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Preben Ørbeck: Good morning, and welcome to Aker Solutions presentation of our third quarter results. My name is Preben Ørbeck, and I'm the Head of Investor Relations. As usual, I'm joined by our CEO, Kjetel Digre; and our CFO, Idar Eikrem, who will take you through the main developments of the quarter. After the presentation, we have time for questions. Those of you who are following the webcast can submit your questions via the online platform. And with that, I leave the floor to Kjetel Digre. Kjetel Digre: Thank you, Preben, and welcome to everyone tuning in. As always, let me start the presentation with the main messages for today. First and foremost, I'm pleased to report that we continue to deliver solid financial results in a period of high activity. Our third quarter revenues were NOK 17 billion, which is an increase of almost 30% from the same period last year. And we delivered an EBITDA margin of 8.8% in the quarter or 7.2% if we exclude net income from SLB OneSubsea. In Aker Solutions, our core focus is to deliver predictable project execution. And during the quarter, I'm pleased to report that we met all key milestones on the Aker BP portfolio and celebrated the official opening of the record-breaking Ormen Lange Phase 3 project at Nyhamna. And speaking of high activity. Based on our secured backlog, we now expect revenues for the full year of 2025 to exceed NOK 60 billion. To put this into perspective, this represents more than 3x our revenues in 2020 and 2021 when excluding the Subsea division. However, as we mentioned in our second quarter presentation, we expect activity levels to come down in 2026. Market conditions are changing, and we need to adapt. But fortunately, that is how we have always operated. First of all, we have a scalable business model that is designed to respond to cycles. We are also improving efficiency throughout our organization and in our projects, implementing new digital solutions and robotics to reduce cost and time to first energy. I'll talk more about this later. But first, I will take you through some of the operational highlights of the quarter. Let me start again with the Aker BP portfolio. I'm encouraged to report that the projects are progressing according to plan. As you saw from the introduction video, several important milestones were met during the third quarter. Let's start with 3 highlights from the Hugin A project. In July, we celebrated the sail away of the massive 22,000-tonne jacket substructure from our yard in Verdal. The jacket was later successfully installed at the Yggdrasil area in the North Sea. And at Egersund, the utility model was successfully loaded out and transported to Stord for final assembly. And in late September, another critical milestone was met when this wellbay module arrived at Stord from our partner yard in Dubai. Progress was also good on the Valhall PWP and the smaller Hugin B and Fenris projects in the period. In addition, our Life Cycle segment is actively engaged in modifying existing infrastructure on the Valhall central complex and on the Skarv FPSO. Across the Aker BP portfolio, I continue to be impressed by how teams across Aker Solutions and the alliance partners are working together to deliver these complex projects. Some projects are also leaving our yards to start the offshore installation and commissioning phases. One example is the Jackdaw project, where the topside was successfully loaded out from Verdal and installed offshore in the U.K. This is a so-called not permanently attended installation, enabling lower manning and cost-efficient production from the gas reservoir. Moving over to Ormen Lange. In August, we celebrated the official opening of the Ormen Lange Phase 3 project together with SLB OneSubsea, Subsea 7 and Shell. Aker Solutions has been responsible for the integration of the subsea compression system with the Nyhamna onshore gas plant. This includes the delivery of a 500-tonne module providing power, cooling, heating and ventilation for the offshore project. SLB OneSubsea has been responsible for the subsea compression system, which enables increased recovery from the Shell-operated Ormen Lange field. I think it's worth mentioning that the project has set a few records when it comes to subsea work. One is for the deepest installation of a subsea compression system in water depths of more than 900 meters. It also set a new record for the longest subsea step-out, delivering gas to the Nyhamna plant more than 120 kilometers away. We are also working together with SLB OneSubsea and Subsea 7 on the Jansz subsea compression project for Chevron in the Western Australia. Aker Solutions is responsible for the delivery of about 30 modules to what will become part of the world's largest subsea compression system, weighing approximately 6,500 tonnes. Deliveries of modules from our Egersund started in early October this year with the final transport to the field planned in the fall of 2026. Next, I wanted to highlight our progress on what we have called the second-generation renewables projects. These are projects we have taken on with balanced risk reward profiles and joint focus on standardization to drive down project costs. On Norfolk, we are progressing as planned on the 2 HVDC platforms executed in our joint venture with our partner, Drydocks World, seeing significant benefits in copying effects from the first to the second topside. We have also started work on the jackets for these platforms, taking advantage of our state-of-the-art robotic production line at Verdal. Lastly, I