the offer of EV is inside that I saw on the cash flows, that's $12.6 million. And another one is about the noncontrolling interest, also come a little bit higher than we were expecting. Just to know the recurring of this $12.2 million on noncontrolled interest. Antonio Garcia: Alberto, this is Antonio speaking here. For the net financial result, it's very simple. When the share price goes up, you have mark-to-market obligation to our long-term incentive, then we have a hit in the net financial results because the interest we are paying and the interest we are earning, I would say, $50 million. I would say it's a big hit is because of it. And noncontrolling interest, let me have a look here. It's just that Eve was in the mark-to-market in Q3 was positive. That's why it generate a positive impact for the other shareholders just because of it. But again, it's a temporary advantage because probably Eve is going to be more valuable in Q4 than Q3 that this credit is going to be reverted. I hope to be able to answer you. Operator: Our next question comes from the chat and it's from Cenk Orcan. Can you provide some color on expected U.S. tariff impact on coming quarters? Guilherme Paiva: Cenk, thanks for the question. We originally guided for about $60 million to $65 million of U.S. import tariffs for the full year. And as I mentioned, year-to-date, we have already recognized about $27 million of those. So we should -- based on the original guidance, we do have about $35 million left in Q4. But it's important that the company has been working hard to reduce that -- the size of that potential bill through different initiatives, and we do expect it to be lower. So let's see when we publish our full year numbers, what's the actual total. Operator: This concludes the question-and-answer session for equity research analysts and investors. Now we'll start the Q&A session to the press. First, we'll be answering questions in English, and then we'll be answering questions in Portuguese. We'll also answer questions and the questions sent via the platform chat. [Operator Instructions] The first question comes from Nelson [indiscernible] I'm sorry, just one second because this question is in Portuguese. The next question comes from -- the first question is in Portuguese. I'm sorry, everyone. There is no answers in English. So we'll be answering the Portuguese questions for now. [Interpreted] The first question comes from Nelson [indiscernible] from India. How is the campaign for KC-390 in India? The recent visit of Brazilian VP, did you make any advancements in the negotiation? What is the scope with the Mahindra Group? India focuses on local production. Would it be with parts produced in Brazil or fully produced with Indian products? Unknown Executive: [Interpreted] Thank you very much for your question. The India project is moving forward very well. It is moving forward on our side and on the Indian side. The inauguration of Embraer's office 2 weeks ago in New Delhi was an important landmark for the company. And truth be told, we also counted with the presence of Vice President of Brazil, Geraldo Alckmin, Ministry of Defense, the commander of the Brazilian Air Force. Therefore, we are very well positioned. And we believe that KC-390 it's an excellent solution to India's Air Force. Our partnership with Mahindra includes marketing, also marketing and sales support. And we are also present on the industrial side of the deal. This project of the middle aircraft transportation requires a 50% local origination of the parts, the production of the parts -- many of the parts will still be produced in Brazil, and there will be also parts from our suppliers being a vast majority either produced in India or sent to India where the final assemble of the aircraft will be conducted. The final localization part is not yet concluded. We are working on it, but it will be a collaboration between Brazil and India. All in all, it will be a win-win for both countries with this new business. And it's a business that for KC-390 is huge. It's a similar number of aircraft, very similar to our total production so far. Operator: [Interpreted] Second question. Our next question is from [ Chandu Alves ] with [ Oval ] Newspaper. Dear Francisco Gomes Neto, how is the negotiation with the U.S. government for the removal of the 10% tariff on planes? Does that harms Embraer? Francisco Neto: [Interpreted] Thank you for the question. The negotiation is between both governments. Embraer does not have direct participation in the negotiation. It's between both governments. But I would say that things are moving quite well. I think you just saw that President Lula met with President Trump in Kuala Lumpur a week ago. That was a very important step towards the negotiation process. And the process -- the negotiation of the process is moving forward. We are very optimistic about it. So once a bilateral agreement is met between both countries, the chances of the aircraft and its parts resume its 0 tariff. Chances are very good. And this has also happened with other bilateral agreements with the U.K., I mean, Europe, Japan and Indonesia, where in all cases, the aircraft that needs parts went back to 0 tariff. And yes, the second part, it is harmful in 2 ways. One is the parts that Embraer sends to the U.S. for the assemble of executive aircraft that is being impacted by tariff payments, and this increases our expenses because the product becomes more expensive. And in the case in commercial aircraft, it penalizes the aircraft because it becomes more expensive with the tariffs. And this can probably may jeopardize the fact that airline companies may not even place further orders. Operator: I just have a brief announcement to English speakers. [Operator Instructions] Next question from Mr. [indiscernible]. Unknown Attendee: [Interpreted] Can you hear me? Unknown Executive: [Interpreted] Yes, loud and clear. You can go ahead. Unknown Attendee: [Interpreted] At the beginning of your remarks, you said that Embraer is envisioning a more ambitious expansion. How do you envision this expansion? Can you give us some details, please? Francisco Neto: [Interpreted] Okay. I understand that you were referring to a future expansion, right? Okay. Currently, our product portfolio is very modern and competitive. And we can notice that if you look at our order backlog because it's close to $31 billion, and there are still $50 billion under construction. And we continue to focus on the sale of these products. And with this backlog, we expect a very significant growth of the company in the next 5 years. We are thinking beyond 5 years and even 10 years. Therefore, now we are investing in new technologies, important investments in new technologies because Embraer needs to be prepared for a future growth cycle based on new products or new aircraft. It could be aircraft for Executive Aviation, Commercial or Defense aircraft. So this is our short- and long-term view. This is the expansion that I mentioned during my remarks. New products and also future opportunities for further growth of the company going forward. These new products could refer to Commercial Aviation, meaning larger planes than E195-E2. It could be larger or smaller. We are also looking at new technologies with electric propulsion. It could be a hybrid one for midsized aircraft. I mean, we do not define yet what would be our production line. We are investing in new technologies because it's important that we are prepared to make that decision when the time comes. Unknown Attendee: [Interpreted] And about KC-390 or the [ C-360 ] Millennium with India. From my understanding, Embraer thinks that this business is a given, right? Unknown Executive: [Interpreted] No. No. This is a very tough competition. We are competing with a U.S. aircraft, an American aircraft, well consolidated in the market. We are also competing with the French aircraft, but we believe that our aircraft are very well positioned for that kind of application. But from there until signing the agreement, there is a large avenue. Unknown Attendee: [Interpreted] I mean just my last question. Maybe you will tell me that I should participate in Eve's conference call. But in terms of the actual flight test with the flying aircraft, will the test be conducted in Brazil? Unknown Executive: [Interpreted] Yes, they are occurring in Brazil. So we hope that Eve's first flight should occur late this year or early next year. And so we are working very hard in the development of the product, which we believe to be very important for Embraer in the future. But if you need more details, you should just join Eve's conference call, which will follow ours. But the tests are being conducted in our plant in Gavião Peixoto. Operator: [Interpreted] Now our next question will be in English. Let me just give a brief announcement to Portuguese speakers. [Foreign Language] [Operator Instructions] The next question will be conducted in English. It comes from Jon Hemmerdinger. Jonathan Hemmerdinger: Can you hear me? I just want to touch on, Francisco, you mentioned new commercial products. And you've talked about some of this before, but I also heard you mention potential larger aircraft than the 195. Would you be willing to give any sort of updated time line on when you might expect to make a decision on what comes next on the commercial side? And if so, what is that time line? Francisco Neto: Actually, John, this is the most frequent question I had in the past year. But again, I mean, the answer remains the same. We keep investing in new technologies. I mean we want to be -- to have our, let's say, technology readiness for -- to go for a new product that might be executive aircraft or commercial aircraft bigger or smaller, but we don't have a time line definition at this point of time. Jonathan Hemmerdinger: Yes. Fair enough. If I can follow that up with a question about the U.S. government shutdown. Has that affected any of the FAA work that you're doing, the certification work with Eve, any of the airworthiness ticketing for the aircraft, the E2s or the E1s for that matter? And any -- has it affected any discussions about tariffs? Are these things delayed because of the shutdown? Francisco Neto: No, no, no, John. I mean, again, I mean, in terms of certification work, we continue working very closely with ANAC in Brazil and also with the contacts with the FAA. And the tariffs, I mean, I don't see any issue because of the shutdown affecting the tariff negotiation between Brazil and the U.S. Operator: The next question comes from [indiscernible]. Unknown Attendee: My name is [indiscernible] I'm coming from Lagos, Nigeria. I have an African question. Africa is under privileged. So from what you said, Embraer is in a highly positive phase of operation this year. With that having been said, does Embraer have any plan to increase its commitment to build capacity in Africa? Francisco Neto: Thanks for the question. Africa is a very important market for Embraer, a very important region. We have many aircraft in operation in the continent. And more recently, we delivered aircraft for Air Link, South Africa, the E2, but we have many customers operating aircraft in Africa. So again, we will continue to invest in that region, I mean, to introduce more and more Embraer aircraft and Embraer services in the continent. Unknown Attendee: So is there any plan to increase the commitment to build capacity in Africa? Francisco Neto: In terms of services, yes, as much as we deliver more aircraft, then we need more service and support depending on the region. But today, we already have a good structure, service structure to support our aircraft in operation in the continent. Operator: The next question comes from the chat, and it's from Edgardo [indiscernible] from Aviation Line. Is there any update regarding the suspension of the development of the new Embraer turboprop? How long can this program realistically remain paused before its initial design assumptions and market analysis become obsolete? And he's got also a question #2, but if you'd like to answer this one first, please go ahead. Francisco Neto: Sure. Thanks for the question. Well, the turboprop project or initiative has been canceled by us. I mean, we don't have at this point of time any project or initiative in that direction anymore. It might change in the future, but at this point of time, the project has -- it's not on hold, it has been canceled. What is on hold is the E175-E2. That one is on hold because of the scope clause in the U.S. So we are following the scope clause. If any change happens, then we will consider to restore the work on the 175-E2. But again, turboprop has been -- project has been canceled. Operator: His second question is, I would like to know if there have been any updates regarding the Aerolíneas Argentinas order for the E195-E2 aircraft, which was put on hold after the change of government. Francisco Neto: No, no change, no updates. We hope that one day, they will come back and to consider that program that is a natural replacement of the old E190 E1s by the E2 family. At this point of time, we don't have any update on that sales campaign. Operator: Thank you very much, sir. Thank you, everyone, for participating. This has concluded the Q&A session of the Embraer conference. [Interpreted] We have now concluded the Embraer's conference call. Thank you... [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Urban One 2025 Third Quarter Earnings Call. As a reminder, this conference is being recorded. We will begin this call with the following safe harbor statement. During this conference call, Urban One will be sharing with you certain projections or other forward-looking statements regarding future events or its future performance. Urban One cautions you that certain factors, including risks and uncertainties referred to in the 10-Ks, 10-Qs and other reports it periodically files with the Securities and Exchange Commission could cause the company's actual results to differ materially from those indicated by its projections or forward-looking statements. This call will present information as of November 4, 2025. Please note that Urban One disclaims any duty to update any forward-looking statements made in the presentation. In this call, Urban One may also discuss some non-GAAP financial measures in talking about its performance. These measures will be reconciled to GAAP either during the course or this call or in this company's press release, which can be found on its website at www.urban1.com. A replay of the conference call will be available from 2:00 p.m. Eastern Standard Time, November 4, 2025, until 11:59 p.m. Eastern Standard Time, November 14, 2025. Callers may access the replay by calling 1 (800) 770-2030. International callers may dial direct +1 609-800-9909. The replay access code is 7822067. Access to live audio and a replay of the conference will also be available on Urban One's corporate website at www.urban1.com. The replay will be made available on the website for 7 days after the call. No other recordings or copies of this call are authorized or may be relied upon. I will now turn the call over to Alfred C. Liggins, Chief Executive Officer of Urban One, who is joined by Peter Thompson, Chief Financial Officer. Mr. Liggins, please go ahead. Alfred Liggins: Thank you very much, operator, and welcome, everybody. And as usual, we're joined by other team members here, Jody Drewer, our Chief Financial Officer for TV One and CLEO, in case we've got any questions on the cable business, Karen Wishart, our Chief Administrative Officer; Chris Simpson, our Chief Legal Officer; and also Veronika Takacs, who is our Chief Accounting Officer. And so thank you very much again for joining us this quarter. You've seen the press release, hopefully, that we put out. Business came in a bit softer for the quarter than we had projected across the board. Our core radio pacings going forward are facing big political headwinds. So looking at about minus 30% right now. However, ex political, we're down to almost mid-single digits, 6.4%, which is better. It's an improvement. But because the revenues have come in lighter with Q3, we are adjusting our guide for the year. Last quarter, we guided to a $60 million EBITDA number. We generally usually give a range. We gave a hard number last quarter. We're adjusting that guide down to $56 million to $58 million of EBITDA for the full year as we come to the close. Within our third quarter and last quarter, I said that we were going to look to do another round of cost saves, and we actually did that in Q3, which resulted in about $3 million of annualized expense savings. This is in addition to the $5 million that we had done earlier in the year. Peter is going to talk about the impact on the numbers in Q3 of that in terms of severance. And so with that, I'm going to turn it over to Peter, so he can go into the details of the numbers, and then we'll come back for Q&A. Peter Thompson: Thank you, Alfred. So consolidated net revenue was approximately $92.7 million, which is down 16% year-over-year. Revenue for the Radio Broadcasting segment was $34.7 million, a decrease of 12.6% year-over-year. Excluding political, net radio revenues were down 8.1% year-over-year. And according to Miller Kaplan, our local ad sales were down 6.5% against the market that was down 10.1%. So we outperformed on local. And on national ad sales, we were down 29.1% against the market was down 21.5%. So we underperformed on national. Our largest ad category was services, which was up 22.9%, driven by legal services. Financial was up 17.9%, but all of the other major categories were down, including government, health, retail, entertainment, auto, telecoms, food and beverage. Net revenue for the Reach Media segment was $6.1 million in the third quarter, down 40% from the prior year. And adjusted EBITDA at Reach was a loss of approximately $200,000 for the quarter. And that was really a lower overall network audio market, lower national sales renewals and probably a drying up of DEI that drove the decline at Reach. Net revenues for the Digital segment were down 30.6% in Q3 at $12.7 million. Direct and indirect digital sales were down by approximately $4.4 million. The decline was the result of decreases in DEI money, back-to-school, political and overall softer client demand. Audio streaming was down by $1.3 million year-over-year. Adjusted EBITDA was approximately $0.8 million compared to $5.3 million last year. We recognized approximately $39.8 million of revenue from our cable television segment during the quarter, a decrease of 7%. Cable TV advertising revenue was down by 5.4%. Total day delivery declined by 29.4%, P25-54, which was partially offset by an increase in CTV and third-party platform revenue share. Cable TV affiliate revenue was down by 9.1% driven by subscriber churn. Cable subscribers for TV One, as measured by Nielsen, finished Q3 at 34.1 million compared to 34.3 million at the end of Q2. CLEO TV had 33.5 million Nielsen subs. Operating expenses, excluding depreciation and amortization, stock-based compensation and impairment of goodwill and intangible assets decreased to approximately $83.7 million for the quarter, a decrease of 4.2% from the prior year. There was some noise in the expenses. We had a notable expense decrease in corporate and professional fees and overall payroll expenses, also cable television content amortization was down, but we had the August RMLC settlement with ASCAP and BMI that resulted in an average royalty rate increase of 20% retroactive to January of 2022. And so we recorded approximately $3.1 million of retroactive royalties in Q3, and you see that in the programming and technical expense in the radio segment. We did add that back to adjusted EBITDA. The company, as Alfred said, completed a second reduction in force in October as part of the ongoing cost reduction efforts. And as a result, we had $1.6 million of employee severance costs, which we recorded in third quarter, but we also added that back to the adjusted EBITDA for the quarter. Radio operating expenses were down 5% or $1.7 million, driven by lower employee compensation, sales commissions and a favorable change in the bad debt reserve compared to prior year. Reach operating expenses were up by 8%, and that was due to a favorable change in the bad debt reserve that we took in the prior year. Operating expenses in the digital segment were down 2.6%, and that was driven by lower employee compensation. Operating expenses in the Cable TV segment were down 2.4% year-over-year, driven by lower programming content amortization due to fewer premier hours compared to last year. Operating expenses in corporate were down by approximately $1.5 million. The third-party finance and accounting professional fees were down significantly year-over-year. Consolidated adjusted EBITDA was $14.2 million for the third quarter, down 44.1% and consolidated broadcast and digital operating income was approximately $20 million, a decrease of 43.6%. Interest and investment income was approximately $0.5 million in the third quarter compared to $1.1 million last year. Decrease was due to lower cash balance -- lower cash balances in interest-bearing investment accounts. Interest expense decreased to approximately $9.4 million in Q3, down from $11.6 million last year due to lower overall debt balances as a result of the company's debt repurchase efforts. The company made cash interest payments of approximately $18.2 million in the quarter. And during the quarter, the company repurchased $4.5 million of its 2028 notes at an average price of 52% bringing down the gross balance on the debt to $487.8 million as of September 30, 2025. Our depreciation and amortization expense increased $4.9 million as a result of the company's change to the useful life of TV One trade names and our FCC licenses, which we moved from indefinite lives to finite lives. Benefit from income taxes was approximately $1.1 million for the third quarter, and the company paid cash income taxes net of refunds in the amount of $0.1 million. Capital expenditures were approximately $3.1 million. Our net loss was approximately $2.8 million or $0.06 per share compared to net loss of $31.8 million or $0.68 per share for the third quarter of 2024. During the 3 months ended September 30, 2025, the company repurchased 176,591 shares of Class A common stock in the amount of approximately $0.3 million at an average price of $1.75 per share. And the company also repurchased 592,822 shares of Class D common stock in the amount of approximately $0.4 million at an average price of $0.73 a share. As of September 30, 2025, total gross debt was approximately $487.8 million. Our ending unrestricted cash balance was $79.3 million, resulting in net debt of approximately $408.5 million. which we compared to $67.9 million of LTM reported adjusted EBITDA, given a total net leverage ratio of 6.02x. And with that, I'll hand back to Alfred. Alfred Liggins: Thank you very much, Peter. Operator, can we go to the lines for questions, please? Operator: [Operator Instructions] Our first question comes from the line of Ben Briggs with StoneX Financial. Ben Briggs: I have a couple of questions here. So first of all, and I know we're looking forward a little ways, but -- and we're only part of the way through the fourth quarter. How are you guys thinking about 2026 and what demand looks like there and what listenership may be and kind of how the pieces of the puzzle are going to fit together then? Alfred Liggins: Yes. We feel good about 2026 for a number of reasons. One, obviously, we're going into a political year. But two, a number of the places that we've had challenges this year, we have changed our operating strategy to address that. I would say most notably, where Reach Media has had a very tough year because we got caught flat-footed with a big, big decline in our largest advertiser in the company, unexpected cancellations, and these were cancellations across the board. When I say across the board, across the whole audio sector. And quite frankly, we weren't able to replace those ad dollars once we had committed that inventory. So we're able to get ahead of that. We saw Reach Media and iOne had contributed probably -- excuse me, had benefited the most from the rise in DEI advertising, and we just got way too concentrated at Reach Media with 2 particular advertisers, one of those actually stood out more than the other. So we'll be more prepared for that going forward. This is also our first year navigating Reach without our former President of the Audio division, David Kantor, who actually founded and created Reach. So trying to make that transition was also -- was difficult even though we knew it was coming and we prepared for it. And so I think we're better positioned there. Also, there have been a number of things that we're doing in our radio markets, where we think that we will perform better in particular in Washington, D.C., we just rearranged some of our formats there, and we launched a new format targeting the Hispanic community, which has become a very, very large segment in the D.C. area. It's almost close to 20% of the marketplace. I mean it's like 18.5% of the marketplace. And we positioned ourselves recently as a major player there, which is going to broaden our offering in the D.C. market in addition to some changes that we've made in terms of management and beefing up our sales staff, et cetera. And so we've got a few other changes that we in some of the markets where we think it's going to improve performance in a meaningful way as well. And TV One has been holding in there this year. And so we think that given those things I just outlined, we're feeling good about a rebound in 2026. Ben Briggs: Okay. Okay. That's good to hear, and that's great color. Next thing for me, I guess this is kind of focused on post fourth quarter plans as well. But are you thinking of any kind of M&A activity or larger than usual kind of -- I know you guys swap radio stations here and there on a pretty regular basis. But are you thinking about anything more transformative in the future? I know every now and then things get kicked around. I'm just curious if there's anything else. Alfred Liggins: I think everybody in the industry is focused on dereg and what's going to happen. You've seen a number of deals that have been filed already in the radio space looking for waivers to exceed the current ownership caps. The FCC has signaled that they think the ownership rules are antiquated and people in TV and in radio have submitted deals to be approved for waivers. There is also a notice for proposed rule-making out that I know that the industry is going to comment on if they haven't already about dereg. And I think everybody in the industry is going to be pro-dereg when I say everybody, I'm sure it's not necessarily going to be 100%. But that's going to create some opportunities for people to align assets in markets in a much more efficient manner. And yes, we're looking at that. There's nothing that is large and transformative that we're working on now because this is all very new. But we tend to try to think ahead and be intellectually creative in what the next move is. And so all along, we've had conversations and thoughts and conversations with people about the art of the possible because historically, we haven't been up against the ownership cap. So we've probably had the ability to grow or do M&A that others haven't, even though in a dereg environment, that will be enhanced. But what is a governor is leverage. And is any transaction going to be delevering, right? And even when you look at these transactions, you've got to think about it against a backdrop just because you have dereg, doesn't solve necessarily your top line secular trajectory, right? So you just got to be careful about how you underwrite and M&A transaction. But with that said, I do think it's going to create some significant opportunities to build stability in these businesses. At the end of the day, these are -- the radio business is largely a local business. So you've got the opportunity to provide more different demographic targets to advertisers, local advertisers, I think that makes you a stronger player. We've seen that in our Indianapolis market, our Houston market. our Charlotte market where we've spread out in different format demographics. And that's one of the things that we just did, like I articulated earlier in D.C. that I think is going to [indiscernible] significantly. So there's no M&A deal that we are currently working on that's transformative as we speak, but I'm sure that we will explore opportunities to be able to rearrange the debt shares in order to make us a stronger entity. Ben Briggs: Okay. Okay. That's all very, very helpful. And then next thing I want to ask about is, I think, at the top of a lot of investors' minds, is your debt buyback activity. Obviously, you stated in the press release this morning that you did a little bit of buybacks in the third quarter. Are you expecting to continue to execute on those buybacks? Alfred Liggins: Yes. Look, I thought I figured we would get that question because -- yes, yes, because we've been more acquisitive in the past. But because of this heat up in potential dereg and stuff moving around, we decided to sit pat and build a little liquidity as we get to the end of the year, see how that all shapes up and figure out also how that is going to play out. We are always and have been focused on delevering and the best way to delever. So we -- one way to delever is buy back debt at a discount. Another way to delever, and we've done it a number of times, including in Houston is through delevering M&A activity. So we've decided to keep our powder dry a little bit here to see what opportunities are going to present themselves in the near term. Operator: And there are no further questions at this time. I'd like to hand the call back over to Alfred Liggins. Alfred Liggins: Thank you very much, operator. And again, as always, Peter and I are available for calls afterwards e-mails or calls directed to us. Thank you for your support, and we'll talk to you next quarter. Operator: This concludes today's call. You may now disconnect.
Operator: Greetings, and welcome to the Ball Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brandon Potthoff, Head of Investor Relations. Thank you, sir. You may begin. Brandon Potthoff: Thank you, Christine. Good morning, everyone. This is Ball Corporation's conference call regarding the company's third quarter 2025 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. We assume no obligation to update any forward-looking statements made today. Some factors that could cause the results or outcomes to differ are described in the company's latest Form 10-K, our most recent earnings release and Form 8-K and in other company SEC filings as well as company news releases. If you do not already have our earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the Notes section of today's earnings release. In addition, the release includes a summary of noncomparable items as well as reconciliation of comparable net earnings and diluted earnings per share calculations. References to net sales and comparable operating earnings in today's release and call do not include the company's former Aerospace business. Prior year-to-date net earnings attributable to the corporation and comparable net earnings do include the performance of the company's former Aerospace business through the sale date of February 16, 2024. I would now like to turn the call over to our CEO, Dan Fisher. Daniel Fisher: Thank you, Brandon. Today, I'm joined on our call by Dan Rabbitt, SVP and Interim CFO. I will provide some brief introductory remarks and discuss third quarter financial performance. Dan will then touch on key metrics for 2025, and we will finish up with closing comments and Q&A. First, I want to take a minute to highlight the amazing work our employees and teams have done to give back to their communities. During the third quarter, I'm proud to share that Ball employees donated over 7,000 hours of their time across 19 countries in support of 116 charities. This past September was also our annual Who we are Month, where we celebrated our unmatched culture and talented people that help us, and our customers navigate complexity and provide innovative solutions that enable us to win. I want to thank all of our employees for devoting time to uplift our communities and participating in Who we are Month. I also want to thank all of our employees for our great third quarter business performance. Beverage can volumes grew 4.2% comparable operating earnings increased 5.1% and comparable diluted earnings per share rose 12.1%. In addition, we have now returned $1.35 (sic) [ 1.27 ] billion to shareholders through share repurchases and dividends as of today's call. This strong performance reinforces our opportunity to deliver record comparable diluted earnings per share, record EVA and approach record adjusted free cash flow in 2025, a testament to the strength of our portfolio and disciplined execution. Aluminum packaging continues to outperform other substrates globally, underscoring the resilient and defensive nature of our business. While we remain attentive to uncertainties related to tariffs and consumer pressures, particularly in the U.S., we are confident in our ability to proactively manage these dynamics and sustain our momentum towards delivering 12% to 15% comparable diluted EPS growth. Third quarter comparable net earnings of $277 million were driven by higher volume and cost management initiatives, partially offset by higher interest expense and lower interest income. In North and Central America, segment comparable operating earnings increased 3.5%, driven by stronger-than-expected volume performance, though partially offset by product mix headwinds. Mid-single-digit percent volume growth was led by continued strength in energy drinks and nonalcoholic beverages. Our team continues to execute at a high level, successfully meeting elevated demand, navigating the complexities of Section 232 tariffs and mitigating risks in a volatile environment. We remain vigilant in monitoring the evolving geopolitical landscape and tariff developments, and we are actively managing these dynamics to protect our business and support long-term growth. In EMEA, third quarter segment volume growth of mid-single-digit percent remained robust, contributing to a 14.8% increase in segment comparable operating earnings. Favorable demand trends continue to reinforce our confidence in delivering meaningful year-over-year growth in 2025. This outlook is supported by sustained volume momentum and ongoing operational efficiency, which position us well to capitalize on market opportunities and drive continued performance improvement. In South America, segment comparable operating earnings increased 2.6% as mid-single-digit percent volume growth was supported by strong performance in Argentina. While the Brazilian market came in slightly below our initial expectations due to weather-related softness, we anticipate a recovery in the fourth quarter as conditions normalize. Our teams across the region continue to execute well, positioning us for sustained momentum. We delivered a strong first 9 months of 2025, positioning us well to achieve our full year objectives. While important work remains in the fourth quarter, our teams are fully engaged, navigating ongoing uncertainties with discipline and leveraging the strength and resilience of our global portfolio. We remain laser-focused on our goal of delivering 12% to 15% comparable diluted EPS growth for the year. Despite external challenges, we are confident in our team's proven ability to execute effectively and deliver meaningful value to shareholders. We anticipate 2025 global volume growth to end above the long-term 2% to 3% range and expect all of our reportable segment businesses to perform in line with or ahead of our long-term targets in 2025. This reflects the durability of our underlying global demand, the strength of our customer relationships in addition to the operational consistency of our teams across markets. In EMEA, we continue to expect mid-single-digit volume growth in 2025 as the competitive advantages of aluminum packaging and low can penetration rates continue to drive share gains across the region. In South America, recovery in both Argentina and Chile has progressed in line with our expectations. While Brazil experienced some softness earlier in the year, we anticipate a recovery in the fourth quarter. As a result, we now expect full year 2025 volume growth across the region to fall within our long-term range of 4% to 6%. Our teams remain focused on execution and are well positioned to capture growth as market conditions stabilize. In our North American business, stronger-than-expected volume growth across nonalcoholic categories, particularly energy drinks, give us confidence that we will exceed the top end of our long-term 1% to 3% volume growth range in 2025. We remain confident in our ability to grow volumes slightly ahead of the market. The defensive nature of our portfolio, combined with strong customer alignment positions us well to navigate potential economic uncertainty and continue delivering consistent performance. With that, I'll turn it over to Dan to talk about key metrics for 2025. Daniel Rabbitt: Good morning, and thank you, Dan. We anticipate year-end 2025 net debt to comparable EBITDA to be slightly above 2.75x, and we will repurchase at least $1.3 billion of shares in 2025. Through today's call, we have already purchased $1.2 (sic) [ 1.27 ] billion of shares year-to-date. CapEx is expected to be below D&A in 2025. We anticipate being able to deliver on our target of adjusted free cash flow in the range of comparable net earnings in 2025. Relative to the estimated tax payments due on the aerospace sale, we expect the remaining portion to be paid in the fourth quarter of 2025. Our 2025 full year effective tax rate on comparable earnings is expected to be slightly above 22%, largely driven by lower year-over-year tax credits. Full year 2025 interest expense is now expected to be in the range of $320 million. Full year 2025 reported adjustable corporate undistributed costs recorded in other non-reportable are expected to be in the range of $150 million. And last week, Ball's Board declared its quarterly cash dividend. We remain focused on driving operational excellence, sharpening cost discipline and unlocking productivity across our global footprint. Our teams are actively adapting to shifting conditions in emerging markets and broader geopolitical developments, maintaining agility and responsiveness in an increasingly dynamic environment. This proactive approach continues to support our ability to deliver consistent performance and long-term value. Our business model remains resilient and well positioned to weather external volatility, supported by the proactive steps we've taken to strengthen our balance sheet and enhance financial flexibility. With a solid foundation and clear visibility into our path forward, we are executing on initiatives designed to deliver sustainable high-quality results. We remain focused on driving long-term creation for shareholders through consistent performance and disciplined decision-making. With that, I'll turn it back to Dan. Daniel Fisher: Thanks, Dan. Our business continues to perform well, fueled by strong demand across our global network. Tight capacity conditions highlight the importance of operational precision and reliability in meeting customer expectations. Thanks to the agility and dedication of our teams, we remain on track to achieve our financial goals for the year, including 12% to 15% comparable diluted EPS growth, record EVA dollar generation, adjusted free cash flow aligned with comparable net earnings and significant capital returns through robust share repurchases and dividend. While external volatility persists, particularly around geopolitical developments and market dynamics, our resilient business model and proactive footprint optimization continue to position us well. Long-term contracts and disciplined financial management further strengthen our ability to deliver consistent high-quality results. This year has been a testament to the grit, talent and relentless focus of our team. We put in the work, and now we're seeing that effort translate into real momentum across the business. We're not just competing, we're winning, and we're just getting started. Our commitment to delivering longer-term shareholder value remains unwavering, driven by volume, operating earnings, free cash flow and EVA growth. The foundation is strong, the strategy is working, and the future is ours to shape. Thank you. And with that, Christine, we are ready for questions. Operator: [Operator Instructions] Our first question comes from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: So I guess starting off with Beverage, NCA segment. Obviously, 2Q, you called out some operational inefficiencies just given the nature of which categories grew that quarter, et cetera. Dan, how does that dynamic play out for 3Q? Because it looks like operating profit is a little bit better on basically comparable volume growth, but the operating profit is -- the operating leverage is still quite a bit below historical norms. So just your thoughts there would be helpful. Daniel Fisher: Yes, I appreciate the question. Ghansham, we remain encouraged by the underlying market momentum as cans are continuing to win on a multipack value in at-home consumption, similar to last quarter, as you've already indicated. In the third quarter, we saw continued customer and pack size mix shift toward lower-margin categories, and that was driven by market trends as well as our deliberate choices to align with the fastest-growing brands and continue to future-proof our North America business. So to your point, we grew NCA volume mid-single digits, operating earnings 4% year-over-year. We continue to see strength in terms of volume growth, and we'll be able to navigate a more efficient future as our Millersburg, Oregon facility comes online in the second half of next year. But all total, the profit per can from -- since 2019 in our North America business has grown 32%. So we like the profitability levels. We'd wish operating leverage was just a bit higher, but we're still on a journey to continue to improve that. And the business is in a really good spot. And you want to have the volume so you can step into a more efficient footprint and supply chain pattern moving forward. Ghansham Panjabi: Okay. And then I know it's difficult to predict volumes in this operating environment 3 months out, let alone in a year out, but comparisons are going to get more difficult for that segment in 2026. Relative to the industry volumes for 2026, would you be at least in line with the industry? Or how should we think about that dynamic for next year? Daniel Fisher: I would say yes to that. Right now, our current focus, as you can imagine, is finishing out a really strong 2025 and continuing the earnings momentum we were able to report in Q3. As it relates to 2026, it's early in our strategic planning process, probably to provide real granular guidance. Next 4 to 6 weeks will be indicative of what the more detailed prognostication will be for us. But we're confident in our ability to continue to grow our global volumes in line with long-term expectations. We'll grow earnings, we'll grow EPS, and you can expect us to continue to -- our robust share buyback program. So those are kind of the highlights for '26 and more to come here in the next probably 4 to 6 weeks. But North America, we're keeping an eye on that. We'll be in line with the market, if not ahead of it, and then certainly ahead in '27 and potentially '28 as we look here today. Operator: Our next question comes from the line of George Staphos with Bank of America. George Staphos: Congratulations on the progress. Question for you, recognizing we're ultimately not going to be able to hold you to any of this per se. But how do you think tariff situations right now and aluminum strategies are affecting volume patterns and what it can mean for next year? And then we can cover world peace, if you'd like after that. But all thing aside, do you think there's been any sort of loading of volume into the market ahead of tariffs? Or what else are your customers doing into next year? Relatedly, I don't think there's going to be any move on 232, but if there was a reversal on tariffs, if any of these are challenged, does that make life better or just complicates things? And I had a couple of follow-ons. Daniel Fisher: Yes. I think movement on tariffs -- kind of tying your second question to the first question. We'll make it easier on demand. I would say we're passing through about a 25% to 30% price increase to our customers right now. It's negligible in terms of per can price, but that's what's being passed through now in North America, in particular, when you talk about October and then subsequently January price increases, we'll have that impact in it. So a reversal of that will be a healthy COGS move for our customers. Difficult to see the demand impact as we're still running -- our mix has something to do with it. Our favorable customer portfolio has something to do with that. We're winning disproportionately in the market on the backs of some very, very good strategic partners. They're navigating it well. We're helping them navigate it. I do think when you hear demand challenges, you'll hear them specifically from our customers, and they will be tied to probably an ethnic backdrop, ICE impacts. And so I don't see that specifically in our can volume, which is a positive because cans are up, but it has to be impacting elements of the substrate and the ability for that end consumer to consume products via the same channels that they had historically. I think we're winning to some extent in that. Now whether that continues -- to your point, I've got a better answer on World peace. But yes, it's still -- there's still some question marks, but I just am really pleased with our team, our performance, and we'll continue to grow despite these challenges. And in some instances, they're helpful to us. George Staphos: Related to pack mix, a couple of questions and then I'll turn it over. Are you seeing -- and the broader question is, are you seeing any signs -- it doesn't sound like it that your customers are maybe contemplating moves to nonaluminum packaging because of costs. We hear that from other substrates. Might we see a little bit more of it perhaps in South America with a move to refillable glass. What are your thoughts on that, whether that's a real threat or really not at all? Any move at all? I don't think so from the scanner data, but anything in terms of 2-liter in North America? And related and last, and I'll stop, one of your larger customers is promoting, it sounds like mini cans in convenience store. Any pickup -- anything you could share there in terms of what it means for you next year? Daniel Fisher: Thank you, George. I think the first part is I have asked that question at the very highest levels of our strategic relationship, and they say, -- the only thing I can tell you, Dan (sic) [ George ] is cans are going to continue to grow. What can size, I can't tell you, what channel I can't tell you, but they're going to continue to grow. We're going to use cans. We haven't seen the returnable glass shift in South America. But usually, that's driven from an inflationary market dynamic. It's been more cold weather, but there certainly is a bit of inflation in Brazil in particular. So we're keeping our eyes on that. But as you transition into '26, you've also got an election and a World Cup. And usually on both of those instances, cans do really well. So I think we may be protected for a period of time. And then lastly, yes, we have -- we're very aware of what's been said publicly. The -- I think all of our -- all of the CSD players that are in the 7.5-ounce format are pushing that. That's a value proposition both for the end consumer and for them. And I think this is just another application of using the 7.5-ounce can for price point, which says a lot about where the end consumer is in terms of the size of their grocery basket, et cetera. And the can works really well on small sizes. And so we're excited about the opportunity. I don't know how big it will be, but it should be an incremental lift to us, both from them and then the knock-on effect from their competitors. Operator: Our next question comes from the line of Stefan Diaz with Morgan Stanley. Stefan Diaz: So I guess maybe just to start, there's been some discussion regarding contract movements potentially impacting next year by your peers in North America. Do you see any potential shifts impacting your volume performance in 2026 in the region? Daniel Fisher: Short answer, no. This is as strong a contractual outlook as I've seen for us in the 15 years I've been at Ball. There have been some movements. In many instances, we benefited from those movements and '27 will benefit further. For us, we're a bit hamstrung on growth in 2026 until we get our Millersburg facility up. So it will be tight for us, but we appear to be full. And that's the plan we're operating against right now. Stefan Diaz: Okay. Great. That's helpful. And maybe just sticking with the Oregon plant. Can you remind us of what volume impact this will have in 2026 or not really because I believe you were maybe shipping those cans from elsewhere? And then secondly, how should we think about the potential margin lift when that plant gets up the learning curve or at least starts to open, I guess, in the second half of 2026. And then balancing that with a potential Mexico headwind because I know you're shipping cans from there. I guess, how should we think about those puts and takes? Daniel Fisher: Yes. We'll get -- we're working through a number of plans at the moment that will -- on the Mexico piece, excuse me, that will help to clear kind of direction of flight on any supply chain changes that we need to do. That will be a transient movement in between '26 and '27. And then for Millersburg, you should say, I would contemplate $1.5 billion of improved volume in '27, somewhere in that range, which could be as much as 3%. And that's going to be unlocked from really a very tight portfolio in the western half of the U.S. in Texas, in Mexico, in the Southwest, as you know. And so we'll be able to step into some contracted volume into '27 and then properly supply our customers in the Northwest from the most efficient supply point. So you'll have a little bit of start-up costs in '26. You'll recover that and then you'll margin on top of that. So you'll see -- I think we'll return to record can profitability and improved can profitability in '27, even off of what we have today. Operator: Our next question comes from the line of Michael Roxland with Truist. Niccolo Piccini: This is Nico Piccini on for Mike. I just wanted to dial in kind of on 4Q and maybe dig deeper into the volume trends you're seeing or expecting by category in North America? And then any commentary on promotional activity? And if you can give a read on October month -- sorry, October and then November month-to-date volumes. Daniel Fisher: Sure. So in 3Q, I think everyone on this call probably receives the scanner data, we do as well. So I won't spend time going through the category-specific data. But what we see in our customers across categories continue to promote and lean on multipack value and the cans are winning against other substrates in that environment. And I would say for the balance of the year, please refer back to the script, but we expect at a global level to be above the 2% to 3% growth rate. And by region, North America will be above the 1% to 3%. So you can kind of reverse engineer the fourth quarter. EMEA has the possibility to be at the top end of its 3% to 5%. So we're expecting that top end. And then the range in South America will be in that 4% to 6% long-term range. So you can reverse engineer in that fourth quarter. But October, it's in line with our expectations at this point. There were some price increases that were taken by our customers in October. They were also offset with some traditional promotional activity in terms of buy 2, get 1 free. So the blended price is not representative of the full price that was taken on the retail shelves. And I think that somewhat insulated us. And then for Europe and for North America historically, it's -- December is kind of where the plus and minus is. So we get through football season in football season in North America. We get through football season in Europe before they take a break. And then it's about, as they describe it in the U.K., the silly season and then around the holidays and then how the Santa cans perform and things of that nature. But what we're hearing from our customers at this point and what we're seeing in October, we're encouraged that we'll land the year in line with our current expectations. Niccolo Piccini: Got it. And then just one quick follow-up for me. As you've owned Florida Can and brought that production there up, have you been able to unlock any additional capacity at that plant specifically? Daniel Fisher: Yes. And we're needing it to manage through some of the tariff supply chain challenges, but that plant is performing in line with our expectations. And next year, we'll be stepping into even more volume and unlocking even more opportunities there. So that's been a really good deal for us thus far. Operator: Our next question comes from the line of Anthony Pettinari with... Anthony Pettinari: Looking to 2026, understanding you're not giving like precise guidance, but are there any kind of directional about CapEx? And any kind of additional color on the Oregon plant? And I think the North Carolina plant, which I don't know if you broke ground on, but there were some new stories about that maybe in December. Any details there? Daniel Fisher: Yes. Great. I'll let Dan comment on early indications of CapEx. But for the Oregon plant, still on time to come up in the second half of the year. So we're encouraged about that progress, and that will unlock a much more efficient supply chain. Obviously, you got to hire the people and stand up the facility. And so there's traditional start-up costs, but that bridges to a really healthy 2027 for us on a number of fronts. Concord is something that we had a ribbon-cutting ceremony with our -- one of our large strategic customers, but that's a way out in terms of actually capital in the ground and potential start-up. And that will ebb and flow with what's happening in the market. We're not the gating factor for being able to run additional production for them. We've got opportunities to do short-term smaller investments. But if they continue to grow at the rate they have, we'll be very excited to put that -- put a shovel in the ground and build that facility. So those are our plans right now for that. Daniel Rabbitt: Yes. And this is the other, Dan. A little more about the CapEx. With this year and last year being below CapEx, below the depreciation levels, it's still real early for us to be able to call next year, but we'd be guiding you a little more in line with depreciation or even slightly above, thinking about depreciation as a long-term average for our CapEx. But take it as its early days on our budget for next year. Anthony Pettinari: Okay. That's very helpful. A follow-up on North America. I think last quarter, you talked about $1 million operating cost headwind, and I think that was [indiscernible] can tariffs, maybe mix was a part of that. Did that repeat or step down in 3Q? Or is that kind of over with? Or I'm just curious how that operating cost sort of headwind maybe 2Q to 3Q, maybe to 4Q. Daniel Fisher: Yes. You should assume that we're continuing to manage through like-for-like inefficiencies from tariffs, but we're past the inefficiencies in terms of the suddenness of the volume. The tariffs are still ongoing, and we're managing through those. And more to come on that as we evaluate long-term supply chain dynamics and what's the best and optimal footprint for us. Operator: Our next question comes from the line of Phil Ng with Jefferies. Philip Ng: One more question on North America. Great to see volume has been strong and mix has been a modest drag just as you optimize that portfolio. When we think about '26, are you going to be in a pretty good spot, Dan, where mix is more neutral as we think about that going forward? And then some of the cost headwinds and inefficiencies that have weighed on operating leverage in North America. Should we see -- should we expect that to get back to more normal next year or still going to be kind of a work in progress? Daniel Fisher: A much smaller work in progress relative to some of the mix shift. We will have the start-up of the facility in -- sorry, Oregon. I was back to Ohio. It -- didn't have my readers, I'm reading the OH versus the OR. And then -- yes, let's see what we need to do as it relates to managing the underlying inefficiencies from the tariffs that we've been dealing with this year. '27 will be -- anything that has to be managed will be transient in '26, including the start-up of the facility and how we deal with ongoing underlying tariff impacts. And so we're really doing all the right things and setting ourselves up for a really nice short- and medium-term outlook. Philip Ng: Yes. On that note, Dan, I mean, it sounds like you won business in '27, '28 in North America, which is great. And you commented on potentially record can -- profitability per can for '27, which is exciting. Are most of those levers more on the cost and efficiency side? Or we should expect perhaps a better pricing environment just given how supply demand and just volumes have actually inflected pretty nicely in the last 12 months? Daniel Fisher: Yes. The market is tight, Phil. I think you're right. You should see an elongated improvement in underlying economics of the business that I think the industry will benefit from. And for us, in particular, the things that we've been able to manage via the operating model changes, the operating earnings construction, the inefficiencies of just a better performing manufacturing environment. And we're kind of early days even with AI technology deploying, and there's a number of applications, both commercially with AI and secondarily within supply chain and in our plants and operating our plants more efficiently through technology. So there's room for margin improvement, and it doesn't have to come on the backs of our customers. It can just come through improved performance. And I'm encouraged about that. Yes. Philip Ng: And just to sneak one in for the other, Dan. How should we think about capital deployment when we think about 2026? Obviously, you guys have done a phenomenal job in returning cash back to shareholders. Is that going to be the focus still? Or could M&A be an opportunity, at least there's some chatter about Europe was the market you guys are at least taking a look at. So kind of help us think through medium to long term, how you going to deploy that excess cash? Daniel Rabbitt: Yes. I think notably, you're going to see the -- on the share repurchase, not to be at the same levels because through this year, we will have bought back over $3 billion worth of shares. That's a path to being private, if you think about it. So we'll moderate back into probably some of our historical averages, which you might have seen in the past. That's still being worked out on exact numbers. But we're going to continue to carry a conservative balance sheet, and we're going to be wise on how we spend the capital. So really this is -- this is really how we've always managed the business, looking at those 3 levers and trying to do the right thing to get the returns -- the right return for our shareholders. Daniel Fisher: And Phil, it's a -- I would say it's a yes and on those 2 questions. So stay tuned. Operator: Our next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: Your inventories year-over-year are up around $500 million. I take it that's higher aluminum costs. Should your inventories continue to rise into the fourth quarter as aluminum values have lifted? Daniel Fisher: It's a combination of both. Great question. As you know, we didn't have the right inventory mix in the third quarter last year, specifically in South America in terms of unit volume and days, I think we've added a few days to make sure that we're fit for purpose of what our customers need. We've had a couple of customers even within our portfolio that are really outpacing what they expected at the beginning of the year, have had some really good market trends. So we want to make sure we're ready for that and managing that more appropriately. I'd say the 2 to 3 days is a better reflection of a healthy level of inventory. And then your other question is probably 50%, 60% is the increased aluminum value and aluminum costs. So I'd say 2/3, 1/3, but that's how I would construct it. Daniel Rabbitt: And I think we might add that this is some terrific volume growth, too, that we've come into, especially here in the United States, too, that has a role in this, too. Jeffrey Zekauskas: Also in the -- in your financials, it said that you purchased an investment linked to the common stock of ORG Technology. You bought -- you have a $47 million investment. What is ORG Technology? And why do you own it? And what exactly do you own? Daniel Rabbitt: Yes. You're referring to one of the notes in the release. And ORG Technology is the party who just acquired the controlling stake from our Saudi Arabian joint beverage can joint venture. And we have a long history and a good strategic relationship with them that dates back to the year 2018 when they bought our beverage can business and probably not too many people were at that earnings call, but we had, at that time, announced that we would be putting some investment into their company. They are the largest beverage can producer in China, and they are traded publicly. So it's a small stake in their public company for an important strategic relationship for us. Daniel Fisher: And Jeff, I think you would anticipate that there's a number of strategic elements to that investment. So more to come on that. Operator: Our next question comes from the line of Chris Parkinson with Wolfe Research. Christopher Parkinson: You mentioned in the last calls -- -- you mentioned a few times in the last 2 earnings calls just about mix. And I understand there are a lot of moving parts. I mean there's big beer versus craft beer. There's new CSD contracts. There're obviously some logistical things in terms of a large energy customer. But what -- approximately what quarter in 2026 do you think that's roughly going to normalize in terms of improving the Street's ability to better project volume versus operating leverage in your NCA business? Daniel Fisher: It will be much cleaner in '27 when we have a little bit more capacity. So capacity is one component of the difficulty to predict leverage fall through. The second one is just the trend -- the shift into higher growth customers, higher growth categories. And we're through 80% of that at this point for the next 3 years. So not a great deal of additional change in terms of our mix. But the navigating an incredibly tight, I think we'll be at 99% asset utilization next year. So how you're delivering on spikes and declines of volume line by line, SKU by SKU, that's going to be difficult for us to manage the traditional flow-through. I think what you're seeing counter to that just in a corollary is we put in excess capacity, growing into a growing market in Europe, much easier to flow through operational leverage at a more traditional rate when you've got that and you're not having to manage things kind of hand to mouth. So looking forward to having a little bit more capacity in the right locations in 2027. Christopher Parkinson: So that actually leads me to my second question on Europe. I don't know if we've explicitly hit this on the call, but growing into a growing market, I mean what's your kind of latest and greatest assessment based on what you're hearing from your customers in terms of the outlook for '27, '28 in terms of the need or perhaps it's already accounted for additional supply capacity in Europe in particular? Daniel Fisher: Yes. Europe is -- and I think you're hearing it from a lot of our competitors as well and our customers. For the can, it's a land of opportunity. And it is because it still has heavy glass substrate composition. And glass has got a really bad carbon footprint. And so there's investments away from glass. The cans preferred. Europe is not Europe, obviously, it's not homogenous. So depending on what the markets are, will depend on what the can size is, depending on is it a vacation spot like Southern Europe is, which is more seasonal. I think all of these factors weigh into what's the right capacity and where. And obviously, it's a much more discerning investment in that market for all of us given the labor laws, the Works Council and the challenge to garner environmental permitting, et cetera. So it's a -- if you endeavor to build there, it's much more difficult, much more specific, much more thoughtful approach that you have to take in those markets. And it's -- I'm very encouraged about the capital we've deployed there and the benefits we've gotten. And as we continue to do that, it's -- you have to be methodical about it for sure. Operator: Our next question comes from the line of Edlain Rodriguez with Mizuho. Edlain Rodriguez: Dan, a quick one for you. I mean you've addressed most of the key issues. So one quick one here. As you look at all the puts and takes in the different regions and so forth, like what worries you the most. Like what do you see as under your control? And what do you see is like things you cannot control? Yes, like what worries you the most as you get into the next year and year after that. Daniel Fisher: Little worries me at this point. I say this with the greatest of respect for the team that I am managing and working with. We have hit a number of outsized challenges here over the last 3 or 4 years that really no one in our industry has had to deal with. No one had to deal with Russia. No one had to deal with the marketing issue in the light beer category. No one had a business in Argentina. So the team has masterfully gone through that, and we've stood up a new operating model and not to mention what's happened here recently with the trade challenges. But certainly, 5, 80-year-olds controlling the majority of the largest economies in the world and what they want to do tomorrow, that's -- I can't spend a whole lot of time deliberating that and what the what-ifs are. But trusting and leaning in on our team, making sure that they have the energy, and they believe we're winning and that we have a winning formula. That's where I'm spending the most of my time. But I appreciate the question. Edlain Rodriguez: No. So that says. So as you look at your stock price kind of been under pressure. So when you look at capital allocation, are you looking like in terms of share buyback more opportunistically or trying to be more aggressive? Like what are you thinking there in terms of the disconnect between what you think you can deliver and what the stock is reflecting? Daniel Fisher: Well, we think we're very cheap. I think we believe that looking at our 5-year outlook, looking at our plans, looking at the historical valuation of this company, looking at how we're performing and winning in virtually every single capacity. So we're -- I'd say we're not -- we're opportunistic in the sense that we think we're cheap, but we're going to be very deliberate in returning value to shareholders. When we're at our best, we return value to our shareholders in a consistent manner. And as long as I see a really positive and constructive outlook, we'll continue to keep the foot on the gas in terms of the share buyback. Operator: Our next question comes from the line of Arun Viswanathan with RBC. Arun Viswanathan: Congrats on a strong quarter here and outlook. So I guess my first question, maybe I could just ask about the categories. So in North America this year, I think we're categorized or characterized by a very strong energy market, somewhat off of easy comps, but also, I think the consumer has pivoted that way to get maybe caffeine at a lower rate than coffee. But maybe some other dynamics playing in there. Do you see energy continuing to grow next year at a similar pace on tougher comps? And similarly, I guess, beer was relatively weak. However, you've managed through it with your very strong CSD position. So maybe you can just comment on how the categories look to you as you -- you've already said some new contracts up to '27, '28. But in '26, do you expect continued low single-digit growth? And maybe you can just provide some thoughts by category. Daniel Fisher: Yes. I think your characterization of the categories is right. I think the other thing that is -- needs to be impressed upon, I think, the broader audience is there are very aggressive innovations happening now in a number of areas that would be a little bit more challenging to define, but health and wellness is certainly promoting. I think there's protein going into everything these days. So I think that market is untapped. But we're connected to a lot of folks that we think are going to win disproportionately moving forward, and they're going to be in cans. But the non-alc 52 weeks, it's grown 4.8%. Alcohol has declined at 2.5%. We have plans to help everyone win in their categories in their preferred brand. There's a lot of can innovation happening. So all of that's going to be required to help all of our customers win. And then there's a lot of disruption that's coming in terms of innovation that we're excited about. So folks that are beverage companies are going to figure it out. And that's where we've also been repositioning some of our portfolio to make sure that we're winning disproportionately on favored mix and winning with the winners. So '26 is what your question, '26 for us is we're very, very tight. And we've bridged higher growth into the contract construction into '27 and beyond to make sure that we can stand up a facility in the Northwest in Oregon. And so we'll grow in line with what we believe the market, at least the low end of the market. And then we'll -- you'll see fundamental step change where we'll outpace the market in '27, '28 and beyond potentially. Arun Viswanathan: Great. And so I guess what I'm hearing is the main issues that you're contemplating are just around complexity and maybe execution. And would there be any issues on metal supply that we should consider, maybe whether it's logistics and getting metal in the right places or imports or supply chain? Or have you already addressed those as well? Daniel Fisher: Yes. Overwhelmingly, we've addressed those. There was some media coverage on one of our suppliers that I believe supplies 8% of the can sheet in the North American market. They're overwhelming automotive supply base. So that was something that was managed very effectively. Yes, we continue to not have enough aluminum in the U.S., processed aluminum, aluminum can sheet, but that's something we've been dealing with for multiple years now. And 232 hasn't presented much more in terms of supply chain challenges. And then we have both Novelis and SDI that's going to be standing up a new facility here in the next few years. So medium, long term, we're in great shape. Short term, we're all navigating kind of disillusionment of NAFTA supply chain, but we're -- the team is doing a great job. And we may have to do some things in our footprint to navigate much more efficiently, but you're talking about low capital throws and just optimizing what's in front of you. We do that all the time, but this one would be directly connected to the tariff scenarios. Daniel Rabbitt: For metal, we feel pretty good, though, where we are. Arun Viswanathan: And apologies if I missed this, but did you call out any special cash items for next year? I know CapEx you addressed, but was there anything on working capital or cash tax or minority interest or anything else that would drag cash flow? Or any thoughts on what your conversion from EBITDA or net income would be? Daniel Rabbitt: No. We really have nothing to report right now at this time. But I think we think the trends should continue into next year for the most part. Operator: Our final question comes from the line of Josh Spector with UBS. Joshua Spector: Just first, a quick follow-up. Just on the Novelis outage and the aluminum supply. Did that have any impact on you guys in 3Q or 4Q volumes or cost expectations? Daniel Fisher: No, it didn't. Joshua Spector: That is clear enough. Secondly, I just wanted to ask more broadly on consumer elasticities here as you're thinking about inflation for carbonated soft drinks and beer, do you have any latest view around kind of what the sensitivity would be when consumers start to see the impact of higher prices next year or potentially the risk of? Daniel Fisher: Yes. I'm actually more encouraged. Then I think the press clippings are -- just from this standpoint, we've been talking about a weekend consumer for 3 years. I mean, it's been -- grocery baskets have been getting smaller for 3 years. So this is nothing new to what we've been dealing with and what our customers have been dealing with. And if you look at the most recent -- what's different, and I think this is why I'm encouraged, when you look at what people are saying they're going to spend their money on, they're going to spend their money on food and beverages. They're not going to travel. They're not going to buy a large capital spend. It's all geared toward the things that we make. So the concentration, the effort and the dollars that are being spent in people's budgets and in their mental framework is going to us, whereas the last 2 to 3 years, we were still competing with vacations and other things, but that's not what we're competing with now. So I think that would signal to you that the pricing has clicked into a place where they have to focus on putting food on the table above everything else, and that's usually a good spot for us. Yes, I want to thank everybody for the questions today, and I hope you have a wonderful holiday season and look forward to reporting back out full year numbers and a deeper dive into '26 here in short order. Thank you. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Operator: Good morning. My name is Sylvie, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the BTB Real Estate Investment Trust 2025 Third Quarter Results Conference Call for which management will discuss the quarter ended September 30, 2025. [Operator Instructions] Should you wish to follow the presentation in greater detail, management has made a presentation available on BTB's website at www.btbreit.com/investors/presentations/quarterly meeting presentation. [Operator Instructions] Before turning the meeting over to management, please be advised that some of the statements that may be made during this call may be forward-looking in nature. Such statements involve numerous factors and assumptions and are subject to inherent risks and uncertainties, both general and specific, which gives rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not be achieved. Several important factors could cause BTB Real Estate Investment Trust's actual results to differ materially from the expectations expressed or implied by such forward-looking statements. The risks, uncertainties and other factors that could influence actual results are described in BTB Real Estate Investment Trust's Management Discussion and Analysis and its annual information form, which were filed on SEDAR+ and on BTB's website at www.btbreit.com/investor/reports. I would like to remind everyone that this conference is being recorded. Thank you. I will now turn the conference over to Michel Leonard, President and Chief Executive Officer, accompanied today by Mr. Marc-Andre Lefebvre, Vice President and Chief Financial Officer; Mr. Charles Dorais Bédard, Vice President of Finance; and Ms. Stephanie Leonard, Senior Director of Leasing. Mr. Leonard, you may begin the conference. Michel Léonard: Thank you very much, Sylvie, and welcome to all that have joined us in the call for our results of the Q3 2025. So as far as the highlights are concerned, we sit at 6 million square feet in the portfolio, we concluded lease renewals and new leases during the quarter for 280,000 square feet. The fair value of our investment properties stood at $1.2 billion, and the occupancy rate is at 91.5%. As far as the way that our -- the weight of our real estate portfolio, we sit with the suburban office properties at 41%, industrial properties at 36% and necessity-based retail at 23%. As far as the geographical diversification, there's been generally no change in the holding of our portfolio. As far as the quarter at a glance, we are still actively involved in zoning changes to create density on 2 sites by adding residential units in Montreal and in Ottawa. We've disposed of one property located in Quebec City on Leonard Boulevard for proceeds of $10.5 million, and this property was a little bit more than 100,000 square feet of office space, hence, the reduction from 6.1 million square feet reported in the last quarter to 6 million square feet in this quarter. After the quarter, we disposed a small retail property located in Terrebonne and the total proceeds received prior to transaction costs and adjustments were $3.1 million. With this, I will turn to Stephanie to go through in more details regarding the leasing and renewal activity. Stephanie Leonard: Good morning. So for those of you that are following us on our online presentation, just to note that we are currently at Slide 7. So our total leasing activity, which is the combination of new leases and lease renewals, totaled 280,000 -- round up to 281,000 square feet for the quarter, of which 129,000 square feet were new lease transactions and 152,000 square feet belong to lease renewals, again, just rounding up. Our total leasing transaction volume for the year stands at just 519,000 square feet. Our most noteworthy transaction for the quarter was signed with Kraft-Heinz Company, representing 80,000 square feet in our industrial segment located in Montreal, which was committed as of the third quarter, but was recorded in place as of October 1, therefore, the fourth quarter. This also explains the difference between our committed and our in-place occupancy rates for the quarter. Our second-most important transaction for the quarter was a 10-year lease that we signed with SFL Gestion de Patrimoine or Wealth Management in English, representing 7,420 square feet in Trois-Rivières, Quebec, again, in our suburban office segment. The remaining new transactions representing roughly 41,000 square feet were also mainly concluded in our suburban office segment and specifically concentrated in our Quebec City portfolio. Our transaction -- our new transactions with Kraft and SFL provide a good segue into our lease renewal rates for the quarter as both of these new leases constituted departing tenant replacement, therefore, impacted our lease renewal rates. So the previous tenant that occupied Kraft space, their lease came to maturity on September 30. We replaced them with Kraft on October 1, therefore, creating no downtime between tenancies. However, as there was a change in tenancy, we had to record this departure as a nonrenewal, therefore, affecting our lease renewal rate by 36%, and this is just for the Kraft transaction. The same explanation is applied to the case of SFL. And both these transactions impacted our lease renewal rate but did not impact our occupancy rate. In terms of a comparison, should -- because we reduced our lease renewal rate by 36%, our comparable lease renewal rates for the quarter and for the 9-month period would have been comparable to the previous 9-month period -- would have been -- would have been comparable to 2024 -- Q3 2024 and 2024 lease renewal rates at this point of time. In terms of our important lease renewals concluded for Q3, we signed a 26,000 square feet 5-year renewal with the government of Quebec in our suburban office segment in Montreal, 18,000 square feet with a 10-year term with Shoppers Drug Mart in our necessity-based retail segment located in Dollard-Des Ormeaux, 12,000 square feet renewed with Analog Devices in our suburban office segment in Ottawa. In terms of our early lease renewals, so lease renewals that we conclude with tenants whose leases come to maturity in 2026 and thereafter, therefore, not in the current year, which reduces our future maturities total roughly 61,000 square feet. And our most noteworthy transaction in this segment belongs to Hewlett Packard for 29,000 square feet in our suburban office segment located in Montreal. In terms of our rental spreads for the quarter, we achieved a 14.5% increase in our renewal rate, which is our highest spread for the third quarter in comparison to 2022, 2023 and 2024. We achieved rental spreads of 15.4% for the quarter in our suburban office segment and 8.3% in our necessity-based retail segment. Our 9-month period rental spreads also continued to outshine our performance in 2023 and 2022 standing at 11.3% for our portfolio. Our committed occupancy rate at the end of the second quarter stood at 91.5%, a 30 basis point increase compared to Q2 2025. So as you all know, we're still showing the effects of our 132,000 industrial vacancy at our property located at 3695 des Laurentides in Laval, impacting our occupancy rate by 221 basis points. We are currently negotiating an offer to lease with a AAA tenant for the entire property. We have signed a nondisclosure agreement. So at this time, I cannot share any additional information as to whom the tenant is, net rents or any incentives. However, I can say that the net rents are within our expectations, and it is our hope to be able to share news in the upcoming weeks about this tenancy. So on this note, I'd like to turn the presentation over to Marc-Andre for a financial review. Marc-Andre Lefebvre: Thank you, Stephanie, and good morning, everyone. The financial results for the third quarter once again reflect the resilience of our business. For the 3-month period ending September 30, 2025, rental revenue stood at $32.9 million. That's an increase of 1.1% compared to the same quarter last year. NOI and cash NOI both increased by 5.9% and 4.2%, respectively, again, compared to the same quarter last year. The increase in cash NOI is related to several factors, including: number one, a payment of $1.1 million triggered by a lease cancellation notice from an industrial tenant with a planned departure date at the end of Q1 2026. Second, higher rent renewal rates third, increases in rental spreads for in-place leases. On the negative side, cash NOI was impacted by the previously reported departure of an industrial tenant last quarter, that's Big Rig Trailers; and second, the impact of the short-term lease negotiated with the group who purchased Lion Electric. Cash same property NOI increased by 4.2% for the quarter compared to the same period last year. This is a good performance considering the departures we had in the industrial segment. Now looking at FFO adjusted per unit. So we ended the quarter at $0.115. That's an increase of 7.5% from the same quarter last year. AFFO adjusted per unit was $0.101 for the quarter, an increase of 4.1% from the same quarter last year. This increase is mainly explained by a $0.8 million increase in cash NOI. Second, a $0.5 million increase in admin expenses; and third, a $0.2 million decrease in net financial expenses before fair value adjustments. We maintain our distribution to unitholders at $0.075 per unit for the quarter, which represents an annual distribution of $0.30 per unit. The AFFO adjusted payout ratio was 74.3% for the quarter. That's an improvement from 77.2% for the same period last year. The value of our investment properties remained stable at $1.2 billion at the end of Q3. This quarter, we externally appraised 48% of our properties, and that's based on fair market value. The exercise resulted in a gain of $2 million. The weighted average cap rate for the entire portfolio remained stable at 6.7% compared to year-end 2024. As Michel previously mentioned, we had a disposition during the quarter. So we sold a property in Quebec City located at 1170 Lebourgneuf Boulevard, and it resulted in gross proceeds of $10.5 million. After quarter end, so subsequent to quarter end, we disposed of our 50% interest in a small noncore retail property located at the 5791 Laurier Boulevard, that's in Terrebonne and the sale resulted in total gross proceeds of just over $3 million. We concluded the quarter with a total debt ratio of 56.8%. The weighted average term and average interest rate on the mortgage portfolio was 2.3 years and 4.4%, respectively. Finally, at the end of the quarter, we held $5.5 million in cash and $25 million was available under our credit facilities for total liquidity of almost $31 million. So this completes our presentation, and we will now open the call to questions. Operator, can we please have the first question on the line? Operator: [Operator Instructions] First, we will hear from Matt Kornack at National Bank Financial. Matt Kornack: Just wanted to clarify on the lease cancellation income. That was in prior quarters, right, not in Q3? Or am I reading that wrong? I just... Michel Léonard: There are 2 lease -- Matt, there are 2 lease cancellations in 2025. One that was at the beginning of the year, where it's a tenant located in a suburban office property that basically, let's say, I forget the numbers, but let's say, they leased 30,000 square feet from us and they canceled 15,000 square feet. And we re-leased the 15,000 square feet immediately to another entity called Belden. So there was no downtime as far as that one is concerned. The second one is a notice that we received not too long ago, I forgot the date, but where a tenant had a right of basically canceling the lease after 7 years, and they exercised that right. So now we've put that property on the market and received the funds, and we're actively trying to lease the property. It's 60,000 square feet, and it's located on Autoroute 13 in Montreal. Matt Kornack: Okay. But did you actually receive those funds in Q3? Or will you get them in Q4? Michel Léonard: We received the funds in Q3. Matt Kornack: Okay. So your NOI figure would include that number, the $1.1 million for this quarter. Michel Léonard: Yes, that's correct. Yes. Matt Kornack: Okay. Fair enough. And then just on the margin front for the quarter, it looked, again, a little bit better, maybe it's partially related, but it looks like you've been able to constrain costs. Is there anything to that? Or is that just a function of timing? Marc-Andre Lefebvre: No, it's really -- we're managing our expenses, and we're going to be as efficient as possible. Matt Kornack: Makes sense. And then I understand that you can't say much on this prospective lease, but congratulations on getting close to something and looking forward to hearing what it is. Michel Léonard: Matt, depending on what you believe, touch wood or go light a candle in a church or I don't know. But I think that if we all pull together, we will be able to finalize the transaction. Matt Kornack: Fair enough. We're hoping for you. And then just like if I remember correctly, it was a bit of a Frankenstein of an asset. Like are they going to take it as is? Or is there kind of a redevelopment component to the potential lease? Or how should we think? Michel Léonard: It's almost an as is. It's a basic base building. It's -- I can't say -- this is an industrial building and the use that would be planned for it is a quasi-industrial tenant. So it's not a pure industrial type of occupancy. So there are improvements that they are going to have to invest in, in order to -- I don't want to use the word transform, but let's use the word transform the building into the use that they want to give to it. But as Stephanie mentioned, it's a AAA tenant. The rates that were -- that we received from the departing or the tenant in bankruptcy was less than $8, and we're talking about more than $10, $12 that we basically gave guidance when we -- on the last call. Matt Kornack: Okay. So we'll wait for that one, but that would be great. Michel Léonard: Please do. Matt Kornack: Yes, maybe just lastly on the Kraft, and I appreciate that commentary. It sounds like 1-day difference impacted your occupancy, but all things else it would have been the same. But can you give a sense as to where the rent would have been relative to the expiry there? Michel Léonard: The tenant was paying us, I believe, $775 and Kraft is... Stephanie Leonard: We're in double digits. I don't have it... Michel Léonard: We're going to get you the number. So it went from $7.75 or $8 to it's a good jump. I think it's $4. Stephanie Leonard: Yes. We're at market rents for sure with Kraft in that. So we'll get you the -- we'll e-mail you the details. We're at -- sorry, Charles just pulled it up here. We're at $13.50 with Kraft, net. Matt Kornack: Okay. No, I appreciate that. And then maybe sorry, last one just came to my mind. On straight-line rent, it was up by a couple of hundred thousand this quarter. Is that reflective of kind of some of the gap between in-place and committed occupancy? Or how should -- anything onetime in nature in there that we should think about? Or should we use that as a run rate, I guess, for 2026? Michel Léonard: Straight-line rent. Marc-Andre Lefebvre: It was largely -- basically, the $1.2 million that we recorded in Q1 is kind of creating a full -- how could I say it, an abnormal increase in straight line. So you should bring it back to what we have right now in Q3, which is more our normalized run rate for straight-line amortization. Operator: [Operator Instructions] Next, we will hear from Tal Woolley at CIBC World Markets. Tal Woolley: Just again on the industrial side. So if you are able to close this lease, I'm just trying to -- because if I remember correctly, Big Rig has already been released. This would sort of take care of the last of the sort of large vacancies that you've had to deal with over the last like 18 months, right, if this Laval lease gets signed. Stephanie Leonard: Yes. Tal Woolley: Perfect. And then I guess the other place I just wanted to chat a little bit about was on the office side. It's obviously been pretty topical in the public markets over the last couple of months. And you've seen sort of a steady performance. I'm just wondering if you can talk a little bit to lease demand right now in the office space in your portfolio. Stephanie Leonard: So for our portfolio right now, what we're noticing is that with companies, and I know we kind of sound like broken records at this point, but with companies giving their back-to-work mandates, we're seeing a sustained interest within our portfolio. I think our -- the strategic positioning of our suburban office assets creates -- we have these different nodes that we could go fill for different companies that don't necessarily want to go to the downtown core, let's say, downtown Montreal. And for right now, one of the biggest pockets of interest is Quebec City. We're seeing a lot of leasing velocity right now within our office portfolio there. Laval is another segment that really works well for us as well. So I think -- I think within the next couple -- I think probably towards Q1 next year, we're going to see more demand within the office segment as companies start to unveil what their new plans are. I know there are some companies that still need to give their guidelines to their employees about their work from home versus work from office mandate. But as we're seeing right now is the pendulum is shifting back to pre-COVID times in terms of workforce presence at the office. So it should be positive for our portfolio. We see it right now, and I think the momentum should sustain into Q1 2026. Tal Woolley: And in terms of just the leasing rent -- or the -- sorry, you're asking rents and incentive packages, has there been much change there at all over the last year or so? Stephanie Leonard: No, not much change. I think the biggest change or comment I could give it really depends on the client, and it depends on the industry they're operating in, and it depends what the new -- what the new mandate is, right, in terms of coming back to the office. We're seeing it with the federal government right now that they have a brand-new plan that they're unveiling within their portfolios of their office space. So the federal government is investing more within their spaces right now. So I think there might be a little bit more investment, which is not a bad thing for our assets, not a bad thing for the workforce either. So -- but right now, it's still pretty -- it's standard for the past year, still the same rates and incentives. Tal Woolley: Have you heard anything just from -- you ramp the governments, like obviously, the budgets will be coming out this week. But there is some question, I think, around what kind of spending cuts there might be. Are you getting any sense that like that the usage rate for the governments, whether it's federal, provincial are going to come under some pressure as we see. Michel Léonard: I think it's a little bit early to call because they haven't identified anything, any specific direction. The only -- what we hear from the market is that they're vacating downtown Ottawa and favoring suburban Ottawa. That's the only direction that we've heard from the market. And as far as from the horse's mouth, absolutely nothing. Tal Woolley: Perfect. Okay. And then I guess just lastly, too, on rates have been reasonably volatile over the last little bit. I'm just wondering if you can talk about where you're finding borrowing costs for the various asset classes you're involved in, so office, industrial, retail, any material difference in the borrowing rates you're seeing? Marc-Andre Lefebvre: Not out of the usual. I mean, right now, year-to-date, we refinanced 6 properties for about $55 million. And in terms of spread, it was flat. Until year-end, we have another 6 properties for, again, almost close to $50 million. And our estimate -- we're estimating a spread of plus 40 basis points. Operator: And at this time, there are no further questions. Please go ahead, Mr. Leonard. Michel Léonard: Thank you very much for your attendance this morning. We didn't talk about it, but in the previous calls, we talked about the office assets that were on the market. So we have a building in that we expect to close before the end of the year. And there are 3 buildings -- 3 other buildings, office buildings that are on the market. We do have traction, but it's slow coming as far as the offers are concerned. I'd like to point out our leasing efforts that are extremely strong. We almost turned so far this year, 10% of the total portfolio of 6 million square feet in renewals or new leases. And I'd like to also point out that we were absolutely quick to re-lease the vacant spaces caused by nonrenewals of certain tenants. This quarter, 14.5% increase in the average net -- the average rent renewal rate, which is stellar, with a same-property NOI at plus 4.2%. We're financially strong. And when we're showing our AFFO payout ratio at 74.3%, I think that we're at the right spot, and we had always targeted to be below 80%. So thank you very much for joining us this morning. It was a very good quarter for BTB, and we'll see you when we're going to publish our results for Q4 2025. Thank you again for attending this morning. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude today's conference call. Once again, thank you for attending, and you may now disconnect your lines. Have a good day.
Operator: Good day, everyone, and welcome to The Williams Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Danilo Juvane, Vice President of Investor Relations and ESG. Please go ahead. Danilo Juvane: Good morning, everyone. Thank you for joining us and for your interest in The Williams Companies. Yesterday afternoon, we released our earnings press release and the presentation that our President and CEO, Chad Zamarin; and our Chief Financial Officer, John Porter, will speak to this morning. Also joining us on the call today are Larry Larsen, our Chief Operating Officer; Lane Wilson, our General Counsel; and Rob Wingo, our Executive Vice President of Corporate Strategic Development. In our presentation materials, you'll find a disclaimer related to forward-looking statements. This disclaimer is important and integral to our remarks, as you should review it. Also included in the presentation materials are non-GAAP measures that we reconcile to generally accepted accounting principles. And these reconciliation schedules appear at the back of today's presentation materials. So with that, I'll turn it over to Chad. Chad Zamarin: Thanks, Danilo, and thank you for joining us today. We're excited to share the strong progress we've made and the tremendous opportunities ahead for Williams. So let's begin on Slide 2. We're strengthening our core business with delivered expansion projects while extending our backlog of highly attractive new opportunities that will drive ongoing growth. Starting with completed transmission projects, we recently placed Northwest Pipeline's Stanfield South project in service and completed Transco's Alabama, Georgia Connector and Commonwealth Energy Connector expansion projects. Importantly, on Transco, we are increasing pipeline capacity by nearly 200,000 dekatherms per day, which will provide access to additional natural gas supplies to increase reliability and affordability during the upcoming heating season. We've also recently completed Shenandoah and Salamanca, 2 important deepwater expansion projects. And in the Haynesville, our most recent expansion was brought online, which increases basin gathering and takeaway capacity as we prepare for the rapid growth in LNG exports alongside power demand growth within the Gulf Coast and Southeast regions. We recently announced 2 transmission projects, the Wharton West expansion on Transco in South Texas and the Green River West Expansion on Mountain West in Southwest Wyoming. Additionally, we signed customer agreements for our 10 Bcf expansion at our Pine Prairie storage facility in Louisiana. These milestones demonstrate our ongoing ability to advance projects across our nationwide transmission and storage footprint. With respect to strategic investments, we're advancing our wellhead to water strategy through a strategic LNG partnership and a complementary asset divestiture. We recently announced that we have signed agreements to sell our interest in our Haynesville upstream asset to JERA for $398 million plus deferred payments through 2029. Under JERA's ownership, Williams will continue to gather production and deliver volumes through our LEG system in the Transco and downstream LNG markets. And as part of the transaction, we will further expand our Haynesville gathering system to accommodate production growth, and this transaction also increases the volume commitment to LEG. Alongside the sale of the upstream asset, we announced a strategic partnership with Woodside Energy, whereby Williams will build and operate Line 200, a 3.1 Bcf a day pipeline that is fully permitted and fully supported with take-or-pay 20-year customer contracts. Line 200 will connect Woodside's Louisiana LNG terminal to multiple systems, including Transco and LEG. We'll also be taking a 10% interest in the Louisiana LNG terminal, which is a fully contracted take-or-pay LNG facility. As part of the ownership in Louisiana LNG, Williams will commit to a 1.5 million ton per year LNG offtake, which is designed to provide international market access for Williams producer customers. Together, Williams and Woodside will leverage our Sequent Energy Management platform to manage natural gas supply for the LNG facility. And we expect to invest approximately $1.9 billion in capital into the combined pipeline and LNG terminal projects, which will position our core business to further grow as global LNG demand continues to ramp and pull volumes through our integrating value chain. It's important to note that these investments provide an integrated return that is on par with our targeted capital investments, and those returns are driven primarily by fixed fee fully contracted cash flows with 20-year contract tenors. So in summary, these transactions allow us to high grade from upstream cash flows into high-quality pipeline and LNG terminal cash flows supported by 20-year take-or-pay contracts. And while there's been much focus on the LNG portion of this transaction, I do want to make one thing clear. This is an integrated platform consistent with our disciplined capital allocation approach. And like everything we do, we are focused on enhancing the value of and the opportunity to grow our core infrastructure business, and this is not a speculative entry into the LNG space. Finally, I'll close by highlighting our Power Innovation business that continues to grow and enhance the reach and value of our core natural gas infrastructure. In late September, we announced our planned investment of approximately $3.1 billion into 2 additional projects to continue to deliver speed-to-market solutions in grid-constrained markets. These power innovation projects are anticipated to be completed in the first half of 2027 and are backed by 10-year agreements with an option for our customer to extend. And with these agreements, total Power Innovation committed capital now stands at approximately $5.1 billion at a targeted 5x EBITDA build multiple. Overall, these recent accomplishments continue to underscore our commitment to deliver infrastructure solutions that meet the nation's growing need for clean, reliable and affordable energy, all while keeping a laser focus on investing in a manner that will create industry-leading shareholder value. And with that, I'll now turn it over to John for a deeper dive into the financials. John Porter: Thanks, Chad. Starting here on Slide 3 with a closer look at our adjusted EBITDA performance, which was up 13% over the third quarter of '24. Walking now from last year's $1.7 billion to this year's $1.92 billion, we start with our Transmission, Power & Gulf business, which improved $117 million or 14%, setting another all-time record due to higher revenues from expansion projects. At Transco, we had increases from Regional Energy Access, Southside Reliability Enhancement, Texas to Louisiana Energy Pathway and the Southeast Energy Connector projects. Also at Transco, we have the benefit of the higher rates coming from the conclusion of the rate case. We also continue to see growth from our Storage businesses on higher renewal rates. In the Gulf, we saw contributions from the Whale project, our Discovery business including the Shenandoah project which started up in July and the Ballymore project as well. Third quarter Gulf gathering volumes were up over 36% versus prior year, and NGL production was up about 78%. Next, our Northeast G&P business improved to $21 million, primarily on higher revenues, including higher gathering and processing rates, but also with higher volumes primarily in Northeast Pennsylvania. Overall volumes ticked up about 6% over the third quarter of '24. In the West, we were $37 million or 11% higher, driven by initial contributions from the Louisiana Energy Gateway project that came online in August, but also from higher Haynesville volumes and growth in the DJ Basin, including the Rimrock acquisition. The West was negatively impacted by a step down in our minimum volume commitments at Eagle Ford. On the volume front, overall volumes grew about 14%, driven by growth in the Haynesville, including volumes from the Saber acquisition acquired in late June 2025. Our Sequent marketing business was up $7 million, where contributions from the Cogentrix acquisition offset weaker realizations in the Gas & Marketing business. And then finally, our Other segment, which includes our Upstream business, was up about $35 million, including higher upstream volumes, partially offset by unfavorable price impacts from significantly lower oil prices versus prior year. So that gets you to the $1.92 billion of EBITDA for third quarter '25 or 13% growth. Before I hand it back to Chad, I'll speak briefly to our current 2025 financial guidance. No change to our adjusted EBITDA guidance with the midpoint of $7.75 billion or any of our other earnings-related metrics, so still expecting 9% growth in adjusted EBITDA over '24 as well as a 9% 5-year CAGR going back to 2020. Additionally, achieving our midpoint EPS guidance of $2.10 will also produce 9% growth over '24 and cap an impressive 14% 5-year CAGR. Regarding full year 2025 growth CapEx, we have shifted the range upward to $3.95 billion to $4.25 billion. This range now encompasses the 2 additional Power Innovation projects and the wellhead to water LNG investments that we announced during October. Leverage guidance remains at approximately 3.7x. So again, '25 continues to trend toward meeting or beating our adjusted EBITDA guidance even after raising a cumulative $350 million. Our backlog of fully contracted projects gives us confidence in continued industry-leading growth, and we are excited to present more information at our Analyst Day next February. And with that, I'll turn it back over to Chad. Chad Zamarin: Thanks, John. Before we move to Q&A, I want to take a moment to recognize every one of our Williams employees and also our investors that have and continue to support the company. When we deliver our numbers for 2025, we will cap an incredible period of growth, performance and shareholder value creation. As John noted, we expect to deliver a 5-year EBITDA compound annual growth rate of approximately 9% and 5-year EPS compound annual growth rate of approximately 14%. The team has delivered industry-leading earnings growth over the past 5 years, and we see an even more exciting chapter ahead. We are thoughtfully steering into the next 5 years with a rock-solid balance sheet, a strong foundation of core assets, a focused and motivated team and an even stronger visibility into earnings growth and cash flow generation than we had during the past 5 years. You can expect us to continue to focus on a disciplined approach to capital allocation, which during an exciting time of company strength and market opportunity gives us confidence in delivering even more compelling returns for shareholders. We plan to provide more details on this exciting next chapter during our Clean Energy and Technology Expo and Analyst Day events in February of 2026, both of which will be held in Washington, D.C. So please stay tuned as those details come out. And with that, we will open up the call for questions. Operator: [Operator Instructions] Our first question today comes from Jeremy Tonet of JPMorgan Securities. Jeremy Tonet: I just want to dive in a little bit more if we could into the Power Innovation side. I was just wondering if you could provide us a refresh with regards to how you see the opportunity set at this point across your footprint? And what would -- how would you describe, I guess, the pace of conversations? Is it still an urgency and speed to market? Or just any other color would be great. Chad Zamarin: Yes. Thanks, Jeremy. Look, I'd say we continue to see very, very robust engagement and interest in both speed to market, but also just long-term need for power for data centers. And as we mentioned, during the prepared remarks, we've upsized our backlog of commercialized projects to over $5 billion of investment. We've talked about the 6 gigawatts of backlog that we're pursuing, some of which we've turned now into actual projects, but we continue to see that backlog strengthen. And as we've discussed, our goal is to continue to layer in projects in a thoughtful way that manages the balance sheet and capacity that we have to invest alongside the very highest quality counterparties and project opportunities. And I think, I'd just say, we continue to see a very robust pipeline of opportunities that we think extends throughout the end of the decade and beyond. And so team is continuing to have very robust discussions, and we do expect additional projects to come together along the way. And to your question about footprint, we also do see that the geography that we operate across is diverse and broad and allows us to offer solutions in a lot of different areas, and we are seeing conversations across the entire kind of footprint. I will say this that -- and there's a reason why a lot of the projects are built in the states that are being developed. We'll probably talk at some point on the call, but we think about places like New England in the Northeast where we're trying to develop NESE and Constitution. I think those projects are really critical to open up the economic opportunity of those regions. You'll see the primary power innovation projects, not just for us, but I'd say across the country, targeted in those states where you can get affordable, reliable energy and you can build infrastructure. And so we continue to be very focused on trying to open up additional markets where, unfortunately, it's been difficult to build, but we're seeing hopeful signs that we'll get back to building. Jeremy Tonet: Got it. That's helpful. And just want to turn, if I could, to the recent LNG deal announcement there. I was wondering if you might be able to expand a bit more, I guess, on the strategy -- industrial logic to this deal with the full wellhead to water connectivity here? And I was curious, I guess, as far as the offtake capacity is concerned, at the LNG facility, if that's something you intend to keep for yourself or contract out to customers or just walking through kind of where that strategy stands post this deal would be helpful. Chad Zamarin: Sure. Thanks. I'll start with the strategy, and Rob is here as well. And if we get into kind of project specifics, he can help add color. But I think importantly, there's a lot of focus on power innovation, on transmission projects, but LNG demand growth continues to be the largest demand growth vector for our industry and energy demand growth continues to be an international story. It's been a while since we talked about it, but there are still billions of people living in energy poverty and U.S. LNG, we think, is an incredibly important tool to help serve the world's need for reliable, affordable clean energy. And so we've been focused on making sure that we can supply into those markets. And we talk about it a lot. Our strategy is very demand-driven and demand focused, and we're always seeking to connect our customers to the very best end-use markets. And so you think about the power generation, the utilities, the industrial loads that we serve, connecting to LNG markets is important to enable that ultimate destination for our customers to reach. And so it's opening up a window with a very small investment into an LNG facility. We get the benefit of building a strategically important pipeline, and we'll operate Line 200, which connects to Transco LEG and several other pipelines at Gillis. We will also -- as you saw in our announcement, we're transitioning our upstream ownership to an international LNG buyer. [indiscernible] is one of the largest producers of energy in Japan and a large buyer of LNG. And so we're putting together a value chain through which we expect to continue to be able to attract both customers that want to reach international markets and in doing so, continue to grow our gathering system, our Transco footprint. Line 200 will be an important extension into an LNG terminal, but also our Gulf Coast storage assets that will connect to the LNG complex. And so a long way of saying this is a strategic transaction that just enhances our ability to pull more business through our core infrastructure. Your question about the offtake, it's a very small percentage of our overall business, less than 1% of our earnings. And we do expect to offer that as a window into international markets to our producer customers. Nothing that we've kind of prewired at this stage, but you can think of us as taking that position to offer access to international markets for those producer customers that can't access it on their own, either due to scale or balance sheet capacity. But that's the strategy. And so don't take -- I mentioned in the prepared remarks, don't take this as a sign that we're trying to take international price exposure. That's not the strategy here. We are opening up a window in international markets so we can offer additional services to our customers. Operator: Our next question comes from Praneeth Satish with Wells Fargo. Praneeth Satish: Maybe on the power side, can you give us a sense of where you are in the procurement cycle for turbines? So you have FID power projects now, the $5 billion you mentioned that come into service through mid-2027. Have you started placing orders or put yourself in the queue for long lead time items for the second half of 2027 or into 2028? I guess kind of how far does that go? And then at this point, could we see more projects gets slotted in for second half '27 deliveries? Or are the conversations kind of shifting towards 2028 now for new power projects? Chad Zamarin: Yes. Thanks, Praneeth. On the latter question, I'd say starting to layer in a little bit later now into the plan. And so likely later '27 and now into '28 for additional projects that we see on the dashboard. And then with respect to equipment, we'll have more to share at our February event, but we feel very confident that we positioned ourselves with our strategic partners really across multiple different equipment and service providers to be able to be ahead of kind of the needs that we see, frankly, now almost through the end of the decade. And so we feel really good about where we stand. Again, we'll share more in February, but we continue to stay ahead of the project need. And so I feel really good about where we sit today. Praneeth Satish: Got it. And then just on the project side. So Power Express looks like the scope was revised down again a little bit to 785 million cubic feet per day from 689 million cubic feet per day. I think that's the second time now. So can you just walk through what's driving that change? Is it tied to permitting commitments or just broader dynamics? And do you think -- and how should we think about the return and the in-service date of that project with this new scope? Larry Larsen: Yes. Praneeth, this is Larry Larsen. I'll take that question. And yes, we've been -- when we announced the project early on, we kind of highlighted how scalable this project was from a scope standpoint. We had an anchor customer that kicked off the project. We thought there's potential for it to be up to 950. But as we go through this and work with our customers, they're working through their power generation needs and the scope of their facilities. And so really just kind of making sure that we're optimizing our design and really aligning with the customer needs. And so we've got contracts in place now for the full 689. And from a return standpoint, just because of the ability for us to adjust looping and compression, the returns are still in the same range as we had in the previous scope. No real big change on that front from a scoping standpoint. So right now, we don't see any major shifts in the scope that we have right now. We'll be planning to move forward, probably start the kind of the FERC process next year. As we mentioned, there's opportunity to go bigger on the project if demand materializes. But right now, it's really just been working with the customers as they finalize their scope and demand needs. Chad Zamarin: Yes. And maybe I'd just add, with these projects, we have to fine-tune both timing and kind of customer readiness. Larry, Rob and I were on the road last week, and we went to the Pacific Northwest, saw the utilities in the Pac Northwest, and we also saw the utility customers -- several of our utility customers along the Southeast and Eastern Seaboard. And every one of the customers highlighted that they need more gas and they need more pipeline capacity. So we see a very robust need across really the entire footprint that we operate. We've talked about it many times. Natural gas demand has far outpaced pipeline capacity development over the last 10 years, and we see that problem just exacerbating over the next decade as we continue to grow demand and lag in keeping up with infrastructure. Operator: Our next question comes from Spiro Dounis from Citi. Spiro Dounis: I wanted to go back to the growth outlook and capital spending. It sounds like the pace of commercialization has increased here in the back half. And from what we can sell, you're active in maybe at least 6 states on the Power Innovation side. So just curious, based on what we see coming down the project pipeline, is this sort of $4 billion of CapEx per year on the growth side, the right target for the next few years? And maybe John, how do you think about the balance sheet's ability to sustain those levels and maybe even higher? John Porter: Yes. Thanks, Spiro. This is John Porter. As we've talked about in the past, in our long-range forecasting process, we've seen now for a number of years a real inflection point coming after 2025, where the balance sheet deleveraging was going to slip below our targeted leverage range of 3.5x to 4x. That long-range forecasting, what we would typically be looking for were high-returning organic investment opportunities that could fill that balance sheet capacity. But I would say, prior to the last year or so, there was probably a little bit more uncertainty about where those opportunity or the magnitude of those opportunities and whether they were going to actually be able to fill what was emerging to be a very significant amount of balance sheet capacity that we saw coming in '26 and beyond. And so what I would say is what we've seen really as we went through the long-range forecasting process this summer was something, I think, very interesting. We saw that instead of sort of hypothesizing about the level of projects that we would have to go find with strong organic investment opportunities to fill that capacity, we started to really see line of sight into a really nice layering of high-returning organic investment opportunities that were coming to fruition with what we've announced this year. As we look into the future, I think we have a lot of confidence that we're going to continue to see those high-returning strategic organic investments that are filling up that balance sheet capacity, staying in that 3.5x to 4x leverage target range. And so -- and a nice side benefit, of course, has been the effect that these nonregulated Power Innovation projects are going to have on our cash tax profile as well, which we -- as we look out into the model now, we see very significant cash tax deferrals through the -- kind of through the next many years. And so I would say, overall, we're seeing a really nice dynamic here where the projects that are coming to us, the layering in of those look like they're going to fit very nicely with what's happening on the balance sheet. And a big reason for that is how quick these projects will -- these Power Innovation projects will come online. Of course, we talk a lot about the Power Innovation projects. But of course, we're also having to make sure that we have ample capital room for all of the transmission projects that we see coming over the next several years, which we expect that to be a steady flow of transmission projects alongside these power innovation projects. But overall, just a lot of excitement about the investment opportunities that we have in these high-returning projects and feeling like the balance sheet is well situated for this very unique opportunity set. Spiro Dounis: Great. That's helpful color, John. Second question, maybe switching gears here a little bit to the utility and power landscape. Election day today. And I know high utility bills are a big topic in a lot of states, especially here in the Northeast. At the same time, you're also seeing some growing opposition to data centers and the impact on consumer electric bills. So curious how you guys are thinking about the impact for Williams from both of those factors? And if I could get you to maybe tie in a status update on NESE and Constitution and how much do you think getting past the election day could maybe open up some progress there? Chad Zamarin: Yes. Thanks, Spiro. Those are, I think, really important topics. And the first thing I would say how it impacts us is we really do need to shine a spotlight on the fact that natural gas is our company -- is our country's affordability superpower. When we produce natural gas in the U.S. on an energy equivalent basis, it's like $0.25 to $0.50 per gallon of gasoline on an energy equivalent basis. Like that's how affordable we can produce natural gas in the United States. And we know that any market in the U.S. that has been able to manage energy affordability, which ultimately translates to overall affordability has done that by leveraging low-cost, abundant, reliable natural gas. And so I think that we continue to see -- we mentioned the trip we took last week to see many of our utility customers. They all recognize that natural gas is our superpower with respect to trying to manage affordability across really the entire footprint. And so I'm hopeful that as this is a topic that's becoming much more relevant to elections and to the -- just the narrative across the country that we continue to see more and more support for natural gas infrastructure. We get through today, and I'll let Lane maybe speak to it. I'm hopeful that we see progress on NESE. It's moving faster than Constitution. But Lane, maybe any thoughts you have on kind of the landscape as you see it. Lane Wilson: Yes. I'm fairly confident that the elections today won't impact NESE or Constitution. And I think we're in good shape on NESE and Constitution we're continuing to work on. We haven't really put much capital in the either projects, but we're trying to put them in a position to order. When we get our permits, we'll be ready to go. And as Chad mentioned, NESE is on a quicker time frame we think than Constitution. Operator: Our next question is from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Maybe to pick up on the higher-level point here. There's no mention of the 5% to 7% long-term growth outlook in the deck here, and maybe that's for a reason here. How should we interpret that removal? And then specifically, it's notable you're targeting a 20-plus percent ROIC. How do you think about, a, what this says about the long-term growth outlook, again, not to preempt too much the Analyst Day forthcoming? And then separately, how do you think about returns here beyond just the Power Innovation sector here? Any comments implicitly what you're saying here, just at the highest levels about the build multiples? Chad Zamarin: Sure. Yes. Maybe I'll give you a teaser trailer for our upcoming Analyst Day. But John and I have been kind of highlighting this over the last year and really even ahead of that. But if you look at our ability to invest in high-return projects within the balance sheet capacity that we have and you think about the last 5 years and our ability to deliver a 9% growth CAGR over that 5-year period. I mean, that's phenomenal growth. But if you think about the next 5 years and you look at the model of our balance sheet capacity, the project opportunities that we have that we think can continue to achieve very high returns on invested capital, I think you can see that we've got a really exciting chapter ahead. Now you've got to balance that up against the law of large numbers. The company has gotten much larger faster over the last 5 years, but the balance sheet is in even better shape than it was in the last 5 years and the opportunity set is arguably even better than over the last 5 years. So not going to put a number on that yet, but we're going to try to provide a bit more clarity when we come together in February on what we think that runway looks like, at least for the next couple of years and then give some overall, I think, directional guidance. But if you just take the balance sheet capacity, the math around our ability to invest in high-return projects, you can see pretty clearly that we've got an incredible opportunity to grow what I think will be industry-leading results over