wanted to touch upon our hydropower business. Personally, I'm very happy to see that hydropower, which is a growing market, is back as a key offering to our energy clients. I don't know of many companies that can brag about having 150 years experience in this market, but we do. From our state-of-the-art facilities at Tranby, featuring Europe's largest mill-turn machine, we are supporting hydropower's new role in the energy mix, providing flexible and reliable power when society needs it. One example is the Svean project for Statkraft, where Aker Solutions is delivering all electromechanical equipment. This delivery is key to modernizing the Svean plant with a target of providing 10% more electricity through higher efficiency using the same resources. All in all, I'm pleased to see that we continue to deliver predictable project execution across our portfolio, and I would like to recognize the contribution of our 12,000 employees as well as the thousands of subcontractors and hirings who make this possible through their expertise, dedication and teamwork. Next, I will talk about our tender pipeline and market outlook. At the end of the third quarter, our active tender pipeline stood at about NOK 75 billion. This was a slight reduction from the second quarter, mainly driven by the announced cancellation of Equinor's electrification projects in Norway. In the current environment, the market conditions are getting tougher, especially for new investments within renewables and transitional energy solutions. A key part of our response is to work closely with both developers and our delivery partners to mature commercially viable projects. This relates both to the adoption of new tools and technologies such as AI and robotics, but also how we work together to come up with innovative concepts and designs that enhance efficiency, reduce costs and reduce delivery times. This joint improvement agenda is also highly relevant within oil and gas, where we are currently in the process of renegotiating several important long-term frame agreements for maintenance and modification services. And we're also working with clients to mature several greenfield oil and gas opportunities with the aim of turning them into future projects. So to summarize, the last 5 years have been a remarkable growth and transition journey for Aker Solutions. And I'm very proud of the fact that we continue to deliver solid financial results with such a high workload across our locations. This is a true testament to the capabilities of our 12,000 employees and the culture that we have developed together. At the same time, we recognize that the market is changing around us and that our activity levels will go down in 2026. That said, adapting to change is not something new in Aker Solutions' 180-year history. As mentioned, we have a scalable business model, enabling us to ramp up and down activity. Furthermore, we are working closely with our clients to mature new opportunities, both in traditional oil and gas and within renewables and transitional energy solutions. And finally, our financial position remains robust. This gives us a strong foundation to continue developing the company and generate solid returns for our shareholders over time. And now I will pass the word to Idar, who will go over the numbers in more detail. Idar Eikrem: Thank you, Kjetel. I will now take you through key financial highlights for the third quarter, our segment performance and run through our financial guidance. As always, all numbers mentioned are in Norwegian kroner, unless otherwise stated. So let me start with the income statement. The third quarter revenue was NOK 17 billion, up 29% from the same period last year. The underlying EBITDA was NOK 1.5 billion with a margin of 8.8%. If we exclude the net income from OneSubsea, our underlying margin was 7.2%, in line with our guidance for the full year. The underlying EBIT was NOK 1.1 billion with a margin of 6.6%. And the underlying net income was NOK 863 million, representing an earnings per share of NOK 1.79 in the quarter. Now let's take a look at the cash flow. Our financial position remains robust with a net cash position that increased to NOK 2.5 billion in the quarter. Operational cash flow in the period was around NOK 400 million. This was mainly driven by EBITDA contribution from our operating segments as well as reversal of working capital of about NOK 550 million. CapEx in the period was NOK 94 million, representing about 0.6% of revenues in the quarter. And lastly, the quarterly dividends received from our 20% stake in SLB OneSubsea was NOK 142 million. Now let's take a closer look at our segments. For Renewables and Field Development, the third quarter revenue increased to NOK 12.5 billion, representing a year-on-year growth of 36%. The underlying EBITDA in the quarter was around NOK 1 billion with a margin of 8%. The legacy lump sum project continued to be a drag on the margins in the period. However, I would also like to mention that margins on the second-generation renewable projects are healthy. The order intake in the period was NOK 7.1 billion, leading to a secured backlog of NOK 41 billion at the end of the quarter. Based on the secured revenues and backlog, we now expect the revenues in this segment to be around NOK 45 billion for the full year of 2025, representing a growth of about 20% from 2024. For the Life Cycle segment, the third quarter revenue came in at NOK 3.8 billion. This is a 10% increase from the same period last year. The underlying EBITDA was NOK 275 million with a margin of 7.2%. Order intake was NOK 2.6 