the next 5 years and beyond. Julien Dumoulin-Smith: Great. Yes. So guidance over a couple of years and then maybe directional for a longer-term view, that's excellent. And then if I can just nitpick a little bit more on Power Innovation, as you might expect from me. If you can -- can you talk a little bit about where you see this going? Are we thinking more about like upsizing Socrates and then upsizing these others, Apollo and Aquila at this point? Or how are you thinking about in terms of next steps? I know you elaborated with Jeremy earlier here a little bit, but is it about expanding existing sites, adding more total duration and ramp? Or do you think this is more about just finding new geographies and new opportunities outright here, greenfield? Chad Zamarin: Yes. I think the simple answer is it's a combination of both. We're -- a lot of the projects that we're developing are in locations where if we can continue to add additional capacity, it makes a lot of sense to do that. So you will see, I think, investments made where we want to scale over time. These are very large facilities with very large investments being made. And so scaling over time will be, I think, a clear part of the strategy. We've already done that with Socrates. We started at $1.6 billion of capital. That's an upside to $2 billion. That's an expansion of scope and scale. And we expect to see that at other sites where we can kind of get speed to market as the ability to get a project up and running, but then see scaling over time. These are intended by our customers to be multi-decade investments that will grow over time. And so we -- I think we'll continue to see scaling of these facilities, but also we also continue to see the expansion in other parts of our geography. So it's going to be a combination of both. Operator: Our next question is from Jean Ann Salisbury with BofA. Jean Ann Salisbury: Another one on the wellhead to water announcement. Is it possible for you to disclose even directionally, I guess, what share of the EBITDA that you're projecting for the project is contracted take-or-pay either as today or kind of in your eventual vision? Chad Zamarin: Yes. And I think this is something I want to make sure everyone picks up really clearly. I mean, it is a fully contracted take-or-pay pipeline project. So we're 80% of the investment on the pipeline project, and that is 100% take-or-pay, fully contracted. And the way the LNG terminal is structured, it is fully contracted, 100% take-or-pay. So our relatively small investment, 10% investment, but it's a large project. That is into a project that has 100% of the capacity subscribed by -- with take-or-pay contracts. And so the only portion of the investment that is not take-or-pay is the LNG offtake, which is a very small -- I mentioned it, if you think about our sale of the upstream, that was more than 1% of our earnings. The offtake represents less than 1% of our earnings, and we expect to be able to use that as a tool to attract additional customers to our core infrastructure and likely lay that off over time. And so the intent of this strategy is to invest into fully contracted projects with super high-quality investment-grade counterparties and use this platform to both bring the very best gas supply to these facilities, but also support our upstream infrastructure that's going to be importantly called upon to deliver natural gas for this growing ramp of LNG. John Porter: I might also mention that we also do have some capital protection on the construction side of the LNG facility as well. I can't go into a lot of the details there, but we did protect ourselves on the overrun side of the liquefaction facility build-out. Jean Ann Salisbury: That makes sense. That's super helpful. And then I guess just kind of a follow-up on that same theme. The Gillis LNG pipeline, I think it's 3.1 Bcf which you said is take-or-pay. That's obviously quite a bit bigger than LEG. Do you envision that Williams will kind of source all of the 3.1 from your own GMP? Or -- and will you have to use kind of third-party pipes could like the expanded more? Robert Wingo: Yes. No, this is Rob Wingo. It's really going to be a combination of gas coming off of our LEG system, off of our Transco system and really other parts of the market. The way that it works is we're going to handle the short-term kind of 1-year type arrangements and Woodside has handled the long-term setups for the supply. So between the 2 of us, we're really going to be sourcing gas off the main pipelines that come into that area. Operator: Our next question is from Keith Stanley with Wolfe Research. Keith Stanley: I had 2 follow-ups, similar topics. On the power strategy, so Chad, when you say you've gotten ahead of the equipment needs and turbine needs almost through the end of the decade, I want to confirm the message, do you think you can keep going at this type of cadence of power projects from a supply chain perspective through 2030 at this point? Chad Zamarin: Yes, that's right, Keith. I mean we are continuing to work with customers to make sure that we can layer in projects through the end of the decade, and that includes working with them and our equipment suppliers to have confidence in our ability to deliver the capacity. Keith Stanley: Okay. Great. And then a second one, not to beat a dead horse, but on the Louisiana LNG interest, when you say it's a take-or-pay contract on the facility itself fully pulled out, is that subscribed with Woodside directly just because I think the market perception is that LNG terminal is largely uncontracted. So can you just talk to how you're fully contracted on your interest? Chad Zamarin: Yes. Yes. It is a fully contracted LNG terminal. I mean you think about Stonepeak coming in for a 40% investment alongside us. I mean that's because the facility is fully supported by take-or-pay contracts. The majority of those are Woodside. We obviously are a portion of that. We'll be paying a toll for our offtake, but we'll be paying the owners of the facility. So a good portion of that toll comes back to us as tolling revenues. That's one of the nice things about the equity ownership model. And whether or not Woodside -- I think they've talked about further effectively selling down their interest, but they are the offtaker for the take-or-pay. And so yes, there are investment-grade contracts, take-or-pay for 100% of the capacity of the facility. Operator: Our next question comes from Elvira Scotto with RBC Capital Markets. Elvira Scotto: I just wanted to follow up on the Power Innovation, specifically around that number, the 6 gigawatts that you have in your presentations. Can you talk a little bit about that? Is that your total addressable market? Or can you do more than the 6 gigawatts? Like what are the gating factors to doing more than that? Chad Zamarin: Yes. Thanks, Elvira. I'd say, there is definitely more market than that. We get to that number when we look at managing what we think is the right pace of investment up alongside the quality of the counterparts, the quality of the projects where we have strategic advantage across our footprint. And so we talk a lot about our capital allocation philosophy, and we're going to stay very disciplined. So we're only going to be targeting very high-quality counterparties and take-or-pay contracts and geographies where, frankly, not only do we see these as attractive projects, but we have the ability to further grow our business behind connecting to these demand opportunities. And so that feels like when we kind of run all of that through the analysis, that feels like a very manageable level of investment. I would say also, and the team has done an amazing job. We also want to make sure that we can deliver. And so we're not going to take on more projects than we feel confident that we can deliver. And so we are staffing up, and we're making sure that we can take good care of these customers because these are very, very important facilities, and we expect to be a critical solution and service provider for these new hyperscalers for decades to come. And so it's all kind of a balance between those various factors that get us to that number. Elvira Scotto: Great. And then just my follow-up question is on the transmission side. What's the ability to continue to expand Transco. And of that $14 billion of project opportunities, what portion represents Transco? And how competitive are those projects? How much do you think Williams can reasonably win? Larry Larsen: Yes. This is Larry. Thanks for the question. Yes, as far as the expandability of Transco at this point, I think it's fairly unlimited. As we continue to prove, we find more and more capacity expansion options as we have new supply coming in different parts of the system that creates new opportunities. And so as you think about the project backlog, it continues to grow as we see demand from our customers across the footprint. Where we see it now, it's also in the Pacific Northwest and the Rockies. But I would say the majority of the backlog that you see that we've highlighted is along the Transco corridor where we've just seen really robust demand across the Southeast and the Gulf regions. And so I'd say, you'll continue to see a lot of the project focus in that space, but it's nice to be able to start layering on opportunities out west as we're starting to see that focus on affordability and reliability as well as just kind of the power generation demand growth that's happening across our footprint. And so it's split, but I would say majority is on Transco. Chad Zamarin: Yes. And I think you can think about Transco is like the largest highway system in our country with respect to natural gas, and it's got the highest speed limit and some of the lowest tolls. And so for customers, we can create a lot of flexibility and a lot of solutions. It's a lot easier to add lanes to a large existing highway system than it is to turn small roads into larger highways or build greenfield where they don't exist. And so Transco remains -- we're blessed to have it as an asset, remains incredibly competitive. And so we do expect to win more than our fair share of opportunities along that corridor. Operator: The next question comes from Ameet Thakkar with BMO Capital Markets. Ameet Thakkar: Hopefully, this is not redundant. I just wanted to clarify something Chad said earlier. But -- so our understanding is that Woodside is taking 8 million tons from the LNG offtake and then Uniper is taking 1 million tons in addition to your 1.5 million. I think it leaves about 6 million tons per annum that hasn't been, I guess, at least in the public domain kind of disclosed. Are you saying that, that 6 million tons per annum has now been fully contracted and is take-or-pay? Or is Woodside, I guess, kind of going to be on the hook for that? And I've got one more follow-up. Chad Zamarin: Yes. I don't want to speak entirely for Woodside, but I would say that Woodside today holds the equity and the offtake for the 14 tons. And I think they have expressed a willingness or an interest in selling down additional equity, which would also mean selling with that the offtake obligation. But today, when you look at the stand-alone LNG terminal, it is 100% contracted, and that is primarily Woodside as the offtaker, which is a very credible investment-grade international LNG company. And we feel really good about -- you think about having JERA on the production side of our Haynesville footprint, you think about all the infrastructure we have in between the Haynesville and what will be this terminal, and you've got a super high-quality investment-grade counterparty in Woodside as the LNG terminal operator and offtaker. And if they do reduce their interest in offtake, we would expect that to again be with high-quality counterparts. But today, 100% contracted with Woodside and us. Ameet Thakkar: Great. And then just turning back to the Power Innovation. You kind of -- it seems like you have a pretty good line of sight in terms of kind of your equipment supply partners. Are you availing yourself of any other sorts of things kind of beyond the equipment that you did with Socrates such as fuel cells or anything kind of maybe a little bit more nontraditional? Chad Zamarin: I'd say that generally, we're sticking to our knitting and to where we have strength and expertise. I think we have mentioned that we've added some batteries to our scope of work. But for the most part, we're staying focused on generating power with natural gas turbines. And so that will continue to be the vast majority. We are exploring different technologies in partnership with our customers, but it is a very small amount of the overall investment and projects. Operator: Next question comes from Manav Gupta with UBS. Manav Gupta: I just wanted to go back a little bit to Green River West expansion. Can you help us remind the strategic rationale behind it? And how does it add to your footprint in Mountain West, if you could talk about that? Larry Larsen: Yes. Manav, this is Larry. I'll answer that question. So yes, it's just another expansion on our Mountain West overthrust pipeline system serving industrial load growth that we're seeing in Southwest Wyoming, kind of around industrial and mining. And so just another, I think, strong tie to supply in the Rockies and continued growth we're seeing in that Mountain West region, both from the power generation and industrial load. Manav Gupta: And a quick follow-up. Can you even go back to Cogentrix and talk a little bit about how that investment is faring? Any synergy surprises from that investment? Chad Zamarin: Yes, I'd say on track and still early days. I mean, that team have gotten to spend a little bit of time with them. I think Rob is going to be joining an upcoming Board Meeting. So still early days, but definitely getting to see a lot with respect to our footprint. And just as a reminder, they operate power plants along the Transco footprint in both PJM, New England ISO and in ERCOT. And so nothing to speak to beyond the investment is on track, delivering the numbers that we expected this year. And early signs are that we think it's going to be a great relationship and certainly benefiting from having that insight into that market. Operator: Our next question is from Theresa Chen with Barclays. Theresa Chen: Maybe putting a finer point on the ability to source and supply gas into the liquefaction facility and what it means for your base infrastructure assets? Can you quantify at this part, what is the potential or what is your target as far as an uplift in utilization or underwriting additional expansion in your pipeline assets into Gillis, Transco, Lake and so on the [indiscernible] this deal? Chad Zamarin: Yes, I'll start and let Rob add any color. I think important just to note that the first and foremost need for the project is to make sure there's a reliable supply of gas. And with Sequent, one of the largest natural gas platforms, marketing platforms in the country, it gives us a lot of confidence that we can make sure that the pipeline is going to be full and ultimately that the LNG terminal is going to have reliable natural gas supply. And so the benefit of that is we are going to be going out across our footprint and across other pipelines where Sequent markets, and we're going to be making sure that we can find the very best lowest cost supply and most reliable volumes that we can bring to Gillis and bring through the LNG terminal. I absolutely expect that, that will lead to us identifying solutions where we can grow our gathering footprint and make sure that gathering volumes can move through LEG and other systems to get to Gillis and get through the system. Transco and the connection, we talked about the Pine Prairie expansion. There are additional storage projects that we're exploring to make sure that we can connect LNG terminals, including the Woodside terminal to large flexible transmission capacity and storage capacity. And so again, we expect that it will be a collaborative process. We'll leverage the Sequent platform, the fact that we've got a lot of market intelligence and presence sourcing and moving natural gas across the country. But that will be the role that we will play with Sequent and Woodside. And Rob, I don't know if anything to add. Robert Wingo: No, I mean there's no doubt that being the face to the market with Sequent is going to be a huge benefit to our core business, our midstream business. The other thing I'll mention is that we're -- one of the changes that we made from the original project scope is the 3.1 Bcf a day pipeline is now going to be bidirectional, and that will create optimization opportunities and additional marketing opportunities that we did not include in our base case. So I think that, combined with being the front face to the market, we're going to see some synergies there that we did not include in our base case economics. Theresa Chen: That is interesting. And would you provide an update on the production activity levels in Haynesville and the Northeast? And what is your outlook on volumes across your assets into 2026? Larry Larsen: Yes, this is Larry. I'll take that one. So yes, we've seen activity level pick up in the Haynesville as we expected. I mean, the demand is materializing and our producers are responding to that. And so we've seen activity in the Haynesville pick up over the course of this year. We don't necessarily see that slowing down as we go into 2026. It's still a little early. A lot of our producers, as you know, are working to kind of their plans for 2026. But with the amount of demand that's coming online, we don't see activity slowing down. The Northeast, we've seen pockets where we've had some growth and pickup over the course of this year and some areas where it's been a little bit more flat. There's a little bit more of a pricing challenge during some of the shoulder months and summer months up in the Northeast that slowed down some of the activity, but we're starting to see that pick up again as prices are starting to rebound. And although it's still early for kind of 2026 forecast, we do see and expect to see an uptick in volumes in the Northeast as well. But it will be mixed across customers as well as some of the different gathering and processing facilities we have where we may see some that are growing and some that might be a little bit more flat depending on the position where kind of gas prices and outlook lands for next year. Operator: Our next question is from Robert Catellier with CIBC Capital Markets. Robert Catellier: I just wanted to follow up on the LNG opportunity, which sounds like it might be a good opportunity for both yourself and your producer customers. Specifically, I wanted to address the fees and what you see as a contract tenor there. So just on the fee side, do you see this as a more straightforward fee-for-service type contract structure? Or is there an opportunity maybe to have some linkage to some of the LNG pricing benchmarks? And then on the contract tenor, given the -- how you split the sourcing for your capacity versus Woodside, how do you see the contract tenor working out there? Chad Zamarin: Yes. On the fee structure, I guess, what I'd say is, generally, we have seen from producer customers an interest in accessing international markets where we would just like we do with Sequent, basically provide the connectivity for a fixed margin. And so initially, that is open capacity that we have, where we've got 1.5 million tons of offtake. It's only around 225 million cubic feet a day of gas. And so it's not a very large gas position from an LNG offtake perspective. But we will look to monetize that primarily through fixed margin transactions, which is what we do on our Sequent platform each and every day. So that's how I think about kind of the offtake there. With respect to tenor, I'm not sure I totally understand the question. I mean, these are 20-year contracts on the pipeline and on the LNG facility and 20-year offtake for the LNG. Am I getting your question right there? Robert Catellier: Yes. Actually, with respect to these smaller customers, as you mentioned, it's not a huge gas position. So it just seems like you're probably accumulating volumes from a number of smaller players, which seems to suggest maybe no longer long-term contract portfolio for -- you don't want to take responsibility? Chad Zamarin: Got it. No, we have looked at -- as we've thought about this strategy now for many years, and we've talked to producer customers, we do think that it's likely that you supply an LNG terminal and an LNG offtake position with various different contract tenors. Now you tend to get compensated for those different tenors. So said another way, you get a higher margin for a shorter tenor and a smaller margin for a longer tenure. And so I do think that those are going to be the kinds of opportunities that we're going to explore. But generally speaking, we'll be looking to build both a portfolio of gas supply for the terminal and also a portfolio of supply for our offtake position. Operator: Our next question is from Sunil Sibal with Seaport Partners. Sunil Sibal: So a lot of clarifications on the LNG. I was curious if you see this as a one-off opportunity with Woodside or should be expect this as a kind of an opening into a bigger kind of a business for Williams? Chad Zamarin: Yes. Thanks, Sunil. I would not view this as necessarily a bigger opening for Williams. But what I would say is when we have the ability to take a very small LNG position, but parlay that into an integrated opportunity like this to build pipeline infrastructure to expand our gathering and delivery systems through Transco and align our storage assets, those are unique, I think, opportunities to bring a lot of different future growth to the platform. And so I wouldn't say that we would never do another deal, but I made it clear in the remarks, our goal is not to grow our position as an international LNG marketer. That is not our business. But where we have the ability -- we're a big company. So to be able to take a very small position that we think we can mitigate risk over time to be able to take a very small position, but align that with a much more strategic fully integrated opportunity like Woodside. Those opportunities aren't everywhere. But if those come along, we'll continue to be open to exploring them, but don't read this to mean that we're trying to become a larger international LNG marketer, and that's not our intent. Sunil Sibal: Understood. And then on the Power Innovation side, I was curious, what kind of cost inflation you're seeing in your supply chains? And also, how do you think about counterparty concentration as you grow that business? Chad Zamarin: I'd say on the first note, I mean we have seen -- I think everyone is seeing cost inflation. We're managing that with our customers. And so I think that's just a reality of the market right now as the demand for generation. I mean, I've been saying this, we haven't grown power generation in the United States, electricity generation in the United States in effectively 25 years. And so there's a lot of demand coming into a market where we haven't had the capacity to really grow electricity production. And so we have seen cost increases. But it's across the board. And so it hasn't made us any less competitive than anyone else. It's just a reality that customers are having to deal with as cost for equipment has increased over the last, call it, 12 months. So that's certainly an issue we're dealing with. John Porter: Yes, I can pick up the second point on customer concentration. I mean, I think we're really excited about what we're seeing on the credit profile and the Power Innovation. Again, as Chad mentioned, we're only focused on the best of the best opportunities here. We're not stretching into a lot of the projects that are going to happen in this space. We're focused on deals with the hyperscalers, AA credits and such. And so we like the credit profiles to begin with. But that's kind of step 1. Step 2 is we're getting some very attractive credit protection as part of these agreements as well. I can't go into the details of that, but we're really happy with the amount of credit protection we're getting above and beyond the fact that these are some of the best companies in the world to be working with Operator: Our next question is from John Mackay with Goldman Sachs. John Mackay: I'll just ask one quick one. You got the upstream sale announced recently. Can you just remind us on what your plan is for the remaining upstream portfolio from here? Chad Zamarin: Yes. And Rob can certainly add anything to this. But Wamsutter is our remaining current upstream interest. And as I've said, I think many times, it's a much larger, much more complex asset. It's also an asset that has very high margins for us because it's a rich gas and liquids basin. And so when we produce an incremental molecule in Wamsutter, we gather, we process, we move the NGLs through our infrastructure, we can fractionate, we market NGLs, we market the gas. And so a lot of margin that we capture through our midstream infrastructure from Wamsutter. And so the strategy there is importantly to make sure that when we move that asset into an upstream producer's hands, we know that the asset has been fully delineated and will be developed at its full potential. And we have the benefit of proving up that asset with all of the value chain economics that we get through our midstream infrastructure. And if we were just to move that asset into an upstream-only operator's hands, they may not develop it to its full potential. And so we are working to prove up Wamsutter. But as I've said, that will take some time, and we will continue to kind of do that work. But we've got a great team working on it and feel really good about where we are, but that's the remaining interest. But again, now represents only a couple of percentage points of our total overall earnings, but the power that it drives into our midstream is really most important. Operator: That concludes the Q&A portion of our call. I will now turn it over to President and CEO, Chad Zamarin for closing remarks. Chad Zamarin: All right. Well, thanks for the robust Q&A session, and thank you for your interest in Williams. We look forward to seeing you in February. And in the meantime, we wish you well. Thanks. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the report on the Third Quarter 2025 Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] At this time, it's my pleasure to hand over to Dr. Dominik Heger. Please go ahead, sir. Dominik Heger: Thank you, Sandra. Welcome, everyone, to our earnings call for the third quarter 2025. As always, I start out the call by mentioning our cautionary language that is in our safe harbor statement as well as in our presentation and in all the materials that we have distributed earlier today. For further details concerning risks and uncertainties, please refer to these documents and to our SEC filings. We will have roughly 1 hour for the call. In order to give everyone the chance to ask questions, we would limit the number of questions to two. Thank you for making this work. As always, let me now welcome Helen Giza, CEO and Chair of the Management Board; and Martin Fischer, our Chief Financial Officer. Helen, the floor is yours. Helen Giza: Thank you, Dominik. I'd also like to extend a warm welcome to everyone on the call. Thank you for taking the time to join us today and your continued interest in Fresenius Medical Care. As many of you know, the U.S. is in government shutdown since the 1st of October, and many health care policy decisions are open, like the questions of extended tax subsidies for the exchanges and whether they will expire by the end of this year or the publication of final 2026 ESRD PPS rule. This requires us to remain flexible in planning and agile in running our business. We remain focused on what we can influence. In Q3, we made meaningful progress in advancing our FME Reignite strategy and positioning ourselves for sustained value creation. Our strong third quarter results reflect continued momentum and disciplined execution as we further accelerated top line growth while delivering a clear step-up in earnings growth and profitability. The step-up is in line with our full year planning. I will begin my prepared remarks on Slide 4. In the third quarter, we realized strong organic revenue growth of 10%, with positive contributions from all 3 operating segments. In the U.S., same market treatment growth was slightly positive. This is in line with our assumption of flat to slightly positive growth for 2025. Operating income growth increased for a third consecutive quarter and accelerated to 28%. As a result, this drove a step change in profitability with our operating income margin expanding from 9.9% to 11.7%. The improvement in profitability was supported by continued momentum in our FME25+ program, which generated a further EUR 47 million in sustainable savings in the quarter. This brings us already to EUR 174 million of savings for 2025. As part of our new FME Reignite strategy and capital allocation framework, we announced an initial share buyback of EUR 1 billion, in line with our commitment to reignite value creation for shareholders. The share buyback program officially commenced in August with a first tranche of up to EUR 600 million. Through 30th of September, 3.6 million shares had been repurchased for a total investment amount of EUR 151 million, and until October 31, we have repurchased in total 4.35 million shares for a total investment of EUR 188 million. For full year 2025, we are very well on track to achieve our outlook for the year and therefore reiterate our guidance. Next, on Slide 5. The American Society of Nephrology's Kidney Week takes place in Houston this week. Already last year, we saw a lot of interest in high-volume HDF and our 5008X machine at the ASN. I do expect a high level of interest and engagement again this year, especially as we start the 5008X rollout. And with that, a new therapy becomes available in the United States. This will set a new standard of care. We submitted around a dozen of clinical abstracts that are specifically focused on high-volume HDF. From the risk reduction resulting from HDF therapy to the implementation of HDF in clinics to AI support for clinicians during implementation. Besides the scientific side of HDF, it's also great to see how the feedback is from nephrologists that visited one of our clinics that are already run with HDF, and I want to share what they said. Being able to see the human experience of HVHDF firsthand was one of the most pivotal moments for me and given our mission and the potential of the HVHDF therapy, we would love to explore having our clinics serve as index centers for the North American rollout of this modality. This shows that we are not only excited about the broad rollout in '26, but how well prepared we are in all dimensions and how well received it might be. Next on Slide 6. With the launch of the FME Reignite strategy, we have committed to reignite growth and innovation across our organization. In care delivery, we are supporting overall volume growth by raising the bar on quality even higher, further enhancing clinical outcomes and patient safety. This is especially important to me because it directly reflects our purpose-driven patient-centric approach where the patient is at the heart of everything we do. We are already seeing encouraging progress on our quality and safety initiatives, and I would like to share some examples from the U.S. market. Treatment adherence is a key focus as patients with chronic illnesses often struggle to adhere to their care plans. This frequently involves helping our patients to understand the importance of sticking to their treatment plan and working with them to remove barriers. Since the beginning of this year, controllable missed treatments have decreased due to improved alignment amongst physicians, patients and clinicians. Many ESRD patients begin dialysis with a central venous catheter, which while necessary, poses a high infection risk. Although our long-term goal is to transition patients to permanent access, bloodstream infection prevention remains even more critical during this period. Antimicrobial interventions reduce infection rates by 70% compared to conventional care. In August, we launched a program to further increase antimicrobial catheter treatments to eligible patients. Adoption to date has been strong with 84% of eligible catheter patients now receiving bloodstream infection protection, and we are on track to achieve even greater utilization. Protection against the flu is especially critical for our vulnerable patient population. And because flu strains change yearly, annual vaccination is necessary to maintain protection. Our U.S. clinic network has launched its annual vaccination campaign and vaccination rates are 34% higher than where they were at this point in 2024. We already have more than 72% of our patients vaccinated. And like in previous years, we expect to come to 85% before the end of the year. These are just a few examples of reducing hospitalization and costs for the health care system and at the same time, increasing the number of treatments, while improving patient outcomes and reducing mortality over time. I'm extremely proud of the work we are doing and the results we are already achieving. It gives me great confidence and excitement for the path ahead. Turning to Slide 7. This quarter, we saw strong execution across all 3 of our operating segments. I will take you through some of the key highlights by segment. In care delivery, in line with our expectations, U.S. same-market treatment growth was slightly positive with 0.1%. This reflected the carryover effect from elevated mortality, which was driven by the severe flu season earlier in the year and positively offset by improving admissions as well as slight improvements in missed treatments. In our international markets, same market treatment growth increased to 1.2%. Third quarter care delivery performance benefited from favorable rate and mix development in the U.S. as well as accelerated contributions from phosphate binders in our pharma business. We further executed on our portfolio optimization plan, closing clinic divestitures in Brazil, Malaysia and some other smaller markets. One highlight from me in care delivery, which I'm sure it comes as no surprise, is the availability of high-volume HDF treatments in select U.S. Clinics. We are progressing every day and are very encouraged by the initial feedback we have heard from our patients that have been receiving HDF treatments. The work we are doing is paying off, and I'm very proud of the team's focus and execution while never wavering on the highest quality of patient care. These patients report feeling significantly better with increased energy levels and improved sleep quality and reduced post-treatment recovery time. Clinic staff have highlighted the benefits of quieter, less stressful workflows, thanks to the enhanced automation of the machine, which supports more efficient and patient-focused care. The excitement is palpable. While we are not expecting this to be a major driver of operational performance this year, our learnings are rapid from the early rollout of select clinics, which is providing valuable insights allowing us to further enhance and refine the clinic training and conversion process. This will set us up for a seamless large-scale launch in 2026, which will be the start of the broad transition of our clinic network. Turning to Value-Based Care. As expected, we continue to face a degree of earnings fluctuations. We are also facing delays to 2026 by CMS in providing reporting data for the CKCC program, which adds to these fluctuations as these cannot be planned. In Value-Based Care, we realized a higher number of member months due to continued contracting growth as well as a growing network of providers, and we are further enhancing our care models through increased use of artificial intelligence. As part of our Reignite Strategy, we took an important step forward by increasing and strengthening our ownership stake in our Value-Based Care asset Interwell Health. This reinforces our leadership position in renal Value-Based Care, which is supported by the vertical integration benefits for our business model offers. With this step, we are better able to leverage the full scale and size that Fresenius Medical Care as a total company offers. This and the underlying progress we are already making in Value-Based Care is positioning this business for long term, more profitable growth. Care Enablement delivered another strong quarter, supported by volume growth and positive pricing momentum overall. We continued to capture sustainable savings as part of FME25+, driven by disciplined execution of the next level of footprint optimization across both manufacturing and supply chain. And as a result, our Care Enablement margin further progressed compared to the prior year despite being increasingly challenged by transactional exchange rate impact. I will now hand over to Martin to take you through the financial performance in more detail. Martin Fischer: Thank you, Helen, and welcome to everyone on the call also from my side. I will pick up on Slide 9. In the third quarter, we achieved organic revenue growth of 10%, with all 3 segments contributing to this strong performance. At constant currency, revenue increased by 8%. We continue to divest assets as part of our portfolio optimization plan. Divestitures negatively impacted revenue development by 60 basis points. Operating income, excluding special items, increased by 28% on a constant currency basis. This significant increase led to a clear step change in the group margin to 11.7%, well into the implied range of 11% to 12% for 2025. Special items negatively affected operating income by around EUR 100 million. This comprises costs relating to FME25+ and our continued portfolio optimization as well as effects from the remeasurement of our investment in Humacyte. Next, on Slide 10. This slide breaks down the significant 180 basis points margin improvement. All 3 segments contributed to the positive margin development with an especially strong contribution from Care Delivery. Net Corporate costs developed favorably by EUR 19 million. This was primarily driven by virtual power purchase agreements with around EUR 20 million and Corporate costs broadly stable otherwise. Foreign exchange rates developed unfavorably with a negative EUR 24 million translational impact. The average U.S. dollar exchange rate in quarter 3 was 1.17 compared to 1.13 in the second quarter. I will now walk you through the financial developments in each segment, starting with Care Delivery on Page 11. Care Delivery realized organic revenue growth of 6%, supported by both Care Delivery U.S. and International. In the U.S., organic growth of 6% was driven by favorable rate and payer mix development. Positive contributions from phosphate binders as well as reduced implicit price concessions, which demonstrate our progress on active revenue cycle management. Internationally, we realized strong organic growth of 4%, including 1.2% same market treatment growth. The continued execution of our portfolio optimization plan negatively impacted Care Delivery revenue development by 120 basis points. Care Delivery significantly improved profitability in the third quarter with a margin of 14.5%, it is at the upper end of our 2025 target margin band. While we still saw muted same market treatment growth, the business growth was supported by positive rate and mix effects and additional higher contributions by phosphate binders in our pharma business. These factors compensated for the missing income from the consent agreement on pharmaceuticals, which we had in the third quarter of last year. The phasing is different this year, and we do expect this to come in the fourth quarter, but at a lower level. Higher sustainable savings through FME25+ helped to partially compensate for higher labor costs, including elevated medical benefit costs. The unfavorable development of exchange rates also had a sizable negative impact on operating income. Let us move to Slide 12 to review the development in Value-Based Care. Value-Based Care further accelerated revenue growth, realizing 42% organic growth. This significant increase was driven by a high number of member months, mainly due to continued contracting growth. The higher growth in Value-Based Care is also driven by gross revenue recognition instead of net revenue recognition of a major contract. This change does not result in additional earnings growth. Operating income in Value-Based Care amounted to a loss of EUR 21 million compared to a loss of EUR 37 million in the prior year. This reflects the quarterly earnings fluctuations that are inherent to this business model. As mentioned by Helen, we are also facing delays to 2026 by CMS in providing reporting data for the CKCC program, leading to a delayed revenue recognition. Due to this shift, we assume a slightly more negative operating income contribution from the Value-Based Care segment. I will provide an overview of the financial performance in our Care Enablement segment on Slide 13. The Care Enablement realized strong revenue and organic growth of 5%. Revenue development was driven by solid volume growth and continued positive price momentum. Care Enablement achieved a 38% increase in operating income, leading to a margin increase of 200 basis points to 7.6%, in line with our expected phasing for the year. Business growth was, as mentioned, driven by volumes and pricing, which was partially offset by higher-than-expected and increasing currency transaction losses. Further sustainable savings from the FME25+ program compensated for the expected inflationary cost increases. Moving to Slide 14. Due to the cash flow disruptions from the Change Healthcare cyber incident in 2024, it is more useful to assess cash flow development on a 9-month basis. We have realized strong cash flow development through the first 9 months of the year, with operating cash flow increasing 8% year-to-date. In the third quarter, operating cash flow declined compared to an inflated prior year base that benefited from around EUR 400 million in catch-up reimbursement following the Change Healthcare cyber incident. The negative year-over-year effect was partially offset by favorable working capital developments in this quarter. Our disciplined use of cash reflects the priorities set out in our new capital allocation framework, which is designed to reignite value creation. We reduced our net debt and lease liabilities compared to the prior year period. As highlighted by Helen, our share buyback program is well underway. By the end of September, we repurchased 3.6 million shares or 1.2% of our share capital with an investment volume of EUR 151 million. In addition, we invested EUR 312 million in the third quarter to strengthen the ownership in our Value-Based Care asset Interwell Health. This is reflected in financing cash flow. In parallel, we ended the quarter with a further strengthened net leverage ratio of 2.6x, well within our target range of 2.5 to 3x. I will now hand back to Helen to review our outlook. Helen Giza: Thank you, Martin. I will finish my prepared remarks on Slide 16. The strong growth in our Value-Based Care segment due to the type of revenue recognition of one contract results in stronger-than-expected revenue growth in this segment. Therefore, we expect to be at the very top end of our low single-digit percent revenue growth range for 2025. As explained, this growth in Value-Based Care driven purely by contract type related revenue recognition does not drive additional operating income growth. Looking at operating income growth for the group. We have shown continued progress through the first 9 months with an expected acceleration in the third quarter. This brings us to 18% operating income growth in the first 9 months. We are not only in our target range of high teens to high 20s percent operating income growth already, but also demonstrate with 11.7% a new and improved level of profitability despite a challenging environment and very low same-market treatment growth in the U.S. When I look at the big picture for 2025, we are confident in our continued improvement of our underlying business. With 9 months under our belt, we would like to update you on our latest thinking for the operating income development for the year. The positive momentum in FME25+ will deliver around EUR 40 million more, delivering around EUR 220 million full year, helping us to directly offset the increasing medical benefit costs. The acceleration in the third quarter of our pharma business contributions from phosphate binders is now estimated to be around EUR 80 million higher than the assumed EUR 100 million. This is helping to offset the full year headwind from lower volumes in the U.S. and the increased foreign exchange transaction headwinds. As always, the fourth quarter is our strongest quarter. We do expect further acceleration in earnings growth and margin expansion. With all that I just outlined above and our 18% operating income growth in the first 9 months, we are not only already above the bottom end of the range, but we are confident in confirming our full operating income guidance range for 2025. As we approach year-end, I know many of you will want further insight into our outlook and assumptions for 2026. To manage expectations here, we are currently in our planning process for 2026. And I'm sure you can all appreciate that there are several moving pieces. In addition to the normal headwinds and tailwinds we navigate any given year, we also need to see how mix evolves for phosphate binders and to what extent price erosion will impact our pharma business. What happens to extended ACA tax subsidies, the final CMS pricing for '26 as well as the potential impact of new tariffs and pharmaceuticals pricing. We acknowledge the key KPI is next year's same market treatment growth. Our Q4 volume data will clarify trends in mortality, referrals and overall volume, shaping next year's outlook. Just like every year, we will share our 2026 outlook along with our full year results in February. With that, I'll hand this back to Dominik to start the Q&A. Dominik Heger: Thank you, Helen. Thank you, Martin, for the presentation and the updates. Before I hand over to the Q&A, I would like to remind everyone to limit the questions to 2. If we have time over, we can go another round. With that, I hand it over to Sandra to open the Q&A, please. Operator: [Operator Instructions] Our first question comes from Oliver Metzger from ODDO BHF. Oliver Metzger: First is on your guidance on the margin guidance. So in your slides, you showed that the Care Delivery already stands at the top end of your expectations. And having said this, do you see the stronger progression in Q4 coming over relatively spoken from Care Enablement? Or do you expect due to the timing of payments, a step-up in Value-Based Care. Second question is on the treatment adherence. So technically, beneath mortality, it's definitely one of the areas where you're not where you want to be. Do you see -- because COVID is already 5 to 6 years or 5 years ago. And you see that you commented that the patients who were -- patients during COVID have a lower adherence than the patients who you recruited afterwards. So do you still this normalization in form of over time patients just passing away due to the normal mortality? Or do you see that there's still some other reasons why this level is elevated? Helen Giza: Look, on your first question regarding guidance, we do expect to see continuous improvement in all segments, but we also see strong support from Care Delivery. On your second question, I'll make sure I unpack all those pieces in there. In terms of -- I think you started with treatment adherence and also kind of wrapped up in their reasons for mortality. There's no question, our mortality levels are still elevated. But where we're focusing on things that we can control are seeing an improvement in missed treatment. Obviously, those areas that we can control, if we can make sure our patients continue to get their treatments, that obviously helps with treatment volume and we are seeing those improvements in referrals. So obviously, we work hard on those missed treatments because that has a double effect on improving the number of treatments, but also ultimately, if the patients keep getting their treatments should help with mortality as well. And as you saw from one of my opening slides, we're also working on our catheter rates kind of coming down as well. So all of that should help mortality just tied up with our general strategy of the focus on patient quality and patient safety. In terms of your comment on the passing away, maybe reason code. I don't know that we can tease out that if anything different. I mean there was a time in COVID that you could kind of get the COVID piece. And if you remember, we used to report that as excess mortality. Now we just pass it all as the general mortality, and there's nothing in those trends or that data that is telling us it's anything new or different. It's just that it continues to stay -- it continues to be elevated. Oliver Metzger: I was referring towards the patients who were already on dialysis during COVID that they have a higher average number of missed treatments compared to the patients who came to dialysis afterwards. Helen Giza: Yes, that would have been the case because they were already kind of vulnerable and those that were with us during COVID would have had more missed treatments than that we see in maybe new patients coming in. Sorry, I misunderstood that direct question on COVID. Operator: The next question comes from Veronika from Citibank. Veronika Dubajova: And hopefully, you can hear me okay. I have 2, please. One, I just want to go back, Helen, to your comment on phosphate binders, apologies. There's a lot of numbers, and I probably misunderstood it, but I just want to confirm that you are now expecting EUR 180 million of benefit from phosphate binders this year versus the EUR 100 million that was assumed in the guidance previously? And I guess just to play a little bit of devil's advocate. If I strip that EUR 180 million out of the Care Delivery margin trajectory, obviously I don't know exactly how much you booked in the 3 quarters of the year versus the full year, but it doesn't seem like there is a huge amount of margin improvement underlying in the business. Tell me if I'm doing that math wrong, I did it very quickly on the slide, but I just kind of would love to understand what you're seeing margin-wise, if you strip out the phosphate binders. And then my second question is just looking to 2026, and Medicare Advantage trends in particular, we are seeing some early signs of reduced enrollment. I'm curious how you're thinking about mix as we head into next year from a Medicare Advantage perspective. And to what extent we should be thinking about this maybe no longer being a tailwind to the business into next year? Helen Giza: Yes. Thanks, Veronica. I think I can tackle both of those. Sorry, I may have stumbled, as I was saying, the phosphate binders number. There was EUR 80 million and EUR 100 million adding up to EUR 180 million. So my apologies if everyone didn't catch that on the call, you're right. We are now seeing that full year number to be EUR 180 million versus the original guide of EUR 100 million through Q2. We are seeing favorability in our pharma business, and Q3 was particularly strong with that uptake. The FKC side of the house or the piece that we see in the clinics is developing in line with expectations, but we are seeing more favorable pharma and are now expecting that trend to continue that we saw in Q3 into Q4. Obviously, that's something that we are kind of trying to get our arms around for 2026 as well as we think about utilization and pricing for the binders while it's still under the TDAPA period, but it is in line kind of with what we saw in Q3. Look, I would say on your broader question and why I thought it was important to bucket the moving parts, yes. I mean, I can pick the favorability from binders. I can pick the favorability from FME25, but it shouldn't be lost that we are -- while we do have this softer volume, we are having to overcome the lost margin from our original assumptions on volume as well as the underlying transactional exchange that we are seeing. So -- and the medical costs that are driving the labor cost higher in terms of increased utilization of our employee benefit claims as well as the volume of claims. So as you can appreciate, we're juggling a big business here. We're trying to keep balancing the pluses and minuses, but there are some underlying negatives that these positives are helping us offset that are all coming through in the year. In terms of your Medicare Advantage question, it's an interesting one because we also started to pick up headlines from the big payers that they were backing off some of the coverage of MA plans. What we have seen through Q3 and projecting into Q4 is actually no change in that MA mix and that book of business. And actually, it continues to grow episode slightly and is quite sticky. What we are seeing in the market is while some of the big payers might be backing off some plans. It is more of the consolidation of MA plans and the overall enrollment numbers are looking consistent. And that's actually come from the government as well. So we see quite a steady mix as well as similar number on enrollment, but there is consolidation of the number of plans out there that payers are doing at a more local level. So right now, our current assumption is that we wouldn't see a big impact in MA. Just -- maybe just to kind of put a finer point on the mix and things that we are watching of course, the ACA exchange, whether that does conclude at the end of the year or whether there will be some deals on extending that. So that is the piece that we are watching closely on where those patients may end up during the current open enrollment period, which started, I think, at the weekend. So we'll continue to navigate that. But overall, looking quite steady here on MA. Operator: The next question comes from Hassan from Barclays. Hassan Al-Wakeel: A couple from me, please. Firstly, on EBIT guidance range remains pretty wide as we move into Q4. What is driving the risks here to your mind? And why is the bottom end of the range, not more likely? And what was the phosphate binder benefit in the third quarter, please? Secondly, on treatment growth, can you talk a bit about admissions and missed treatments as you moved through the year? And how you see Q4 growth given the flu impact was obviously quite meaningful in the first half at 60 basis points. I appreciate that you don't have the Q4 detail, but how do you consider the moving parts as you move into 2026 and the confidence around the 2% plus treatment growth that you've previously talked about? Helen Giza: Thanks, Hassan. I'll tackle some of that and maybe, Martin, you can take the phosphate binder Q3 question. But let me unpack what I can and then pass you over to Martin. Yes, look, the EBIT guidance, we always knew that the EBIT range is wide because of the implied margin range that's there as well. As you heard from my commentary, and you can see in the numbers, we're already at the bottom end and we've left the range wide open, which I think you all know me by now. That tells you that I do think that there are opportunities for that top end to also be in play. As you can appreciate, a slightly bigger number on FME25, slightly less impact from exchange, those numbers can move the needle kind of around that range. So you know I don't shoot for the bottom end. We are still excited about the underlying growth, the momentum we're seeing, and that's why I've left the range wide open. On treatment growth, you know I've been trying to put a lot more color on inflows and outflows rather than orienting around the net number because there's a lot happening there. Over the course of the year, we have seen improving admissions. If I look at it versus Q3 this year versus Q3 last year, they are improving and 9 months over 9 months is improving. Mortality is down, but still elevated. And missed treatment, we are chipping away at and making improvements. I think the commentary you've seen from the industry is they have been higher, but we are really excited about the work that we've been investing in, taking hold. So that missed treatment number is improving as well, along with all the patient safety and patient quality work we're doing. So we're excited about that. [indiscernible], I didn't touch there. On your flu. Obviously, we did have a severe flu season in the first part of this year. And you're right. You remember that number correctly, 60 basis points impact. We will have to see how the flu season kind of develops, obviously, in Q4. I'm excited about, as you can probably tell, and encouraged by the high level of vaccinations. That's great despite the narrative maybe catching the headlines in the U.S. Our patients are taking good care of themselves. And we are taking good care of them. So we'll see how that develops. But obviously, that's a year-over-year depending on how we see -- how severe a flu season. If it is a severe flu season is going into next year, which the -- kind of the other question that you have on the 2%. We're still confident in that 2% once we see mortality normalize. And as we know, mortality is still elevated. And of course, we're in slightly positive territory currently. So the funnel improving obviously helps all the work we're doing on outflows obviously helps. And once that mortality level normalizes, we have no reason to believe we don't get back to 2%. And obviously, we'll give our best stab on that once we kind of finalize our outlook for 2026. And don't forget, I mean, I know it's -- we're kind of in the early stages of HDF, but our expectation as HDF continues to get traction over the course of 2026 that will also help with kind of mortality, missed treatments, et cetera. So there's a lot in your question. Hopefully, I covered all my pieces. And Martin, do you want to just take that Q3 phosphate binder question? Martin Fischer: Hassan. Let's take the phosphate binder. As Helen outlined, we did see a pickup in the third quarter against the second quarter in our pharma business, whereas the clinic business assumptions are coming in broadly as expected. For the third quarter, the total effect of phosphate binders was a mid-double-digit million amount and to underpin the EUR 180 million that Helen mentioned, we are also assuming a similar dynamic on the pharma side in the fourth quarter, a similar amount in the fourth quarter as well. Operator: Next question comes from Hugo from BNP. Hugo Solvet: A quick one on FME25, which you upside. Can you maybe point to the reasons for that? Is that production move to Mexico that's finally kicking in or any other things? And second, on the rollout of HVHDF, can you maybe share the number of clinics? Sorry if I missed that. And compared to your plan presented at the Capital Markets Day, given the early learnings that you have from the rollout. Does it change anything in your plan from 2026 in terms of how fast you think you will be able to deploy that instrument? Helen Giza: Martin, do you want to take the FME25 question, I'll pick up with HDF? Martin Fischer: Yes. Sure. So as you saw in the third quarter, we had strong momentum and we are already after 9 months almost at the full year original guide that we had for FME25+. And that momentum is continuing. And as Helen outlined, we are pushing to further accelerate our efforts. That is true for Care Enablement, where this also helps us to offset some of the inflation and FX transaction headwinds that we have, but it's also true for the global functions as well as for Care Delivery. So we are making good progress, and we are leveraging that momentum, hence, the upgrade of around EUR 40 million that Helen articulated. Helen Giza: Thanks, Martin. And then Hugo, on HDF, as you can all appreciate, we are in the early rollout, and we are adding it to a very small number of clinics, and we're adding them as we go. In fact, we added 2 more just last week that continues to gain momentum, and we are progressing every day with our kind of installations, training, learnings, getting patients, not just on the new machine, but maybe more importantly on the HDF machine. So that will continue through the rest of the year. And yes, we're fully on track with what we shared for 2026 at our Capital Markets Day. So exciting times for us. Operator: Next question comes from Graham from UBS. Graham Doyle: Just in terms of thinking about Care Delivery and sort of the moving parts for next year, I know it just directionally, but just phosphate binders presumably just lapping it becomes a bit tougher and it's been such a big driver of growth this year. Is it not reasonable to think that volume -- like U.S. volume growth becomes more important? And just if I look at the first 9 months of this year, 2024 and 2023, there's not a huge difference. And obviously, next year, we've got the head-to-head of like HDF coming through, but then equally maybe some new drugs for IgA nephropathy. So when you look at it, just like how confident are you that you can generate volume growth, which in turn generates operating leverage rather than phosphate binders and cost savings driving Care Delivery margins, just as we shift away from the cost piece driving growth and more so the actual top line? Helen Giza: Yes. Thanks, Graham. Great question. So obviously, as we're trying to help you guys think about phosphate binders. You can obviously see where we are seeing the benefit is in our pharma business. So that's less of an FKC topic, more of just the pharma volume, which we do supply those projects both within our own clinics, but also to outside customers. So that -- while we're still in this period through 2026 will become a topic of what is the volume, what is the utilization of those drugs and what is the pricing. So obviously, we have to see how that plays out. And obviously, on your question on volume, while we've got these low volumes and numbers, you can obviously see that the impact on EBIT in itself is not the number that makes or breaks any given year. And as you know, in running this business, it is all about kind of the balance and think about those moving parts for next year, the balance of underlying volume kind of the reimbursement, our operating leverage and utilization in our clinics. So we're kind of taking a hard look at that. And then the efficiencies that we drive and obviously managing labor. So as we all appreciate, volume is always helpful to drive that operating leverage. And I think the other thing here is that there are parts of our country in places that we operate that we are seeing growth, and we are really pleased with that progress. So we're kind of constantly amongst our 2,600 network of clinics, looking at where we're seeing growth, where there's opportunity to further grow and expand. And obviously, in other areas, look to see if we need to sort of consolidate or exit some clinics. So we are preparing all those scenarios, but obviously, under the assumption that volume is returning, and the work that we are doing, which shouldn't be underestimated on the outflow side that if we can reduce hospitalizations and we can reduce missed treatments that obviously adds to the volume on the patients we already have. So as you say, when you add in the benefit from HDF and for those that are on GLPs, we like that mortality benefit they get to. I think that overall kind of is giving us some confidence that where we can see outside elevated mortality, the things we can control, we're starting to see some improvement on. So I think it's a combination of all the things that we do and what will make us operationally excellent on balancing the volume, the price, the mix, the operating leverage, the clinic footprint and the cost structure. So it's -- I think we understand all those moving parts and more than ever seeing the benefits of the work we've been doing this past couple of years on the turnaround and transformation. Graham Doyle: Maybe just a quick one on the HDF benefit. Should we -- just based on what we saw in CONVINCE should we see kind of a benefit in the actual headline U.S. treatment number next year? Or should we think about it maybe more like a phasing into the first half of, say, '27? Helen Giza: Look, I think the expectation is once patients are on it, the CONVINCE trial did show that after 3 months, we got benefit. So as we ramp up for those patients that are on it, we should start to see improvement. Now obviously, as it ramps up, we -- I would say, maybe this time next year, we can start to say, hey, this is what benefit we're getting from those patients on HDF, but we're going to need to kind of get that data behind us. Obviously, '26 being the ramp-up year, you won't feel or see the full effect. But we are -- as you can appreciate, this is an opportunity for us to track patient 0, if you will, and really start to kind of see the data of those patients that are on HDF and what their performance is on that -- on this treatment. So '26 maybe -- not maybe while we're excited, obviously, it is ramping up over the years. So we will tease out the relevant KPIs as we go through next year and report on what seems to be kind of the right insights for you guys. Operator: The next question comes from David from JPMorgan. David Adlington: Firstly, maybe your key competitor, DaVita quantified the impact on EBIT next year, well, actually the next 3 years, if the subsidies aren't extended. I'm just wondered if you were willing to do the same. And then secondly, just a bit of a specific one. But volumes in Q3, were they impacted negatively by a sales day mix? And does that become a tailwind in the fourth quarter? Helen Giza: Yes. Thanks, David. Let me tackle that first -- the second one first. Spain market treatment growth for us normalizes days. So our 0.1% is like-for-like. Where it would be impacted on mixed days is on the overall treatment numbers. So our same market treatment growth is pure. So just want to dispel any conclusion that the market might have picked up on that one. David, on 2026, as you can appreciate, we're still in, as I've mentioned, still in planning, I'm not prepared to put any number out there while we're still working through that and even reviewing it. We haven't reviewed it with our -- finalized it with our management Board at a known Supervisory Board at this point. So I think you understand the levers, you understand our usual headwinds and tailwinds, you understand some of the moving parts that we're watching. I think that's all I can say at this point, and you'd be surprised if I said anything different because you know me, but thank you for asking. Operator: So the next question comes from Anna from Bank of America. Anna Ractliffe: Maybe as a follow-up to one of Graham's questions on the impact of the HVHDF rollout for next year. Do you think that could start to positively impact U.S. same market treatment growth from a referral standpoint as soon as next year? Just any color on how you're thinking about that. And then as well on the Care Delivery growth of the 5.6%, those 3 components, the favorable rate mix, phosphate binders and implicit price concessions decreasing, I think you've broken out the phosphate binders pretty clearly, but any other numbers you could give us around those other 2 components and how you expect those to trend into Q4 would be super helpful. Helen Giza: Yes. Thanks, Anna. Let me take the HDF question, and Martin can maybe unpack the CD question that you have. Look, on your referrals number, yes, I would suggest and think that, that is, my pen just fell apart that would help us positively. I deliberately read the quote from one of our nephrologists and we've had a number of nephrologists kind of coming through our clinics to see this. So yes, we have seen significant interest and positive feedback and we are being -- as you can appreciate, quite deliberate in where we are launching HDF first. So that is, yes, really exciting. And as you kind of -- on the back of Graham's question, that mortality improvement and the kind of the increased treatment improvement, we should see as soon as we get patients moving on this, and that should ramp up over '26. So really exciting to see that, and I can't wait to hear how [ AFN ] goes this week, but the team that's there. Martin, do you want to take the CD piece? Martin Fischer: Sure. And for the implicit price concessions as well as for the rate mix assumptions that we have for CD. You saw this being a positive in quarter 3. This is the work we do in revenue cycle management paying off and us increasing our revenue yield. So we are collecting more for the amounts that we invoice. This is an ongoing effort, and we are seeing the first benefits and we do expect this to also be a positive in the coming quarters for us as well. And that does also impact then on the, let's say, underlying performance improvement and will be a positive [indiscernible]. Dominik Heger: So we do not have any further questions. I would like to thank you all for listening and for asking questions and being interested and hope to see many of you on the road in the next couple of weeks. Thank you. Helen Giza: Thanks all. Martin Fischer: Thank you. Helen Giza: Take care. Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss Dave's Financial Results for the Third Quarter Ended September 30, 2025. Joining us today are Dave's CEO, Mr. Jason Wilk; and the company's CFO and COO, Mr. Kyle Beilman. By now, everyone should have access to the third quarter 2025 earnings press release, which was issued this morning. The release is available in the Investor Relations section of Dave's website at investors.dave.com. In addition, this call will be available for webcast replay on the company's website. Following management remarks, we'll open the call to answer your questions. Certain comments made during this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to revise or update any forward-looking statements. The company's presentation also includes certain non-GAAP financial measures, included adjusted EBITDA, adjusted net income, non-GAAP gross profit, non-GAAP gross margin and compensation expense, excluding stock-based compensation as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation tables and other important information in the earnings press release and Form 8-K furnished to the SEC. I would now like to turn the call over to Dave's CEO, Mr. Jason Wilk. Please begin. Jason Wilk: Good morning, and thank you for joining. Q3 was another record quarter, and I want to thank our team for their dedication to delivering outstanding value for our members and shareholders. We grew revenue 63% year-over-year to $150.8 million, accelerated growth in monthly transacting members 17% to 2.77 million, expanded ARPU by nearly 40% and generated $58.7 million of adjusted EBITDA, all in service of our strategy to maximize gross profit dollars across the platform. Given our strong performance and clear momentum in the business, we are pleased to once again raise our 2025 revenue and adjusted EBITDA guidance, which Kyle will touch on shortly. Before reviewing our strategic growth pillars, I'd like to make a few quick points I want every investor to take away from the call today. First, the importance of net credit revenue. Following last quarter's record results, we received a number of questions around delinquency metrics and loss provision trends. I want to clarify how we think about those dynamics. To fully understand our economics, we are laser-focused on the net monetization rate per ExtraCash transaction, calculated as gross yield less 121-day losses and net revenue per transaction. On those measures, we achieved record performance in Q2 and built upon that momentum with new all-time highs in Q3. These are the metrics that drive gross profit and cash flow and led us to another quarter of record profits. Second, our new pricing is driving better credit economics despite controlled slightly higher loss rates. Early this year, we made a significant change in our pricing model, moving customers from an optional fee model to a mandatory one. The result was greater credit revenue retention as customers stay on our platform, resulting in better portfolio spreads. The larger and more predictable monetization rates gave us an opportunity to increase approval limits for new and existing customers, which helps with both conversion and monetization. These higher limits led to a controlled step-up in loss rates as the impact was far outweighed by the gains we achieved in incremental gross spreads. The net result is better net monetization per transaction, higher member lifetime value and stronger economics for the company while supporting better offers for our customers, a win-win. Third, CashAI v5.5 has started to deliver. We expect continued improvements in credit performance as a result of the rollout of CashAI v5.5 in late Q3. CashAI v5.5, the latest evolution of our proprietary underwriting engine was trained on our new fee structure and leverages nearly twice as many AI-driven features as the prior version. v5.5 has driven stronger conversion, higher approval amounts and improved credit outcomes in September and thus far in Q4, positioning us for further expansion in ExtraCash gross profit and revenue net of losses. Lastly, we'll be adding a section on our IR site, highlighting how Dave thinks about credit performance, which will hopefully provide clarity for our stakeholders moving forward. Now to turn to a few highlights from our strategic pillars. Starting with our first strategic growth pillar of efficient member acquisition. While CAC per new member remained stable quarter-over-quarter at $19, CAC per new MTM declined given the improvements we've made to new member conversion. We are increasingly optimizing our marketing investments by device and channel, prioritizing investments that yield the highest gross profit returns rather than the lowest CAC. The higher LTVs we are generating out of the new fee and subscription model have further accelerated our gross profit payback period by nearly a month year-over-year, now under 4 months. Moving to our second strategic pillar of further strengthening engagement with our members through credit. ExtraCash originations grew 49% year-over-year, surpassing $2 billion for the first time as a result of MTM growth and a 20% growth in average origination size. The growth in origination size reflects a modest impact from v5.5, which enables us to offer higher approval amounts. In September, which captured most of the v5.5 impact, the average ExtraCash size was $213, which we believe positions us well for continued origination growth and monetization gains in Q4 and beyond. The third strategic pillar of our strategy is deepening engagement and monetization through Dave Card. In Q3, total card spend grew 25% year-over-year to $510 million, reflecting growth in MTMs and increases in card spend per active banking customer. High-margin subscription revenue grew 57% year-over-year as we completed the rollout of a $3 monthly subscription fee for new members in late Q2. We expect the incremental subscription revenue to flow entirely to the bottom line with little to no impact on member conversion or retention. Existing MTMs remain grandfathered for now, and we expect subscription revenue to become an increasing contributor in the quarters ahead as more MTMs are acquired under the new monthly pricing structure. Lastly, I'd like to provide 2 operational updates. First, on Coastal Community Bank, which is assuming bank sponsorship for Dave's ExtraCash and banking products from our existing provider. In early Q3, we began onboarding new members on to Coastal and reached full onboarding for all new members in early Q4. Over the coming months, we'll begin migrating existing members to Coastal as well. That brings me to our second update. We're thrilled to welcome Parker Barrile as our Chief Product Officer. Parker will lead the next chapter of our product strategy, focused on deepening member engagement through new product developments and strengthening our AI and credit capabilities. To wrap things up before passing to Kyle, this was another incredible quarter for us. We are really excited and optimistic about our future and what we can deliver in the years ahead. Over to you, Kyle. Kyle Beilman: Thanks, Jason, and good morning, everyone. Today, I'm going to focus on the core drivers of this quarter's performance, a concise overview of credit and our updated outlook. For a more detailed review and discussion of our KPIs, please refer to our earnings supplement available on our IR site. Let's get started with the key trends and achievements that shaped our results. Our growth algorithm continues to strengthen. We accelerated MTM growth through successful product and marketing initiatives that drove higher conversion rates and member reactivation, while retention has remained consistent. On the ARPU side of the equation, underwriting improvements, combined with a new pricing model to drive higher ExtraCash offers, consistent growth of Dave Card spending volume as well as the growing population of members on our new subscription price point were the key factors driving growth. Combined, we grew revenue by more than 60% for the second consecutive quarter and with our growing operating leverage, achieved nearly 40% EBITDA margins, exceeding the Rule of 100 for the second consecutive quarter. As Jason previously alluded to, our credit performance demonstrates the strong fundamentals underlying our growth. We've set new high watermarks across unit level net monetization rates, total unit dollar net monetization and portfolio net revenue. Importantly, we achieved these improvements while growing originations by nearly 50% in the quarter, demonstrating our improved unit economics and volume growth are working in concert to drive gross profit expansion. The key driver of this growth is the new pricing model and underwriting paradigm that we transitioned to earlier this year. This new model generates significantly higher gross spreads and broader approval sizes for members. This change increases credit losses relative to our prior approach. However, the incremental gross spread more than offsets these losses, delivering superior net monetization per transaction, which was the intended outcome of this strategic shift. To put the impact in perspective, year-over-year, the total monetization rate net of losses and net revenue per ExtraCash transaction net of losses are up 45 basis points and 32%, respectively. In terms of delinquency rate, our Q3 28-day delinquency rate improved 7 basis points sequentially to 2.33%. In September, our 28-day delinquency rate was 2.19% reflecting the initial benefits from our new underwriting model, CashAI v5.5. As a reminder, the 28-day delinquency rate measures the percentage of the calendar months originations that remain outstanding 28 days after the month ends, not necessarily those that are delinquent. As currently defined, the 28-day delinquency rate can be noisy, particularly when the portfolio composition shifts. This recently happened as part of the v5.5 model change where we intentionally increased limits for members on monthly income cycles, such as social security recipients. To provide a clear picture that controls for these duration dynamics, we are introducing a 28-day days past due or DPD metric. For now, we will continue to publish both metrics to track early indicators of the loss outcomes of each of our quarterly vintages. In Q3, the 28-day DPD improved 11 basis points sequentially to 2.15%. And in September, following the CashAI v5.5 rollout, the DPD rate improved to 2.04% with further improvements to net revenue per transaction and monetization rate net of losses. These signals reinforce our confidence in the upgrades from the new model and support our expectation for further improvements in credit performance during Q4. Another important point to call out is around the provision. In addition to growth in the originations and the sequential improvement in credit performance, a portion of the change in the Q3 provision was attributable to quarter end timing. Q3 ended on a Tuesday, which is the high point of intra-week receivables, definitionally increasing the reserve calculation and thereby increasing the provision. Had Q3 ended on a Monday, consistent with last quarter, the provision would have been roughly $2 million lower. This timing effect is separate from the improvements in economics we're seeing, which, as I previously described, are very strong. Looking ahead, we expect the provision expense as a percentage of originations to improve in Q4, supported by both continued improvement in credit performance and a more favorable quarter end calendar with Q4 closing on a Wednesday. Working down the P&L a bit. We grew non-GAAP gross profit by 62% year-over-year to $104.2 million. Non-GAAP gross margin came in at 69% for Q3, consistent with our target range of high 60s to low 70s for periods outside of the Q1 tax season. With respect to expenses, as we previewed on the Q2 call, we increased marketing spend to take advantage of the favorable LTV to CAC that we're generating from our media spend to drive additional growth. We expect to sustain the rough magnitude of the Q3 spend through year-end. On the fixed cost base, there are also a few noteworthy items to call out. Compensation-related expenses declined 18% year-over-year, driven primarily by lower stock-based compensation. In Q3 of last year, there was elevated stock-based compensation tied to performance-based restricted stock units linked to adjusted EBITDA targets that were achieved. Excluding stock-based compensation, compensation-related expenses grew by roughly 3% year-over-year. Other operating expenses increased 5% year-over-year, excluding the impact of nonrecurring legal settlement charges. Also, a $4.5 million legal settlement charge this quarter has been excluded from adjusted EBITDA. Taking all this together, GAAP net income increased to $92 million, up $91.5 million year-over-year. This increase includes a $33.6 million income tax benefit, primarily related to the release of a valuation allowance on our deferred tax assets. Adjusted net income, which excludes nonrecurring items, stock-based compensation and noncash fair value adjustments increased 193% year-over-year to $61.6 million. Similarly, adjusted EBITDA reached $58.7 million, growing 137% year-over-year with 85% flow-through from gross profit. One other brief update before turning to guidance. Regarding our new funding arrangement with Coastal Community Bank, we remain on track to begin transitioning ExtraCash receivables under the new off-balance sheet structure in early 2026. This change is expected to meaningfully reduce our direct funding obligations, lower our cost of capital and unlock substantial liquidity to pursue capital allocation opportunities. It will also allow us to fully retire our existing warehouse debt facility by mid-2026. With that, let's turn to the guidance. Based on our Q3 results and favorable outlook, we are once again raising our 2025 outlook. We expect revenue to range from $544 million to $547 million and adjusted EBITDA to range from $215 million to $218 million. This revised outlook reflects not only the tailwinds from the new fee model and underwriting improvements we've achieved, which significantly increased net monetization per transaction, but also the fact that all aspects of our growth strategy are performing exceptionally well. Monthly transacting members are accelerating, ARPU is rising and overall market demand and conditions are favorable, all key building blocks supporting our optimistic outlook. And with that, we'll conclude our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question will come from Jacob Stephan from Lake Street Capital Markets. Jacob Stephan: Great quarter here. Maybe you could kind of start off talking a little bit about delinquency rates. Obviously, we saw 28-day delinquencies drop. What is it specifically kind of about CashAI 5.5 either qualitative or quantitatively that you guys are able to kind of outperform in this category? Jason Wilk: So with CashAI, as we've talked about extensively, the amount of inputs we have in that model that stem from our customers' cash flow data is just a massive data set we have. And when you factor in CashAI v5.5, which has 200 more variables input in there, and we marry that with the super short duration cycles that we're able to learn from, that leads to just superior credit performance and gives us a lot of confidence that credit is an input to our model, not an output, and the company is very in control over loss rates. Jacob Stephan: Got it. And maybe you could just kind of touch on some of the broader consumer trends. Obviously, you guys have a pretty significant lead on several other loan providers. But maybe you could just kind of talk to the shortness of -- the duration and the short duration of your book and what trends are you seeing in consumers currently? Jason Wilk: Well, we do track a proprietary index we built using the cash flow data we have access to. And for all intents and purposes, we're seeing normalcy across spend, income, merchant types. The consumer at this end of the spectrum on the K curve looks very healthy in our opinion. And I think where you can see a lot of that show up is just in the stableness of our CAC at $19, which is flat sequentially. But importantly, it's down if you look at it on an MTM basis, which we're able to leverage better conversion as a result of new improvements in CashAI to get better approvals for customers as they enter in the front door, which is a great trade-off for us. But I think we're seeing everything being very healthy for the business. Jacob Stephan: Okay. And maybe just kind of one last one. As we look at Q4 here, help us think through kind of customer acquisition cost. Do you kind of expect it to remain stable? Or do you have higher spend in Q4 to take advantage of some of these consumers? Kyle Beilman: Jacob, it's Kyle. So in terms of CAC and spend, we largely expect things to look pretty consistent in Q4 as we did in Q3. Q4 is more of a peak season from an overall market spend perspective. So CPMs do rise, and we try to sort of match our spend to the most opportunistic points of the calendar where we can really optimize that spend from a CPM perspective. But by and large, I would expect CAC and overall levels of media spend to be pretty consistent in Q4. Operator: And the next question will come from Hal Goetsch from B. Riley Securities. Harold Goetsch: Great quarter guys. It's terrific execution. I wanted to ask about the transition with Coastal on the balance sheet. When do you think it will be like a complete transition and the balance sheet will look very different? And the second part would be, could you tell us a little bit about the deliverables for your new executive hire and product? Kyle Beilman: So just to start with the balance sheet question, Hal. We are in the process of the Coastal migration. I think as we talked about on the call, all new customers are now onboarding under the bank, and we're going to begin the process of transitioning existing customers here imminently and would expect that to be completed in early 2026. And the transition of the balance sheet will be a fast follow to that. So targeting end of first quarter, early second quarter, I think, is a good time line for us to make that full migration of the funding arrangement with Coastal. But yes, we're looking forward to that. We think it's going to be a super attractive outcome for us as we've talked about and free up a lot of cash for us to pursue more strategic capital allocation opportunities. But Jason, do you want to take the question about Parker? Jason Wilk: Sorry. What was the question about Parker, Hal? Harold Goetsch: Yes. What are the deliverables for Parker in the first 24 to 36 months at Dave that we could just -- for our own [ edification ]. Jason Wilk: Well, I'd say we're excited to have Parker come in and accelerate product velocity. He's seen some of the best companies in the world at scale, and we think we can benefit from some of these new opportunities we have coming out such as the buy now, pay later product we've talked quite a bit about, excited just to get him in seat. He's got a fantastic executive presence, and we're excited about his ability to deliver on long-term product road map, credit performance as well as just bring in a high-performing team as well. Operator: And the next question will come from Devin Ryan from Citizens Bank. Devin Ryan: Great quarter. Just want to touch on operating leverage and just where you guys are right now, obviously, putting up tremendous results and tremendous kind of operating leverage in the business model here at roughly 40% EBITDA margin. So as you think about kind of where this model can go, I appreciate you're going to be going into some new product areas and there is some growth investment and at the same time, you can kind of toggle marketing. But how do you think about where this company can be over the next few years as you expand? Is there more room from here? Or is this kind of the right place to be where you can balance both that growth investment and growth really? Kyle Beilman: I think by and large, we like where we're at from an overall margin perspective -- from an EBITDA margin perspective specifically. We think this is a sort of nice balance between delivering significant profitability, but also giving us the opportunity to invest in some more R&D to deliver these new products that Jason was alluding to that Parker will be obviously a very critical component of delivering. But yes, look, I think we are excited about these new opportunities, and that is going to come along with a little bit more investment in resources to make sure that we can fully execute on those opportunities. So we're super excited about that. But yes, I mean, just to answer the question, I think the margin profile here is something that we're quite happy with and would like to make further investments to set the company up for its next phase of growth. Devin Ryan: Got it. And a follow-up on the buy now, pay later opportunity. I appreciate we're still kind of early days there. But -- how much does kind of your existing business model and ExtraCash product and just the data you have on your customers give you an advantage, do you feel like in the marketplace, meaning you have the opportunity to potentially provide this product to customers that are already using a buy now, pay later product, but you have an informational advantage as well there relative to some of the other products out there. Just curious kind of like how you're thinking about it. And then also, if you have a sense of how many of your current customers are using some type of buy now, pay later product already? Jason Wilk: Yes. Thanks a lot, Devin. So I'd say there's 3 points. So to answer your last question, we do see in our transaction data, which is a huge advantage that roughly 60% of our members are currently engaging in some form of a BNPL transaction today, which is a significant opportunity of which Dave has 0% market share in a space we feel like we have a very strong right to play in. Second, we feel like we can really differentiate with our cash flow and CashAI underwriting given we are -- we will be the only BNPL company leveraging cash flow data. If you think about traditional BNPL, the merchant checkout, there'd be too much friction to try to get someone to connect a bank account there. And so most of these guys are still leveraging alternative bureau underwriting of which to assess the customer. And we feel like our ability to use CashAI to approve more people, increase limits is a real advantage for us. And then lastly, we believe that letting people have the opportunity to BNPL whatever they want is a huge opportunity where we see a lot of friction with people having to select an e-commerce merchant and figure out who's going to be at checkout when you go shopping versus just paying to have the flexibility to shop and BNPL anywhere is a great opportunity and we think unique to the market. Operator: And the next question will be from Joe Vafi from Canaccord. Pallav Saini: This is Pallav Saini on for Joe. I have 2 quick ones here. First one, maybe on the Dave Card. How did adoption trend in Q3? And what percentage of your member base now has the Dave Card? Jason Wilk: So we did see 25% growth in Q3, spend about $510 million now, which we feel very good about the growth there. It continues to be a lot of synergy between ExtraCash origination growth and the growth of Dave Card, given people can access ExtraCash instantly and cheaper by using our card. As far as what percentage of our customers are using the Dave Card, it is a significant amount. We don't disclose that today, but we do disclose the total transaction volume, again, which is that $510 million number. I think it's important to point out, we don't need to win direct deposit for our business to work. We very much view the Dave Card to be incremental to customer retention and lifetime value. And we're going to continue to chip away at new product ideas to win more there. But we feel like the moat we've really developed is around CashAI and the underwriting and our road map is more heavily focused on credit expansion versus direct deposit penetration. Pallav Saini: That's great. And one on the ExtraCash product. Did you disclose what the approval rate was in Q3 and how it is trending so far in Q4? Jason Wilk: We don't discuss approval rates, but we did note that our approval rate is at all-time high, which is driving efficiencies in our total MTM conversion, which is why our CAC is stable at $19, but we did allude to MTM CAC being down, not a number we do disclose, but an important health metric that allows us to be more scalable and leads to more profitability and also leads to faster paybacks with us hitting sub-4 months for the first time in probably the life of the business. Operator: The next question is from Jeff Cantwell from Seaport Research. Jeffrey Cantwell: On the updated 2025 guidance, when we look at the implied guide for Q4, you're raising the fourth quarter revenue guide up versus the prior. Do you mind talking about what motivated the increase in the guide? Maybe talk about what you're seeing with MTMs and ARPU or by product with ExtraCash, et cetera, that might have been different versus where things stood 3 months ago. Any extra details on what's motivating the change in the guidance for revenue would be great. And do you have any early thoughts on how the revenue might look for 2026? I'm curious if you could give us an early read on next year, if at all possible. Kyle Beilman: So in terms of the guidance, look, we have obviously 1 fewer quarter with the annual guide this period versus 2 last, obviously. But I think just taking a step back, as we talked about on the call, MTMs are accelerating. MTM growth is accelerating. ARPU is expanding. Basically, all aspects of the growth model are firing on all cylinders right now. And I think we have just a lot of optimism with the trajectory of the business. And I think you're seeing that reflected in the revised guidance. So I would say no major difference in terms of where we're at now necessarily versus last quarter. It's just more of a continuation of the trends that we've been seeing over the last year plus now where, again, MTMs are trending very favorably and ARPU is expanding rapidly, and that's supporting the top line growth. As we've talked about, the unit economics are improving based on the new underwriting paradigm that we're in with the higher gross spreads and net yields that we're seeing within the portfolio, and all that's just flowing down through to the bottom line. So that's really what's showing up in the guide. We have not provided or we will not be providing any specific color around 2026. I mean, overall, our view is just that this is a very, very big market that we're serving, and we'd like to think that we can continue to grow MTMs as we serve that market over time. And that from an ARPU perspective, we are very early on from what we ultimately want to ship to this customer from a product perspective, and that should lead to additional ARPU growth over time. So we view that the growth algorithm for the business is very durable and that there is still a lot of upside from here for us to drive growth over the next several years. Jeffrey Cantwell: Got it. That's helpful. And then on your monthly transacting members, that's now 2.8 million this quarter. So that's up sequentially and versus last year. Do you mind digging in a little more in terms of where you're finding new MTMs right now? Walk us through where the new 200,000 MTMs are coming from? It be great if you could help us understand that. And then also, when we compare MTMs versus your total members, that's at about 20%. That's been pretty consistent over the past several quarters. I guess my question is, do you think there's opportunity to drive greater conversion of your total members to become monthly transactors? Or is that low 20-ish percent sort of the right way to think about it going forward? How do you see that playing out from here? Jason Wilk: I'd say that total conversion of our entire base, which is over 13 million now, we feel very good about that being a pool of which we can continue to fish from to convert more customers. The 2.77 million MTMs we just reported on are not the same 2.77 million every single quarter. It is people that come in and out of that total 13 million. So we're still continuing to drive more strategies to convert more people. And hopefully, we can increase that 20% penetration rate over time. As far as the new MTMs, we're just continuing to see a lot of efficiencies in the existing marketing channels. Word of mouth is still very strong at 1/3 of our acquisition, and we're seeing a lot of pockets of growth within television, which we think is a very challenging channel to scale for most companies, and Dave has found a lot of ways to unlock that, which I think is a real testament to our brand and the very strong message we can go to market with and the rest of our channels continue to perform well across social, digital streaming. It's sort of business as usual with no meaningful concentration in any one channel, which gives us a lot of confidence into 2026 and beyond. And then as we talked about, I think, you mentioned conversion. We're just seeing much stronger conversion at the front door as a result of CashAI improvements, and that's another way for us to help insulate CAC sensitivities moving forward is just further improvements to conversion. Operator: The next question will be from Gary Prestopino from Barrington Research. Gary Prestopino: A couple of questions here. Just for my sake, just to be clear, this monthly subscription fee change for $3, that's for new members who are accessing the ExtraCash Advance option. It's not just for new members who sign up. Jason Wilk: That's correct. So it's actually for new MTMs that we convert. That's how to think about that number and existing members at the $1 have been grandfathered in. Still hope to be able to convert more of those people to higher subscription revenue over time, but we didn't want to rock the boat on retention or conversion. So we just focused on the new customers, which will continue to grow. Gary Prestopino: Okay. And then could you -- some other question alluded to this with the ExtraCash Advance in the Dave Card. Could you -- if you don't give that conversion publicly, could you talk about how that has changed over the last year in terms of members putting their ExtraCash Advance on the Dave Card? Jason Wilk: We have said about 30% of total customers are sending ExtraCash to the Dave Card. That's been pretty consistent over time, looking for more ways to improve that. That's been a pretty steady-state conversion we've seen and are happy with this, again, we view the Dave Card as a way to drive incremental retention of our members, and it continues to trend nicely with ExtraCash origination growth. Gary Prestopino: Okay. That's great. And then in terms of new products, you've been talking about BNPL in particular. Are you -- have you developing that product? Do you have it in beta? Where are you? And what are your thoughts on introducing it into the market? Jason Wilk: We are with internal testing with a handful of employees as of now. And so excited to hit that milestone and expect to have customers start testing the product in the first quarter. And depending on what we see and like in the conversion and the loss rate performance will determine the pace at which we ramp that product next year. Operator: The next question will be from Mark Palmer from Benchmark. Mark Palmer: Yes. With regard to the average ExtraCash Advance size, it nudged up from $206 to $207 between the second quarter and the third quarter, and you noted that it increased to $213 in September. Where could that figure go over time? What are you comfortable with in terms of the rate at which the average loan size increases? How do you see that increasing organically just with the evolution of the platform? Kyle Beilman: Look, I think the -- we expect to continue to sort of chip away at that average origination size over time. I think if you rewind back to over the last year or 2, you've seen sort of steady progress against that metric. And we do see that to continue to be a source of ARPU expansion under the new pricing model moving forward. We saw a nice lift there in September as a result of the underwriting changes with v5.5, and there are certainly additional model optimizations that we're working on right now that we think will be additive to average origination size. There is also a dynamic where in Q3, our proportion of new customers is larger than Q2, just by virtue of marketing spend and the conversion benefits that we've talked about. That creates a little bit of a short-term headwind on average origination sizes because as you can imagine, new customers approval limits are lower than the average book. But sort of as that normalizes, I would expect that to also be just a source of average kind of limit increases as well. And then in terms of just tailwinds as our base becomes more and more seasoned or average tenure of an MTM ticks up over time, that is also a source of origination size expansion. If you look at our average customer tenure of an MTM, it's close to 2 years at this point, which is up pretty significantly on a -- if you look back over the last couple of years. And so as we do better at retention and reactivation, that is also, again, a source of upside to the average origination number -- size number. But look, I think it is a fair thing to say that, that number can't continue to grow into perpetuity, and we want to get into other types of product categories to give our customers a little bit more flexibility around duration, hence, the BNPL offering that we're super excited about to support those additional credit use cases. But yes, and I'd say over the near to medium term, very optimistic that we can continue to chip away at that origination size number. Operator: [Operator Instructions] The next question will be from Zachary Gunn from FT Partners. Zachary Gunn: So I know this isn't disclosed specifically, but if I back out subscription revenue and really look at the processing revenue, the yield on that as a percentage of origination volume has been steadily going up, and it continued to do so this quarter. Can you just talk about what's driving that increase in the yield? And should we expect that to settle, continue to kind of increase? Just what's driving that? Kyle Beilman: Largely, the changes to the gross revenue yield, if you want to think about it as a sort of service revenue as a percentage of overall originations has come from the pricing model change. Now that, that's more or less worked its way through the system, I would expect that to stabilize around the number that you're seeing today. But yes, I'd say that increase over the last couple of quarters really a result of the pricing evolution that we undertook in Q1. Zachary Gunn: Got it. Okay. That's helpful. And then just as a follow-up, when you have loans off balance sheet, can you just remind us, walk us through the economics, what the moving pieces will be in terms of accounting for credit losses or anything else we should be aware of? Kyle Beilman: Yes. So basically, how it's going to work is our receivables or a large portion of our receivables are going to sit with the bank at Coastal. And so the funding obligations from us will be drastically reduced. We will still have full economic exposure to the underlying assets. We're just going to basically be paying the bank for access to their balance sheet. So from a provision and overall accounting perspective on the P&L, in particular, there won't be any real change. It should be very consistent. We'll continue to report out on the same metrics that we do currently. It's really just the fact that our balance sheet will reflect the fact that our receivables will be sitting at the bank and that we won't have any debt obligations on the balance sheet with respect to the credit facility there. So from a net cash perspective, net cash should go up significantly as we make that transition. Operator: And ladies and gentlemen, this concludes today's question-and-answer session and thus concludes today's call. We thank you for joining Dave Inc.'s third quarter results conference call. At this time, you may disconnect your lines. Take care.
Operator: Good morning, and thank you for standing by. Welcome to the Madrigal Pharmaceuticals Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to introduce Ms. Tina Ventura, Chief Investor Relations Officer. Please go ahead. Tina Ventura: Thanks, Marvin. Good morning, everyone, and thank you for joining us to discuss Madrigal's third quarter 2025 earnings. We issued a press release this morning and posted a slide deck that accompanies this webcast on the Investor Relations section of our website. On the call with me today is Bill Sibold, Chief Executive Officer; Dave Soergel, Chief Medical Officer; and Mardi Dier, Chief Financial Officer. They will provide prepared remarks, and then we'll take your questions. Please note on Slide 2, we will be making certain forward-looking statements today. We refer you to our SEC filings for a discussion of the risks that may cause actual results to differ from the forward-looking statements. With that, I will now turn the call over to Bill. William Sibold: Thanks, Tina. Good morning, and thanks for joining us. We have delivered another excellent quarter as we continue to execute on our strategic priorities. We're maximizing the value of Rezdiffra and building our pipeline, which sets us up for continued value creation. Rezdiffra is quickly becoming one of the most successful specialty launches in the industry with sales now annualizing at greater than $1 billion in only its sixth quarter of launch. More than 29,500 patients are being treated with Rezdiffra and more than 10,000 healthcare providers have prescribed it. We've made great progress on our 2026 payer contracting strategy for first-line access. Our new U.S. Rezdiffra patent was listed in the orange book. It extends Rezdiffra's value into 2045. And we're expanding globally with our launch in Germany following European approval. On the pipeline front, we're advancing our Phase III MAESTRO-NASH outcomes trial in F4c, where we could once again be first to market this time for compensated MASH cirrhosis. We look forward to sharing more from our F4c open-label cohort at AASLD later this week. We're executing on our Rezdiffra combination strategy, where we completed the transaction of our new oral GLP-1, and we continue to evaluate opportunities to add additional assets to our pipeline through business development. So today, we'll focus on our 2 key priorities, our top line and our pipeline. Starting with Rezdiffra's third quarter performance on Slide 4, we delivered net sales of $287 million, up 35% quarter-over-quarter. The significant demand we're generating is driven by the positive response to Rezdiffra from prescribers and patients and the strong execution by our team. As shown on Slide 5, we ended the third quarter with more than 29,500 patients on Rezdiffra, up from more than 23,000 patients at the end of the second quarter. This number represents patients actively on therapy accounting for any discontinuations. As we've discussed since the beginning of our launch, we've been steadily adding patients each quarter, and we expect that to continue going forward. It's incredibly gratifying to see Rezdiffra already making a meaningful difference for so many patients. But what's most exciting is that we've only just begun. More than 90% of our 315,000 target population remains untreated. That leaves tremendous room for growth driven by Rezdiffra's highly differentiated profile and our clear first-mover advantage. Moving to Slide 6 and our continued progress on physician penetration. As I've said before, building a strong prescriber base early in the launch is one of the best indicators of long-term success. That's why the pace of adoption has been so encouraging. This quarter, we hit another launch milestone, more than 10,000 prescribers. This breadth achieved this quickly is at the high end of the benchmarks we track, and it reflects the work we've done to wire the system. Looking ahead, our focus will increasingly shift to depth. This metric is already tracking at the high end of best-in-class launches. We're also continuing to enhance our targeting. While our efforts have mostly centered on hepatologists and gastroenterologists, we're seeing growing interest from endocrinologists. These are specialists with a deep expertise in metabolic health who are interested in Rezdiffra's mechanism and its potential in MASH. In response, we've expanded our field team to further target this group. These efforts substantially started in the fourth quarter. On Slide 7, let's take a look at how we see the MASH market evolving. We see clear parallels between MASH and other large chronic disease markets like IBD, rheumatoid arthritis and psoriasis. Each of these evolved into multibillion-dollar categories through continuous innovation driven by new mechanisms and tailored treatment regimens that address diverse patient needs. We believe MASH will follow that same path. Today, this market is still in its early stages, essentially where those categories were 2 decades ago, but with one important difference, Rezdiffra's profile. As an effective liver-directed well-tolerated oral medicine, it far surpasses that of the other first-to-market products in those diseases. We believe this gives us a durable advantage and a unique opportunity to lead and shape the market's evolution, first with Rezdiffra and next with the pipeline we are building. So, we welcome new entrants to this evolving market. Wegovy's recent approval in MASH adds momentum to a market that's just starting to take shape. As seen on Slide 8, our focus remains on the 315,000 diagnosed patients with moderate to advanced fibrosis. Novo is targeting a much larger population, which will raise awareness and drive more screening, diagnosis and treatment. As a reminder, GLP-1s aren't new. They have been available for over a decade and are already used to treat the metabolic comorbidities that oftentimes accompany MASH. As we've reported, about 50% of Rezdiffra patients are currently on or have previously been on a GLP-1. We also understand the limitations of GLP-1 monotherapy in MASH. Few patients reach and sustain a therapeutic dose and tolerability remains a real challenge. Real-world data show that 70% of obese patients discontinue within 1 year. New data to be presented at AASLD show similar discontinuation rates in patients with MASLD. So, looking ahead, we expect Rezdiffra to benefit in 2 ways: as first-line therapy in a market that will expand and from the high real-world discontinuation rates of GLP-1s. We're in a strong position and are confident in Rezdiffra's growth potential going forward. As we've already mentioned, it's Rezdiffra's best-in-class profile that gives us such strong confidence as summarized on Slide 9. It is a liver-directed medicine that delivers consistent efficacy across F2/F3 fibrosis, BMI, genetic makeup in patient subtypes, including those with type 2 diabetes who comprise approximately 60% of the MASH population. It's also simple to use. It's a once-daily, well-tolerated pill with no titration requirements. That simplicity matters to providers, to patients and ultimately to adherence. We continue to see strong adherence consistent with other well-tolerated oral therapies. The seriousness of MASH and Rezdiffra's compelling profile continue to resonate with payers. Our objective is to provide first-line access to patients, preserving treatment choice for patients and providers, and we're pleased to share an update on Slide 10. We're making great progress with our payer negotiations for 2026, which to date have resulted in contracts for broad first-line access, no step edit requirements and improvements in utilization management criteria that are better aligned with clinical practice. Overall, the dialogue has been collaborative and productive and discussions are progressing really well. Payers understand the seriousness of the disease, the unique clinical value of Rezdiffra and the importance of access and choice for patients and providers. We've already achieved favorable outcomes with several national payers, while continuing constructive dialogue with others. We're encouraged by the progress and expect contracts to be finalized by the end of the year, covering the vast majority of commercial lives. Gross to net management remains a core component of our strategy and guides how we approach payer contracting. We started contracting in April of this year. And as we've said, it wasn't everywhere and wasn't all at once. In fact, through the third quarter, contracting had a minimal impact on gross to net, reflecting our disciplined approach. Now that we expect to have payer contracts finalized in the fourth quarter for either an immediate or a January 1 implementation, we expect the fourth quarter gross to net to be at the midpoint of the 20% to 30% range we had previously discussed. Starting in the first quarter and continuing throughout 2026, we expect our gross to net impact to be in the high 30% range, which is consistent with other innovative multibillion-dollar specialty medicines. So objectively, we're in a great position. We are executing on one of the most successful specialty launches in the industry with less than 10% of our target market treated, the growth opportunity ahead is substantial. We have taken a thoughtful approach to contracting, which provides for outstanding patient access and durable long-term growth. In short, this strategy paves our path to peak sales. Beyond the U.S., we are expanding access to Rezdiffra as shown on Slide 11. We're taking a focused country-by-country approach in Europe and launched in Germany at the end of September. Just like in the U.S., the team is wiring the system for a first-in-disease launch. This requires educating physicians on the risks of MASH and the urgency to treat. We are also driving change in clinical practice to develop processes for patient identification, diagnosis and use of noninvasive tests. This work happens practice by practice to help develop the infrastructure for sustained adoption. The team is off to a great start, and we anticipate our efforts will start to make an impact in 2026. Now I'll turn it to Dave to discuss the second pillar of our strategy, expanding our pipeline to extend our leadership and build long-term value. Dave? David Soergel: Thanks, Bill. It's an incredibly exciting time to be at Madrigal. Over the past 6 months, I've had the opportunity to work closely with this exceptional team. And the more I dug into our programs, the more energized I've become about what we're building. We're not just advancing a pipeline, we're laying the foundation to transform how MASH is treated. As shown on Slide 12, we already have a robust clinical program for Rezdiffra. Our Phase III MAESTRO-NASH outcomes trial in compensated NASH cirrhosis or F4c, is expected to read out in 2027. Positive results could make Rezdiffra the first approved therapy for F4c and support full approval in F2/F3. Our ongoing Phase III MAESTRO-NASH trial in F2/F3 MASH is expected to read out in 2028 and would also support full FDA approval. Beyond Rezdiffra, we're building a pipeline through our business development efforts. To date, we've added an oral GLP-1 now called MGL-2086, which we intend to develop in combination with resmetirom to deliver a best-in-disease, well-tolerated oral combination. As we think about how to build our pipeline further, we're looking for mechanisms that fit scientifically, strategically and commercially, those with complementary biology and combination potential. Continued success in treating patients will come from combining mechanisms and tailoring treatment regimens to specific risk factors, much like what we've seen in other chronic complex diseases. With Rezdiffra's patent protection into 2045, we can be thoughtful and disciplined and build the right kind of pipeline that will define the future of MASH care. The combination of our oral GLP-1 and THR beta agonist is a great example of this approach to building the pipeline. For MAESTRO-NASH, we know that even a modest amount of weight loss enhances resmetirom's efficacy. So unlike incretin monotherapies that strive for double-digit weight loss, we've seen that as little as 5% weight loss can enhance Rezdiffra's efficacy in MASH. This will allow us to dose escalate the MGL-2086 component of the combination with the goal of optimizing both efficacy and tolerability in a once-daily oral pill. It is also important to note that with the combination, patients would be on an effective dose of resmetirom on day 1 as the MGL-2086 dose is being adjusted in contrast to injectable incretin monotherapies that require a lengthy titration period. On Slide 13, we see how these mechanisms could work well together. GLP-1 works from the outside in, improving systemic metabolism, insulin sensitivity and weight loss. Rezdiffra works from the inside out, reversing hypothyroidism in the liver, restoring mitochondrial function and increasing fat processing through beta oxidation. The combined mechanisms lead to lower levels of inflammation and inhibition of stellate cell activation and downstream fibrosis. By combining these complementary mechanisms, we expect to see greater reductions in both liver fat and fibrosis. We plan to start a Phase I trial for MGL-2086 in the first half of next year. Next, let's move to our Phase III MAESTRO-NASH outcomes trial in compensated MASH cirrhosis or F4c on Slide 14. People living with F4c MASH today have no effective treatment options that prevent progression of their disease to decompensated cirrhosis. Our 2-year open-label extension data presented at EASL earlier this year demonstrates sustained efficacy of Rezdiffra in this population and supports our confidence in the ongoing MAESTRO-NASH outcomes trial. Knee liver stiffness decreased by 6.7 kilopascals at 2 years, a statistically significant reduction from baseline. More than half the patients achieved at least a 25% reduction in liver stiffness, a level tied to improved outcomes. And 65% of patients with clinically significant portal hypertension or CSPH, at baseline moved to a lower risk category by year 2. CSPH is a key driver of the most severe outcomes of cirrhosis and marks the tipping point into decompensated disease. Improvement in CSPH suggests Rezdiffra could delay or even prevent life-threatening complications. We'll be presenting new data from this 2-year open-label F4c cohort at AASLD later this week, as noted on Slide 15. And what I'm really excited about is that this data shows promising efficacy in even the most advanced F4c patients who are on the cusp of progressing to liver decompensation. This is the first time any data will be shown in such a severe population, which gives us additional confidence in our outcomes trial. Also at AASLD from our Phase III MAESTRO NAFLD-1 trial, we'll highlight how F2/F3 patients progress when Rezdiffra treatment is interrupted, demonstrating the importance of staying on therapy. We'll also share multiple posters that examine early real-world experience with Rezdiffra and the burden of uncontrolled MASH across health systems. In total, MASH will have 15 abstracts, including 2 oral presentations and 2 posters of distinction. With that, I'll hand over to Mardi. Mardi Dier: Yes. Thank you, Dave. Turning to Slide 16 and a summary of our financials. Third quarter 2025 net sales totaled $287.3 million, up 35% from the second quarter of 2025. This was another strong demand quarter. As Bill mentioned, we're making great progress with our contracting discussions for continued broad first-line access to Rezdiffra in 2026, with no step-through requirements and improved utilization management criteria. As a reminder, there are several components to gross to net, including commercial rebates, government rebates, co-pay assistance costs and channel distribution costs. Across the board, the team has done an exceptional job managing these dynamics, and we're seeing minimal impact through the third quarter of this year. As certain contracts take effect in the fourth quarter, we anticipate a step-up in the gross to net impact to the midpoint of our 20% to 30% range, resulting in a full year average near the low end of that range, a great outcome for 2025. Looking ahead to 2026, we expect the full effect of our payer agreements to begin January 1, bringing our total gross to net impact into the high 30% range, consistent with specialty medicine analogs. As noted, we are confident that we will continue to steadily add Rezdiffra patients, and we expect robust net sales growth for Rezdiffra in 2026 and beyond. R&D expenses for the third quarter of 2025 were $174 million compared to $68.7 million in the third quarter of 2024. The increase was primarily due to the one-time $117 million expense associated with the global licensing agreement for MGL-2086. This was expensed in the third quarter and will impact fourth quarter cash flows. SG&A expenses for the third quarter of 2025 were $209.1 million compared to $107.6 million in the third quarter of 2024. The increase primarily reflects the annualization of higher commercial investment to support the Rezdiffra launch. Looking ahead, we expect fourth quarter R&D expenses to be modestly higher than third quarter levels, excluding the third quarter one-time expense for our oral GLP-1 and expect fourth quarter SG&A expenses to continue to increase quarter-over-quarter as we continue to support the launch of Rezdiffra. Turning to our balance sheet. We ended the third quarter of 2025 with $1.1 billion in cash, cash equivalents, restricted cash and marketable securities. The increase reflects the $350 million initial term loan under our senior secured credit facility, a portion of which was used to repay all outstanding obligations under the Hercules loan facility, offset by the funding of operations. With this strong cash position, we continue to be well resourced to support the ongoing launch of Rezdiffra and advance multiple pipeline programs. With that, on Slide 17, let me briefly recap our third quarter progress where we remain focused on our top line and our pipeline. We are driving strong performance in our sixth quarter of our launch with Rezdiffra now annualizing over $1 billion in net sales and expect continued strong growth in 2026 and beyond. More than 29,500 patients are on therapy, and we expect to continue to steadily add patients going forward. We've reached another major launch milestone with greater than 10,000 prescribers. Our payer discussions are progressing very well, and we expect continued strong access for patients in 2026, and we're working to further expand our pipeline to solidify our leadership in F2 to F4c MASH. And now I'll turn the call back over to Tina and open up the Q&A session. Tina Ventura: Thanks, Mardi. Let's move into the Q&A portion of the call. Marvin, please go ahead and provide instructions for the Q&A session. Operator: Our first question comes from the line of Yasmeen Rahimi of Piper Sandler. Yasmeen Rahimi: Congrats to a great quarter. Team, with AASLD right around the corner, would love to learn sort of how this 2-year data, especially the NIT-driven responses could further derisk MAESTRO-NASH outcome, which is reading out in 2028? And also maybe also some color on what visibility do you guys get in terms of that it's on track based on event rates to come in at that time point? And I'll jump back in the queue. William Sibold: Yes. Thanks for the call. And look, we're really, really excited about AASLD. I'll tell you, we're just coming off of the ACG meeting in Phoenix. I guess it was just last week. And what a difference a year makes when you think about the progress that we've made with the gastroenterologists. I mean a year ago, people didn't know about NITs. They were still putting their pathways in place. And now we're seeing that Rezdiffra has really moved to being the foundational therapy standard of care with that audience and a lot of positive feedback. So, we're headed into the Super Bowl this week with AASLD. We're really excited about it. We have a lot going on. But maybe, Dave, do you want to provide a little bit of context around some of the data and so forth? David Soergel: Yes. I think your question, yes, had to do with the data that we're reading out at AASLD and how it reflects on MAESTRO outcomes. Is that correct? Yasmeen Rahimi: That's correct. David Soergel: Okay. Great. Yes. So, as we presented at EASL and as we showed in the presentation, we have an open-label cohort of individuals from the MAESTRO NAFLD study where we've been able to show sustained efficacy of Rezdiffra in this cohort, both on liver stiffness and on a variety of biomarkers, including LFTs and so forth. So, at AASLD, we're looking more deeply into this cohort and examining some of the more severe patients within this cohort and understanding whether Rezdiffra's efficacy in this group as well. And what we see is really exciting and gives us a lot of confidence about, about MAESTRO outcomes. And so the reason why this is important is because when you think about MAESTRO outcomes and you think about this open-label cohort, the patient populations are really very similar. So, the baseline characteristics are similar. And so when we see efficacy in the open-label group, it gives us evidence and a lot of confidence that the outcomes trial will end up being positive as well. Operator: Our next question comes from the line of Jay Olson of Oppenheimer. Jay Olson: Congrats on the quarter. Can you talk about the pros and cons of combining resmetirom with MGL-2086 versus some other oral GLP-1 like orforglipron? And then any other potential mechanisms beyond GLP-1 that might be synergistic with resmetirom? William Sibold: Jay, thanks for the question. Just for clarification as well, our oral GLP-1 is an orforglipron derivative. So, we were very, very specific in the criteria that we had for selecting a oral GLP-1, and we wanted to be in an orforglipron derivative. But maybe, Dave, do you want to talk a little bit about it and a little bit about the future mechanisms and just how we're thinking in general about potential combinations? David Soergel: Yes. So, I mean first, the GLP-1 mechanism and why one would combine resmetirom with the GLP-1. So, what we know from MAESTRO-NASH from the 52-week experience in MAESTRO-NASH is just a little bit of weight loss enhances resmetirom's efficacy. So, we see better antifibrotic effects with resmetirom in people who lose as little as 5% of their body weight. So, it's a natural sort of extension of that to consider combining with the GLP-1 that can produce a bit of weight loss, have some metabolic benefits and enhance resmetirom's efficacy in a fixed-dose combination. So that's the rationale for combining with the GLP-1. But your point is a great one. There are other mechanisms that may also be attractive to combine resmetirom with. And there are multiple pathways in this very complex disease of MASH that lead to hepatic steatosis, fibrosis and ultimately poor outcomes in patients. So, as we've said before, we're looking at pretty much every mechanism of action to potentially combine with resmetirom where there's a good scientific rationale for it and where we believe that the combined efficacy is going to be an advantage to patients. So, we're casting the net wide, and we're looking for the best opportunities. William Sibold: Yes, Jay, and just also a little context as well here. With the IP to 2045, that gives us time to really thoughtfully think about building this pipeline. We're not in a rush just to try to fix a problem of a pending patent cliff. We can thoughtfully think about building a franchise that's durable because starting with the 2045 IP for Rezdiffra. Thanks for the question. Operator: Our next question comes from the line of Michael DiFiore of Evercore ISI. Michael DiFiore: Congrats on the continued progress. Just 2 quick one for me. In light of the recent M&A in the space, I would love to get your thoughts on Madrigal's future competitive positioning and market access once large pharma inevitably bundles their MASH assets, if approved. And the second question I have is just any thoughts on Sagimet's plans for testing denifanstat with Rezdiffra. I realize your priority is focusing on the combination therapy with your own GLP-1, but would Madrigal be open in principle to combinations such as this? Or is this just too early at this stage? William Sibold: Yes, Mike, thanks for the question. Let me start with that one. We don't know what Sagimet is doing. We haven't spoken with them, don't know any of the plans. So, is it a combination that makes sense? Maybe, but we're not involved in that and don't really know. So that's all I'll comment at the moment there. Look, the recent M&A really for us is a validation of the MASH market. Ultimately, what we see happening in these markets, and we talked about IBD, RA and psoriasis. You would have -- and we're a little bit like that where you have a company shows that there is a market and an attractive opportunity. And then the investment in innovation, science and ultimately more products really accelerates. And that's what we think is going to happen in MASH. We're leading the way in this case. Now the recent moves of the big pharma to get an FGF21, we think validates that. And we're excited about it because that means there's going to be more attention on the space, which ultimately leads to greater diagnosis, treatment. And with the profile that we have with Rezdiffra, we think it ultimately favors us. So we -- in creating our market access strategy, we've taken a very long-term approach, just like we did from day 1 when we announced approval of the product, you almost have to start with 2045 where Rezdiffra's IP goes out to, that we're going to have F4c, that we're going to have a pipeline and there's going to be other products that enter. So, everything has been thoughtfully designed with that end in mind to preserve the most value for not only Rezdiffra, but for our franchise of the future. So, we feel we're in a really strong place. Now Dave just talked a little bit about F4c. We're really excited about the data that we've seen, and we're very confident about hitting in our MAESTRO-NASH outcome study, which we are reading out in 2027. Of course, we've got to read out. It's an event-driven study, and we'll anticipate those results. We think that from a competitive perspective, our data is going to be the leading data in that space with that population so that we will be the leaders not only in F2/F3, but from F2 to F4c. So all of this is thought out. We're thinking of things in the long term. We think of that how we build a pipeline, how we evolve gross to net and how we interact with the community. Let me just be crystal clear. Our goal is to not be leaders in the short term, but to have long-term leadership in MASH. Operator: Our next question comes from the line of Akash Tewari of Jefferies. Akash Tewari: So, we're hearing feedback that Rezdiffra's adherence rate is meaningfully higher than the kind of 40% to 60% your team cited for drugs in this category, more in the order of 80% plus. Can you confirm that? And then also, how should we think about Rezdiffra net pricing? I know you've talked about -- we've heard GLP-1 players talk about mid-single-digit net price declines annually. Is that a similar dynamic for Rezdiffra? Or should we see stable net pricing after you get into like the high 30s range on gross to net next year? William Sibold: Thanks for the question, Akash. Look, first of all, on the adherence, I think what we've said about -- at the 1-year rate, well-tolerated orals are in that 60% to 70% range. So that doesn't -- that hasn't changed our view. And we are -- the data that we have today, remember, there's still only so many patients that are getting to that 1-year mark that we are similar to well-tolerated orals. And like you, we've heard very positive feedback from a lot of clinicians that are treating patients and seeing very strong adherence. And I think that again goes back to the profile of the product. So, all encouraging and as we would expect. To the question of gross to net and what we would expect to see. Look, I think that you looking ahead to the future, gross to net only goes in one direction, right? And the difference after '26, you don't have this 0 to contracting effect. After '26, we'll have contracting right now, we're going to be bidding on 2027 Medicare. We have some Medicare in place for '26. So, you expect to see some future decline in gross to net because that's just what happens. But again, we had this effect of 0 to contracting in -- as we enter 2026. So, look, we think that we are in a really great place. Our strategy is for broad first-line access, no step edit and improved utilization management criteria. That was the goal. That's what we're achieving. So, we're really, really excited about where we are entering 2026. In fact, I would say, in my experience, I really believe that this is as good as you could possibly be for a product of this stature at this point in launch. In fact, I would go as far as to say, I think this is the best market access from a criteria perspective and everything that I've seen with any of the launches that I've done. Operator: Our next question comes from the line of Thomas Smith of Leerink Partners. Thomas Smith: And let me add my congrats on the really strong quarter. Another one on coverage. I appreciate the high-level comments here on the payer contracting efforts, I think everyone saw the recent Aetna formulary coverage decision. Could you just comment specifically on that and the potential impact of noncovered decisions? And then any comments on kind of where you are with respect to the contracting for commercial lives next year? Is there an explicit goal or expectation for what percent of commercial lives you think will continue to have that broad first-line access to Rezdiffra for 2026? William Sibold: Yes. Thanks, Tom. Maybe I'll start there. Look, we're expecting broad commercial live coverage. So, we feel really good about that at this point. As it relates to Aetna, let me start with Rezdiffra wasn't on formulary in 2025, and it's not again in 2026. So that is really no change. So, we don't expect to see a meaningful impact here. It will be available through prior authorization or medical exception. And so that's not a practical change in access for patients. And our Madrigal patient support team are really experts at helping patients navigate and helping practices navigate through that. So yes, no change, no effect. Operator: Our next question comes from the line of Andrea Newkirk of Goldman Sachs. Andrea Tan: Bill, recognizing it's still early here, but just curious if you've observed any signs of Novo's marketing campaign broadening the pool of addressable patients to date. Do you still believe that 315,000 patients is the accurate number for Rezdiffra's target population? And then, Mardi, if I can just ask quickly, just in the context of the successful launch that you've seen to date, how are you thinking about the path to profitability from here? William Sibold: Thanks, Andrea. Well, look, this is the first quarter where we've had Novo in the market. And you saw that we continue to steadily add patients. And I think by all measures, had an absolutely outstanding quarter. So, 3 months in, we haven't really seen too much. We know that they seem to be educating PCPs and trying to drive diagnosis, which we think is ultimately great for patients in the market. We're starting to hear some practices say, and this is very anecdotal at this point that they are reporting more referrals that are coming in. But it's a little early to quantify if there is additional growth to the market as we get through the end of the year and be able to do a more proper analysis, we'll come back with any real growth rates. Now the 315,000, great question. Look, let's just remind people, the 315,000 are the diagnosed patients in the 14,000 prescribers that we're targeting. And we know that we have patients that are on Rezdiffra now that weren't part of that 315 that they were newly diagnosed. And we also know that the diagnosis rate at the moment remains quite low. Originally, we saw it as around 10% diagnosis rate. So, we know that there are more prevalent patients out there. And I think what we will see and what we're excited about is having somebody else that is going to help us carry the load of increasing diagnosis. It's not something that's been a focus of ours. It still remains not a focus of ours. But when we have somebody else who needs to have literally millions of patients that are diagnosed in order to serve their needs, that ultimately helps us. That's why we said in the script, it's also -- it's the 315,000 that we win from and the increased diagnosis and ultimately people that can't tolerate or have an effect with a new competitor that will ultimately come to us. So, a little early to quantify. We'll do so in later quarters, but we see some signs that we're starting to see additional growth. Novo, we just don't really have a lot of information, haven't seen them too much out there. But clearly, they are there and starting to drive a little bit more diagnosis. Mardi Dier: Great. Yes, go ahead. Yes. Thanks, Andrea, for the question on the path to profitability. And our focus right now and into 2026 is really focused on driving our top line and then building out our pipeline, which Dave described. That's going to be our focus going forward. It doesn't mean profitability won't happen at some point. But again, we're focused on the top line and building out R&D and continuing to support our efforts in building out the MASH -- our leadership in MASH. Operator: Our next question comes from the line of Andy Chen of Wolfe Research. Unknown Analyst: It's Emma on for Andy. Rezdiffra uptake has been strong so far, and you mentioned the strong 60% to 70% adherence rate. I know it's still very early days in the launch, but I guess how do these dynamics inform your view of the drug's chronic use potential and just steady-state demand over the long term? William Sibold: Thanks, Emma. Look, I think that this is where we win. We have a profile once-a-day pill that is well tolerated and the feedback, some have reported extremely high adherence rates. So, we feel extremely well positioned for this to be a long-term chronic therapy. It's really one of the exciting parts of Rezdiffra. And as I said, versus other categories, which have become really multibillion over $20 billion categories, the profiles, especially the profiles initially of products to launch were kind of hairy, right? They just -- they weren't orals. They had tolerability issues, sometimes safety issues. We feel that we have got -- and you've heard me refer to it in the past as what I believe is kind of like a holy grail profile. That's something which is where we win in this category, frankly. At the end of the day, profiles matter. This is a product which is really designed for chronic use. So, we feel really good. David Soergel: Can I just add on one thing. The other part that also, of course, matters is sustained efficacy. And I think what we're showing at AASLD gives us a lot of confidence in the sustained efficacy of resmetirom in this group. And in fact, what we show in the F2/F3 population is that if you come off of therapy, you have reversion of your disease, which is, of course, a big challenge. So, I think those 2 facets, both the efficacy, sustained efficacy and the sustained tolerability are 2 big. Operator: Our next question comes from the line of Ritu Baral of TD Cowen. Ritu Baral: I wanted to ask, well, 1.5 questions. One on this growth forward given the 2 strategies, Bill, that you outlined, one, sales force expansion and marketing to the endocrinologists. But at the same time, you mentioned that you want depth in the going-forward marketing strategy. So, can you help us reconcile the 2 and what sort of metrics and current targets for depth that you hope to report and how GLP-1s figure into all this? And this is a very quick e-mail that we've been getting from clients. We're having a problem sort of stretching the patient numbers with the revenue numbers. Are there any elements to either stocking or Europe or some other aspect of those numbers that need to be addressed in our models to reconcile everything reported this morning? William Sibold: Yes. For the quarter, nothing to do with inventory, nothing to do with Europe. I mean, just to be crystal clear, U.S. demand is the driver of the success for the quarter. So let me take that one. Next, let's talk about growth going forward and your question about how do we manage expansion, if you will, of into endocrinology and death otherwise. We can walk and chew gum at the same time, so to speak. We have to continue to be building for the future as well. Remember, we've got 20 years ahead of us from an IP perspective. So, we are going to look for where to currently focus and where do we want to explore. And that's exactly what we're doing here. We've already from -- and you know we've been always looking at a basket of products in the last 10 years that have been great specialty launches, and we look at each metric, and we're kind of at or near the top on a number of those. Breadth, we're doing great as well. But you need to continue to grow your depth of prescribing, right? I mean we have 10,000-plus prescribers. Now your next step, and I consider that like a checkmark, now you go deeper and deeper into that set of core physicians, which are gastroenterologists and hepatologists. Now the pursuit now of the endocrinologists, that we had endocrinologists targeted as part of the 14,000. But what we've seen is additional endocrinologists have come forward and said, "you know what, I'm still seeing a lot of MASH and would like to learn more about Rezdiffra. So, there was enough interest that we said, let's put a dedicated team on that opportunity. Just to give you a sense, it's not a huge number. It's a couple of thousand physicians that we add to the target list. And that can be handled with a very concentrated dedicated effort. And we'll see how that evolves. And one of the interesting things is, as you talk about GLP-1s, if GLP-1s were truly solving MASH, there wouldn't be a need in this prescriber group that uses GLP-1s predominantly that another product would be needed. So, I think that, that is a very good sign for us as well that GLP-1s aren't the solution. They've been on the market for over 10 years. You've got a specialty that uses them, and they still are looking for Rezdiffra. So, we're putting an effort there. So, this is a little bit of a -- we have our present focus, which is driving breadth, and we are starting with these endocrinologists, which you have to wind the clock back to even before '24 because they're not familiar with NITs. They're not -- they don't have their system wired at all. So that's going to take a very long time for them to really get catch up to where gastroenterologists and hepatologists are now. But we think it's worth effort, resource, and we think there's promise for the future there as well. Operator: Our next question comes from the line of Jon Wolleben with Citizens. Jonathan Wolleben: Bill, wondering if you could comment a little bit as we look down the road at expected GLP price erosion how that might affect access and payer decisions for Rezdiffra? William Sibold: Thanks, Jon. Well, look, I think if you -- I'll take you back to the comments that we made on the call that in January, we would expect to be in the high 30% range. That is in the presence of a rapidly, I would say, eroding gross to net of GLP-1s. So, we believe that we are well positioned for the future. As I said, gross to net only goes in one direction. But I think you have to start with the problem that we're trying to solve. This is an expensive disease. I think if you take a look at ICER recently commented again on products that they have recently reviewed. And we're seeing that once again, Rezdiffra is highlighted as a product that is looked at as cost effective and really is offsetting the very costly disease without intervention. So, I think that you have to start with the problem you're trying to solve. This is an expensive disease. I think payers understand that. Certainly, the system is starting to understand that. So, you're always going to have products that have different prices within the category. And we've seen even with the categories that I mentioned today, IBD, RA and psoriasis, there's huge variability. But there's a need for more than one medication. There's a need for multiple mechanisms, and you ultimately have to try to solve the problem in front. And we, through an independent third party, ICER, have proven twice now about the cost effectiveness of Rezdiffra. Operator: Our next question comes from the line of Prakhar Agrawal of Cantor Fitzgerald. Prakhar Agrawal: And congrats on another strong quarter. So, appreciate the clarity on the gross to net for 4Q and 2026. But maybe if you can talk about your expectations for 4Q growth and comfort around 2026 consensus estimates with this set? And maybe second question, what percentage of Rezdiffra volume currently is Medicare? And how are you thinking about the implications of semaglutide IRA pricing decision on the long-term prospects for that channel? William Sibold: Great. So let me just give you -- I'll give you the quick answer on what the distribution is. We're anticipating it's 50% to 55% commercial, 30% to 35% Medicare and then about 10% Medicaid and other. We're still -- remember, we're at less than 10% penetration here. So that's going to evolve a little bit in time, but we're staying in that range at the moment. Maybe, Mardi, do you want to talk about Q4? Mardi Dier: Yes, definitely. Hi, Prakhar, thanks for the question. So, listen, we've had a great 2025 so far in fourth quarter. We expect that to continue in terms of steadily adding patients, really sort of the driver for our business. We don't see any change there. We did have a very high base in our revenue coming into third quarter that was very much patient demand. We did have some favorability in gross to net, which we discussed in a high demand quarter from an inventory standpoint. So, we're in a very strong position. But going into fourth quarter, working off that base and taking into effect that there's fewer selling days in the fourth quarter in general, and that as we discussed, the gross to net begins to -- we'll see the commercial rebating starting to take effect in the fourth quarter. So, we'll be at the midpoint of that 20% to 30% range. All that put together, we think we'll see high single-digit growth quarter-over-quarter going into the fourth quarter, but still a very strong quarter. And of course, we're on over $1 billion run rate in revenue. So fantastic. William Sibold: And Prakhar, maybe just one comment there as well. I think more and more the measure turns to patients and patients being treated. And as you can see, we are doing really, really great in our steadily adding patients, and that's something that is going to, we've said, remain to be steadily adding in the future and feel really, really great. Again, where we are, it's less than 10% penetration. There's a ton of patients that are out there that still need to be treated, and that represents a great opportunity for us. Mardi Dier: Yes. And I just wanted to come back to 2026 that Prakhar asked about, too. So again, everything Bill just said for the steadily adding patients, we see that going into 2026 as well. So steadily adding patients, we anticipate and we said in the script, robust net sales growth in 2026. But if you think about -- just think about the phasing, right? So we're going to have the impact of the gross to net starting in January right at the beginning of the year. So you're going to see that step up from the contracting and we will be in the high 30s. And of course, we always have the Q1 effect on top of that, right? So, in terms of the phasing, you'll see some of that play through in 2026. But net-net, we see robust growth going into 2026. Operator: Our next question comes from the line of Srikripa Devarakonda of Truist Securities. Srikripa Devarakonda: Congratulations on the quarter. I was wondering if you can talk a little bit on the expected cadence for EU launch and how that -- when we think about 2026, that might add to the growth? I know it takes time for EU launches. And also the SG&A that was reported, does that include sales force in Europe? Or should we be thinking about slight increase in SG&A over the next several months to reflect sales force on the ground in Europe? William Sibold: Mardi, do you want to take that first? Mardi Dier: Yes, I'll definitely answer the SG&A question first, and we can talk about just EU launch in general. So, SG&A for building out Germany, right? So that where we're only launching there as of right now is included in our SG&A expenses. And you'll continue to see that included in SG&A. But as we said, when we move into country by country, we're going to be very disciplined, and we look at a 2 to 3-year positive contribution metric for each country. So, the spend will increase with Europe. But again, we're mindful with each country. And then just the EU launch, let's just talk about that. I'll start and Bill, I don't know if you want to add? But we did start launching in the third quarter, but really, we were just testing the channel. So just de minimis amount of revenue for 2025, we believe, and where we said we can start that -- we can start seeing some impact in 2026. So, I would say the robust sales growth that we're talking about 2026 is by far and predominantly the U.S. sales growth and adding patients, which we've discussed. And Europe, again, it's going to play out. It is slow. We have to build the system. We have to wire the system in countries in Europe. It will just be Germany next year. So it will be -- it will add, but not a significant amount. William Sibold: Yes. I think that's really, really great comment. It is Germany right now, and we're really excited. I mean, first of all, we've hired an outstanding team there. The team is great. The feedback that we're getting is that MASH is -- needs to be treated. It's prevalent, very similar to the U.S. in that sense, but it takes time, right? You got to wire the system. It's practice by practice, it's prescriber by prescriber. And we're taking all the steps in the usual next countries to look at as well. We've started putting teams in place that are evaluating the market and our launch strategy there. And again, just absolutely high-quality team that's in place. So, we feel really good about the long-term prospects, but we also know that there's a lot of wiring to do, and we've got to navigate the reimbursement process in each country, which takes some time, but we got a great team to do that. Operator: Our next question comes from the line of Kaveri Pohlman of Clear Street. Kaveri Pohlman: Congrats on the progress. Are there any systemic differences or challenges in insurance approval rates for Rezdiffra depending on whether the prescription comes from an endocrinologist versus a hepatologist or gastroenterologist. And maybe just like a connected question to that. Besides the clinical data that you showed on Slide 14, is there any real-world evidence that you have collected or showing that Rezdiffra can prevent or delay the progression of F4 cirrhosis perhaps based on the feedback from its current use by physicians? In other words, is there like any evidence leading to the preference of Rezdiffra or GLP-1s in F2/ F3 MASH patient? William Sibold: Yes. Thanks for the question. Maybe starting there. We're seeing more and more real-world evidence that's coming to life. Some of it will be presented at AASLD this week or this week into next week. And we expect as more patients start to hit the 1-year mark and beyond that there will be more. Anecdotally, we're hearing really, really great feedback. When you launch a product, you never know what's going to happen in the real world. You have your clinical data and you're not sure what real-world experience is going to be. So far, the anecdotal feedback has been extremely strong by prescribers, and they're seeing effects on, obviously, liver fat. They're seeing effects on fibrosis and all the other myriad of other things, LSTs, lipids, et cetera. So, we're really excited about the real-world evidence reading out. And we've done work with claims databases, et cetera. So more to come, but early indicators are extremely strong. So really excited about that. To your first question, it really is payer to payer about, this is this utilization management criteria, who can prescribe, et cetera. And for the most part, it is -- it refers to specialists. And in the specialists, that can be hepatologists and gastroenterologists. And then in some cases, it may or may not name endocrinologists. So, it's usually either a requirement to be prescribed by a specialist or in consultation with a specialist. But again, that's something which really varies on a plan-by-plan basis. We don't see that as a any kind of a hindrance now. And remember, our focus is the specialists. We believe Rezdiffra should be prescribed by these specialists. Now in time, that may change, but we think that this is a very serious disease. It is a very serious disease, and we want to have the specialists get experience with Rezdiffra in treating these patients before it would ever extend beyond that. And that's crystal clear we make that crystal clear with payers as well. That is our intent. Tina Ventura: Great. Thanks, Bill. And thank you all for your time and interest today. This now concludes our call. A replay of this webcast will be available on our website in approximately 2 hours. Thanks for joining us. Operator: Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Have a wonderful day.
Operator: Welcome to Nuveen Churchill Direct Lending Corp's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would like to turn the conference over to Robert Paun, Head of Investor Relations for NCDL. Robert, please go ahead. Robert Paun: Good morning, and welcome to Nuveen Churchill Direct Lending Corp's third Quarter 2025 Earnings Call. Today, I'm joined by NCDL's Chairman, President and CEO, Ken Kencel; and Chief Financial Officer, Shai Vichness. Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q and supplemental earnings presentation are available on the Investor Relations section of our website at ncdl.com. Now I would like to turn the call over to Ken. Kenneth Kencel: Thank you, Robert. Good morning, everyone, and thank you all for joining us today. Today, I will start by discussing our results for the third quarter. And then I'll discuss current market conditions, our origination activity, portfolio positioning and our forward outlook. Following my comments, I will hand the call over to Shai for a more detailed discussion of our financial performance. This morning, we reported net investment income of $0.43 per share during the third quarter compared to $0.46 per share in the second quarter. Gross originations totaled approximately $29 million in the quarter compared to $48 million in the second quarter of this year. Similar to the prior quarter, the decline quarter-over-quarter was intentional as we continue to operate towards the higher end of our target leverage range. As I will discuss later in my prepared remarks, the Churchill platform continued to see strong asset growth and new originations during the quarter. Our investment portfolio remains healthy, and our portfolio companies continue to perform well. Largely due to the strength of our Senior Loan Investments. Net asset value was $17.85 per share as of September 30 compared to $17.92 per share as of June 30. The modest decline quarter-over-quarter was primarily due to due to a slight decrease in the fair value of certain underperforming portfolio companies. Turning to the current market environment. M&A activity continued its positive momentum in the third quarter, building on the rebound in market sentiment that began towards the end of the second quarter. Investment activity has now returned to a more normalized level, following the pause in activity after a Liberation Day. Stabilizing market conditions and renewed sponsor confidence in the macro environment contributed to increased transaction execution. During the third quarter, the Federal Reserve began an interest rate cut cycle with a 25 basis point cut in September and another 25 basis point cut in October, with further rate cuts anticipated but not guaranteed. Against this backdrop, with a predominantly floating rate portfolio, NCDL and other private credit funds are interest rate sensitive. Partially offsetting this dynamic NCDL has the benefit of a floating rate debt capital structure as well as a lower interest burden for our portfolio companies. We believe the latter should drive growth dynamics as portfolio companies will have more capital and cash flow to reinvest into growth areas of their respective businesses. In addition, a lower interest rate environment typically encourages increased M&A activity due to lower financing costs for private equity-backed businesses. Despite the potential for further rate reductions, we continue to see an attractive risk-return profile for private credit and direct lending, especially on a relative basis compared to other fixed income asset classes. We also witnessed significant market volatility in private credit funds, particularly BDC stock prices over the past several weeks, following significant media attention given to two large bankruptcies. We want to make it clear that NCDL and any other Churchill vehicles do not have any exposure to either of these two investments, Tricolor and First Brands. We also do not see any evidence of broad-based challenges across our portfolio. At Churchill, we focus on sponsor-backed businesses with significant equity cushions. And we have long-standing experience focusing on less cyclical, more defensive end markets that demonstrate resilience across market cycles. As we continue to end the year strong and look towards 2026, we remain optimistic about the long-term prospects of the company given our positioning as a leader in the core middle market. Our long-standing performance track record, deep network of sponsor relationships and extensive LP commitments across the broader Churchill platform, and we remain intensively focused on continuing to invest in high-quality assets and deliver attractive risk-adjusted returns to our shareholders. Now turning to our investment activity. As I mentioned earlier, our pipeline for new deal flow started to increase and returned to a more normalized level in June of this year, following the temporary pause in April and May. During the third quarter, we continued to see an increase in transaction activity, particularly new deals for high-quality assets that are in resilient nontariff exposed sectors. At the Churchill platform level, the number of deals reviewed in the third quarter increased 22% from the second quarter of this year. And in the first 9 months of Churchill closed or committed $9.4 billion across 265 transactions, driven by a record-setting first quarter and a resurgence of activity in the third quarter. During the third quarter at NCDL, we continue to reduce allocation sizes to new deal flow, primarily due to the fact that we are operating at the high end of our target leverage range. With that said, we continue to benefit from attractive opportunities and activity at the Churchill platform level. Although the percentages of allocation to junior capital and equity were higher during the quarter, we remain focused on senior lending, which represents approximately 90% of the fair value of the overall portfolio. We also remain focused on the traditional core middle market, benefiting from our differentiated sourcing and long-term track record. We continue to target companies with $10 million to $100 million of EBITDA, which we believe helps insulate us from the more aggressive structures and loosening terms prevalent in the upper middle market and broadly syndicated loan space. It is our view that risk-adjusted returns in this segment of the market remain among the most compelling in private credit, particularly for scaled, highly selective managers with deep private equity relationships. We see the core middle market as a durable opportunity to generate great long-term value and enhanced portfolio diversification for our investors. In terms of our portfolio and credit quality, the continued strength of our portfolio reflects healthy overall performance from our borrowers as well as the quality of deal flow we've experienced over the last several years. In addition, our rigorous underwriting High level of selectivity and focus on diversification have been critical to minimizing losses and generating strong returns across multiple market cycles. That same discipline extends to today's shifting macro landscape. As of September 30, our weighted average internal risk rating was 4.2, versus an original rating of 4.0 for all of our investments at the time of origination and our watch list remains at a very manageable level of approximately 7% of fair value. Credit fundamentals within the NCDL portfolio remains strong with portfolio company total net leverage of and interest coverage of 2.3x on traditional middle market first lien loans. These metrics are a direct result of conservative structuring, and relatively low attachment points that we target when underwriting new transactions. NCDL had two new nonaccruals during the third quarter, which were relatively smaller positions in the portfolio. Despite the slight increase in nonaccruals this quarter, we believe our percentages continue to compare extremely well versus BDC industry averages. As of September 30, nonaccruals represent just 0.4% of our total investment portfolio on a fair value basis and 0.9% on a cost basis. We believe the strength of our platform, including experienced workout and portfolio management teams will continue to drive favorable results. Portfolio diversification remains a key focus of ours within our overall investment portfolio. This has been achieved with a continued high level of selectivity, facilitated by the significant proprietary deal flow our sourcing engine is able to generate from the breadth and depth of our PE relationships. As of September 30, we had 213 companies in our portfolio, and our top 10 portfolio companies represented less than 14% of the total fair value. This diversification is critical as we seek to maintain exceptional credit quality and originate additional attractive opportunities. From a forward-looking perspective, we continue to have an optimistic outlook for private credit based on significant tailwinds to our business. We are encouraged by the steady growth in our pipeline and the quality of businesses seeking financial solutions. Following a period of uncertainty and volatility in the markets driven by Liberation Day in which investment activity and deal flow came to a pause, we've experienced a resurgence of M&A activity leading to the buildup in our traditional middle market pipeline. Additionally, we believe corporate management teams are now more focused on long-term strategic initiatives and investing in their businesses for sustained growth. This, coupled with an interest rate cut cycle will lead to increasing deal flow and financing opportunities in 2026 in our view. We believe we remain well positioned due to our scale, our differentiated sourcing as an LP in over 325 private equity funds. And our nearly 20-year track record of investing across interest rate and economic cycles. And now I'll turn the call over to Shai to discuss our financial results in more detail. Shaul Vichness: Thank you, Ken, and good afternoon, everyone. I will now review our third quarter financial results in more detail. During the third quarter, NCDL reported net investment income of $0.43 per share compared to $0.46 per share in the second quarter of 2025. The decline was largely due to lower interest income driven in part by the two nonaccruals we added in the quarter. . Total investment income declined slightly quarter-over-quarter to $51.1 million in the third quarter compared to $53.1 million in the second quarter of this year. This was largely driven by the modest decline in the size of our investment portfolio and a modest decline in portfolio yields as a result of underlying loan contracts resetting to lower base rates. At September 30, our gross debt-to-equity ratio was 1.25x compared to 1.26x at June 30. Our net debt-to-equity ratio net of cash was 1.2x compared to 1.21x at June 30 of this year. In October, we paid a regular dividend of $0.45 per share, which equates to an annualized yield of approximately 10% on our quarter end net asset value per share. For the fourth quarter, we have declared a $0.45 per share quarterly dividend, which is consistent with prior quarters. Our total GAAP net income in the third quarter was $0.38 per share compared to $0.32 per share in the second quarter of this year. Our third quarter net income included $0.05 per share of net realized and unrealized losses primarily due to a decrease in the fair value of certain underperforming portfolio companies, partially offset by the realization of an equity investment in the gain. Our net asset value was $17.85 per share at the end of the third quarter compared to $17.92 per share at June 30. NCDL's investment portfolio had a fair value of $2 billion at September 30, consistent with the prior quarter. Gross originations totaled approximately $29 million and gross investment fundings totaled approximately $36 million compared to $48 million and $81 million of gross originations and gross investment fundings, respectively, in the second quarter of this year. During the third quarter, repayments totaled 3%, which is lower than our long-range assumption of 5% per quarter. We had full repayments on four deals totaling $42 million and partial repayments for another $18 million. On a net basis, we saw a reduction in our funded investment portfolio of approximately $25 million. This reduction was intentional as we redeployed capital received from repayments with a view towards maintaining leverage at the upper end of our target range. As we look forward, we expect to continue to redeploy capital received in connection with repayments into traditional middle market transactions across the capital structure. At the end of the third quarter, our total investment portfolio consisted of 213 names compared to 207 names at the end of the second quarter. We continue to remain highly focused on portfolio diversification with the top 10 portfolio companies comprising only 13.6% of the fair value of the portfolio. Our largest exposure is only 1.6% of the total portfolio and our average position size remains at 0.5%. Diversification continues to be a key focus of ours within the investment portfolio. In terms of deployment and asset selection, our new originations during the quarter were weighted towards senior loans with $22 million out of the $29 million of gross originations deployed into this strategy. The balance was deployed into subordinated debt and equity during the quarter. Our focus on the traditional middle market segment will benefit NCDL shareholders, we believe, as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market compared to the upper end of the middle and BSL markets. Spreads on new investments during the quarter were slightly down from the prior 2 quarters, with the average spread on first lien loans at 470 basis points compared to 480 basis points in the first 2 quarters of the year. Our weighted average yield on debt and income-producing investments at cost declined to 9.9% at the end of the quarter compared to 10.1% at the end of the second quarter. This decrease in yield was primarily due to overall tightening of spreads in newly originated investments as well as lower base interest rates. In terms of portfolio allocation, at the end of the third quarter, first lien loans represented approximately 90% of the total portfolio, while junior debt and equity comprised approximately 8% and 2%, respectively. Our allocation strategy remains unchanged as we continue to target 85% to 90% senior loans with the balance allocated to junior debt and equity. Turning to credit quality. We continue to be pleased with the health of our investment portfolio. Although we placed two smaller investments on nonaccrual status during the quarter, the overall performance of our portfolio companies continues to be strong. At the end of the third quarter, NCDL had three names on nonaccrual, representing just 0.4% on a fair value basis and 0.9% at cost. This compares to 0.2% on a fair value basis and 0.4% at cost at the end of the second quarter. Our weighted average internal risk rating was 4.2% at September 30, and out watch list consisting of names with an internal risk rating of 6 or worse, remains at a relatively low level of 7.3% at the end of the third quarter, in line with the prior quarter. And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage across the portfolio of 5x and interest coverage of 2.3x at the end of the third quarter. With respect to our capital structure, on the right-hand side of our balance sheet, our debt-to-equity ratio at September 30 is relatively unchanged quarter-over-quarter at 1.25x compared to 1.26x at June 30. And on a net basis, was 1.2x at September 30, net of our cash position at quarter end. As we spoke about on prior calls, our goal is to redeploy capital received from repayments and maintain leverage towards the upper end of our target range of 1 to 1.25x debt to equity. Lastly, as discussed, our focus for the near term is on optimizing the asset mix within the portfolio and actively reinvesting cash received from repayments and sales into high-quality assets. I'll now turn it back to Ken for closing remarks. Kenneth Kencel: Thank you, Shai. In closing, we are pleased with our financial results and the performance of our portfolio during the third quarter. As we enter the last 2 months of the year and look towards 2026, NCDL remains well positioned with respect to our experienced investment team, high-quality diversified portfolio and strong capital structure. And we continue to remain optimistic about the long-term future of the private credit markets and NCDL's long-term success based on the successful track record of the Churchill platform and operating across various market conditions and cycles. Additionally, with NCDL's shares trading at a material discount to our net asset value, and around a 12% annualized yield. We continue to view the shares as an attractive investment opportunity. Thank you all for joining us today and your interest in NCDL. I will now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question is from Brian McKenna with Citizens JMP. Brian Mckenna: Okay. Great. So just on the few nonaccruals in the portfolio today, I'm curious, when were these investments made? And I guess, looking back to the time of underwriting, what's changed relative to those initial expectations? And why did those assets ultimately underperform. Shaul Vichness: Brian, it's Shai. So just a couple of things on the two new nonaccruals. So I think as we've spoken about in the past, just in terms of the names that are on the nonaccrual list and sort of trying to draw through lines in terms of themes, I would say, fairly difficult to do that just given the idiosyncratic nature of some of these and as they pop up. And in terms of these two names that were placed on nonaccrual, you heard Ken speak about them on the call, just in terms of the size of the position is relatively small speaking to the sort of diversification points across the portfolio. Both of these positions were junior capital names that were placed on the nonaccrual list this quarter. One of them is in the automotive sort of market accessory segment. And the other one is in essentially the freight sector. So it's a training business and recruiting business for truck drivers. So again, no real theme to draw in terms of the two new nonaccruals. In terms of when the investments were made again, they have been in the portfolio for a couple of years now. So the decline and just sort of the trend, I would say, on the one hand, the overall freight reception and just sort of what we're seeing and we've had another nonaccrual and restructuring in the portfolio in the same industry. I would say that's sort of the theme there. And then the other one, it's really just a function of softness on the top line in terms of the performance there. And both of these investments were made actually in 2021. So they've been around for quite a bit. and the decline got to a point now where we felt it was appropriate to place them on nonaccrual status. Brian Mckenna: Okay. That's helpful. And then just on the workout process more broadly, how long does it typically take to restructure a loan in the portfolio and then ultimately get to a resolution. And then can you just remind us what the historical recovery rates for your business look like? Shaul Vichness: Yes. I can come on both. So just in terms of the timing, it's obviously going to vary depending on the severity of the situation and sort of the engagement with the private equity sponsor and the ultimate prospects for recovery of the underlying business. So it's a tough one answer in terms of how long does it take. But clearly, it can be a few month process. It can take as long as a year to sort of work through the restructuring and then the timing to recovery is clearly going to be market and company-specific in terms of how well that takes. So it's sort of a tough one to vector in on a specific time line. And then in terms of the recovery rates in the portfolio, again, they tend to vary depending on the situation and depending on our spot in the capital structure. So for senior loans. We have a number of instances where recoveries have been in excess of par. We have others where they've been in the 70s and 80s and others that have been lower for junior capital, I would say it tends to be a bit more binary right, the situation works out or it doesn't and we tend to be sort of in that fulcrum security where we're then riding the equity upside in the future. So again, it's going to be variable. But obviously, recoveries, you'd expect them to be higher on senior loans than on junior capital. Brian Mckenna: Got it. Great. And then just maybe one more for Ken here on the stock. So trading at 80% of NAV, leverage is at the upper end of the target. You already repurchased $100 million of stock. But what else can you do? And I guess, what is the leadership team focused on in order to improve the valuation. And then I think the market is telling us that maybe you should think about cutting the dividend or reevaluating that. So I guess, why not reset the dividend a little bit especially given the two rate cuts we just got one at the end of September, 1 in October, and that would just put you in a position to comfortably cover the dividend, you'd likely create some incremental book value then maybe you have a little bit more capacity to buy back the stock at what I'm sure you think are really attractive levels. Kenneth Kencel: Yes. No, look, from a business and an investment standpoint, the most important thing for us is to stay focused on continuing to originate and invest in high-quality assets. We've done that consistently over a 20-year period certainly more recently now with NCDL. We actually feel very, very good about the overall quality in our portfolio and the level of new dealer and investment activity. I will say from a from a pricing perspective, while we obviously saw spreads tighten, maybe not as dramatically as the BSL market over the last 12 to 18 months. things have. In terms of spread tightening, we've seen that slow down quite a bit. Spreads seem to have settled in at that kind of SOFR 450, 500 range, which has been good to see. But deal activity overall, the quality of the opportunities we're seeing to invest in, the level of M&A activity, all the fundamentals that we can control, we feel very good about those fundamentals right now. Deal activity quality of opportunities we're seeing, ability to stay highly selective, underlying pricing dynamics. So while obviously, base rates have come down and certainly albeit more slowly than expected, we would continue to see base rates we would expect to continue to see base rates come down. From a quality perspective, from a sourcing standpoint, all the fundamental dynamics we feel very good about, including the underlying portfolio quality. In terms of leverage, we have, Shai, I don't know if you want to speak I'm happy to speak to it. And I think we alluded to this on the last call and obviously, this earnings cycle and last, it's been a topic of conversation in terms of sort of where our earnings going across the industry. And as we commented last quarter, and I think we reinforced that this quarter, we felt good about our ability to continue to earn, again, within $0.01 or $0.02. Obviously, we under-earned by $0.02 this quarter our dividend of $0.45. But again, within a range, and there were some reasons for that, including the two nonaccrual names that I alluded to in terms of reducing our earnings for this particular period. But again, looking forward in the current base rate and spread environment, we continue to feel good about our ability to essentially earn plus or minus the $0.45, and that's something that we will continue to evaluate as we go forward. As I commented last quarter, we did talk about the fact that we do have spillover income from prior periods that provide one lever that we can pull in terms of continuing to maintain that dividend for the near term. But again, your points around what do we do going forward? Do we consider additional share buybacks, et cetera, are things that we absolutely talk about. I think when we think about that program, obviously, we did put in place the roughly $100 million program at the time of our IPO. We've since exhausted that. And really, our focus going forward is on growing the BDC, not continuing to reduce the amount of equity outstanding and reduce the share count. So again, these are all the things that we're thinking about, and we'll continue to eat them going forward. But as Ken said, we feel very good about the quality in the BDC, its ability to continue to generate earnings going forward, and that's really our focus. Yes. And certainly, I'd be remiss if I didn't say we're certainly looking at the share price relative to NAV, we certainly feel that the shares are undervalued. We think there's a tremendous amount of value creation that continues to go on within the portfolio, the quality, the fundamentals, et cetera, we don't think are reflected in the share price. Operator: Our next question is from Finian O'Shea with Wells Fargo Securities. Finian O'Shea: Hey, everyone, good morning. question on the portfolio outlook. I think early in the remarks, you mentioned lighter allocation based on the being fully levered, seeing if that also implies a subdued repayment outlook? Shaul Vichness: Yes. Fin, it's Shai. Yes, so when we think about the repayments, I mean, what we saw in this most recent quarter, they were running at 3% relative to our long-range assumption of 5%. So again, I think that's really a function of essentially mix and really timing because as Ken alluded to, and we're seeing it every day just in terms of the level of deal activity across the platform, M&A has certainly picked up and sponsors are feeling good about transacting in the current environment. So our expectation is that, that repayment rate would continue close to our long-range assumption but the fact that it was at 3% this quarter, it was closer to 5% the prior quarter. So again, just the fact that we are in an environment where deal activity is picking up. We're not changing our view on repayments going forward. What we will do though is, again, be sort of dynamic about how we're investing out of the BDC. So to the extent that we get incremental repayments and we get those proceeds in, we'll look to redeploy them as quickly as possible into attractive investment opportunities, and that's what we've done and what we do. And that's one of the benefits, obviously, of being part of the broader platform. We have access to that deal flow. And as we have capital available, we're going to deploy it into attractive transactions. Kenneth Kencel: Yes. And I would just say, look, from our perspective, keeping the portfolio fully deployed is not a challenge at all for us right now relative to the deal flow platform-wide, we've obviously trying to maintain investment activity in every deal, so that we've got a position in every deal as we're making investments so that we can do the follow-on and make ourselves avail ourselves to the add-ons and other opportunities in those companies. So we want to be in them at the time of sourcing. But on an overall basis, I don't see any challenge whatsoever maintaining full investment at NCDL. And to the extent we have repayments increase for various reasons, there's been no challenge for us in terms of keeping it fully invested. Finian O'Shea: That's helpful. And just a follow-on -- piggybacking the dialogue with Brian on the stock price. Curious as to what you're hearing on -- just hit on, you have a pretty big and successful nontraded BDC. So you're very present in that market. How much of a thing is it I know it's very recent, of course, but with a lot of public BDCs trading where they are, do you feel a lot of retail shareholders in the wealth channel. Is it either a discussion? Or is it perhaps should I buy the public on or any color you could give us on that? . Kenneth Kencel: Yes. We've certainly gotten that question a number of times because they're obviously looking at the tremendous discount in the public. So it's a good question, Fin. While it's come up, it hasn't been a major theme. But certainly, at an individual level, you look at the fact that the private BDC obviously issue shares at NAV and the public BDC is trading at a significant discount. I think it just highlights the value proposition and the return dynamics and the opportunity in the public BDC, the fact that you can buy the public BDC, the publicly traded BDC at a 15% or 20% discount to NAV, I think just highlights what a great opportunity it is right now. And -- but we've gotten that question a handful of times. It hasn't been a huge amount of focus, but we've definitely been asked the question. And we try to be very straightforward on it, and that is that it is tremendous value at the current trading level. No question about it. Operator: Our next question is from Doug Harter with UBS. Cory Johnson: This is Cory Johnson on for Doug. I know you spoke about the repayments. And long term, I guess you don't expect there to be much of a difference from your long-term assumptions. But over the next quarter or 2, would you expect perhaps more elevated repayments and is perhaps the current government shutdown delaying some of the repayments that you might have been seeing in the last quarter or this coming quarter? Kenneth Kencel: No, in fact, I would say there's an interesting dynamic. If if we were, which were not heavily invested in kind of broadly syndicated loans, that market is primarily a refinancing market. So as rates come down, you might see more pressure in either BDCs or funds that are really oriented toward that market. In our world, since we are much more heavily oriented towards traditional middle market, the primary driver of activity is new deals, right? So we get a refi when a company in our portfolio is refinanced because it's sold as opposed to going out and proactively refinancing itself. . So I would say in that regard, a solid level of new deal activity, we've already been seeing that consistently over the course of the year. So I would not expect to see any material change in kind of the trends we've been seeing around our repayments, again, primarily driven by new deal activity as opposed to suddenly seeing an acceleration as a result of being driven by reductions in underlying base rates. That's really not as big a factor for us. maybe as some other funds that are more focused on the BSL world. Cory Johnson: Got it. And then just the last question. Are you seeing like any additional competition from perhaps tools coming down in market and playing a bit more in the core middle market or just any changes in the competition landscape recently? Kenneth Kencel: We really haven't. It's interesting. I get that question a lot. Institutional investors ask that we get this from new folks as well. The reality is that we're not seeing the private credit firms that are focusing historically more on BSL or those large $1 billion-plus transactions come down market nor are we seeing the new entrants really being able to step up and underwrite $400 million, $500 million, $600 million, $700 million, $800 million transactions, which we obviously can do. So I think in that sense, we're relatively insulated from pressure from the top or even pressure from the bottom, right? The new entrants are primarily playing in that lower middle market where they can deliver a $50 million, $75 million solution. And at