billion or 0.7x book-to-bill. The backlog was NOK 19.1 billion, dominated by long-term frame agreements and reimbursable modification project with long-term customers. Based on the secured backlog and market activity, we expect revenue in Life Cycle to be around NOK 15 billion for the full year of 2025, representing a growth of about 15% from 2024. Moving to our financial performance of the SLB OneSubsea here shown as 100% basis translated into Norwegian kroners. You will also see that we have added some more detailed financial information about SLB OneSubsea in the appendix to this presentation. In the third quarter, OneSubsea reported revenue revenues of NOK 9.9 billion. For the first 3 quarters of 2025, revenues for the company were about NOK 30 billion. The EBITDA in the quarter was about NOK 1.8 billion with a margin of 18.4%. The margin in this quarter was negatively affected by change in revenue mix and one-off cost on our legacy project. Underlying execution, however, remains strong. So far in 2025, the company has delivered an EBITDA margin of 20%. Net income for the entity was around NOK 1.1 billion before PPA adjustments. After this adjustment, Aker Solutions recognized NOK 295 million for our 20% share. I should mention that these figures include a NOK 95 million catch-up effect from our second quarter reporting as actual performance was better than forecasted. In the first 3 quarters of 2025, Aker Solutions has recognized about NOK 670 million in net income from OneSubsea into our financial figures. The backlog for the company was NOK 47.3 billion at the end of the quarter. Order intake in the period was about NOK 11.5 billion or 1.2x book-to-bill. This includes the award of a 12-well all-electric subsea production system for the Fram Sør field for Equinor. The company expects order intake to increase towards the latter part of the year, positioning the company for growth in 2027 and onwards. As you can see, SLB OneSubsea is an important contributor to Aker Solutions' financial performance and value creation. Since the closing of the merger, SLB OneSubsea has built up a solid net cash position of about $440 million. The company has an attractive dividend policy with a target to distribute about $280 million to its shareholders in 2025. For Aker Solutions, this represents a dividend of -- at current exchange rate of between NOK 550 million and NOK 600 million this year. Now to sum up. In the third quarter, we continue to deliver solid financial and operational performance. As we have said before, the legacy lump sum projects have been both operational and commercially challenging. Commercial discussions are still ongoing with both clients and subcontractors to solve these commercial challenges. Based on our secured backlog and market activity, 2025 revenues is now expected to exceed NOK 60 billion with an EBITDA margin in the range of 7% to 7.5%. As mentioned, at this early stage, we expect activity levels to come down in 2026 with revenue forecasted to be around NOK 45 billion. SLB OneSubsea is an important contributor to the financial performance of Aker Solutions. The company has built up a solid net cash position and is on track to distribute about $280 million to its shareholders in 2025. At current exchange rate, this implies a dividend to Aker Solutions of about NOK 550 million to NOK 600 million this year. CapEx for 2025 is estimated to be around 1% of revenue. And lastly, working capital is expected to normalize to between negative NOK 4 billion and negative NOK 6 billion over time. That was the end of our presentation. So thank you for listening. In a few moments, we will open up for questions. Preben Ørbeck: Okay. The first question comes from Erik Fosså in SpareBank 1 Markets. Can you talk about the disappointing AR7 budget and how it affects your business, particularly looking at the Vanguard East and the Vanguard West projects? Kjetel Digre: Yes. First of all, a comment on U.K. If you look at the regions where we are involved and energy transition efforts and renewables, one of the places that are really both predictable and forward-leaning with ambitions is U.K. So that's one comment. I think this will develop and offshore wind is going to be a key to U.K. going forward. And then to this specific question. In Norway, we have our relation with our client RWE. And in those projects that I mentioned, the Norfolk, Vanguard East and West, we have milestones to reach and the projects are progressing very well as seen in the video here. The things are puzzling together in a predictable way. And we will just continue to deliver that in good sort of coordinated fashion together with our clients. So no big issues there, and we are pushing on. On the OneSubsea... Preben Ørbeck: And there is a follow-up from Erik Fosså on if you can give some indication on what to expect in SLB OneSubsea in 2026? Kjetel Digre: Just to start off just with the OneSubsea part of it, we are closely coordinated, obviously, through our ownership there. And what we see in different regions, for instance, in the NCS is that the subsea is a solid and healthy brick in the puzzle for energy projects. And for instance, the Norwegian continental shelf is going into an area where lifetime extensions, subsea tiebacks and also bigger greenfield subsea projects and also more complex technology elements like the compression project that is going to be stable/increase. And so that's what we see in our OneSubsea sphere. Idar Eikrem: Yes. Just to add to this, you will also see in this quarter that we have provided some additional information of the historical