the larger end, those folks to continue to focus on larger buyouts, refinancing activity and playing as an alternative to an underwritten and syndicated BSL transaction. So we're operating, we think in a relatively insulated part of the market where, frankly, relationships are driving that deal flow. And partnering with a lender like us or one of our peers is a very important decision for driving the underlying growth in the space. So market timers or firms that are coming down for a period of time and then maybe bouncing back up into their core market, not as appealing to the private equity firms that are looking for long-term partners to finance those businesses be available to finance add-ons and really act as a financing partner for a more extended period of time. And I think that's where we really benefit. We've been in the core middle market now for 20 years. If you look at our top sponsor relationships, we've done dozens and dozens of deals with those firms. And as a result, they come back. They come back based on the relationship about based upon the history and it's much less likely that they're going to tap a firm that's really more of a large cap player, recognizing that those firms tend to come and go in the core middle market. Operator: Our next question is from Arren Cyganovich with Truist Securities. Arren Cyganovich: Just touching on the health of the portfolio overall. Your nonaccruals ticked up, it's pretty modest. I think your costs are still below 1%. So it's obviously not a big challenge. Maybe you could just talk a little bit about the portfolio companies and how they're performing from maybe a revenue and EBITDA growth standpoint and how those trends are moving throughout the year. Kenneth Kencel: The story there has actually been very solid. Now remember, our overall criteria when we underwrite and invest is we are looking for market leaders we are looking for businesses that are in noncyclical industries. So we're typically not looking at restaurants and retail and oil and gas and chemicals and anything that has an underlying cyclical dynamic to it. We're also not investing in businesses that fundamentally don't have those underlying solid growth characteristics. So given that, given the world that we play in business services, health care services, software we've continued to see solid single-digit growth in both revenues and cash flow for our portfolio. That's probably down a bit from where it was a couple of years ago. We were seeing numbers in the kind of 20% range. But still very respectable and very consistent. So we feel good about the underlying growth in the portfolio. And again, I think it's reflective of not just organic growth and the fundamentals of the businesses we finance, but also the fact that when we do a deal, the vast majority of those transactions the private equity firm that's acquiring the business has already come to the table with a plan to grow it either through geographic expansion, product expansion, smaller strategic M&A the large percentage of our portfolio, those are the types of businesses we're financing. And that's also reflected in the fact that in many cases, we're doing a delayed draw term loan to actually put in place a facility to finance that growth. So I think the nature of the space we play in and the types of companies that we finance is going to give you an ongoing kind of built-in growth rate in that kind of call it, 5% to 10% range. And then where you're getting even stronger growth economically overall you see numbers that are closer to 20%. But certainly, we feel very good right now that kind of core growth rate in that 5% to 10% range. Arren Cyganovich: Yes, I appreciate that. And I wouldn't expect that you'd have hotline growth rates? Just want to make sure that they're not deteriorating any notably. It sounds like everything is good there. Kenneth Kencel: No, I was just going to say maybe going I was just going to say that I think as I mentioned earlier, a lot of it gets to the types of businesses we are financing. We're typically not great fans of financing kind of static companies, if you will, where the credit metrics might look okay, but the fundamentals are it's not really a great business. It's okay. The numbers are all right. The coverage numbers look okay, but you're not seeing any real fundamental growth. That's not typically the types of businesses that we would be all that excited about financing. So yes, all the credit metrics have to be there, but we want to be financing businesses that have solid underlying growth fundamentals. And I think that's reflected in our portfolio. Arren Cyganovich: Yes. And maybe touching on the origination side. You mentioned deal pipelines pretty strong heading into the quarter. what's the mix of that? And maybe you could talk a little bit about the quality of what you're seeing come to you from the various sponsors. Kenneth Kencel: So I think that -- well, it's interesting. If you look at our deal activity, for example, July, August, even through September, we were actually setting records across the platform for deal activity, right? I don't think anyone would expect August to be a record month. Typically, that's a slower period of time, end of summer. But we were extraordinarily active. In our case, we would see -- there were weeks where we were seeing 3, 4, 5, 6 investment committee memos a week right? So we were actually scheduling additional meetings of the IC in order to keep up with the level of activity. So I think that's been surprising. We certainly expected that deal activity would begin to come back as you saw rates stabilize and begin to come down, and we certainly did see that. Liberation Day was a bit of a pause in those dynamics. But starting really in June and July and going on through the summer and early fall, the quality has been quite good. overall spreads have stabilized in that kind of 450 to 500 range. underlying fundamentals quite good given the pressure on private equity to drive some realizations, we've seen a fair amount of GP-led transactions. And we have our own views as to what GP-led transactions we like and don't like. I think we like to see if there is a GP-led deal, we like to see the private equity firm roll there, carry in continue to be significantly supportive of the credit and the transaction. So we do look at those. But overall, the deal environment right now is quite good. We feel quite good about the quality. We feel quite good about the relative value. We're still getting in that 9% range for new transactions. So risk-adjusted returns, we think, very attractive relative to where they've been historically, and we still feel very good about the deal environment I didn't -- we haven't talked about it on your questions, but I mentioned it in the part of my prepared remarks, the reality is if you look at those situations like Tricolor, First Brands or even the more recent announcement on the, HPS transaction, the reality is that we see those as very idiosyncratic. Certainly in a number of those cases, there's elements of fraud. I'd also say -- and I was talking to an investor about this earlier in the week. If you look at the nature of those deals, they were essentially bulk purchases of assets in a portfolio. So that's a very different business than asset base but also just buying blocks of receivables or financing large blocks of receivables very, very different business than ours where we are financing one deal at a time, right, doing our diligence, doing our homework, fundamentally assessing the business the underlying structure, the underlying fundamentals. So we're going to stay focused on traditional core middle market directly originated transactions in that $50 million to $100 million EBITDA range where we think the risk-adjusted returns are attractive. Structures have maintained a reasonable underlying dynamic, and that's where we're going to be. So we're not going to venture into some of these other more so areas of lending that have created some of the problems. And moreover, there's certainly no evidence in our portfolio today that those very isolated situations really have anything to do with the types of lending that we're doing today. Operator: With no further questions at this time, I would like to turn the call back over to Ken for closing comments. Kenneth Kencel: Great. Well, thank you all again for joining us. I appreciate your interest in the business. Obviously, we're very proud of our performance this quarter. We continue to stay focused on delivering excellent risk-adjusted returns for our investors. And that concludes the call, and appreciate you joining us today. Operator: Thank you. This does conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Thank you for joining the Greenlight Capital Re Limited Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It's now my pleasure to turn the call over to David Sigmon, Greenlight Re's General Counsel. You may begin. David Sigmon: Thank you, Kevin, and good morning. I would like to remind you that this conference call is being recorded and will be available for replay following the conclusion of the event. An audio replay will also be available under the Investors section of the company's website at www.greenlightre.com. Joining us on the call today will be our Chief Executive Officer, Greg Richardson; Chairman of the Board, David Einhorn; and Chief Financial Officer, Faramarz Romer. On behalf of the company, I'd like to remind you that forward-looking statements may be made during this call and are intended to be covered by the safe harbor provisions of the federal securities laws. These forward-looking statements reflect the company's current expectations, estimates and predictions regarding future results and are subject to risks and uncertainties. As a result, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may impact future performance, investors should review the periodic reports that are filed by the company with the SEC from time to time. Additionally, management may refer to certain non-GAAP financial measures. The reconciliations to these measures can be found in the company's filings with the SEC, including the company's Form 10-K for the year ended December 31, 2024. The company undertakes no obligation to publicly update or revise any forward-looking statements. With that, it is now my pleasure to turn the call over to Greg. Greg Richardson: Thank you, David. Good morning, everyone, and thank you for joining us. Q3 2025 was a mixed quarter with an exceptional underwriting result, offset by investment losses. Overall, we reported a net loss of $4.4 million in Q3 2025, which brings our year-to-date net income to $25.6 million. Fully diluted book value per share decreased 0.4% in the quarter to $18.90 and increased 5.3% for the first 9 months of the year. We reported our best quarterly combined ratio of 86.6%, translating to a record $22.3 million of underwriting income. This result was driven by a combination of the strong underlying profitability of the book assisted by a benign cat quarter. We would be remiss not to comment on Hurricane Melissa. There are strong historical ties between the Cayman Islands and Jamaica, and our hearts are with all those who have been affected by this incredibly powerful storm. As a reinsurance professional that has closely monitored hurricanes for nearly 30 years, I was impressed by and grateful for the forecasters and their models in predicting both the erratic track and extreme intensity of Melissa. While property is fixed in place, people can get out of the way of the path of the storm with this information. The forecasters certainly saved many lives as a result. From a financial perspective, Melissa is a fourth quarter event. It is early days, but we do not expect a significant loss to Greenlight Re given positioning in the cat space and the fact that it missed the Southeastern United States. We have been confident that our underwriting portfolio is positioned to deliver a strong underwriting return. So it is encouraging to see that reflected in our results in Q3. Our open market book delivered an 84.5% combined ratio, while our innovations book delivered a 96.7% combined ratio. Both segments showed meaningful premium growth. Growth in open market was driven by our funds at Lloyd's book, modest property and financial lines growth, offset by declines in casualty based on underwriting actions discussed last quarter. For our Innovation segment, a good portion of our accounts incept in the second half of the year, and we can see evidence of previously anticipated organic top line growth beginning to emerge. Unfortunately, our investment performance for the quarter was a loss of $17.4 million. There are 2 main components of this. Our investment in the Solasglas portfolio was down 3.2% in the quarter. David will provide more color on this in his remarks. In addition, we suffered a net unrealized loss of $11.3 million on our innovations investment portfolio. The net unrealized loss on our innovations portfolio was primarily driven by a $16.4 million write-down of our highest valued investment. Our innovation investments are generally illiquid, and we revalue them as soon as we believe the valuation may be impaired or when a new funding round closes. This particular situation is idiosyncratic in that the lead investor was able to secure a new round of equity financing at a substantial discount due to a debt refinancing that fell through at the last minute. We still believe the company's prospects are bright and the financing removes an overhang from the investment. While this write-down in Q3 is disappointing, I would highlight that we hold our innovations investments for the long term, and we are focused on realized gains and the associated underwriting and fee income opportunities generated from these investments rather than mark-to-market gains and losses. Further, this position was outsized from a carried value perspective due to prior upward adjustments based on previous financing rounds. Currently, we have no single investment valued at more than $10 million and only 3 investments valued at over $5 million. So the risk of a similar write-down on a single investment going forward is mitigated absent an industry-wide event. We are now focused on 1:1 renewals. While the market is clearly softening, we believe rates and terms will remain attractive for our open market reinsurance business. Consequently, we expect to renew most of our non-casualty business and perhaps grow somewhat. As noted previously, our innovations book is less susceptible to the supply-demand pressures of the reinsurance market. We anticipate continued strong organic growth from our existing innovations clients and attractive new business opportunities. Now I'd like to turn the call over to David. David Einhorn: Thanks, Greg, and good morning, everyone. The Solasglas fund returned negative 3.2% in the third quarter. The long portfolio and macro contributed 1.7% and 3.3%, respectively, and the short portfolio detracted 8.1%. During the quarter, the S&P 500 Index advanced 8.1%. The largest positive contributors were long investments in Gold, Green Brick Partners and Core Natural Resources. The largest detractors included a short position in a profitless financial services company, a short basket of homebuilder stocks and our long position in Kyndryl Holdings. Gold is the largest positive contributor as its price rose 17% over the quarter. Green Brick Partners shares also advanced 17% during the quarter as the market's expectation for lower rates lifted homebuilder stocks. While the company continues to execute well on its regionally focused strategy, we remain cautious on the broader housing market and have maintained a nearly fully hedged position by shorting a basket of national homebuilders. This hedge basket offset most of Green Brick's positive contribution during the quarter. Core Natural Resources shares advanced 20% during the quarter, recouping some of its decline from the first half of the year. The company announced significantly improved quarterly results, including an increase in free cash flow. Core used the majority of this cash flow to repurchase shares under the $1 billion share buyback program it announced earlier in the year after successfully completing its merger with Arch Resources. In addition to the homebuilder hedge basket, the largest detractors for the quarter included a short position in a profitless financial services company that transitioned from a near-term bankruptcy candidate to immune stock and our long position in Kyndryl Holdings. Kyndryl shares declined 28% during the quarter, giving back some gains after the company posted a less exciting quarterly update than its previously recent couple of quarterly results. Earlier in the year, we established a new large position in a stub created by being Long Fluor Corporation and short NuScale Power. More recently, we established a new medium-sized position in Pacific Gas and Electric. Fluor is a global engineering and construction company. In the spring, Fluor experienced a slowdown in capital spending from its customers due to tariff uncertainty, which we expect to reverse and for the business to return to growth in 2026. Away from its core business, Fluor holds approximately a 40% stake in NuScale Power, a small modular nuclear reactor company. Fluor's stake is worth nearly $5 billion pretax, which represents over 60% of its market cap. Fluor has announced plans to divest its holding and use a significant portion of the proceeds towards share buybacks. Pacific Gas & Electric is a California-based regulated utility that transmits and distributes electricity and natural gas. While the company was not exposed to January's catastrophic L.A. wildfires, its earnings multiple collapsed to below 10x on concerns that the California Wildfire Fund, an important defense against wildfire-related damage claims that its shares with Edison International will be depleted. We invested with a view that the legislature is likely to put in place funding support and make further wildfire risk reform a priority. We have since seen progress in these initiatives and expect PG&E to re-rate closer to the nearly 18x average peer multiple. In our view that outside of the boom surrounding a handful of AI and AI adjacent companies, most of the rest of the economy is floundering. In the midst of this excitement, we are simply not comfortable underwriting a long investments within the AI ecosystem and have decided for the most part, not to participate. Unfortunately, it has been difficult to make money on the long investments outside of this small cohort of stocks. Our net exposure ended the quarter at about 25%, up from about 2% at the end of the second quarter. Solasglas returned 1.6% in October, bringing the year-to-date return to 1.2%. Net exposure in the investment portfolio was approximately 20% at the end of October. Now I'd like to turn the call over to Faramarz to discuss the financial results in more detail. Faramarz Romer: Thank you, David. Good morning, everyone. During the third quarter of 2025, Greenlight Re reported a net loss of $4.4 million or negative $0.13 per diluted share compared to a net income of $35.2 million or $1.01 per diluted share during the third quarter of 2024. The total underwriting income was $22.3 million, resulting in a combined ratio of 86.6%, which was 9.3 points better than the same period last year. This included 8 points of improvement due to lack of cat losses in the quarter and 6 points of improvement related to underlying current year attritional loss ratio. We had 50 basis points of reserve development during the quarter compared to 3.7 points of reserve releases in the third quarter of last year. Our net investment loss was $17.4 million compared to $30.3 million of investment income in the third quarter of 2024. As Greg mentioned, most of the investment losses related to Solasglas and innovations. However, these losses were partially offset by other investment and interest income of $8.9 million. I will now break down the third quarter results by segment, starting with the Open Market segment. The Open Market segment reported a pretax income of $27.9 million, composed of underwriting income of $22.2 million and investment income of $5.6 million. For the quarter, the Open Market segment grew net written premiums by 9.5% to $140.4 million, while net earned premiums grew by 14.1%. The increase was driven primarily from growth in the funds at Lloyd's business and the Financial, Property and Specialty lines from a combination of new programs and growth in underlying premium volume on renewing programs. These were offset by the casualty premiums decreasing during the quarter as a result of our decision earlier this year to nonrenew most of the open market casualty book. The open market combined ratio for the third quarter improved by 10 points to 84.5% compared to 94.5% for the same period in 2024. The lower loss ratio and a lower acquisition ratio contributed to the improved combined ratio. The current year loss ratio improved by 11.8 points, driven by 8.3 point improvement in attritional losses and 3.5 point improvement in event losses. The segment reported a small prior year adverse loss development of $0.9 million or 60 basis points compared to favorable reserve releases of $5.3 million or 4.2 loss ratio points in the same quarter last. The acquisition cost ratio and the expense ratio improved 2.5% and 0.3%, respectively, on the back of higher earned premiums. Overall, the Open Market segment had a strong performance for the quarter. Now let's turn to the Innovation segment. The Innovation segment grew net written premiums by 57.5% to $22.3 million during the quarter. The increase was mainly driven by Syndicate 3456 and Financial lines, partially offset by the increase in ceded premiums under the Innovations whole account retro program compared to the third quarter of last year. Net earned premiums decreased by $0.8 million, mainly driven by the increase in retro ceded premiums compared to the same quarter last year. The combined ratio for Innovation segment was 96.7% during the third quarter compared to 93.6% in Q3 last year. The composite ratio improved by 1 point to 87.1%. Favorable prior year reserve development contributed 3.1 points to the combined ratio compared to unfavorable development of 0.4 points in the third quarter of 2024. Compared to the same quarter last year, the expense ratio for the Innovation segment was 9.6% compared to 5.5% due to a combination of growth in personnel and an increase in nonpayroll-related costs for this segment. We are investing in this business in preparation for higher future premiums, leading to the higher expense ratio. We expect this to normalize as we scale this segment. While the Innovation segment is an underwriting income of $0.7 million, the investment impairment that Greg mentioned led to an overall net loss of $11.3 million for the segment. Now I would like to make a couple of quick points on capital and debt management. During the first 9 months of 2025, we have repurchased 512,000 shares for $7 million, which has been accretive to our book value per share. At the end of the third quarter of 2025, our fully diluted book value per share was $18.90, an increase of 5.3% year-to-date. During the quarter, we refinanced our term loan, replacing it with a 5-year $50 million revolving line of credit. As of the end of the third quarter, we reduced our debt leverage ratio down to 5.3% from 9.5% at the beginning of the year. Subsequently, in October, we repaid an additional $15 million and currently have $20 million of debt outstanding. We have also entered into a letter of credit facility with Citibank exclusively for our funds at Lloyd's business. In October, we issued an LLC for GBP 45 million to Lloyd's, and Lloyd's simultaneously released $60.7 million of cash, which we had previously provided for funds at Lloyd's. The new revolving line of credit and the new funds at Lloyd's letter of credit facility provides us added flexibility to optimize our cash management while further strengthening our balance sheet and improving our return on equity. That concludes our prepared remarks. The operator will now open the line for your questions. Operator: [Operator Instructions] our first question is coming from Ben Olesh from WA Capital. Unknown Analyst: This is a question to David. Could you please provide an update on the macro part of the Solasglas fund? What is your view and your position regarding to U.S. dollar, gold and short-term interest? David Einhorn: Sure. Thanks for the question. We've maintained a core position in gold that now goes back pretty much to the near the inception of the company, certainly since the IPO of the company. The gold is structured in 2 different components. One is physical gold, which we consider to just sort of be the core position that we occasionally trade around. Additionally, we buy binary digital options that are call options on rapid appreciation in gold. And those actually proved to be successful in the third quarter and also in our October results. We -- from an interest rate perspective, our position is that we are long SOFR futures out into 2026, which is essentially a view that the Fed will reduce interest rates more than the market currently expects. And finally, we maintain inflation swaps, which are a view that reported inflation over the next 2, 5 and 10 years will be larger than the amount that the market has priced in. Operator: Our next question today is coming from Daniel De Jong, a private investor. Daniel De Jong: This is more of a long-term question for David. I believe a few years ago, you evaluated the future of the company and one of the options considered given the discount to book value was closing the company. With all the work put to the company since and 7 years in a row of positive investment performance, at least year-to-date, do you see a long-term future for the company? Also, investors like Howard Marks and Warren Buffett work well past regular retirement age, could you see yourself doing that? David Einhorn: Yes. Look, I think that the company -- and we expressed this at last year's investor presentation. I actually think that the company has made enough structural improvement that we should be earning a return on equity that is greater than our cost of equity. And I believe that the shares should actually justifiably trade at or above book value as a result. It's been frustrating to us and everybody around that the shares continue to trade at a discount. But I don't believe that the solution is to liquidate the company. Were we to liquidate the company, there also would be substantial expenses that I could not quantify for you because we haven't done the exercise, but it would be unlikely that we would recognize like the full book value in the liquidation were we to go through with that. Regarding my longevity, I'm presently 56 years old, and I expect to be doing this for a substantial additional amount of time. Operator: We reached the end of our question-and-answer session, and that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, and thank you for standing by. Welcome to the Ferrari Q3 2025 Results Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Nicoletta Russo, Head of Investor Relations. Please go ahead. Nicoletta Russo: Thank you, Rezia, and welcome to everyone who's joining us. Today, we plan to cover the group third quarter 2025 operating results, and the duration of the call is expected to be around 45 minutes. Today's call will be hosted by the Group CEO, Mr. Benedetto Vigna; and Group CFO, Mr. Antonio Piccon. All relevant materials are available in the Investors section of the Ferrari corporate website. And at the end of the presentation, we will be available to answer your questions. Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on Page 2 of today's presentation, and the call will be covered by this language. With that said, I'd like to turn the call over to Benedetto. Benedetto Vigna: Gracias Nicoletta. Thank you, everyone, for joining us today. The past few months have been reach of important milestones for our company, among which the launch of the Ferrari Amalfi, the 849 Testarossa family, the first step of the reveal of the Ferrari Elettrica and the Capital Markets Day. Let's start from the Capital Market Day. On October 9, in Maranello, we gathered together and we shared our ambitions and plans for the future with investors, journalists and the entire world. In this current uncertain world, we shared an ambitious financial floor for the end of this decade, EUR 9 billion of revenues, 40% EBITDA margin and 30% EBIT margin. What did we say? What did we say at Capital Market Day exactly? Two things. We highlighted that Ferrari is a unique company, which combines 3 dimensions: heritage, technology and racing. It has a dual identity, both inclusive and exclusive capable to engage with tifosi, royalty and brand values across generations and geographies. We have set ambitions for each soul with unwavering goal to keep our brands strong for the longer term, well beyond 2030. In racing, we aim to win, we want to continue to be successful in Endurance and come back to victory Formula 1. We owe this to our P4 to fuel the passion and inclusive side of our brand. In sports cars, we continue to focus on managing and crafting the exclusivity of our product through an horizontal product diversification strategy, which ensures custody for each single model. We confirm our innovation pace. We will continue to offer our clients an average of 4 new models per year between '26 and 2030 across the 3 different powertrains: ICE, hybrid and electric to address different clients and different clients' needs. In 2022, we told you that the 2030 breakdown of powertrain offering would have been 20% ICE, 40% hybrid and 40% electric. Our plans were based on the environment in 2022 and our expectation about its evolution. Today, in 2025, we have deliberately recalibrated our powertrain offer to be 40% ICE, 40% hybrid and 20% electric. Why did we decide this? Two are the main reasons. One, market dynamics. We have always believed in electrification as an addition, not as a transition. Overall market adoption of electric technology has been more gradual than anticipated in 2022. At the same time, demand for thermal and hybrid models has been more sustained. Two, client centricity. We put our clients always at the center of what we do. We are very flexible and agile to adapt our product plans to the evolving environment, developing and offering models that best address our client needs and meet their preferences. Regardless of the powertrain, we will keep on harnessing each technology in a unique and distinctive way, enhancing the driving emotions and staying true to our belief that we have to be innovative, adapting to the changing times. That is what our founder did since 1947, when he dared to develop our first, first cylinder engine, although nobody believed in it. It's our responsibility. It's our responsibility to keep alive this will to progress. This technology neutrality approach is something we have chosen. We have planned for and invested in also from an infrastructure point of view. The e-building, our new facility in Maranello capable to manufacture the 3 powertrains is the perfect examples of this flexible approach. Our research and development efforts will not only focus on powertrain performance, but also on vehicle dynamics, experience on board and the new materials, all of which make our product unique. Moving to clients. We will continue to grow our Ferrari families, which today counts 90,000 active clients and to foster their sense of belonging in community through an ecosystem of unique experiences from track to road to brand. Lastly, lifestyle. This is the soul that is instrumental to enrich the client experience and to widen our audience beyond our tifosi and Ferrari. I personally believe the team did a great job in bringing brand consistency. We then cultivated everything I just said with the help of Antonio, and let me underline and -- let me highlight a couple of elements. One, we continue to grow our business to new heights in an organic and consistent way. We look at the 2030 target as a floor of our ambitions, always acting in the long-term interest of our brand, safeguarding exclusivity above all. The macroeconomic environment remains uncertain and extremely volatile. However, the visibility and solidity of our business model allowed us to commit to an ambitious plan of 6 years of growth, which we will execute with focus and discipline as we did for the previous one. We will continue to deliver on our promises. And then we concluded the Capital Market Day with our renewed decarbonization commitment. We have already achieved approximately 30% reduction in our Scope 1 and Scope 2 emissions and approximately 10% reduction per car in Scope 3 emission in 2024 versus 2021. We will capitalize on this achievement with a clear target to reduce our Scope 1 and Scope 2 emission by 10x in 2030 versus '21 and to decrease by 25% the absolute Scope 3 emission in 2030 versus the past year 2024. Moreover, the day before the Capital Markets Day, we unveiled the technology of our Ferrari Elettrica. This represents the first step of the wheel, which will be followed by the look and feel of the interior design concept in Q1 '26 and the complete car in Q2 2026. As a leaders, Ferrari as a leader takes its innovation responsibility very seriously. The Ferrari Elettrica is a new opportunity to reaffirm our will to progress as it has happened many times in the past with the introduction of innovative concepts such as with turbo engines, hybrid powertrain and most recently with the Purosangue, there is great anticipation to experience the driving emotion of the Elettrica. After the Capital Market Day, I met several clients in U.S.A., in Korea, in China and in Italy. And all of them appreciated the way we present the model. This is what they told me. The electric cars are generally heavy as elephants and not fun to drive. You did well to invest in active electronic system to transform the elephant in a horse and to engage the drivers with pedro shift like in all Ferrari. We are looking forward to driving it. We can continue to be innovative if we keep the pace of change and having the 3 powertrains in our portfolio is a clear advantage, especially in front of younger generations. With the first step of the reveal of the Ferrari Elettrica and unveiling in September of the 849 Testarossa, coupe inspired, we have concluded the 6 launches we had announced 1 year ago for the entire '25. I met many clients in Europe, in the U.S.A. and in China, who are in love with Testarossa. Last week in China, I met a young female client, younger than 40 years old, and she told me, Testarossa is the perfect harmonious blend of design and engineering, elegant and craftsmanship. I'm eager to own one and drive it. In the past few months, almost all range model in production were substantially sold out. The launches of the Testarossa family and Amalfi and the great traction in clients are initially contributing to the order intake. Indeed, the order book extends well into 2027. Over the next few quarters, we will have a significant change over of models. Indeed, in January '25, only 15% of our lineup was in ramp-up phase of production, while we will close the year with 35% of the lineup in ramp-up phase, and this is the result of all the activities of development that we did in the past years. Moving to the quarters, Q3 '25 saw continued growth. Just a few key numbers to highlight. One, total revenues reached approximately EUR 1.8 billion, a 7.4% growth year-over-year with flat deliveries. Two, strong profitability with EBIT of over EUR 500 million. And last but not least, industrial free cash flow at EUR 365 million. These are solid business performance. This solid business performance allowed us to revise upward the '25 guidance during the Capital Market Day in October. Our revised guidance exceeds the profitability target we had originally set for '26 in the previous business plan 1 year in advance. Moreover, the decision to complete the current share repurchase program within this year, once again 1 year earlier than planned, also reflects such progress and strong confidence that we have in the future. And now I will leave the stage to Antonio to explain the quarter in more depth. Antonio Piccon: Gracias Benedetto, and good morning or afternoon to everyone joining us today. Starting on Page 4, we provide the highlights of the third quarter, which once again delivered consistent growth and demonstrates solid progress. Product mix and personalization, along with rising revenues were the main drivers of revenue and profitability growth with shipments in line with the previous year. This resulted in a strong industrial free cash flow generation in the period. Let me underline that such results were accomplished notwithstanding the impact of the incremental U.S. import tariffs, which became visible in Q3, a greater foreign exchange rate headwinds and lower deliveries of the Daytona SP3, which was phased out in the quarter. On Page 5, we deep dive into our shipments. They were driven by the 296 GTS, the Purosangue, the 12Cilindri family, which continued its ramp-up phase and Roma Spider. The SF90 XX family increased its contribution. The 296 GTB decreased approaching the end of its lifecycle and the SF90 Spider phase out. Deliveries of the Daytona SP3 were lower than the prior year and concluded their limited series run. As anticipated by Benedetto, in the quarter, we started a significant changeover of models, which will be also visible in the next quarter. The SF90 family and the Roma were already phased out and the 296 family is approaching the end of its lifecycle. Indeed, those models will be progressively replaced starting from next year by the 849 Testarossa family, the Amalfi and the 296 special series, respectively, a record number of new models introduced at the same time. On Page 6, the net revenue bridge shows a 9.3% growth versus the prior year at constant currency. This translates into a 7.4% growth, including the headwind from currency, mainly related to the U.S. dollar dynamics. The increase in cars and spare parts was driven by the richer product mix as well as higher personalizations despite the lower delivery to Daytona SP3, which followed our plan. Personalizations accounted for approximately 20% of total revenues from cars and spare parts and were particularly relevant for the SF90 XX family and the Purosangue, also supported by the adoption of carbon and special paint. Sponsorship, commercial and brand also increased, thanks to higher sponsorships and the improved performance of the lifestyle activities as well as higher commercial revenues linked to the better prior year Formula 1 ranking. Moving to Page 7. The change in EBIT is explained by the following variances: Mix and price was positive, thanks to the enriched product mix. Indeed, despite the phaseout of the Daytona SP3, the product mix was sustained by the higher end of our product offering, namely the SF90 XX and the 12Cilindri families. The mix was also supported by the increased contribution from personalization. Please note that the impact from incremental U.S. import tariffs as well as from the update of our commercial policy in response are included in the mix and price variance. This resulted in a margin dilution at constant currency, particularly visible in the third quarter since the majority of our shipments in the United States was represented by model good price were protected under the updated policy. Industrial costs and R&D were lower year-over-year, in line with model life cycles, partially offset by higher development costs for racing. SG&A were also higher, reflecting racing expenses and brand investments. Other was positive, mainly thanks to racing and lifestyle activities. Percentage margins continued to be strong in the quarter despite the dilution from increased import duties with EBITDA margin at 37.9% and EBIT margin at 28.4%. Turning to Page 8. Our industrial free cash flow generation for the quarter was strong at EUR 365 million and reflected the increase in profitability, partially offset by capital expenditures, which were mainly focused on product development and the progress in the new paint of construction and the negative change in working capital provisions and others, mainly due to the reversal of the advances collected in previous quarters. Net industrial debt was EUR 116 million at the end of September, also reflecting the share repurchase program executed in the quarter, which is approaching its completion by year-end, as reminded by Benedetto, 1 year in advance compared to our plan as announced in June 2022. Moving to Page 9. We confirm our 2025 guidance, which was revised upwards during the Capital Markets Day on October 9 on the back of the solid business performance and reflecting improved sports car revenues, including personalization, a lighter-than-expected cost base despite a greater headwind from foreign exchange rate and increased U.S. tariffs. And with this in mind, for Q4, we project lower deliveries year-over-year, as we already told you in the second quarter call, and this is in connection with the changeover of models, as I mentioned earlier on, a positive product mix, although sequentially tighter, in line with the phaseout of Daytona and the first unit of F80, higher SG&A and a seasonal step-up in racing R&D expenses as well as higher SG&A dictated by the start of production of new models. Looking at 2026 and beyond, let me remind you that the introduction of the F80 will be gradual. As usual, it will take a couple of quarters to ramp up the production and the life cycle is expected to be around 3 years. The guidance of the F80 and the model changeover will imply a more back-end loaded 2026 and will shape the product and country mix throughout the year. Such developments are consistent with our plans to deliver in the year to come as smooth and as linear as possible expansion of our profitability in absolute terms. Be assured that we continue to execute on this plan with discipline and focus and today's strong results provide once again the evidence of our continued commitment. Thanks for your attention, and I turn the call over to Nicoletta. Nicoletta Russo: Thank you, Antonio. Rezia, we are now ready to take the questions. Please go ahead. Operator: [Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of Michael Binetti from Evercore ISI. Michael Binetti: Just a couple for me. Antonio, I think you're saying that the mix impact in the second half will be a little bit better than what you anticipated. I saw that mix added about EUR 25 million in the quarter. I think last call, you said mix would be neutral for the second half. So can you just help us think what's driving a little bit of that upside? And maybe how much we can think about in fourth quarter from mix relative to the third quarter? And then I guess just as we think about the personalization comments you made about 20% now. You guided to personalization being closer to 19% longer term. It's like it's a little counterintuitive to us with the new tailor-made studios and the paint shop coming online next year. Maybe just walk us through what drives the moderation there? Antonio Piccon: Yes, Antonio. Thank you, Michael. On the first question, yes, the mix in the... Benedetto Vigna: Can you hear well, Michael? Michael Binetti: I'm sorry, what was that... Benedetto Vigna: I was saying, can you hear well? Michael Binetti: Not very well, no. Benedetto Vigna: That's why I asked you because we understood that someone was not able to listen that we hear well. I don't know if this is... Antonio Piccon: Okay. I'll try and answer. I hope you can hear me. Yes, the mix impact in the second half of the year has been slightly better than anticipated. So I remember I answered you in the second quarter call that we would have expected the mix more neutral in the second half. Now this is a slightly improved at least based on the third quarter results. And this is mainly due to personalization that remains very, very strong. With respect to your second quarter -- second question, we said we have prepared the plan on the basis of a 19% longer-term penetration of personalization. In this respect, the contribution of tailor-made and in particularly the tailor-made center, bear in mind that have been taken into consideration mostly to come closer to our clients. So the overall consideration on the penetration of personalization takes that into account with a view to be close to our clients also in countries where such tailor-made personalization are particularly relevant, such as Japan and the Western Coast of U.S.A. Michael Binetti: Okay. And can I just ask you one clarifying comment. You said the F80 will roll out over 3 years. Is that -- am I wrong or is that a little longer than the normal cadence for one of the strictly limited or supercar models like this? Is that -- and is there a strategy behind stretching that out a little longer? I would think normally would -- you'd see the bulk of those shipments in maybe 8 or 10 quarters? Antonio Piccon: [indiscernible] line with what we've been doing on the ICONA as recently, considering the overall number of cars involved and the start-up phase that is entailed by in order to get to run rate of production. Operator: We are now going to proceed with our next question. And the next questions come from the line of Stephen Reitman from Bernstein. It looks like the person just disconnected. We are now going to proceed with our next question. And the next questions come from the line of Flavio Cereda from GAM. Flavio Cereda: So my question is, I'm taking you back to the Capital Markets Day and your projections of top line growth to 2030. So a very simple question, volume price mix, volume, you got control it, mix to a point. And I was just wondering on price, your pricing power, given all that's been done and the great results that we've seen in recent years, Benedetto, where do you think you stand on this? Do you think you're coming to an end here? Or do you think there's more to come? Benedetto Vigna: Thank you, Flavio, for the question. It's not at all an end. Actually, we feel confident that with all the innovation that we have to delight our clients, we do not see any weakening in our pricing power. We will continue to offer Flavio, car with a different positioning. All of them will benefit of the pricing power because this pricing power, just to be clear, is not coming because we will just increase the price for the same, let me say, product as it is. No, we will make richer and richer innovative, more and more innovative with the product so that by delighting the client, we are confident that we will keep our pricing power. And this is what we are working on. And this is the goal of all the money that we invest in R&D, in innovation with all the team here. Flavio Cereda: So aligned to more models, fewer volumes? Benedetto Vigna: Yes. Operator: And the questions come from the line of Thomas Besson from Kepler Cheuvreux. Thomas Besson: I have 2 questions, please. First, on hybrids, I think the share was lowest in a couple of years. Is it linked with the changeover of product? Or is it driven by willingness to reduce overall hybrid share to eventually address excess deliveries in certain markets and residual values? That's for the first question. And the second, could you give us the delivery figures, please, for the Q3 data on us and what -- how many F80 you're already going to launch in Q4, please? Benedetto Vigna: Okay. So the first one, Thomas, is just depends on the offer that we have on the lineup we are offering to our clients. The number of hybrid cars that we are offering is reducing because there is a change in the model. So there is no if you want, there is no surprise over there. It's a consequence of the way we launched the car. No, that's it. There is -- don't extrapolate any trend over there, okay? And it's not related to the propulsion. The second is how many F80 -- we are planning to launch to sell? Antonio Piccon: Just the initial few units, Thomas, not its number. And I [indiscernible] 40 in the third quarter. Operator: We are now going to proceed with our next question. And the next questions come from the line of Stephen Reitman from Bernstein. Stephen Reitman: Apologies I had a problem with connection. And I apologize also if this question has been asked before because I was cut off, so I had to redial in again. So thank you for your comments about the contribution of 849 extending the coverage of your order book into 2027. I'd like to know if demand is similar for both the Coupe and for the Spider. And I know you don't comment on the order intake on a model-by-model basis. But could you talk about the level of interest you're seeing in the Amalfi? Is demand strong for the entry products as it is for your higher-end products? And my second question is regarding also on the hybrids. You've given us some detail in the past about the penetration rates you're seeing for your extended warranty program for the battery program and the like. And I think the last figure we had was running at about 15% to 20%. Obviously, that's a very good way of improving the residual values of these vehicles and making these Ferrari last being cars lost forever as your intention. So could you update us on where you are with that program? How well is it's understood? Benedetto Vigna: Thank you, Stephen, and I understand that electronics is not always working well before. That is why we manage carefully electronics in our cars. Having said that, how it's going Amalfi? I think Amalfi is proceeding better than the previous model. So this is very encouraging. The second point I can tell you is that I saw -- I was in China the 21st of October, and I saw the first 2 Amalfi sold over there to new client younger than 40 years old. I can also share with you that in order book, more than 50% of the new clients -- of the -- sorry, 40% of the people that want to buy the Amalfi are coming new to the brand. And this is, let's say, we are pleased because one of the objectives of this car was to bring on board, new to the brand. So that's the comment on Amalfi. The story of hybrid, that hybrid warranty, I think that -- I mean, it's picking up, continues to pick up. It's more than 20%. But we see one simple things. we have dealers that are able to explain it well, while we still see some dealers that have not yet explained properly. So we are in the process to retrain some of our dealers because some of them are not able to explain properly the advantage of this warranty scheme. So we see improvement, but I think there is more if all the dealers are able to explain properly. So that's on the hybrid -- side. Thank you Stephen. Operator: And the questions come from the line of Thomas Besson from Kepler Cheuvreux. Thomas Besson: I think I've already asked my question. So I think you can pass on to the next speaker. Benedetto Vigna: In fact, I was surprised. Thomas Besson: Yes, me too with. Operator: And the next questions come from the line of Robert Krankowski from UBS. Robert Krankowski: Just 2 questions from me, please. And just maybe starting with the Q3. Like I think we are expecting that it's going to be the weakest quarter in the year. So obviously, something went better and maybe we heard that it was personalization. But maybe if you could talk specifically about the U.S. Back in Q2, you mentioned that there is some change in consumer behavior because of the tariffs. Have you seen it normalizing right now after we have more clarity on tariffs? And maybe the second one also related to the U.S. Obviously, there is a lot of conversation about residuals and there is some kind of concern about potential increasing order cancellations. Have you seen any unusual or any pickup in orders cancellation in the U.S. as consumers are a bit worried about potential change in residual values in the market? Benedetto Vigna: I'll take this question, Robert. So one, in U.S., the business proceeds as usual, number one. Number two, the only difference we see in U.S. that if you compare today versus the previous call, at that time, the tariff were still at 25%. Now they are at 15%. Now it's carved out in the stone, it's 15%. So that's the only difference we see. And we have been -- you remember last time, we told you when it will become, how can I say, blessed by papers, then we will update the commercial policy, and that's what we did. That's what we did before we said the price increase up to 10% when the tariffs were 25%. And now we say price increase up to 5%. That's the only difference in U.S. Then the business proceeds as usual. Antonio Piccon: And with respect to Q3 being originally thought as the weakest quarter in the year, I think the reason is simple. We were -- the level of personalization was higher than we were expecting. So that has on the top line. And in terms of the cost basis, a point that I highlighted when we revised the guidance upward, the cost base actually ended up being lower compared to our initial expectations. Operator: And the questions come from the line of Tom Narayan from RBC. Gautam Narayan: My first one, Antonio, I think I didn't hear it, and you said it, but could you please review the bridge again from Q3 to Q4? I know the Daytona's are zeroed out, but then maybe review the -- maybe the R&D and SG&A. And then I have a follow-up. Antonio Piccon: Yes. With respect to Q4, Tom, I said that there will be lower deliveries year-over-year. That's a point that we already in the Q2 call. This is to be read in connection with the changeover models that we discussed. Then I said there will be a positive product mix, although we expect it sequentially lighter in line with the phaseout of the Daytona and the first unit of the F80. And the last point is that we expect higher SG&A and a seasonal step-up in racing expenses for development of the applications for the car as well as higher SG&A that are dictated by the start of production of the new models. Gautam Narayan: Got it. Okay. That's very helpful. And then I have a kind of high-level question. I think in the past, you said that when there's a new kind of form factor, like Purosangue was a very different vehicle than you had ever made in the past that initially, obviously, there is a -- I don't know, like a margin headwind relative to -- if it was a standard product that you've done before at the same price point. How do we think about the Elettrica from this standpoint, given that it's a completely different form factor, is it safe to say that there's a similar kind of margin headwind relative to models that you make at a much larger volume requiring less incremental new spend? Is that a safe assumption to make? Benedetto Vigna: I think, Tom, you have a good memory. That's what we said about Purosangue, but we said it when everything was announced and everything was clarified. So I don't want to look like unpolite but if you are patient a little bit, then we will be more precise on that. But before I said, like you remember, we told you everything when the shape was visible and not only the shape... Operator: We are now going to proceed with our next question. And the questions come from the line of James Grzinic from Jefferies International. James Grzinic: I guess I have really a philosophical question for Benedetto just to follow up on Flavio's. I think Benedetto, you've made it very clear that you expect a higher rate of innovation to continue to really support your pricing power for the brand -- when I consider your 2030 plan, you seem to assume that, that lever, that price/mix lever is going to be much less important than in the past. Is that -- should we be thinking that the rate of innovation in the next 5 years reduces to go hand-in-hand with that price/mix lever being less important than in the past 4 years? Benedetto Vigna: No, I think that innovation rate does not slow down, honestly. I think we have several innovation in the pocket that we plan to apply to the different cars, each one for its own positioning. And I mean if we would sit on the innovation, I don't think we would be call it Ferrari. So the reason why I was very clear with the question -- the answer to the question of Flavio Cereda is because we have several levers of innovation that go beyond the traction. There is the vehicle dynamics, there is user interface, there is architecture that is the driving trails that we feel confident that once we apply this to the different model, we will be able to delight the client and thus to use properly the pricing power because we are not -- I would like to maybe underline one point. We are not a company that is increasing the price of the same object just because time goes on. No. We increased the price of what we do because we put something more innovative in it and because this innovation is going to delight our clients. I think this is important. If you see also the way we increased the price in the past years, well, Ferrari has been unique in the sense that we have not increased the price of the same object, but we have put the innovation in the product and that because of a high degree of innovation, high degree of delightment of the client, we exerted properly the pricing power. That has been and that's going to be in this way, James. Operator: And the questions come from the line of José Asumendi from JPMorgan. Jose Asumendi: Just one question, please. I guess frequently asked the question after the Capital Markets Day with regards to, I think, very exciting future, I think right products that you're launching into the market, but they also require some investments such as the launch of Elettrica. I think some lesser investments like the paint shop and I think all the credit facilities we saw during the Capital Markets Day. The question is to create a stability of margins in the business model, how can we think about the offsetting elements, the positive contributions you're going to have in the medium term to create that margin stability? And there might be some doubts in the market about the margin stability of the business model. How can we think about that balance between investments and then the opportunities you have to maintain and create that margin stability that you've shown, I think, in the past years? Benedetto Vigna: Let me see because there was some noise just to make sure that I understood properly, José. I think that if you want this question for me, the answer is very close to the previous one. The only way -- first of all, we are living in uncertain time. Yes. There is no difference also if you want to many other cases in the history. Now the only things we can do is to make sure that we keep innovating so to offer something that is unique to our clients, unique in the performance in engineering, unique in the design, unique in the way we do it because why are we doing the paint shop? Why are we doing -- why did we do the e-building? Because we want to be unique in the way we manufacture our cars, whatever they are ICE, hybrid and green electric. Why we are showing in a multistep way the innovation of Elettrica because we want to make sure that all the work done by the engineers -- well, it's not going to be lost because there are so many new things in this car as well as in other cars that we will make sure that innovation is properly, is properly, let's say, explained to our clients. We noticed it -- let's put it this way, we noticed that for some cars in the past, there was a lot of innovation content or there were several innovation content that were not properly explained. And this is an area of improvement we have. When we do something new, even on technology, on design, on engineering, we have the responsibility to explain well to the world because behind that -- beyond that, there is the work of many people, blue collar and white collar. So this is the philosophical question or the goal of this question of this company is to make sure that on the innovation side, whatever we do is unique. And this is, if you want, the best guarantee of the long-term sustainability of what we do. That's it. I only if you are unique, we can do something that guarantees the long-term sustainability. That's the reason why we gave you a floor for the end of this decade, and we feel confident about that because of the uniqueness of what we do. Operator: And the questions come from the line of Michael Tyndall from HSBC. Michael Tyndall: Two questions, if I can. One for Antonio. Can we talk about the F1 budget for next year? So headline number, if I'm not wrong, is USD 215 million from current USD 135 million. From where you're sitting, is that just an incremental $80 million of cost or does the scope change mean that actually the impact on your P&L is considerably lower than that headline number? And then the second one is just around can you talk a bit about FX on the order backlog? What scope do you have? And how much do you really want to push in terms of trying to offset what's going on with currencies on a backlog that now runs into 2027? Antonio Piccon: Thanks, Michael. The first one really the fuel cost increase. That's an element we need to take into account. So if the F1 budget grows, this flows into our cost, and this is to be taken as a cost increase. On FX on the order backlog, based on the agreement that we have with dealers is in principle, we could change pricing with a 90 days anticipation, I guess. So that's something that in principle is possible. We decided on a country-by-country basis and depending also on the move in terms of the exchange rate on the size of the move. Operator: Thank you. Given the time constraint, this concludes the question-and-answer session. I will now hand back to Benedetto Vigna, CEO, for closing remarks. Benedetto Vigna: Thanks for your time today and also for all your interesting questions. Thanks a lot. We remain focused on executing our plans throughout the rest of this year. And also with confidence, we'll begin to build the next phase of our new business plan. It's a business plan that is ambitious, and we are highly confident that this is going to happen. We'll deliver on our promises as we already did so far. And this -- after this, I wish you a good morning or afternoon. And I thank you again for your attention and your questions. Gracias. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good rest of your day.
Operator: Greetings, and welcome to the Hagerty Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jay Koval, Head of Investor Relations. You may begin. Jason Koval: Thank you, operator. Good morning, everyone, and thank you for joining us to discuss Hagerty's results for the third quarter of 2025. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman; and Patrick McClymont, Chief Financial Officer. During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty's Investor Relations section of the company's corporate website at investor.hagerty.com. Our earnings release, slides and letter to stockholders covering this period are also posted on the IR website as well as our 8-K filing. Today's discussion contains forward-looking statements and non-GAAP financial metrics as described further on Slide 2 of the earnings presentation. Forward-looking statements include statements about our expected future business and financial performance are not promises or guarantees of future performance. They are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov. The appendix of the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures that are further supplemented by this morning's 8-K filing. And with that, I will turn the call over to McKeel. McKeel Hagerty: Thanks, Jay, and good morning, everyone. We appreciate you taking the time to join Hagerty's Third Quarter 2025 Earnings Call. While many of us are putting away our special cars in the fall after another fun driving season, we at Hagerty are breathing a sigh of relief that 2025 was a relatively benign year for catastrophes after a challenging start with the California wildfires. As our reinsurers have pointed out to us, even in the worst of hurricane years, our book of collectible vehicles tends to significantly outperform what their models would have predicted. Our members love their cars and they will find ways to drive them to safety. Building trusted relationships with our members through the years of delivering on our brand promise enables us to develop new products such as the recently launched Safe Storage Concierge, which provides guaranteed shelters for cars in hurricane-prone areas such as Tampa and Miami. While we hope our members never need to use the program, if they do, we will be there for them, regardless of the type of vehicle that they love, leading to lower claim frequency and consistently strong and stable underwriting results year after year as we add new members. Let me dig into the highlights from the first 9 months of 2025 shown on Slide 3. Total revenue increased 18%. New business count fueled by a 13% increase in written premium and 14% growth in commission revenue, an acceleration from the first half results as State Farm policy conversions ramp up month-over-month. October came in even stronger than September, delivering the highest Policy in Force or PIF growth in our history. Earned premium in our risk-taking entity, Hagerty Reinsurance, increased 12% and membership, marketplace and other revenue jumped 54% due to the launch of our European auction business, plus growth in inventory sales and private transactions. Moving to profitability. During the first 9 months of the year, our operating margins jumped another 350 basis points, resulting in net income gains of 73% to $121 million and adjusted EBITDA growth of 46% to $153 million. High rates of compounding growth with a relentless focus on operating efficiencies are resulting in sustained margin expansion as we work towards doubling our policies in force to 3 million by 2030. Hagerty has become one of the largest MGAs in the specialty vehicle insurance business, thanks to omnichannel distribution, best-in-class service, valuation and underwriting capabilities, not to mention a brand unlike any other with a Net Promoter Score of 82 that towers over the industry's average score of 37. Our direct business is adding new members efficiently, thanks in part to our unique ability to drive a disproportionate number of people in Hagerty's funnel on the strength of the Hagerty brand and low-cost referrals. And our distribution team has been working diligently to cultivate relationships with the leading carriers in the U.S. as the majority of the specialty cars we seek to insure sit within their bundled policies. With that, we announced yesterday that we had signed a new partnership with Liberty Mutual and Safeco. Liberty Mutual is the seventh largest auto insurer in the U.S. and has built a sizable collector car program over the past decade under the Safeco brand. Hagerty will help Liberty Mutual engage and retain their customers through a combination of our excellent customer service and expertise at valuing, underwriting and handling claims on collectible vehicles. We are very excited to work closely with the Liberty Mutual team to help ramp up this partnership into 2027. Moving on to Slide 4. A reminder of our 2025 strategic priorities built around 3 themes: simpler, faster and better integrated. First is to expand our specialty insurance offerings to protect more of the collectible market, including modern enthusiast vehicles with the launch of our Enthusiast Plus program. Second is to simplify and better integrate our membership experience across our products and services, creating revenue synergies and driving cost efficiencies as we engage with our members in a unique and authentic way. Third is to expand our marketplace business internationally, leveraging the trust we have built in the United States. This includes 2 recent European auctions in Belgium and Switzerland, plus this past weekend's auction at the Wynn, Concours and Las Vegas, bringing our global vehicle value sold at Broad Arrow Live Auctions to $240 million through November 1. We are methodically building Hagerty and Broad Arrow into the most trusted brands for people to buy and sell special vehicles and live auctions work synergistically with our private sales transactions and financing business. And finally, we are investing in the technology re-platforming that will enable additional efficiency gains shown on Slide 5. Slide 6 shares details on the new fronting arrangement with our strategic partner, Markel, that we discussed in late July. As a reminder, we have been moving towards assuming more of the premium and risk associated with our high-quality underwriting and this 2% fronting arrangement would allow Hagerty to control 100% of the premium and risk commencing in 2026, a 25% increase compared to the current 80% quota share. We are excited to continue partnering with Markel as we build out our own capabilities to deliver a seamless experience for members with greater operational control, not to mention drive increased profitability from the additional underwriting and investment income. Let me now turn the call over to Patrick to share more details on our results and increased 2025 outlook. Patrick? Patrick McClymont: Thank you, and good morning, everyone. Let me dig into the third quarter results shown on Slide 7 and 8. We delivered 18% growth in total revenue to $380 million. New business count gains, combined with industry-leading retention of 89% drove a 16% increase in written premium. As expected, written premium growth accelerated in the third quarter, resulting in 2-year rate growth exceeding 30% as we ramp conversion of State Farm's 525,000 Classic policies to their new Classic Plus program, powered by Hagerty. Commission and fee revenue grew by 18% to $137 million. Earned premium increased 13% to $187 million. Our loss ratio came in at 42% for the quarter in the first 9 months of the year, resulting in year-to-date combined ratio of 89%. In Membership, Marketplace and Other Revenue jumped 34% to $56 million. As McKeel mentioned, we have quickly established ourselves as a leading auction house with unparalleled automotive expertise for our customers. We also continue to build our online marketplace, offering 240 Barn Find vehicles from the first tranche of The Generous Collection in October with more collections to follow over the coming months. Turning now to profitability, shown on Slide 9 and 10. We reported an operating profit of $34 million in the third quarter, an increase of 240% as operating margins jumped 590 basis points to 9%. G&A increased 17% due to higher software licensing costs from our technology transformation as well as the professional fees associated with the August secondary offering of shares from Kim Hagerty's estate and the Markel fronting arrangement. Salaries and benefits grew 44% due to higher year-over-year incentive compensation accruals, thanks to our strong financial outperformance this year. As a reminder, last year's incentive compensation was negatively impacted in the third quarter due to elevated cat losses from Hurricane Helene. Excluding professional fees and incentive comp, we are holding core growth in G&A and salaries and benefits to the mid- to high single digit range. This increase is due to merit and selective headcount additions to support future growth. We had a fair bit of activity on the tax front this quarter. Given the sustained improvement in our profitability, we concluded that the company will generate sufficient future taxable income to realize a portion of our deferred tax assets. As a result, $38 million of the valuation allowance was released and recorded as an income tax benefit. In connection with the release, we remeasured our tax receivable agreement liability resulting in an expense of $29 million, which was the driver of negative $21 million in interest and other income. Third quarter interest income from our investment portfolio was $11 million and interest expense was $2 million. In total, we delivered third quarter net income of $46 million compared to $19 million a year earlier, an increase of 143%. Net income to Class A common shareholders was $19 million after attribution of earnings to the noncontrolling interest and accretion of the preferred stock. GAAP basic earnings per share was $0.18 and diluted came in at $0.11. Adjusted EBITDA increased 106% to $50 million in the quarter. And we ended the quarter with $160 million in unrestricted cash and $178 million of total debt, which includes $75 million in back leverage for our portfolio of collateralized loans. Let me wrap up with our updated outlook for 2025, where we again increased full year expectations for revenue and profits shown on Slide 11. We now expect 14% to 15% revenue growth and are increasing our assumptions for margin expansion. This should result in net income of $124 million to $129 million, equating to growth of 58% to 65% and adjusted EBITDA of $170 million to $176 million, an increase of 37% to 41% compared to 2024. The net income range also includes a $6 million year-to-date net impact from the valuation allowance benefit of $38 million, partially offset by the increase in TRA liability of $32 million. In summary, we are delivering on our 2025 strategic priorities and are well positioned to accelerate profit growth and cash flow generation as we move into 2026 and 2027, fueled by high rates of organic growth in new members. Our brand strength and omnichannel distribution enable us to grow profitably during both good and bad times, making us truly differentiated from most P&C carriers, where profitability is dependent on the rate cycle. When you combine multiple growth levers with ongoing operating efficiencies, we believe we are pulling together all the ingredients necessary to create shareholder value over the coming years. With that, let us now open the call to your questions. Operator: [Operator Instructions] Our first question comes from the line of Hristian Getsov with Wells Fargo. Hristian Getsov: My first question is on the Liberty Mutual and Safeco partnership. Can you maybe provide some quantification of how much of a PIF tailwind or premium tailwind that could be for your book kind of on a go-forward basis? And in terms of like the financials, could we see something like a book roll later on in the partnership? Or I guess, how are you thinking about that long term? Patrick McClymont: Sure. Liberty Mutual and Safeco, we're excited. It's an important new partnership and it's very consistent with our overall partnership strategy, right? They chose to work with us, because they know we're going to deliver the right product for those customers. So it's an important and very consistent step in our strategy. Think of it as tens of thousands of customers. And so it's a good-sized opportunity. It's not sort of one of the State Farm type sized opportunity, obviously. And then we continue to work through the details with State Farm and -- I'm sorry, with Safeco and how we'll be working with them and with Liberty Mutual. It's a combination of -- we are doing a book roll. We're taking this business on. And so we'll be sharing some economics with them. And we're not going to give a lot of details on this because it's partner-specific. But think of it as another important step in the process as we build out the omnichannel distribution. Hristian Getsov: Got it. And then for the Enthusiast Plus rollout, any quantification on kind of like the PIF growth that's happening there? I know you're live only in a few states and it's still early on. And then I guess, sticking with that, like how should we think about like your loss ratios on a go-forward basis, given that should be a younger, newer car cohort? And how would that kind of impact your loss ratios as that kind of like becomes a bigger portion of your mix? McKeel Hagerty: Well, what we've talked about before, this is McKeel, by the way, and again, welcome to the call. As we've talked about with Enthusiast Plus, it's early days. This is built on the knowledge that we've been gaining through years of what we referred to before as our Flex Program. So we're coming to it with a lot of knowledge, but we are opening up the underwriting aperture to be able to take on more types of risk. We are live in one state. We will start rolling out new states. And as far as loss results, it's too early to be speaking specifically about it. But we're excited about what we're seeing and so far, so good. Operator: Our next question comes from the line of Charlie Lederer with BMO Capital Markets. Charlie Lederer: Just on the strong growth in written premium, the acceleration in the quarter, I guess when we back out the PIF growth, it looks like the pricing growth accelerated. Can you kind of parse that out for us? Is that State Farm-driven? Or what's causing the kind of the premium per policy or the pricing to accelerate? Patrick McClymont: Yes. So on that one, I guess we would encourage you to think about that -- think about that on a trailing 12-month basis. Our business is very seasonal. And so if you're taking kind of -- I think if you look on a quarterly basis, you've got in your -- I think in your numerator, you've got something that's a seasonal quarter number. And then your denominator, you've got something that's a much more smooth total policies in force number. So I encourage you to think about that on a trailing 12-month basis. If you do, you'll see it's much smoother than what sort of the quarterly analysis would say. What this quarter, I think trend-wise, what we're going to see over the next couple of years is that kind of metric should actually decelerate, just because of what's happening with State Farm, right? So State Farm is coming in with a lot of policies that are typically single car and they're typically a bit lower than what our core book has been traditionally. And so we may see that that kind of written premium per PIF will start to trend down a little bit, just because of that. After we get through this massive intake of State Farm, the 525,000 cars, then you'll see that return to more historical levels. It's really tough to do year-over-year quarterly comparisons. For example, last year, we were just getting going with State Farm. And so that created a little noise in the third quarter of 2024. This year, it's ramping up. And as it's ramped up, there's a pretty meaningful change in what those -- what the premium per policy is. And so it's really hard to do this sort of at the aggregate level. The general trends you should focus on is in our core traditional book. We get typically 2%, 3% price increases over the long haul, much, much lower than what you see in daily driver. And we think that's a competitive advantage. We're able to win business because of that. So we do get price increases, but typically that low single digits. I talked about State Farm, the dynamics there. And then over time, Enthusiast Plus, that will come with higher premiums per policy. This is -- will ramp up over the next few years, but that will change the dynamic as well. So hopefully, that's helpful. As always, there's mix, there's seasonality. There's a lot of things that go into a metric like that. Charlie Lederer: That is helpful. Maybe you can help us triangulate, I guess, the upside to your guide in the quarter on revenue and EBITDA. I guess, at a high level, how much was from underwriting versus marketplace? And I guess as we think about the strength in marketplace from some of the new business you talked about, how should we think about that trending from here, since there's some seasonality in that business, too, I think? Patrick McClymont: Yes. So the marketplace business, particularly live auctions and private sales, we are having a good year. It's a young business, a growing business growing quickly. And this year, it exceeded our expectations. And so that is reflected in the increase in guidance. When you think about that business heading into next year, we should continue to see growth. We're pretty close to a full calendar. And so we've got the 4 auctions domestically and 4 in Europe. We may add 1 or 2 next year. And there's always the chance that there's a single owner sale that pops up. But the event growth will -- we're not going to add 3 new auctions next year. And so what we're going to be looking for there is now we've got a full calendar and the ability to continue to drive more volume through each of those auctions. And so I'd assume the growth rate in live auctions will decelerate next year, still grow, but it will decelerate just because we're not adding to the calendar. Private sales this year was a big year. And so we've got to take a look at that. And some of that's episodic, some of that we think is sustainable and can grow. But this year was very, very strong in that regard. And that does get reflected in the increased earnings guidance. Is that helpful? Charlie Lederer: Yes. Yes. And if I could just sneak in one more. On Slide 16 of the earnings deck you guys put out, I think the chart on the right is a new slide or a new exhibit, I guess, the $35 million collectible car target market. Can you kind of talk us through that slide? And yes, I'll leave it there. Patrick McClymont: Sure. We can talk it through. It's not a new one. This is one that we've had out there for quite some time. I think the key intuitions from this, we have strong market positions in older cohorts. And so if you go back to pre-war cars, 1950s cars, 1960s, we've got good penetration in those cohorts, but still room to grow. And so we do see growth in those cohorts. And kind of with each decade, our penetration tends to be lower, right? So it's strongest in sort of the pre-war in the 1950s, still strong, but a little bit less as you get into the '60s, et cetera. We know that there's those 11.1 million cars out there. We've got those in our database. We know where they are. And so currently, we were about 14% penetrated and there are opportunities to grow that. Post 1980 and this is just when VIN numbers became industry-wide, and so it's just that's the demarcation point. Post 1980, you can see our penetration is much lower at 3.1%. We've done a ton of work on those post-1980 cars to make sure that we really understand what in that broader 35 million do we think is core addressable. And so that's that Hagerty target market. And so we think there's about 24 million vehicles that could fit for our program. And because we're so lightly penetrated there, that's where a lot of our efforts go. And that's a big driver behind the Enthusiast Plus product. We needed to be able to price for more modern vehicles that may get used more frequently and that's why we designed that new program and launched that initially in Colorado with more to come. Every decade, you end up with a certain cohort of cars that end up being collectible. That has not changed. And so we want to make sure that we've got a product in place and marketing in place that we can continue to grow with the market. Is that helpful? Operator: Our next question comes from the line of Michael Phillips with Oppenheimer. Michael Phillips: Patrick, I guess, first, I want to make sure I heard you correctly on your comments on some of the expense items, the salaries, benefits and G&A. I think you said for the 2 combined mid-single digit growth. Was that right? And if so, what time period were you talking about? Patrick McClymont: That's what it should be this year, for 2025 versus 2024. Michael Phillips: And that was the 2 combined, correct? Patrick McClymont: Correct. Michael Phillips: Okay. I guess more high level, what's -- is there any impact on the growth of your Driver Club membership in the near term maybe from adding on State Farm and then maybe also because of -- would that also be impact any growth potential, I'm thinking negative growth potential kind of headwinds to growth there because of State Farm and maybe also because of Safeco? McKeel Hagerty: Well, so great question. And the way the Hagerty Drivers Club is typically sold is it's an add-on to the policy purchasing process. So somebody comes in, they get a quote and that's the same, whether it's a direct consumer or through an agent or through one of our big partners, including State Farm. Then the second piece of the transaction is how we sell Hagerty Drivers Club, which is a $70 package with the features that we have in it. So pretty much wherever we are filling the top of the funnel and bringing it down through quote and application, we will see a lift in Hagerty Drivers Club. And our job is to make sure it's attaching well and attaching efficiently and that we can offer it along the way. The way we think of Hagerty Drivers Club, it's a product package, but it's part of our membership strategy, which is when you treat somebody like a member, they're more engaged. There's longer lifetime value and it's all part of the core strategy. So more insurance means more Hagerty Drivers Club. Michael Phillips: Okay. No, perfect. I guess is the uptick of that not the same from State Farm and possibly from Safeco, as it is from your traditional business? McKeel Hagerty: It's too -- it's too soon to say, obviously, with Safeco, as we mentioned in the beginning of that. That is a book roll strategy there. So this is not just we put a product on their shelf and they're selling Hagerty. This is Safeco, who had a collector car program and they are going to exit that program and roll that business to us, but it's too soon to know exactly how we will be attaching there as part of that kind of book roll process. With State Farm, it's obviously our biggest new thing. The process is slightly different. The attach rates have been a little bit lower than our sort of standard through the front door process, but we're endeavoring to get that up to where it matches, if that helps. Operator: Our next question comes from the line of Mitchell Rubin with Raymond James. Mitchell Rubin: This is Mitch on behalf of [ Greg ]. My first question today, I was wondering if you could help quantify the sensitivity of your net investment income to the rate cuts and if the fronting shift change is going to have any impact on your view of liquidity of asset allocation? McKeel Hagerty: The first one was investment sensitivity relative to the recent Fed rate cut is what you're saying? Mitchell Rubin: Yes. McKeel Hagerty: I don't have it in front of me. Patrick? Patrick McClymont: Yes. Mitch, appreciate the question. We have allocated most of the investments into high-grade corporate and government bonds, duration of 2 to 3 years. So it's not sitting in money market accounts. So we think we're pretty well protected there. Mitchell Rubin: And my follow-up question, you had talked a little bit about the seasonality to the marketplace. Is there any seasonality to the loss ratio and acquisition costs in the fourth quarter? Patrick McClymont: So the way we think about loss ratio, there's, of course, seasonality in the underlying business because our business is so seasonal. Typically, what -- and we talked about this in other calls, in the first and second quarter of the year, we accrue to our planned loss ratio for the year. In the first quarter, it's a relatively quiet quarter from a seasonal perspective. The actual loss activity is going to be quite low in the first quarter. In the second quarter, it's starting to ramp up as we get into season. And so typically you'll see we're going to book to plan basically in Qs 1 and 2. Q3 is the first quarter that we may make an adjustment to that, which is based upon experience, we're now deep enough into the year that it may warrant an adjustment. And then obviously, in Q3, you've got some information on cat season, not complete, but most of cat season has unfolded. And then in the fourth quarter, that's when we'll make any final adjustment. So that's our policy. So far this year, we have been booking to plan. That's why you're seeing the 42%. And then in the fourth quarter, we'll make any final true-up. Fourth quarter underlying business is one of the more quiet quarters, right? Anything that's more north, you're going to have less driving activity. People put the cars to bed for the winter and so you just see less activity. What was the other part of the question? Mitchell Rubin: Yes. That's helpful. No, that was it. Operator: Our next question comes from the line of Mark Hughes with Truist Securities. Mark Hughes: You mentioned that the October PIF growth was really good. Do you feel like sharing any specific details? And what was the driver of the improvement in the month? McKeel Hagerty: Well, Mark, you've been with us a while and it's nice to hear your voice again. What I will say is it's the State Farm flywheel beginning to really turn. We've been working on this integration for a long time. We started off the year -- we came into the year with kind of 4 states active for new business and our target is to finish -- our target was to finish the year with 25. We may be able to actually get up to 27 states. So this is what we've been planning for and the reality is really starting to hit us. So teams are excited. But normally, in this very seasonal business when things start to quiet down in October, we're really humming along. So it's an exciting time for us. Mark Hughes: Okay. Very good. In the presentation on the page where you talked about the change with Markel, you mentioned you secure expanded underwriting and claims authority. Is that just kind of an operational pro forma change? Or is there anything material to your business with, I guess, that increased authority? McKeel Hagerty: Well, some of it is technical. I mean, in reality, we've had this great close partnership with Markel for a long time. The underwriting decisions very templatized, pricing decisions really driven through the data that we were driving, all of those things through the years when it was just a quota share arrangement. By flipping this over to where we're taking 100% of the -- both the results and the risk of the program through a fronting arrangement, there are some technical new jobs that we'll be taking on as part of it. So some of it will be part of Patrick's organization on the finance side, a little bit of it will be part of Jeff Briglia's organization on the insurance side, but pretty minimal from a headcount and G&A standpoint. It's just sort of the last bits of the technical aspects of running that insurance company fully. So we've been preparing for it for months and we're ready to go. Operator: Our next question comes from the line of Pablo Singzon with JPMorgan. Pablo Singzon: My first question is on guidance. Your EBITDA range for '25 suggests something like $20 million of EBITDA in 4Q at the midpoint, which is basically flat from last year on a much higher revenue base this year, right? Is there something that would prevent EBITDA growing in 4Q, maybe some quarter-specific expenses like bonus accruals or investments or the like? Or is it just talked out, because if you look at this year, you've basically grown EBITDA dollars every quarter by at least $10 million. So anything to call out for 4Q, I guess? Patrick McClymont: No, I don't think there's anything specific. Typically, the fourth quarter is seasonally a lighter quarter for us and has tighter margins. And so it could swing around a little bit. Right now that's our best guess with how things come together. There's nothing specific that we're sort of increasing spending on. So we'll just have to see how it unfolds. Pablo Singzon: Okay. And then, Patrick, second question, just as you sort of transition to the Markel agreement and I presume you'll provide more detail on the next call, but any foreshadowing in how you think EBITDA might trend next year versus this, right? And I'm not looking for specific numbers, but as you think about like the moving pieces, right? So investment income will enter EBITDA, there will be some cost deferrals in there, right? You'll retain more underwriting income, but then you lose some on the ceding commission -- or you'll retain more higher underwriting income and I think there will be some impact on the ceding commission expense as well. So if you sort of put all those items together, any sort of like big picture way to think about how EBITDA might be different versus this year? Patrick McClymont: So we actually -- there's a fair number of things that we'll need to spend time with our investors and our analysts on that are changing for next year. So the big one is we're moving from Article 5 to Article 7. So our disclosure will be more consistent with an insurance company. And that's a result of moving to 100% of the risk and continue to grow that business. A consequence of that is, yes, we will have the investment income move kind of above the line, right, whereas now it's below the line. That's just geography. That will be hopefully pretty easy for people to get their heads around. Disclosure will look different, right? We no longer have --balance sheet disclosure looks different. So we'll spend time walking people through that. And then the change in the Markel relationship also is meaningful. And we previewed this back in August in advance of when we did the equity offering and we shared with the market sort of a page that reconciles big picture how to think about that. The key thing is on a go-forward basis, we're no longer going to have the commission income related to that activity. That still happens internally, but that gets eliminated upon consolidation. And as you mentioned, we're also now in a world where we're going to have deferred acquisition cost. So we're sorting through all those changes. And our plan is on the fourth quarter call next year we're going to -- Jay and I will work hard to create a road map and kind of walk people through exactly what the changes are. I think directionally, it all goes back to this is a business that our insurance business, putting aside State Farm, which is kind of the pig going through the snake, wonderful, beautiful pig. Putting that aside, we're going to grow in the kind of low teens written premium. And now we're going to own 100% of that business instead of 80% of that business, because of the change with Markel. Layer on top of that State Farm, you've got incremental commission activity from that. So the business is growing. We have proven that. We've been able to drive margin expansion. Those things will continue. The presentation of it is going to get complicated or different. And so we just need to walk everybody through that. Operator: Our next question comes from the line of Tommy McJoynt with KBW. Thomas Mcjoynt-Griffith: Just staying on that topic, one piece perhaps you can kind of help us drill into a little bit just is the policy acquisition costs that will start getting deferred and amortized over the policy term. Can you give us some early indications to how impactful that can be? Because it does seem like that could be a material change that could be accretive to earnings. Patrick McClymont: Not at this time. I need to make sure that we nail it all down and we're very clear on what the outcome is and share that with everybody. It's just still work-in-progress. Thomas Mcjoynt-Griffith: Okay. No problem. And then going back to the marketplace side, that business line has seen very strong revenue growth this year. Can you help us map how much of that is falling to the bottom line? It looks like the sales expense has been rising in tandem and I know there's some sort of cost of goods sold there. So I'm just wondering what are the incremental margins on this revenue growth in that marketplace line? Patrick McClymont: Yes, it's a good question. And we plan for that business to be slightly operating profit positive this year. And it's certainly more so, but that more so is measured in single-digit millions of dollars, because it's still a relatively small business. So it's definitely flowing to the bottom line, but we're not at a scale yet where you're talking about many millions of dollars. The private sale business, it's just a little bit tricky because it is so episodic. We've had a very, very good year and the team has done a phenomenal job. But when we think about what does that mean for next year, that's one of those ones that's hard to predict. The way to think about that business, though, is essentially, we're making brokerage commissions, right? Sometimes we're actually buying things and reselling those and making some merchant economics. But oftentimes, it's really just an agency trade or maybe it runs through our balance sheet, because we do actually take title for a moment in time, but we're not really taking risk. And so if you think about our auction business, where you're talking about kind of 10%-ish type buyers premium, the private sale business is not at that level. It can be high single digits, but it also can be low single digits. And so you're making those kind of fees. And then your expenses related to it, a lot of the commissions that get paid to the frontline people. And then there's some operating cost overhead associated with it. So it's a good business. On a contribution basis, it's very profitable. But right now it's -- it contributes to the bottom line, but it's not something that's fundamentally changing the outcome. Is that helpful from a framework standpoint? Thomas Mcjoynt-Griffith: Yes, that is. Operator: Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back over to management, McKeel Hagerty for closing comments. McKeel Hagerty: [Audio Gap] support. We are highly encouraged by our results over the first 9 months and we have a long straightaway in front of us. Given the long lead times in the insurance industry, you will always need to plan and think long term out as you launch both products such as Enthusiast Plus and you cultivate new partnerships, including State Farm and now Liberty Mutual and Safeco. And sustaining our double digit growth trajectory year after year requires investing in our teams and technology so that we can scale up efficiently and deliver compounding profitable growth. And that is exactly what we're doing at Hagerty. We are executing with excellence on our near-term objectives, while investing in the company to capitalize on our growth potential over the next decade. With that, we hope you and your families have a great holiday season and to consider searching through Hagerty Marketplace to find that perfect gift for your loved ones. Our team has pulled in some amazing collections and no reserve vehicles looking for the perfect owner, so happy shopping. Until then, never stop driving. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good morning, and welcome to the TPG's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Please go to TPG's IR website to obtain the earnings materials. I will now turn the call over to Gary Stein, Head of Investor Relations at TPG. Thank you. You may begin. Gary Stein: Great. Thanks, operator, and welcome, everyone. Joining me this morning are Jon Winkelried, Chief Executive Officer; and Jack Weingart, Chief Financial Officer. Our President, Todd Sisitsky, is also here and will be available for the Q&A portion of this morning's call. I'd like to remind you this call may include forward-looking statements that do not guarantee future events or performance. Please refer to TPG's earnings release and SEC filings for factors that could cause actual results to differ materially from these statements. TPG undertakes no obligation to revise or update any forward-looking statements, except as required by law. Within our discussion and earnings release, we're presenting GAAP and non-GAAP measures, and we believe certain non-GAAP measures that we discuss on this call are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to the nearest GAAP figures in TPG's earnings release, which is available on our website. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any TPG fund. Looking briefly at our results for the third quarter, we reported GAAP net income attributable to TPG Inc. of $67 million and after-tax distributable earnings of $214 million or $0.53 per share of Class A common stock. We declared a dividend of $0.45 per share of Class A common stock, which will be paid on December 1, 2025, to holders of record as of November 14, 2025. I'll now turn the call over to Jon. Jon Winkelried: Good morning, everyone. Thank you for joining us today. TPG delivered strong results in the third quarter. Our total AUM grew 20% and quarterly fee-related earnings grew 18% year-over-year. The flywheels across our business continued to accelerate, led by robust capital formation across all asset classes and a record quarter for deployment. I'll spend a moment on each of these important areas. This was an outstanding fundraising quarter. We raised a near record $18 billion of capital, up 60% from the second quarter and 75% year-over-year. This was driven by a successful first close in our flagship private equity funds and strong credit fundraising, where we continue to experience a step function increase in capital formation. We've made substantial progress against our previous guidance of raising significantly more capital in 2025 compared to 2024. Year-to-date, we've raised over $35 billion of capital, which already exceeds our full year 2024 fundraising. In private equity, we raised $12.3 billion in aggregate across our strategies. This was primarily driven by $10.1 billion raised in the first close for our flagship buyout funds, TPG Capital X and Healthcare Partners III, including commitments that are signed but not yet closed. We received strong support from our existing clients who increased their commitments by 12% on average over the prior vintage. These results reinforce our confidence that TPG is positively differentiated within the private equity market where fundraising has been perceived as challenging in the current environment. Our clients continue to lean in and look for more ways to partner with us in private equity given our distinct and highly disciplined approach and consistently strong performance. As a result, we believe we are outperforming in private equity fundraising relative to the broader market and gaining share. In credit, after reaching an inflection point last quarter, we maintained our strong fundraising pace and closed $4.8 billion of credit capital in the third quarter. In middle market direct lending, we announced the closing of a $3 billion continuation vehicle, which we believe is the largest-ever private credit CV. This unique transaction enabled us to extend the duration of our capital base for a portfolio of high-performing senior loans in collaboration with several strategic partners. In structured credit, we raised $1.4 billion across the strategy and launched our new liquid securities-focused open-ended fund. And in Credit Solutions, we continued fundraising for our third flagship fund, bringing the total capital raised to date to $4.3 billion. We expect to hold a final close in the fourth quarter and for the fund to be meaningfully larger than its predecessor. Year-to-date, we've raised nearly $12 billion of credit capital in what has been a breakout year for our franchise. As a result of our fundraising momentum, we ended the quarter with record credit dry powder of over $16 billion. Credit AUM not earning fees stood at nearly $11 billion, which represents over $100 million of annual revenue opportunity that we expect to flow into management fees over time. In real estate, we held a final close for our inaugural real estate credit strategy, bringing total commitments across the main fund and related vehicles to $2.1 billion, which exceeds our initial $1.5 billion target by more than 35%. We raised approximately $1 billion of capital in the final close driven by the strength of TRECO's initial portfolio. TRECO adds to our long track record of expanding into adjacent strategies through organic innovation. Early in the current cycle, we identified a compelling opportunity to invest in real estate credit at attractive risk-adjusted returns given the significant contraction in valuations and available leverage. We're seeing our thesis prove out with a fund outperforming its initial return projections and generating double-digit cash-on-cash yields. TRECO is an important extension of our investment capabilities in both real estate and credit, and we expect to scale this strategy over time. Additionally, our fundraising success has been amplified by our increasing penetration into the fastest-growing distribution channels, including insurance and private wealth. First, we've grown our capital from insurance clients by more than 60% over the last 2 years. Insurance represented 40% of TRECO's final close and over 25% of the capital raised for our credit platform in the third quarter. We're continuing to create innovative access points and cross-platform solutions for our insurance clients. For example, we've closed more than $600 million of insurance capital in our first rated note feeder for credit solutions which we believe is one of the few rated access points for this type of strategy in the market. Second, we're making strong progress in the private wealth channel, where we raised over $1 billion of capital across our drawdown and evergreen funds in the third quarter. T-POP, our perpetually offered private equity product, continues to gain momentum of approximately $900 million of inflows since its launch 5 months ago, including $250 million in October. This accelerated pace was supported by the launch of T-POP on a leading international private bank platform in September. We are experiencing strong traction in Europe and Asia and plan to launch on several additional domestic and international platforms over the next few quarters. Private wealth is an important growth driver for us, and we remain focused on further expanding access to our products across geographies and investor types, which Jack will touch on further. Moving on to deployment. As discussed on our last call, we expected our investment pace to accelerate into the back half of the year. In the third quarter, we deployed a record $15 billion, up over 70% year-over-year, and our activity was well diversified across the firm. Our credit platform drove over half of the capital deployed during the quarter with $8.3 billion invested across our strategies more than doubling year-over-year. In structured credit, we deployed $3.6 billion of capital, half of which was driven by residential whole loan investments where we continue to be a market leader. In asset-backed finance, we closed notable transactions across several of our verticals, including nonbank credit card origination. We also completed a meaningful upsize of our joint venture with Funding Circle and Barclays in the U.K. In middle market direct lending, Twin Brook generated $2 billion of gross originations in the third quarter, our highest volume so far this year. Importantly, given the steady increase in overall M&A activity, 70% of our origination was driven by new investments, bringing the total number of companies in our portfolio to over 300. Our pipeline remains robust, and we expect the fourth quarter to be our most active quarter of the year. In Credit Solutions as spreads remain at historic tights, our flexible mandate continues to create opportunities to provide tailored solutions in the private market. As an example, last year, we formed a proprietary joint venture with Bluestar Alliance and Hilco Global to finance and acquire consumer brands and intellectual property. Our unique partnership brings together significant sector, operating and financing expertise, enabling differentiated access to attractive opportunities. This was most recently highlighted by the JV's announced acquisition of the iconic Dickies apparel brand in September. Despite some recent concerns in the broader credit markets, including certain allegations of fraudulent activity, our portfolios continue to perform well. We've maintained a disciplined and highly selective approach to credit underwriting with a focus on fundamentals and risk management. As a result, our annualized loss ratio since inception has remained stable at only 2 basis points for Twin Brook, 3 basis points for our private asset-backed credit business and less than 40 basis points for Credit Solutions. We continue to uphold the same rigorous standards as we evaluate new investment opportunities, and Jack will share more details in his remarks. Across our private equity strategies, we maintained a healthy pace of deployment with $4.6 billion of capital invested in the third quarter, up nearly 40% year-over-year. At TPG Capital, we announced the carve-out of Proficy, GE Vernova's manufacturing software business. This transaction is a culmination of the relationship we've built with GE Vernova over 7 years across both our capital and climate strategies. Proficy aligns well with our expertise in corporate carve-outs and structured partnerships which comprise 11 of the 16 most recent investments in TPG Capital. Additionally, just a few weeks ago, we announced the take private of Hologic, a leading provider of diagnostic imaging and surgical products focused on women's health, for up to $18 billion. We're excited to partner with one of the premier scaled platforms in the women's health space, which has long been a thematic area of focus for us. In tech adjacencies, we closed minority investments into several leading large language model developers, expanding our exposure to Gen AI development and providing us with differentiated insights into this rapidly evolving area of the technology ecosystem. These investments follow the innovative debt financing that our Credit Solutions business recently anchored for xAI. We continue to evaluate opportunities to capitalize on the robust growth in the space and a partner with leading AI companies across each of our asset classes. In Rise Climate yesterday, we announced the acquisition of Kinetic, a leading international operator of zero emission transport and infrastructure based in Australia. Kinetic aligns closely with our deep expertise in clean electrification and mobility and represents the second investment by our transition infrastructure strategy. In real estate, we had our most active deployment quarter so far this year with $1.9 billion invested across TPG and TPG AG real estate. During the third quarter, TREP completed the acquisition of the former Broadcom office campus in Palo Alto's Stanford Research Park. This investment is consistent with TREP's continued focus on selectively investing in office markets where we see compelling green shoots emerging, such as the San Francisco Bay Area. We believe the Bay Area is reaching an inflection point in demand, driven by the growth in AI-focused tenants. In TBG AG real estate, we've maintained an active investment pace with nearly $2 billion deployed year-to-date across our dedicated regional funds. We're identifying and capitalizing on improving supply-demand dynamics in certain sectors, including senior housing and hospitality in the U.S. and office markets in Japan, Korea and London, which have low vacancy rates and attractive rental growth. Before I wrap up, I want to share what I'm hearing from my conversations with our clients across the world and how it's shaping our business and the opportunities in front of us. In private equity, institutional clients continue to face liquidity constraints and are consolidating their relationships among fewer GPs. Against this backdrop, we believe TPG is gaining share due to the consistently strong returns we've delivered. This has been driven by our focus on investing in deeply thematic areas and partner with our portfolio companies to drive growth. Over the past decade, across our TPG Capital and TBG growth funds, more than 80% of our value creation has come from earnings growth compared to less than half for the S&P 500, where over 40% of the value was driven by multiple expansion. This differentiation is resonating with our clients and driving continued fund over fund growth across our private equity strategies. Additionally, we continue to see increasing allocations into private credit. Investors are diversifying their exposure into areas such as structured credit, lower middle market direct lending and middle of the capital structure opportunities where we built scaled investment strategies. Our clients are expanding their relationships with us across our credit platform, including through multi-fund partnerships and seeding new strategies. As a result, our credit AUM has grown 23% year-over-year and it continues to be one of the fastest growing areas within our firm. And finally, in real estate, we are well positioned to play offense with over $12 billion of combined dry powder and continued positive value creation across our portfolios. Over the past 2 years, we've capitalized on the substantial market dislocation to acquire high-quality assets that are not typically available for sale. We believe the real estate market has stabilized and transaction activity is accelerating. Our clients are expressing a growing interest in real estate as demonstrated by the success of TRECO's recent fundraise. Given the strength of our distinctive portfolios, we remain confident as we prepare to launch fundraising campaigns for several of our real estate strategies in the coming quarters. We made significant progress against our strategic priorities for 2025, and I'm pleased with the strength of our business across all key metrics. Our increased scale and diversification positions us well to deliver accelerated growth and generate long-term value for our shareholders. I'll now turn the call over to Jack to discuss our financial results. Jack Weingart: Thanks, Jon, and thank you all for joining us today. As you can see from our strong third quarter results, we've been successfully executing on our growth strategy. On our last call, I discussed several key building blocks we've been putting in place to drive our next leg of growth. These include scaling our credit platform, launching our next series of private equity and real estate funds and building on new products and businesses. Our Q3 results demonstrate that we're tracking well against these objectives. Our capital formation and credit is on pace for a record year in 2025 and credit deployment through the third quarter of nearly $17 billion already exceeds our full year 2024 total. Fundraising for TPG Capital X and Healthcare Partners III is off to a great start and with more than $10 billion raised in the first close. And we continue to expand through organic innovation. As Jon mentioned, we raised $2.1 billion of capital for TRECO, our opportunistic real estate credit fund, including related vehicles, and approximately $900 million today for T-POP, our new perpetual private equity product, which I'll expand on later. Additionally, earlier this year, we launched fundraising for our second GP-led secondaries fund which is tracking to be significantly larger than its processor. We ended the third quarter with $286 billion of total assets under management, up 20% year-over-year. This was driven by $44 billion of capital raised and $24 billion of value creation, partly offset by $26 billion of realizations over the last 12 months. Fee earning AUM increased 15% year-over-year to $163 million. These figures include TPG Peppertree, which closed on July 1 and added $8 billion of AUM and $4.5 billion of fee-paying AUM. As a result of our strong fundraising in recent quarters, our dry powder has grown to a record $73 billion. This represents a real strategic asset at a time when, as Jon indicated, our teams are sourcing very interesting investment opportunities. AUM subject to fee earning growth was $35 billion at the end of the quarter, which included $24 billion of AUM not yet earning fees. This represents a revenue opportunity of more than $220 million on an annualized basis. Our management fees grew to $461 million in the third quarter, driven by the activation of TPG Capital X and the addition of TPG Peppertree to our Market Solutions platform. We generated $38 million of transaction and monitoring fees in the quarter and $163 million over the last 12 months. We continue to invest in building our capital markets franchise. And as we look to the fourth quarter and into 2026, we expect to drive further growth in transaction fees. We reported quarterly fee-related revenue of $509 million, fee-related earnings of $225 million and a 44% FRE margin, which tracks well against our previous guidance of exiting the year with a margin in the mid-40s. Our distributable earnings for the third quarter were $230 million, which included $30 million of realized performance allocations, driven by our full exit from Sai Life Sciences, which has traded up nearly 70% since its IPO in the India Stock Exchange last December and the full sale of Samhwa, a leading cosmetics packaging company in Korea. This marks a strong first exit in TPG Asia VIII less than 2 years after our additional investment in the company and is a great outcome for our Asia franchise. I'd like to take them on explain the relationship between our monetization activity and our generation of performance-related earnings for shareholders. During the quarter, we continued to drive strong realizations across our portfolio, which increased nearly 40% year-over-year to $8 billion. The reason that PRE did not increase commensurately relates to the timing of profit allocations early in a fund's life. In addition to Sai Life Sciences and Samhwa, realizations during the quarter included early exits in several other funds, such as our highly successful sale of Elite in TPG Capital IX. These exits drove attractive profits and DPI for our fund investors, but did not result in significant performance allocations as the gains went to repay fees and expenses, which is typical for the first exits in the fund. Looking forward, this sets us up for increased performance allocations from the next series of exits in these young funds. On an LTM basis, we've generated $262 million of performance-related earnings for shareholders, which is 140% increase compared to the prior 12-month period. Our clients recognize the differentiated DPI we've delivered and we've continued to drive monetization activity since quarter end. In October, we completed our first major liquidity event in our GP-led secondaries business, TGS through a partial realization of CR Fitness, a leading fitness franchisee at an attractive valuation. Since our initial investment, our sponsor partner, North Castle and the management team have driven exceptional growth at the company, more than doubling both the number of active clubs and EBITDA. And just last night, our Rise and Rise Climate portfolio company Beta Technologies, which has developed electric aircraft capable of vertical takeoff, successfully priced a $1 billion all primary IPO. This IPO was very well received, allowing the company to upsize the offering and price above the filing range. Moving on to our balance sheet. We drew on our revolver during the quarter for several growth initiatives, including funding the cash consideration for Peppertree and seeding the portfolios for new businesses such as T-POP. We issued $500 million of senior notes during the quarter and used the proceeds to pay down our revolver. As a result, our net interest expense increased to $23 million in the third quarter. As of September 30, we had $1.7 billion of net debt and $1.8 billion of available liquidity, giving us ample flexibility to continue pursuing new growth initiatives. Given our increased diversification and strong financial profile, during the quarter, we did receive an upgrade in our credit rating from Fitch to A-. The fundamentals across our portfolios remained strong, and we delivered positive value creation in each of our platforms for the third quarter and over the last 12 months. As Jon mentioned, recently, there's been a heightened focus in the market on credit quality due to a few high-profile defaults. Importantly, we have no exposure to those events, and the underlying health of our credit portfolio remains strong. In aggregate, our credit platform appreciated 3% in the third quarter and 12% over the last 12 months. In middle market direct lending, our portfolio comprises exclusively first-lien loans with maintenance financial covenants. And we are a lead lender in nearly all of our transactions. We've built in significant downside protection and take an active approach to portfolio management. As a result, our portfolio of more than 300 companies continues to perform well. Nonaccruals remain extremely limited at less than 2% and our average interest coverage ratio has remained very stable at approximately 2x. In structured credit, our asset-based credit funds net IRR since inception remained above its target range at 13.5% and at the end of the third quarter. In addition, our flagship structured credit fund MVP continued to outperform credit benchmarks and returned 3% in the third quarter. Recent stress in the structured credit market has been evident in the subprime auto space. Several years ago, we identified weakening fundamentals in auto finance and our structured credit funds proactively rotated out of the sector. As a result, we currently have zero exposure. Looking at Credit Solutions, our funds generated net returns ranging from approximately 5% to 6% in the quarter, which far outpaced the U.S. leveraged loan and high-yield bond indices. In addition, our second essential housing fund generated a net return of nearly 4% during the quarter and more than 11% year-to-date. Turning to private equity. Our portfolio in aggregate appreciated 3% in the quarter and 11% over the last 12 months. Overall, the companies within our capital, growth and impact platforms continue to meaningfully outperform the broader market with revenue and EBITDA growth of approximately 17% and 20%, respectively, over the last 12 months. TPG's real estate portfolio appreciated 3.5% in the quarter, nearly 16% over the last 12 months. We continue to see strong performance and value creation in our data center, residential and industrial investments. TPG AG's real estate portfolio appreciated by 2% in the third quarter and 3.5% over the last 12 months. Our net accrued performance balance grew by nearly $200 million in the quarter to reach $1.2 billion, driven by our strong value creation in addition to $100 million of accrued carry acquired through Peppertree. Turning to fundraising. We raised more than $18 billion during the third quarter, including more than $12 billion in private equity and nearly $5 billion in credit. Year-to-date through the third quarter, we've raised more than $35 billion across our platforms, which already exceeds the $30 billion we raised in 2024. As Jon noted, private wealth is a strategic priority and an important growth driver for TPG. I'd like to share some additional detail on our progress in increasing our penetration within this channel. During the third quarter, we raised over $1 billion of capital in the wealth channel and approximately half of these inflows came from our evergreen solutions, which continue to gain momentum as we widen our distribution partnerships globally. TCAP, our nontraded BDC, raised $235 million in the quarter and continues to grow, reaching over $4 billion of AUM at the end of September. TCAP is actively distributed by 3 of the largest U.S. wirehouses, and we recently launched on one of the largest independent broker-dealer platforms. Twin Brook's focus on the lower middle market, conservative lending standards and high credit quality is continuing to differentiate TCAP relative to other credit options available to wealth clients. We're actively expanding TCAP's distribution network and expect inflows to continue to accelerate. T-POP, our perpetually offered private equity vehicle has been very well received in the channel, exceeding our high expectations. T-POP has raised approximately $900 million in its first 5 months, and we're experiencing increasing momentum as we grow our distribution footprint and investment portfolio. From its activation date in June through September 30, T-POP has delivered net returns of approximately 12%, and as of quarter end, provided exposure to 41 individual TPG portfolio companies. We're very focused on expanding our distribution for this strategy globally in 2026. Finally, we continue to expand our partnerships with global banks and wealth platforms, adding more than 20 new relationships in the third quarter. Additionally, we're actively structuring several innovative partnerships to extend our brand and increase the accessibility of our products for the wealth community, including in the RIA channel. We look forward to providing updates here in the coming quarters. Before I wrap up, I'd like to provide an update on our fundraising outlook. During the course of this year, as we anticipated, we've been experiencing a step function increase in the pace of our capital formation with a particularly robust third quarter, driven by the strong first close for our TPG Capital and Healthcare Partners funds. Most of the remaining capital for these funds will be raised next year. Nonetheless, we still expect the fourth quarter to be an active period for fundraising across asset classes. Looking at 2026, we expect to have another robust year of fundraising similar to this year, driven by a number of ongoing and new campaigns. In credit, we expect continued capital raising across all of our existing businesses. In addition, we're working on launching several new strategies to further expand our credit platform. In private equity, we'll continue to be in the market with our capital and climate campaigns. We expect to launch fundraising for the next vintage of our flagship Asia fund as well as our fourth Rise fund. On the real estate side, we expect 2026 to be an important and significant year for our franchise. We'll begin fundraising for the next vintage of TPG Real Estate's flagship fund and TPG AG real estate funds in both the U.S. and Asia. We also remain highly focused on diversifying our sources of capital and further penetrating the fastest-growing distribution channels. In Private Wealth, we expect to grow our distribution network in the U.S. and internationally and launch additional semi-liquid and yield-oriented products across asset classes. Additionally, we continue to organically expand our insurance relationships and evaluate broader strategic partnerships and inorganic opportunities. Based on the increased cadence and consistency of our capital formation efforts over the last few years, we've clearly been successful in expanding and diversifying our business. We're excited to continue building on this momentum and delivering differentiated results for our clients and shareholders. Now I'll turn the call back to Madison to take your questions. Operator: [Operator Instructions] And we'll take our first question from Glenn Schorr with Evercore. Glenn Schorr: I appreciate the color you gave us on the relationship between monetizations and PRE and some monetizations early in funds life. What's interesting is 69% of your net accrued performance is now in funds at 5 years are older. So I'm just curious, really good monetization backdrop according to the banks, brokers, you guys. So just how does that inform us about the realization pipeline that you're looking at given the age, timing and all the other comments? Jack Weingart: Yes, good question, Glenn. Let me start just by explaining that vintage page a little bit because I don't think we've done that in the past, and then Todd will expand a bit more on our outlook for PRE. But on that vintage chart, when we say vintage, the category vintage is before 2020 and earlier, that refers to the vintage of the fund itself not to the underlying portfolio of companies. So the biggest category there, for example, is TPG VIII, which is 2019 vintage fund. So those investments were made largely in 2021, '22 before we raised TPG IX. And then growth 5, the 2020 vintage fund, that's another big category in that kind of aged vintage bucket. And that's a 2020 vintage fund where most of those deals were done in 2021, '22, '23. So despite 2020 sounding like an earlier vintage, the vintage of the underlying investments are actually still pretty young. So that being said, that's what that page means. And Todd will expand more on our approach to monetization. Todd Sisitsky: Yes. I think just to echo what Jack said, these are a lot of newer deals. We are folks who drive growth in those investments that takes sometimes a couple of years, but we feel like we're at the appropriate cycle in terms of the liquidity in those funds. And I'd say that without repeating much of what Jack said, I do feel like DPI and liquidity has been a real differentiator for us. We approach it with a lot of intentionality. I think we bring the same level of focus and intensity that we do the investment decisions, which I think has been a differentiator for us, which is part of the reason we were net sellers in capital and growth in 2021, '22. We were net buyers in '23 when market pulled back and then net sellers again in '24. As I look forward, I feel like we are constructive on the liquidity prospects and feel like we have -- at present, we have a number of assets we're exploring liquidity around. Jon mentioned actually the majority of TPG Capital's investments in the last fund have been carved out and structured relationships. In many of the structural relationships, we actually know who the buyer of the business will be. In many of those cases, we have put call relationships, which I think is another interesting feature and a pretty unusual set of opportunities. The majority of the deals in capital over the last many years have been sold to strategics. The strategics, I think, are perking up and are active. We've also mentioned some IPO -- recent IPO as in yesterday. We've had more than 13 IPOs in India in the past few years. So we're taking advantage of those market opportunities as well. But overall, we feel good about the momentum in the portfolio. We feel good about the dialogues we're having, and we're constructive on the liquidity environment. Jack Weingart: Glenn, my comments on the call were meant to basically indicate that we are still aggressive on the monetization front. The timing issue I described is how that flows through to PRE. If the sales were made in more mature funds that had already had exits pay down the fees and expenses, which is the normal way a waterfall works, the PRE during the quarter would have been probably twice the $30 million. Todd Sisitsky: And so now eventually, we've cleared the decks. The next exit out of those funds should be -- should flow through to PRE. Operator: And our next question comes from Craig Siegenthaler with Bank of America. Craig Siegenthaler: We also have a question on realizations, but aggregate realizations, not PRE. For the first time since you IPO-ed almost 4 years ago, it is once again raining IPO and M&A announcements. If this continues, can you help us frame the level of realization potential out of your PE and growth capital businesses over the next year? And the reason I'm asking TPG this is the last time we had this backdrop in 2021, TPG was arguably the most active in the industry of monetizing. And it sounds like your commentary today is constructive, but maybe not super bullish. Jack Weingart: Maybe I'll start on that, Craig. It's Jack. The way I think about that, as you know, we don't forecast realizations and PRE for a good reason. We're going to sell companies when it's the right time to sell companies, and we have all the complicated waterfall mechanics that I just talked about. That being said, the way I think about it from the top down is our accrued but unrealized PRE performance allocation balance is now up to $1.2 billion, right? We acquired some PRE from -- accrued PRE from Peppertree. That was half of that increase. The other half was -- so we're seeing that balance start to grow again. And as you and I have talked about, one way to frame it is through a cycle, you would expect that we would monetize that balance over, call it, a 3- or 4-year time period. And the more attractive the market gets, the more we'll tend to lean into that. But the most important question is what are the underlying companies? Have we achieved our value creation plan? And is it the right thing to do for our funds and our investors to sell that business? And that will be our framework for thinking about each exit through the course of the year next year. Jon Winkelried: Craig, it's Jon. I think your interpretation of it is slightly off. I think that what -- when we were talking about this, I think what we were trying to communicate is this intentionality around what we do and how we do it. And when you look at how we built our portfolios across Capital VIII, Capital IX and now into Capital X, again, Todd just mentioned this, the dynamics of the strategic partnerships that we have in a number of cases, actually having strategics work alongside of us to know essential -- because they want an opportunity to acquire an asset. I think that what we've done is try to set up our portfolios in a way where we have multiple pathways in terms of exit opportunities. You look at the size of our companies, the size of our businesses. One of the things that we focus on, obviously, is creating value, which I mentioned in my comments, in terms of revenue growth, EBITDA growth and also trying to be intentional about where in the life cycle of that value creation, we actually start to think about selling or monetizing assets so that there is more in the tank as we think about who's ultimately going to buy the asset. And I think that if you look at our portfolios, I think we're actually overlaying that, by the way, is sort of a perspective on where valuations are. You made the point about '21, '22. We leaned in, obviously, and we sold our entire software portfolio back then because of the way we perceive valuations in the market. That turned out to be a very good decision. I would say that the -- what we meant -- what we're meaning to communicate is that we're as focused on how we think about making decisions around the buy in our portfolio as we are on the sell. And I would say that you should expect us to be active as it relates to how we think about monetizing our portfolios. And so I just wanted to clarify because I think your interpretation is a little bit off. Todd Sisitsky: Just the last thing I would add and both Jon and Jack have referenced it. One of the reasons I think we're constructive on the exits is just the strength of the portfolio performance. We have a portfolio on an LTM basis across private equity that's growing EBITDA at 20% plus and none of the platforms on an LTM basis are below 15%. They're all really performing well. And that is, of course, when we think about the strategic exits, but also IPOs, that's the best leading indicator. Operator: And we'll take our next question from Ken Worthington with JPMorgan. Kenneth Worthington: We're seeing far more concern about AI disrupting certain parts of the software technology and business services area. Two parts here. One, as you think about your investment portfolio, do you see any risks in the investment as that theme plays out? And then maybe hopefully more interesting, how do you feel about being on the winning side of this technological shift either through Peppertree or elsewhere in your various business verticals? Todd Sisitsky: Sure. Thanks for the question, Ken. We've been very early investors in AI. We started over a decade ago with C3 AI and had a number of the early predecessors to today's company as well as a number of the companies that are in the headlines today. And actually, some even limited to the equity side. Credit Solutions actually what I think is the first substantial debt investment in AI by leading the race for xAI last quarter. It helps that we're based in San Francisco. And with a good arm, you can probably hit more than half of the AI companies from our building. And we've invested significantly in AI capabilities. So we have an AI center of excellence in which our operations and business building team drive AI adoption on each of the portfolio companies. We have a lot of investments recently in AI specific human capital, the former Chief Technology Officer at Accenture, one of the co-heads of McKinsey software business. So AI is really part of everything we're doing now. It's moving quickly. It's part of every underwriting decision. Technology, in general, software, in particular, are certainly in our power alleys. I think you were specifically focused on the impact of AI there. Our software portfolio is growing earnings at 22%, 23%. And I do think it's having a meaningful impact, but that is having a meaningful in both directions. There's some real opportunities and net beneficiaries from AI. So for us, we've been spending time in areas like vertical market software, fintech, cybersecurity. We've seen that in a number of our recent investments. We've probably been a little more cautious on some of the broader horizontal themes in infrastructure software, where we see AI changing the landscape very quickly. And again, every single underwriting decision, not just in software, but particularly in software, has a high intensity focus on the impact of AI. Even in companies like health care IT, just to use one example, one of our largest investments in the last few years is a business called Lyric, which we bought out of UnitedHealthcare. It looks at 60-plus percent of the primary claims in the U.S. health care insurance industry. And so you would think as an algorithm-based business, you would have a big impact from AI. But for years and years, we have been the only ones on an aggregated basis that have a proprietary look at all that data. So AI really isn't a threat. Instead, it's an opportunity for that business to expand its footprint beyond the primary claims editing space. So it's really a very company-by-company analysis. And in the companies that I think we lean into, we really feel like it's an opportunity. To your point, AI has a huge impact on health care. It has a huge impact outside of equity in -- on the credit side as well. And we feel like we have assembled the right team and the right internal rigor to make sure that we're thinking quite dynamically and in an intentional way about how to make sure that we're on the right side of AI and then leveraging AI to drive performance in our portfolio companies. Operator: And we will take our next question from Alex Blostein with Goldman Sachs. Alexander Blostein: I wanted to spend a minute on credit. It feels like momentum in that business is finally starting to take off. We saw it with fundraising for the last couple of quarters, but it looks like deployment is also starting to catch up. So maybe spend a minute on how you see the growth evolving from here, where the incremental benefits on fundraising are coming from. And I think one of the items you highlighted also launch of new products when it comes to credit into 2026. And I was hoping you could expand on that as well. Jon Winkelried: Yes, sure. Thanks, Alex. It's Jon. Look, I think as we said in our comments, this has been the underlying thesis of when we acquired the Angelo Gordon business was that it was a platform that had a multi-strategy approach in terms of across lending, structured credit solutions, total return opportunities. And that inside of this firm, it would essentially step to the next level, both from the perspective of capital formation, but importantly, in terms of the overall ecosystem to originate and source transactions. And I would say that it's hitting on every cylinder in terms of the ability to scale the businesses. If you recall, one of the things that we said early on in the acquisition was that the businesses were out originating the capital base, essentially being undercapitalized and that's fundamentally changing now. You can see it in the scale of our capital formation across all of those businesses. You can see it in the uptick in relevance of our open-ended vehicles as well like TCAP that Jack talked about in terms of the acceleration. If you look at the inflows, for instance, into TCAP, our inflows are -- the slope of the line is steepening in terms of our inflows and the relevance of that product in the market. Same thing is happening in MVP in our structured credit business. What we've done is we have begun now also to really think about sort of the next level with respect to the various cost of capital -- the cost of capital of various investment strategies, particularly to serve our insurance company clients. I mentioned in my comments, the substantial increase in engagement with insurance clients. That is continuing -- continued in this past quarter. It's continuing again and really structuring various types of vehicles for our insurance company clients, whether they're funds of one or SMAs and moving now into things like IG risk in terms of being able to serve the insurance client across a range of assets and across a range of returns, which is obviously what is necessary in order to serve that market. We continue to have -- one of the things that we're observing in that part of the market is that I think there is an increasing awareness on the part of most of the life and annuity players in the market, but it's also getting broader than that, that not being -- not having partnerships in the alternative side of the business is very dangerous from a strategic competitive position. So as a result of that, because we don't own a captive at this time, we continue to see that dialogue increasing with respect to various forms of partnerships with a variety of different insurance clients, both here as well as internationally. And so I think that that's going to be -- I believe that what will happen over the course of the next number of quarters, over the course of the next year or so is we're going to continue to see sort of step function increases in the engagement that we have in that market. Likewise, I think we're working on expanding our capabilities with respect to the kind of retail wealth markets. And one of the things that we've been focused on is how do we access that part of the market more effectively, more efficiently in much bigger size. And Jack alluded to this in his comments, but I think that hopefully, we'll have some things to talk about over the next couple of quarters where we've had some meaningful progress and that's really all we can say about it at this time. But we're very focused on the ability to deliver return streams that, in many cases, are a combination of liquid and illiquid or liquid and alternative products. And so we're putting ourselves in a position and growing our capabilities to be able to deliver that. Lastly, I would say that other areas of growth for us there -- we've talked about this before, and I think you'll recognize this, but we have a best-in-class lower middle market lending franchise in Twin Brook. And one of the things that we have identified as a result of the sourcing capability that we have in both Twin Brook as it relates to our relationship as well as from Credit Solutions, where we're seeing larger kind of bespoke transactions and sourcing in some cases, even that's coming through relationships we have with sponsors from our private equity business, we are building into the next level of lending. We like to call it sort of graduating companies. It's a little bit broader than that, but we'd like to call it graduating companies where we have companies, over 300 portfolio companies in Twin Brook. They start life as companies that are generating $25 million of cash flow and less. And then they end up life at $40 million, $50 million, $60 million, $70 million, $80 million of cash flow, and we've been the lender to those companies for 3, 4, 5 years. We know those companies better than anyone. And so the risk dynamics of us extending into that part of the market is something that we have a reason to win. And so we are -- and we'll have more to say on this again also over the next quarter or 2, where we'll formalize this, but we are building into the next leg of growth in that, and we're already seeding a portfolio and we already have some traction with respect to some LP partners of ours that will anchor the strategy for us. But it's just a little bit too early to kind of roll it out, but we will be rolling it out over the next couple of quarters. So hopefully, that gives you a sense for sort of what the growth drivers are. Jack Weingart: I think, Alex, when you cut through all that, we're basically early in a multiyear period of growth in fee-earning AUM in credit, right? As -- you alluded to the fact that we're starting to see deployment pickup and fee-earning AUM. While that's been happening, our dry powder in credit over the past year has also increased by 35% or more percent. And as Jon said, we have multiple channels for additional fundraising and AUM growth that will flow into FAUM. So we expect the next several years to be attractive growth years for our credit business. Operator: We can move next to Steven Chubak with Wolfe Research. Steven Chubak: Can you guys hear me okay? Jon Winkelried: Yes. Can you hear us? Steven Chubak: Yes, loud and clear. So I wanted to ask on FRE margin lever. It came in above expectations in 3Q, 69% incremental margin, certainly a market improvement versus a 51% in 2Q. So while you reaffirmed the mid-40s FRE margin exiting the year, thinking about this longer term, just given prior comments supporting meaningful upside to FRE margins as the business scales, whether that higher mid-60s incremental margin is, in fact, a sustainable run rate, even with all the investments you had spoken of and how it informs your outlook for the FRE margin trajectory next year and beyond? Jack Weingart: Yes. Good question. We are reiterating our guidance to exit this year in the mid-40s. As I've said all along, that is not an end point for us. I think you're exactly right to be looking at the incremental margins in connection with growth in FRR. And we do see that to be well above the mid-40s. How far above will depend because we are investing and building what we want to grow in the next 5 or 10 years as a business. We're investing in things like building out our private wealth distribution business and many other areas. And we're going to continue to invest in our business. That being said, I would expect continued FRE margin expansion in the next couple of years. We have not yet given guidance on when we might get, for example, 50%. But 45% is a step along the way. Operator: And we will move next to Brian Bedell with Deutsche Bank. Brian Bedell: Great. Maybe just to go back to your comments on fundraising outlook. Great to see the really strong momentum here. I think, Jack, you mentioned '26, you obviously expect to be a robust year similar to '25. Just in terms of the new funds that you're bringing to market, just wanted to -- it seems like '26 should be even stronger than '25. I just wanted to make sure if I understand that correctly. And the reason I'm asking is because I think you've got Asia coming. Real estate, obviously, is a large stem function of Rise IV is coming to the market. You still have capital in the market and then probably continued growth in credit and wealth. So I just wanted to understand if that's the case. And if I could just throw in a question on the deployment and the transition infrastructure fund with Kinetic. Is that continuing to increase that deployment capability in terms of how you're seeing that form for fundraising for the Rise Climate segment of funds? Jack Weingart: Yes, thanks for the one question, Brian. We -- look, on the outlook, I was intentional in my words. I think next year will be a continued robust year. There are some puts and takes versus this year. Obviously, we had a very large initial close for TPG Capital and Healthcare Partners. We do expect to raise some more money for that in the fourth quarter. So that next year will be likely less capital risk because we've already raised well over half of our target we will have by the end of this year. On the growth side, we had a big final close for growth earlier this year. And our growth franchise in the U.S. won't be in the market next year. On the real estate side, one of the things that might be throwing you off, I think when I talked about our flagship real estate launch being an important launch next year, the way we're currently thinking about it is the majority of that capital will probably raise the following year because we probably won't have our first close until the back half of '26. So -- and you're right that we absolutely do expect continued robust fundraising on the credit platform, as Jon mentioned. So when you cut through all that, we see some puts and takes. But this year being as strong a year as it was, up more than 50% over last year, some might have expected a step down next year. We don't expect that. Jon Winkelried: Just on your sneak in second question on deployment around TI and climate, I guess, generally. I think, first of all, we're -- across the strategies, I would say that we are seeing really unique deployment opportunities, really unique. And we like what we're seeing. We think we're going to generate differentiated returns. And again, we've said this before, but we think that across these various types of climate strategies between private equity and infrastructure that it's a generational investment opportunity, and it's a global opportunity as well. So I think that we've been quite active. Just to give -- just to put a pin in that, I think we've deployed $2.3 billion of capital this year across those strategies. And obviously, Kinetic being the most recent on the TI side, that was our second investment in TI. And so that continues to be a portfolio that we're building, and we're fundraising alongside of it contemporaneous with that. And I think when you look at the trends going on around in the world in terms of the demand for power on a global basis, electrification, colocation opportunity, storage, et cetera, we're seeing really interesting opportunities. And again, we're seeing it on a global scale. So we're very enthusiastic about what that ultimately will look like, and we're -- it's a very active strategy. Operator: And we will take our next question from Michael Cyprys from Morgan Stanley. Michael Cyprys: I wanted to ask about M&A. You guys have done a number of inorganic transactions already over the last couple of years. So just curious, as you look at the platform today, what's left to fill in to accelerate one scale or presence? Where might inorganic activity be helpful? I'm just curious what you're seeing on that front. And how do the recent transactions inform your approach as you look forward? Jon Winkelried: Yes, sure. Thanks, Michael. Look, I think, first of all, I would say that we have been -- as you know, we've been very focused and intentional about the type of inorganic activity that we've engaged in. And we feel like where we have executed, we're executing really, really well. And there's a lot -- there's -- I think you have an appreciate -- we've talked about this before. You have an appreciation for the fact that it begins with the deal and -- but that's sort of like the tip of the iceberg and most of it is underneath from there in terms of execution, integration and really making it work, cultural engagement and then growth. And we feel like we have been very successful at it, and we feel like we've devoted a lot of skills in terms of understanding how to do it. So it's something that we feel will be a kind of arrow in our quiver in terms of growth on an ongoing basis. One of the other things that I think we see happening is that because of the overall trend line in our industry, which is, I think, the kind of the bigger getting bigger, a trend towards consolidation, I think that one of the things that we see happening is we -- because of our having established our bona fides and being able to do this well, I think we are the recipient of a lot of incoming across a range of different strategies. And that is very helpful because obviously, we have a good look at what's going on. And in many cases, what we're finding is that potential targets or counterparties want to engage with us on a proprietary basis which is also an attractive way to kind of at least evaluate whether or not it's something that makes sense for us. And if so, then execute on it on terms that make sense. So we're -- I would say that our overall kind of business development effort is pretty active just in terms of seeing opportunities and evaluating them. We're going to be picky as you would expect. There are areas that I think, without getting into too much detail, I think there are areas in the market that continue to be interesting to us. Obviously -- and there's not only product strategies, but also geographies as well. I think that we're continuing to focus on how to continue to broaden our footprint in Europe, as an example. And there may be sort of opportunities there that develop for us. Nothing to do right now today, but I mean that's just an area that interests us because we are a global firm. We could find opportunities that I would describe as kind of tuck-ins or fill-ins in our credit strategy that might be interesting to us. There are areas potentially related to the build and infrastructure that might be interesting to us because obviously, we have 2 pieces to that now, TI and then also Peppertree. And I think we want to continue to think about how does that part of the market expand for us. There's a lot of interesting developments going on in the market as it relates to secondaries in our market. As the primary markets across all the asset classes grow, I think the secondary flows are going to become more and more important to the market. So that's another really interesting area. Operator: We'll take our next question from Bill Katz with TD Cowen. William Katz: I appreciate all the guidance and discussion so far. Maybe just 2 areas of growth seems still being the wealth and the capital markets areas. So I wondering if you can maybe update us on maybe where you see the incremental spend. And then on the wealth side, in particular, just sort of curious, you mentioned a number of times, new products, new geographies, maybe unpack that a little bit in terms of where you see the greatest opportunity in the near term. Jon Winkelried: Jack, why don't you start with wealth? Jack Weingart: Sure. Bill, thanks for the question. Look, wealth is a multiyear build for us, right? The starting point was launching T-POP alongside our existing products and the existing evergreen products, MVP and TCAP and getting kind of the flagship private equity product in the wealth channel on the evergreen side launched effectively. And that, as I mentioned, is off to a great start with lots of room to grow from here. The $900 million is the latest AUM number we've announced there, and we see substantial continued growth through the rest of this year and next year. Part of that growth, all of that so far has been almost entirely on 3 platforms. In the platforms in which we are selling T-POP, we are one of the most attractive or high volume private equity evergreen products, if not the most active. That -- so it's extremely well received, but we're very early in the expansion across additional distribution partners. So through the course of next year, you'll see that. You'll see us expanding partnerships to broaden out and globalize effectively the placement of T-POP. Along with that, there are several additional products that we feel like we're well suited to bring to market. The first would probably be a multi-strategy credit interval fund. We talked about how well received TCAP is as a direct lending BDC. The other businesses, as we've talked about, that we have in credit through Angelo Gordon are also distinctive businesses in structured credit, Credit Solutions, et cetera. So having a credit interval fund that much like T-POP feeds on all of our private equity deal flow that benefits from all of the flow across our credit platform, we're seeing on demand for that in early -- I'd say, mid-stage discussions with potential channel partners who want to see that product. And then the next tent pole would be in real estate. We have no nontraded REIT at this point. We have an excellent real estate business that's diversified across lots of different components. So we're in active discussions with channel partners who would like to see a real estate product from us. So that's kind of a near-term road map with more to come. Jon Winkelried: I think on capital markets, I think that you should expect that our capital markets business will continue to grow. Obviously, it's a transactional business. So the general flow of opportunities is correlated -- capital markets will be correlated to that. But one of the things that has happened over the course of -- I'm sure you've seen it in the trajectory of our revenue over the course of the last several years is that as we have been embedding our capital markets capabilities into each of our platforms in each of our product areas, we're involved in as a capital provider, as a capital arranger across almost all of our businesses now. And with the addition of our credit franchise, it's taken sort of a next step with respect to our ability to use the broker-dealer and use our capital markets capabilities to distribute and to source. So I think that our outlook for that is that as the firm grows, it will continue to grow. Operator: This concludes the Q&A portion of today's call. I would now like to turn the call back over to Gary Stein for closing remarks. Gary Stein: Great. Thanks, operator. Thank you all for joining us today. If you have any additional questions, please feel free to follow up directly with the IR team. Operator: This concludes today's TPG's Third Quarter 2025 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day.