performance of OneSubsea since the establishment. So that should help you. And with the combination of market information, you should be able to sort of make some assessment of what the 2026 could bring. Preben Ørbeck: Moving on to a question from Lukas Daul in Arctic. What are the main factors that can impact your preliminary 2026 guidance? Idar Eikrem: Yes, our preliminary guidance for '26, as you can see, we have came out with the top line guidance and that we have put NOK 45 billion in top line, which is a reduction from current level of NOK 60 billion plus and that was expected due to the high activity level that we are currently doing. Preben Ørbeck: Moving on then to a few questions from [indiscernible]. I can start with the first, Aker BP has increased the CapEx guidance on the key development projects. How does this affect Aker Solutions as an alliance partner? Kjetel Digre: Well, first of all, I guess, information about projects and the status is something that we really get from Aker BP. Our part of it is that we are engaged as an alliance partner in big projects, many of them in different parts of the asset setup of Aker BP and the projects are on track, both when it comes to progress, when it comes to quality, safety and also the sort of the main prognosis of reaching the start-ups as planned. CapEx is then always a combination of potential new scope, which we know is part of some of these projects and then also how we, along the way, are taking actions to make sure that we are delivering within Aker BP's sort of frames and budgets. So -- and as an alliance partner, we are in a peak activity and many of us, including myself, are spending a large and a major portion of our time actually to safeguard these projects in a good sort of collaborative way in these alliances. Preben Ørbeck: Next question from [ Neil ] when do you expect the conclusion of the multiyear life cycle frame agreements that are currently on tender? Kjetel Digre: Yes. I would say it's quite a sort of a special timing now because many of them, almost all of them has been up for renewal. And I think without sort of commenting this firstly, what is really a great opportunity is that all our clients on these contracts are inviting for a common improvement push, and that's what we are right in the middle of now. And then these things will then -- it's back to the clients sort of decisions to when they are ready, but it will be in the months to come that these things will be clarified both in Norway, but also in, for instance, Canada. Anything to add, Idar? Idar Eikrem: No. Preben Ørbeck: The third question from [ Neil ] did you make any loss provisions related to the legacy projects in the third quarter? Idar Eikrem: Yes, that also cover another question that we have got on this provision line that you can see in the balance sheet, there is a reduction of NOK 100 million roughly from second quarter to third quarter. In that provision line, you will have 3 elements. One is onerous contracts, loss-making contracts, which is going down in the provision. And then you have a warranty provision on ongoing project, and those have increased during the quarter of natural reason of progress. And the last element that goes into that line is all other provisions that we have in addition to the 2 first ones. Preben Ørbeck: Thank you. Next question from [ Neil Agnus ] whether it's sustainable with a CapEx of only 1% in Aker Solutions? Kjetel Digre: Perhaps I can start just on referring back to the activity package. That's what we are right in the middle of now to deliver on. And when launched, pointing at all these oil and gas opportunities that we are now realizing, it came with an expectation and pointing at opportunities to both sort of modernizing the industry engaged in oil and gas and then also gradually make sure that we are ready to take on tasks and responsibilities in the new energy verticals. So that's what's been happening now for 3 to 4 years. We have been investing billions in our yards to upgrade to be more efficient, to be safer, and we also invested in the competence of our people. And all in all, this was necessary to be able to push through the activity level that we're actually engaged in just now. Historically, Idar, perhaps you can comment. Idar Eikrem: Yes. No, it's correct what you are saying. And now we are in a phase where we actually are capitalizing on the investment that we have done over the last few years. We have enlarged our capacity quite significantly. And revenues for next year is forecasted to be NOK 45 billion and 1% is sort of the CapEx guidance for that year due to the -- we can capitalize on the investment that we have done. Any sort of CapEx over and above that needs to be sort of separate business cases that would be good for us and shareholders to do, and then we will announce that separately as a special case. Preben Ørbeck: Excellent. That seems to be -- there seem to be no further questions from the audience. So with that, thank you all for listening in and from everyone here. Goodbye.