Operator: Good day, and welcome to the UFP Technologies 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 Ronald J. Lataille, Senior Vice President, Treasurer and Chief Financial Officer. Please go ahead. Ronald Lataille: Thank you, operator. Good morning, and thank you for joining us on our third quarter 2025 earnings conference call. With me on today's call is our CEO and Chairman, Jeff Bailly. Today, we will make some forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, the accuracy of which is subject to risks and uncertainties. Wherever possible, we will try to identify those forward-looking statements by using words such as believe, expect, anticipate, pursue, forecast and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today and should not be relied upon as representing our estimates or views on any subsequent date. Please refer to the cautionary statement regarding forward-looking information and the risk factors in our most recent 10-K and subsequent 10-Qs, including disclosure of the factors that could cause results to differ materially from those expressed or implied. During this call, we will discuss non-GAAP financial measures, which include organic sales growth, adjusted gross margin, adjusted operating income, adjusted SG&A, adjusted EPS and EBITDA and adjusted EBITDA. A reconciliation of GAAP to non-GAAP measures discussed in this call is contained in the associated press release and is available in the Investor Relations section of our website. I'll now turn the call over to Jeff. R. Bailly: Thank you, Ron, and thank you to everyone joining the call. UFP delivered solid Q3 results despite absorbing abnormally high costs related to the labor inefficiency challenge at our AJR Illinois facility. Overall sales grew 6.5% to $154.6 million. Our MedTech business grew 7.3% with impressive growth in Interventional and Surgical, Orthopedics and Wound Care, each of which grew greater than 30%, offset by a 23% decline in Patient Services and Support, which is our AJR, Stryker business. Advanced Components or non-medical business declined 2.7% as we continue to focus the majority of our resources on our MedTech business. AJR, of 6 acquisitions we completed over the last 15 months, faced an issue when we went through the process of verifying the team's eligibility to legally work in the U.S. The e-verify process led to the turnover of greater than 50% of the direct labor workforce. Retraining a large percentage of our workforce reduced our output, resulting in a significant reduction in revenue and a third quarter $3 million reduction in gross profit and operating income and a $0.28 reduction in diluted EPS. We expect much of the revenue from delayed orders will be recaptured in the coming months when our capacity ramps back up to required levels, and we can work down the backlog of open orders. We've made significant progress in hiring and training new associates. July was the low point of our inefficiency when we suffered a significant loss in Illinois. And have made steady progress since with a smaller loss in August and a return to solid profitability in September. Although we expect the inefficiency to impact a couple more quarters, the greatest impact is now behind us. AJR's results in the Dominican Republic should also continue to improve as qualifications are completed and production of transfer programs ramps up. Our first program is in commercial production. The second is in the qualification process, and we anticipate a third program transferring in 2026, all of which was contemplated in our 5-year exclusive supply agreement with Stryker. On the robotic surgery front, revenue was up 5.1% in Q3. We are completing the launch of 2 significant new programs. The combined revenue of those 2 programs should be greater than $10 million in 2026 and then continue to grow rapidly from there. We are also in discussions to increase and extend our $500 million contract with our largest customer. They've asked us to plan for significantly increasing volumes. Both companies plan to make multimillion dollar investments towards increasing capacity and efficiency at our La Romana facilities. We are simultaneously working on extending our exclusive supply agreement for a critical raw material in robotic drapes. As a result, we remain very bullish about our long-term future robotic surgery. Our 2 recently completed acquisitions, UNIPEC and TPI are both performing well ahead of expectations and have been immediately accretive to our earnings. Organic growth for UFP was essentially flat in Q3 due to the reduction in AJR sales quarter-over-quarter. setting aside acquisitions completed in the prior 15 months, UFP's base business grew approximately 5%. In conclusion, we have a lot of positive momentum and good news to look forward to. AJR's return to profitability and improving operating efficiency as new team members complete their training, positive impact of the transfer business in the Dominican Republic launching and then reaching commercial production, 2 new robotic surgery programs launching and beginning commercial production, an extension in process for our long-term contract with our largest customer with significantly increased volumes contemplated and planned multimillion dollar capital investment by our customer and the positive impact of our recent acquisitions, combined with our efforts to find strategic acquisitions that increase our value to customers. I will now hand it over to Ron to provide additional details on our financial results. Ronald Lataille: Thank you, Jeff. I am also pleased with our third quarter results as we delivered solid numbers despite working through the large nonrecurring labor challenge at AJR. Before I provide more color on these numbers, I'd like to start by providing a brief update on tariffs. As mentioned in our second quarter call, we do not expect to be directly subject to a material amount of tariffs, and that was true in our third quarter when we paid approximately $160,000 in tariffs to the government, of which all was or will be passed through to our customers. On the supply side, our new estimate of the annual amount of tariffs to be passed through by our suppliers is approximately $6 million, down from the $9 million estimate in Q2. Like the direct tariffs, we anticipate passing through the raw material increases to our customers, some of which have already occurred. Switching back to operating results. As Jeff mentioned, organic sales were essentially flat as the AJR business flipped from inorganic to organic for all of Q3. Due to the labor problem at AJR, more than $8 million in incremental orders were unable to be fulfilled during the quarter. Had we been able to meet the production demand, organic sales would have grown approximately 6%. In light of these unfilled orders, backlog going into Q4 is approximately $16 million, much of which we expect to fulfill by early 2026. Gross profit as a percentage of sales or gross margin decreased to 27.7%, largely due to the $3 million in extra labor costs incurred at AJR, which are all reflected in cost of sales. Absent the $3 million in additional labor costs, gross margins would have increased to 29.6%. As Jeff mentioned, we have turned the corner in terms of recovery. And in fact, last week, the amount shipped were 3x higher than the low point since the problem surfaced. Adjusted operating margin for the third quarter was 17% of sales, within our target range despite the $3 million of extra labor costs. Interest expense was down significantly as we continue to delever our balance sheet and our effective tax rate of 22.2% for the third quarter was down slightly from a year ago. During the third quarter, we generated $35.9 million in cash from operations, paid down approximately $17.5 million in debt and ended the quarter with a leverage ratio well below 1.5x. Capital expenditures were $3.4 million. With that, I now turn it back to the operator for questions. Operator: [Operator Instructions] The first question comes from Justin Ages with CJS Securities. Justin Ages: Can you give us a bit more color on the growth in robotic surgery, that 5%? How much was from your largest customer? Any more details on that? R. Bailly: Yes. So if you do the math on our largest customer, their growth was actually higher than that. It was closer to 8%. And the reason is we had this sort of 1-year phenomenon where if you go back in time, we were producing pouches, the sort of critical part between the robot and the surgical instrument for the last couple of decades, some of which were sold directly to Intuitive Surgical, some of which were sold to our competitor. When we moved to Dominican Republic, those sales were no longer to an outsider. They were part of the product that we sold to Intuitive ourselves. So there's -- this is 1 year where this impact is going to happen. So robotic surgery sales of about 5.1% was a blend of Intuitive Surgical being higher than that, offset by this onetime impact. Justin Ages: That's helpful. And then on the -- some of the other MedTech, the Interventional Orthopedic that grew, I think you said strong around 30%. Just looking any indication or any hints of the demand that you're seeing, if we can expect that to continue going forward? R. Bailly: Yes. I mean we were seeing very strong demand in all 3 of those markets. It was a blend of some of our acquisitions and some of our internal growth. But the only market really across the board that we saw any compression in related to patient services and support, which is literally our AJR/Stryker. So we see like a nice tailwind in most of our markets, offset by this sort of onetime item that we have to work our way through. Operator: The next question comes from Brett Fishbin with KeyBanc. Brett Fishbin: I wanted to follow up on some of the commentary about the contract dialogue. I think you noted in the press release and then again in the prepared remarks that you're in discussions to extend and expand that contract with your largest customer and mentioned that volumes are expected to increase significantly. So I wanted to follow up and just see if there's any additional color you're able to provide on that. And I was really wondering, does the word expand imply that the contract may include additional SKUs relative to what's been done in the past? And then can we assume that higher volume also means higher overall value for UFP. R. Bailly: So yes, we have been requested to revisit the contract. I think the goal is going to be a rolling 4-year contract. So there's a couple of years left, maybe a little bit more. And so they're looking to extend it out a couple of years. The key is, from our perspective, they need us to plan for substantially higher volumes. In order to do that, we literally have to get a brand-new building. If you recall, we brought on building 5 this year in our robotic surgery campus. We're going to have to add a sixth building. We're going to have to add new capital, new personnel, et cetera. So we need a commitment from them. And conversely, they need a commitment from us so that they can be assured of continuity of supply. In general, when we do a new contract, it does incorporate all the products, not just the Xi, it would roll in all the other ones at the same time. Simultaneous with working on that contract with Intuitive, we're going back and negotiating with our key supplier. So we'll look for our supplier to give similar commitments for volume that we do over the same 4-year period. And the volumes that are being contemplated are significantly increased over where we are now, particularly in the out years. We have the capacity already to do, I think, about 9 million drapes, but they're looking for us to plan to do substantially more than that in the out years. Brett Fishbin: All right. Super helpful. And then maybe I'll just follow up on -- in the quarter, I think inorganic revenue was again higher than we were expecting and looking at the 12-month run rate, I think it was a little bit above $9 million. So maybe just touch on how the acquired businesses performed versus your expectations and whether the upside relative to, call it, the trailing 12-month rate was more from the new ones, UNIPEC and TPI or from the final stub period from some of your deals from last year. R. Bailly: So to start, both of our 2 new ones are small, but they're performing fantastically well. They're turning out to be home runs, even though they're little, both strategically by bringing us new capabilities and financially. So I would say the impact from the new acquisitions is relatively small. And so the inorganic growth you're more seeing is from the previous ones rolling forward, but we are thrilled with both of our new small acquisitions. And despite the fact that the small ones are not as impactful that we're able to -- I come up with much more pro shareholder valuations in those than we're seeing in the market for the much larger deals. So we're still happy with the small deals. Operator: The next question comes from Max Michaelis with Lake Street Capital Markets. Maxwell Michaelis: I want to go to -- go back to the 2 programs that are expected to ramp in 2026. I think you mentioned a $10 million number in revenue contribution for next year. But sort of help me out, what do those 2 programs look like in terms of size, maybe once that's fully scaled, let's call it, in 2027 or 2028? R. Bailly: Yes. So our estimate of $10 million in my feeling is very conservative. I think one of those programs alone could be $10 million in 2026 and the other about half that size. We're always very conservative in year 1 because we don't know if there's going to be delays in launching. But they're both substantial greater than $5 million programs at rate and both growing rapidly. So in the out years, one of them could be $20 million plus within a few years and the other one harder to say, but they're both rapidly growing programs that we're super excited about. So I would take the $10 million as conservative and then look for 2027 to be a wonderful uptick from there. Maxwell Michaelis: Awesome. And then just with the recent discussions and the extension of your contract with Intuitive, I know you talked about sort of an investment needed in the building 6. I mean, how much are you guys in terms of investment on the hook for? Is this all on their side, I guess? R. Bailly: It's being discussed and negotiated. They have already committed to a multimillion dollar investment that's related to improving efficiency. Some of their internal initiatives came up with some efficiencies that are helpful to us, and they share all these things with us. So they're in the process of a multimillion dollar investment right now. Typically, they're shared capital. At a minimum, we would be on the hook for investing in the leases, et cetera. I think the inclination of late is more that it would be Intuitive's capital than ours, but it has not been decided. It could be 100% either one or it could be split down the middle. In the past, we've done both. But I would expect some multimillion dollar sharing of capital in the end. Operator: The next question comes from Cooper Andrew with Raymond James. Noah Lewis: This is Noah on for Andrew. Just wanted to get a sense for the AJR pacing. You called out $8 million of incremental orders this quarter, $16 million in backlog. I think you said earlier to a question, you haven't seen any demand impact. So how should we think about you working down that backlog over the next few quarters? And should we expect AJR being able to return to growth as you see those efficiencies? And so what should we expect from kind of that nonintuitive business that's kind of major. So just get a sense there. R. Bailly: Sure. So we are working hard to reduce that backlog. Unfortunately, there -- or fortunately, their business itself is growing. So the demand internally is growing and the backlog, as you say, is about $15 million or $16 million. Our goal is to work it down as fast as possible. I think that they'd like us to have it done by the end of the year. I think that's going to be a tall order. We're way more interested in output than efficiency right now. So we're throwing a lot of resources at getting their backlog down. As we go into next year, we're still expecting the business to continue to grow. So all on its own, it will grow at a double-digit rate, plus we'll be working down the backlog. So we have quite a bit of tailwind going into next year. So our goal, like I said, is to get our customers' orders fulfilled as fast as possible with less focus on efficiency. Next year, we'll turn our attention to doing things much more efficiently. Noah Lewis: Okay. Awesome. And then just one quick follow-up and kind of following up to that point on efficiency. We've already had that labor headwind sort of troughing in 3Q and getting better from here. So now that you're sort of working -- now that you're working through all of that, how should we expect gross margins to pace going forward? I know you're lapping like the headwinds next year, but just kind of curious how should we expect margins to trend as you pull out those efficiencies in light of your LRP ranges? Ronald Lataille: This is Ron. Noah. So yes, we would anticipate gross margins gradually improving. As Jeff mentioned in his script, the inefficiencies are not going to be 100% eliminated. They'll linger into Q4 and potentially even into Q1 of next year as we focus on output rather than efficiency. So I think they will gradually improve from where we were in Q3, but I don't think they'll be back to where sort of adjusted gross margins would have been had we had no inefficiency in Q3. Operator: The next question comes from [indiscernible] with [ AFR ]. Unknown Analyst: I just want to drill on the $8 million of orders that weren't filled in the quarter. I just -- I think you mentioned it, Ron, in your prepared remarks, but just so I'm clear, that closed July of '24, so it is considered organic this quarter year-over-year? Ronald Lataille: It is. Unknown Analyst: And so in a perfect world where you had delivered those, we should actually think about medical being more like $150 million, roughly 13%, 14% growth year-over-year? Ronald Lataille: Yes, I think that's right. To be clear, if we were able to deliver on the $8 million of backlog, organic growth would have been approximately 6%. Factoring in the inefficiency, the $3 million, if we were -- if we did not have that $3 million, gross margins would have been -- adjusted gross margins would have been approximately 29.7%. EPS would have been approximately $2.67 and adjusted EBITDA would have been approximately $33.7 million. Unknown Analyst: Got it. Got it. And thinking about that EBITDA, I get that there was $3 million of AJR costs, but I got to imagine there's costs associated with the ramp-up in the qualification programs that you guys were getting started in the quarter? R. Bailly: Yes, 100%. Every program launches with losses and then transitions to breakeven and then to profitability. So the programs launching in the DR are still in the losses phase and the programs launching in La Romana will be in the losses phase for the first quarter or 2. Unknown Analyst: I mean, how would you -- can you size that for us? Or how should we think about that? It's just -- I'm trying to -- obviously, you guys -- you punched above your weight in the quarter with a lot going on. And I'm trying to kind of dig at what would be a good -- how should we kind of view I don't know, lack of a better term, run rate EBITDA? And I get it, $30.7 million of EBITDA, add $3 million and then you have these onetime costs. How big are those roughly? R. Bailly: I mean for us, it's the cost of doing business because we're constantly launching programs, so we usually don't quantify them. It's -- per program, it's not millions of dollars, but it's hundreds of thousands of dollars per program. But again, we're used to this. We factor it into our planning. So we're constantly launching programs and constantly absorbing modest losses. But those several hundred thousand dollars of loses will turn into profits over the next couple of quarters. So it will be meaningful, but it's just the cost of doing business for us. Unknown Analyst: And I know you guys talked about obviously wanting to serve the customer, getting that product out the door, not worrying so much about efficiency. But is it fair to assume the incremental margin on that additional $8 million probably would have been something a little greater than 20% or in that 20% to 25% range? R. Bailly: We would probably think of it more as contribution because all the fixed costs are kind of there, the rent, the engineers and everything. So the contribution is considerably higher than that when you subtract direct costs. Ronald Lataille: Yes, [indiscernible], it's probably in the 30% to 35% range. Unknown Analyst: So I mean, we should be thinking about it in a perfect quarter where none of this stuff happened, you're actually kind of run rating more like a $36 million, $37 million of EBITDA. Ronald Lataille: I think that's right. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Bailly for any closing remarks. R. Bailly: Yes. Thank you all for your participation and interest in UFP. As you can tell, we are super bullish about our future, particularly on the long-term front for robotic surgery. We will work our way through this onetime AJR issue. We have, for the first time in the history of our company, actually filed a claim after doing 20-something deals for a miss on a rep and warranty. So maybe or maybe not, we'll get reimbursed for our expenses. But one way or another, they're onetime in nature. We'll move through them. We're working through them quickly. So we appreciate your patience in the process, and we appreciate your interest in the company. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. R. Bailly: Thank you, everyone.
Operator: Welcome to the LGI Homes Third Quarter 2025 Conference Call. Today's call is being recorded, and a replay will be available on the company's website at www.lgihomes.com. After management's prepared comments, there will be an opportunity to ask questions. At this time, I'll turn the call over to Joshua Fattor, Executive Vice President of Investor Relations and Capital Markets. [Technical Difficulty] Joshua Fattor: Thanks, and good afternoon. I'll remind listeners that this call contains forward-looking statements, including management's views on the company's business strategy, outlook, plans, objectives and guidance for future periods. Such statements reflect management's current expectations and involve assumptions and estimates that are subject to risks and uncertainties that could cause those expectations to be incorrect. You should review our filings with the SEC for a discussion of the risks, uncertainties and other factors that could cause actual results to differ from those presented today. All forward-looking statements must be considered in light of those related risks, and you should not place undue reliance on such statements, which reflect management's current viewpoints and are not guarantees of future performance. On this call, we'll discuss non-GAAP financial measures that are not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in the press release we issued this morning and in our quarterly report on Form 10-Q for the quarter ended September 30, 2025, that we expect to file with the SEC later today. This filing will be accessible on the SEC's website and on the Investor Relations section of our website. I'm joined today by Eric Lipar, LGI Homes' Chief Executive Officer and Chairman of the Board; and Charles Merdian, Chief Financial Officer and Treasurer. I'll now turn the call over to Eric. Eric Lipar: Thanks, Josh. Good afternoon, and welcome to our earnings call. During the quarter, our teams remained focused driving leads, managing inventory and supporting our customers by delivering exceptional customer service and providing a seamless road to homeownership. Thanks to our outstanding efforts, we delivered positive third quarter results that were in line with the guidance provided on our last call. During the quarter, we closed 1,107 homes. Of this total, 1,065 homes contributed directly to our reported revenue of $397 million. The remaining 42 were currently or previously leased homes, the profits of which reflected in other income. Gross margin came in at 21.5%, and adjusted gross margin was 24.5%, both in line with the guidance range we provided. We've been successful in maintaining the overall strength of our margins even while operating in the most challenging segment of the market. That's on purpose and it's worth spending a few moments discussing why. First, we take a thoughtful approach to financing incentives. With higher mortgage rates driving affordability challenges, buydowns and other financing tools are among the most effective ways to tell buyers reach the closing table, and we continue to lean into offering the most competitive buydowns possible. However, going to extremes and buydowns just to move a few incremental homes is something we're working hard to avoid. Second, we continue to price all of our homes competitively, and we use price adjustments selectively, focusing on aging inventory while maintaining or raising prices in high-performing communities. Third, we prefer not to sacrifice margins to institutional land bankers. As a result, we don't have a pipeline of lot takedowns pressuring us to start homes prematurely, heavily discounting them to keep the system moving or to renegotiate takedown schedules which leads to higher future lot costs. Avoiding these situations gives us the freedom to be patient and make smart long-term decisions that will benefit our shareholders. Our best land banking partner has been and will continue to be the seller. Finally, because we primarily self-develop our lots, our margins include the profit a developer would have earned. This adds several hundred basis points to our margins and sets our performance apart from other builders who rely on purchasing finished lots. It's also a key reason we have never taken an inventory impairment. In short, our margins reflect disciplined execution, not elevated pricing. We do everything possible to manage costs and deliver high-quality beautiful home at a price that enables as many first-time buyers as possible to achieve the dream of homeownership. During the third quarter, our top market on a closing per community basis were Charlotte was 5.7%, Las Vegas was 4.7%, Raleigh was 4.2%, Greenville was 3.7% and Denver with 3.5% closings per community per month. Congratulations to the teams in these markets on their performance last quarter. Another highlight of our results was a significant increase in net orders and backlog. As we noted on our last call, sales trends improved in the back half of June, continuing into July, as mortgage rates declined from their midyear highs. These trends continued into August and September, driven by continued relief in rates and sales initiatives connected to our year-end Make Your Move National Sales Event. Because mortgage rates remain the key pressure point for entry-level buyers, we introduced exceptional financing options, including a forward rate buy-down commitment, which has a meaningful impact on improving affordability for many buyers. Additionally, we're offering price discounts of up to $50,000 on select older inventory. Together, these initiatives jump-started sales activity, demonstrated by an 8% increase in net orders compared to the same period last year and a 44% increase compared to the second quarter. As a result, our backlog at quarter end was up 20% year-over-year and 62% sequentially. We're encouraged by the momentum these initiatives have generated and view them as a positive step forward as we head into the fourth quarter. Before I hand the call over to Charles, I'll note that our long-term view of the housing market remains solidly optimistic. The underlying demographic trends continue to support our strategy, while the widening supply gap makes the attainable housing options LGI provides more valuable than ever. With that, I'll invite Charles to provide additional details on our financial results. Charles Merdian: Thanks, Eric. Revenue in the third quarter totaled $396.6 million, down 39.2% compared to the prior year, driven by a 39.4% decline in closings. The average selling price of homes closed was $372,424, up slightly from last year, primarily driven by geographic mix and lower magnitude of incentives and was partially offset by a higher percentage of wholesale closings in the third quarter. The wholesale channel remains a compelling way to balance our home inventory. Our wholesale operation generated $54.5 million of revenue, resulting from 163 home closings or 15.3% of total closings compared to 9.1% of total closings in the same period last year. Our gross margin was 21.5% compared to 25.1% in the same period last year, the decline was primarily driven by a particularly strong comp last year, along with higher lot costs and capitalized interest as a percentage of revenue and a higher mix of wholesale closings. Adjusted gross margin was 24.5% compared to 27.2% in the same period last year. Adjusted gross margin excluded $11 million of capitalized interest charged to cost of sales and $1 million related to purchase accounting, together representing 300 basis points compared to 210 basis points last year. We expect capitalized interest to remain elevated due to higher borrowing costs and have reflected such in our fourth quarter guidance. Combined selling, general and administrative expenses totaled $63.6 million or 16% of revenue, in line with our guidance. Selling expenses were $35.7 million or 9% of revenue, up slightly from 8.5% in the same period last year. General and administrative expenses were flat year-over-year at $28 million. As a percentage of revenue, G&A expenses were 7.1% compared to 4.3% in the same period last year. Both selling and general and administrative expenses were higher as a percentage of revenue due to lower volumes. Other income in the quarter was $5.2 million, primarily resulting from the gain on sale of leased homes, finished lots, other land held for sale and LGI living lease income. Pretax net income was $26.7 million or 6.7% of revenue. Our effective tax rate was 26.2% compared to 24.3% in the same period last year. And for the quarter, we generated net income of $19.7 million or $0.85 per basic and diluted share. Order metrics improved materially in the third quarter with net orders coming in at 1,570 homes, an increase of 8.1% over the same period last year and 43.9% sequentially. Our cancellation rate in the third quarter was 33.6%, similar to the prior quarter of this year. Backlog at quarter end totaled 1,305 homes, up 19.9% year-over-year, and 61.5% sequentially. The value of our backlog at quarter end was $498.7 million. Of the homes under contract, 60 were tied to contracts with institutional buyers representing 4.6% of total backlog compared to 212 or 19.5% of backlog in the same period last year. Currently, we're seeing continued interest from our wholesale partners and we're well positioned for increased engagement from institutional buyers seeking to acquire scaled portfolios of finished inventory. However, the ability to transact continues to depend on alignment around pricing expectations. Turning to our land position. At September 30, our portfolio consisted of 62,564 owned and controlled lots, a decrease of 8.8% year-over-year and 3.4% sequentially. Of our total lots, 53,148 or 84.9% were owned and 9,416 lots or 15.1% were controlled. Of our owned lots, 36,316 were raw land and land under development, 25% of which were in active development that we expect to deliver over the next few years. The remaining 16,832 owned lots were finished. Of those, 13,136 were vacant and 3,696 were related to completed homes or homes under construction. We had 895 homes under construction at quarter end, down 40.8% sequentially and 54.7% year-over-year as we continue to focus on rebalancing inventory in select markets to meet current sales trends. The value of our portfolio of owned lots continues to be a competitive advantage for LGI Homes, with an average finished lot cost of approximately $70,000 and lot costs representing just over 20% of our ASP in the third quarter, our land position provides a meaningful cost advantage that supports margin stability even in a volatile market. This low basis enables us to offer competitive pricing to buyers while preserving profitability and it reflects years of disciplined land acquisition and development. During the quarter, we started 725 homes. We expect to continue to balance starts in the coming quarters primarily focusing on new and high-performing communities while slowing or pausing starts in communities where there is unsold existing inventory. I'll now turn the call over to Josh for a discussion of our capital position. Joshua Fattor: Thanks, Charles. We ended the quarter with $1.75 billion of debt outstanding, including $623.6 million drawn on our revolver. We remain focused on reducing leverage, ending the quarter with a debt-to-capital ratio of 45.7% and a net debt-to-capital ratio of 44.8%. As inventory levels decreased and development spend moderates, leverage will continue moving toward the midpoint of our targeted range of 35% to 45%. Total liquidity at the end of the quarter was $429.9 million, including $62 million of cash and $367.9 million available under our credit facility. Our liquidity was up by over $107 million compared to the prior quarter, over $54 million compared to the same period last year. As of September 30, our stockholders' equity was $2.1 billion, and our book value per share was $90.10. With that, I'll turn the call back to Eric. Eric Lipar: Thanks, Josh. Rates are down and sales were up. This recent increase in the pace of sales is an encouraging sign and our October closings demonstrate that the fourth quarter is off to a strong start. Tomorrow, we plan to issue a press release announcing that we close between 390 and 400 homes in October, pending verification of funding. This is our best month since June and reflects early signs of momentum coming from our sales initiatives. Community count at the end of October was 141 communities. We're continuing to write contracts in a market where many of our buyers need additional time to stay for a down payment, make modest improvements in their credit or sell in the existing home. This dynamic results in longer times between contract and close. Based on our current backlog, recent pull-through trends, October closings and current sales trends, we currently expect to close between 1,300 and 1,500 homes in the fourth quarter. At the midpoint of this range, that would represent a 26% increase in closings compared to the third quarter. We remain focused on affordability and meeting buyers at a monthly payment where they are able and willing to transact. We expect an average sales price in the fourth quarter to range between $365,000 and $375,000. Community count at year-end is expected to be approximately 145. Looking ahead, we expect community count at the end of 2026 to increase by 10% to 15%, reflecting continued investment in growing community count in our existing markets. Fourth quarter gross margin is expected to range between 21% and 22% and adjusted gross margin between 24% and 25%, similar to the results we delivered in the third quarter. Finally, SG&A expenses are expected to fall between 15% and 16%, and our tax rate is expected to be approximately 26%. We're pleased with our third quarter results and proud of the hard work our teams have put in to build up the backlog and position us for success in the quarters ahead. Their efforts drive our results and lay the groundwork for future opportunities, and I want to thank them for their continued focus and dedication to our company and to our customers. We'll now open the call for questions. Operator: [Operator Instructions] And our first question will be coming from Trevor Allinson of Wolfe Research. Trevor Allinson: First question is on the acceleration in orders of more than 40% sequentially. So clearly much better than normal seasonal trends. You talked about the benefit of lower rates, but since you also talked about some company-specific initiatives. Can you talk about which of those do you think was the biggest driver of the acceleration? And then should we view this as a strategy shift to lean into more volume? Or were some of the actions or a reflection of a desire to move some of the aged inventory that you guys had? Eric Lipar: Yes. Thanks, Trevor. Great question. This is Eric. I want to look at it as a strategy shift to start with. I think what we've been talking to investors about and talking throughout the call, we're in the affordable housing business focused on an entry-level buyer. And we talked about rates are very important in that affordable monthly payment. And rates, the headline rates as the lowest has been in the last 12 to 18 months is that 10-year pop below 4%. And as rates went down, our sales went up, not a surprise to us, just offering a more affordable monthly payment. There are things that's happened when rates have come down, where our incentives and the value that we're providing, not necessarily spending more money, but being able to offer a 3.99% promotional rates is something we never offered before, and that's new for the quarter. We continue to lean into advertising dollars when appropriate. And this quarter, we were able to increase our advertising, drive more leads because it was working to drive those payments. And also the team in the field is doing a great job. We're hiring more salespeople. The field is taking more on more responsibility and training our new sales reps and doing a great job with that. So all those in combination is really more, I think, market-driven and affordability driven, not a shift in strategy. Trevor Allinson: Okay. That was really helpful. And then second is on your views on your own land position and you had some commentary about the benefits of your own land position, but appreciating you guys -- your orders did jump here. It does seem overall like the market still remains pretty slow for most of the industry. You guys still control give or take 10 years of land. So is there a desire to more significantly work down your land positions here? And if you have already done -- begun doing this to some degree, what's been the appetite from other builders for additional land? Charles Merdian: Yes. Trevor, this is Charles. I can take that one first. So we're constantly looking at our land supply in terms of what our current absorptions are, timing our development. We've got 13,000 finished vacant developed lots, which is a little heavier than we typically would like to have, but given the fact that we started development on a number of these communities beginning back in 2021, 2022. So we have a number of communities that have been either in entitlements or active development for several years, and they're just now coming to fruition and getting online for sales. So we feel very confident in our basis in those finished lots. So of our 13,000 finished lots, we have an average lot cost basis in the 70s, which we think is a tremendous value to help us maintain stability in margins, gives us a cost advantage when we're thinking about our land inventory and when to bring it on. And then the processes and what we're working with is managing our future development spend. So our development spend is sequentially coming down. We had about 9,000 lots that were in active development that's going to come into the operation over the next couple of years. So I think as we continue to focus on absorptions, work through the vacant developed land, we think eventually we are going to be in a position where the land inventory has been rightsized and in line with what we would expect. As far as availability of land and what we're offering, we do have some communities where we have excess finished -- vacant developed lots in terms of where we're thinking about we may have another community that we can adjust and put in behind it. So we're actively working on making good decisions on monetizing those where appropriate. Didn't have a lot of activity close in this quarter, but we just continue to evaluate that and make good decisions, whether to monetize those finished lots or whether to put them in the queue for future home construction. Operator: And our next question will be coming from Kenneth Zener of Seaport. Kenneth Zener: So the commentary around 10% to 15% community count growth, 2 aspects. First, given your selling and training process, which is unique to you guys. Can you talk about how much of that, I guess, the G&A is in your fourth quarter guidance as we think about modeling that community count growth? And then is that community count growth, could you give us like a first half, second half lift? Or is it steady? Eric Lipar: Yes, Ken. Yes. No, good question, Ken. This is Eric. I can talk about the community counts and then Charles can talk about the G&A part of that. But community count, I think is going to be spread equally through 2026. One of the notes I made is the state that will be primarily driving the increase in community count are Florida, Texas and California, but they'll be spread equally through 2026. They're all bought, they're in process, and we're confident with that number. Charles Merdian: Yes, Ken, as far as SG&A goes, I'll start with G&A. I mean, we've been averaging around $30 million in quarterly G&A expense going all the way back to the beginning of 2024. So we feel pretty comfortable that we've pretty well established the overhead side from a G&A perspective. And then as we bring in new community counts, we have the incremental dollars that we're going to have in terms of installing our information centers, hiring new sales staff, our office managers and our sales managers. So incrementally, those come in as a similar percentage of our expected revenue. So we don't think there's any front-ending, if you will, on this coming up next 12 months of community count. We're in the same geographic areas. So we're not expanding into any new markets. So our leadership infrastructure is in place, so that should be limited additional costs related to that. Kenneth Zener: And then thinking about leverage, sticking with SG&A on units. Obviously, the first quarter was quite high this year, but we've been in that kind of 15 range, 2, 3, implied 4Q or -- a little higher. But can you comment about given where your SG&A is and the gross margin pressure, I think we can understand. But what do you think about SG&A given your community count? And how you see the business unfolding? Would it -- should it stay at the same rate or as we are ending this year or do you think you're going to get some lift in SG&A in general? Eric Lipar: Yes, Ken, great question. Charles can add to it. But I think we look at SG&A, as it's really all about leverage and volume and absorptions. The G&A is predominantly fixed, the amount of marketing dollars fixed, but the total percentage of SG&A that was 16% last quarter, that is entirely dependent on the volume. And volume is not where we want it to be right now nor the past couple of years. It's improving in Q4, and we're excited about the orders in the backlog heading into Q4 and our guidance is for closings to be up 26%. And that's why we're guiding to a little bit less SG&A percentage in Q4 because of the leverage we're getting from closings. Operator: Our next question will come from Alex Rygiel from Texas Capital Securities. Alexander Rygiel: Can you talk a bit about the types of mortgages that your buyers are taking? And are they -- are you starting to see any use adjustable rate mortgages? Eric Lipar: Yes. Thanks, Alex. This is Eric. I can take that. About just over 60% of our customers are taking FHA mortgages. And then when you combine that with VA and a very small percentage of USDA. I'd say government makes up 70% to 75% of our customers. And then conventional mortgages are another 10% to 15%. Adjustable rates, more customers are taking adjustable rates only because we are offering -- I mentioned it earlier, a 3.99% 5/1 ARM product, which is a fixed rate for 5 years at 3.99% which has been very positive in the market and then well received by our customers. Alexander Rygiel: Super helpful. And then directionally speaking, as we look out into 2026, anything unique dynamic that could affect your average selling price? Or should we just model it based upon our own views as to how much price you might get next year? Eric Lipar: Yes. I think my personal opinion is ASP is really going to have a lot of geographic component to it. And then it also, even on a community-by-community basis, the customers, the range of floor plans in available communities is usually $60,000 to $80,000 from the smallest floor plan to the largest floor plan. So that brings a layer of variability to it. We've been seeing our average square foot decrease in a more challenging affordability market. Costs right now are slightly down, which is a little bit of a tailwind to margins, but a little bit lower ASP, all things considered. So we have a view that prices are going to continue to go up. Our average sales price was $160,000 in 2019 and $240,000 in 2019. So when you look at cost over the next 3 to 5 years, we believe they'll continue to go up and our ASP is going to continue to go up. Over the next year, we'll see how it plays out and probably use your judgment as well. Operator: And our next question will be coming from Andrew Azzi of JPMorgan. Andrew Azzi: Just wanted to dig in a little bit on the community count growth for next year. That was definitely helpful guidance. I mean is that outlook inclusive of the view that demand kind of improved significantly from here? Or are you kind of dedicated to that growth, let's say, if current trends were to continue? Eric Lipar: Yes. We're dedicated to that. The dollars are in the ground, and that would be at a community count that would be level with the current pace of absorption today. Andrew Azzi: Got it. And how would you compare your incentives currently, let's say, 6 months ago? And how are you thinking about kind of adjusting these alongside your strategic initiatives? I believe just to touch on that, I think it was just the rate buydown and the price discounts. I'm curious if there are any others that are in the pipeline, but I would love to hear your thoughts there. Eric Lipar: Yes. I would describe it as similar. We have been leaning into incentives and focus on getting older inventory sold and closed. I think the overall market coming down is what's been the difference for us is our similar pain points to get a lower rate, you just get more value from that right now. You can see in our gross margin guide being similar to -- in Q4 as Q3. We're not planning on incentivizing more current levels, current levels of gross margin, and then we'll see what 2026 holds. But I think incentive levels have been consistent and it's something that all of us in the industry have had to do for the last couple of years. Operator: And I'm showing no further questions at this time. I would now like to turn the call back to Eric for closing remarks. Eric Lipar: All right. Thanks, everyone, for participating on today's call and your continued interest in LGI Homes. Have a great day. Operator: This concludes LGI Homes Third Quarter 2025 Conference Call. Have a great day.
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: 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.