Operator: Good day, and welcome to the Peabody Q3 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vic Svec of Investor Relations. Please go ahead. Vic Svec: Thanks, operator, and good morning, all. Thank you for joining today to take part in Peabody's third quarter call. Remarks today will be from Peabody's President and CEO, Jim Grech; CFO, Mark Spurbeck; and Chief Commercial Officer, Malcolm Roberts. Following the remarks, of course, we'll open up the call to questions. Now we do have some forward-looking statements today, and you'll find our full statement on forward-looking information in the release. We do encourage you to consider the risk factors referenced there as well as our public filings with the SEC. And I'll now turn the call over to Jim. Jim Grech: Thanks, Vic, and good morning, everyone. I'm pleased to report that Peabody continues to perform quite well with great safety results, good volumes, strong cost containment, a pristine balance sheet and an outlook that points to more of the same. Our third quarter was punctuated by strong thermal coal shipments and historically low met coal costs. Also, I'm delighted to say that the longwall production at our flagship Centurion mine begins next quarter. We expect shipments of Centurion's premium hard coking coal to expand sevenfold in 2026 to 3.5 million tons and even more beyond that time. Development and hiring remains on track and longwall equipment is beginning to be installed underground ahead of the February start. Over the 25-plus year mine life, we expect Centurion to be our lowest cost metallurgical coal mine. And by itself, the mine should boost our average met coal portfolio realizations as a percent of benchmark from the 70% mark this year to roughly 80% in 2026. All of this occurs against market pricing that is toward the lower end of the pricing cycle. To steal a bit of Malcolm's thunder, I'll share our belief that all 3 of our end markets could have upside pricing pressure in 2026. Mark will tell you that we have designed Peabody to produce positive EBITDA even during the toughest times while generating substantial cash flows during mid- to higher parts of the cycle. We're now at an interesting inflection point on how investors should be looking at our company. Our capital investment in Centurion is tapering down even as the longwall mining begins in the next quarter, setting us up to expand free cash flows in both directions. That bodes well for shareholder returns using our established policies. Let's now turn to what we're seeing in U.S. fundamentals. One of the world's largest hedge funds recently commented to us that Peabody was at the intersection of some of the most significant themes going on in America, and I couldn't agree more. Consider a few of these. The AI data center theme continues to play out with new investments being announced weekly. When coupled with plans for increased U.S. manufacturing, this means power generation will struggle to keep up with demand for the foreseeable future. U.S. coal plants reliability and affordability also continues to be emphasized. During the coldest days of last winter, for instance, fossil fuels provided more than 90% of the additional U.S. generation needed versus just 4% for wind and solar. The often quoted national average of 16% of electricity from coal also doesn't do justice to the workload, reliability and economics that coal power generation provides in certain states. For example, our home state of Missouri gets approximately 60% of its electricity from coal, while California has virtually no coal-fuel power. As a result, Missouri's average cost of electricity was just $0.11 per kilowatt hour last year, but California power averaged $0.27, nearly 2.5x that of Missouri. The third quarter continued to see 202 (c) executive orders to keep coal-fueled generating plants open and utilities announcing additional extensions. The count of life extensions for U.S. coal fuel generation now totals 58 units and 46 gigawatts of generation, more than 1/4 of the total installed base. This comes as the Trump administration continues to implement common sense policies. In the third quarter alone, we saw federal funding and emergency orders to extend the lives of coal plants, a 5.5% reduction in the federal coal royalty rate and an upcoming 2.5% production tax credit from the one big beautiful bill. We also saw a growing national focus on securing rare earth elements and critical minerals. We have long said that our leading U.S. thermal coal platform and particularly our Powder River Basin position represents a free option for investors. To extend that analogy, today, that option is nicely in the money. With that brief overview, Malcolm, I'll now turn the call over to you to give more color on the markets. Malcolm Roberts: Thanks, Jim, and good morning, everyone. I'll begin with a look at the seaborne markets, where the notable change in metallurgical coal this past quarter has been how unchanged those markets have been. Consider this, the normally volatile premium hard coking coal benchmark price averaged $184 per metric ton in the third quarter, which is the same as the price it averaged in Q2 and just $1 per ton lower than Q1. The global steel story has continued to center around China's anti-involution policies, which appear to be firming as the country looks to trim unprofitable supply. China's crude steel production is down roughly 3% year-to-date. Unfortunately, domestic steel demand has also been sluggish, so Chinese steel exports are still running at elevated levels. Lower crude steel production in traditional markets outside China has tempered the benefit of new blast furnaces in India and the incremental coal imports they represent. I'll remind listeners that while China imports less than 20% of its metallurgical coal demand, India imports 90% of its steelmaking coal needs. We note that in recent days, China has been aggressively pursuing imports of premium seaborne coking coals as domestic pricing in China has risen to a level that makes imports attractive. Seaborne met coal supply continued to see challenges this past quarter with some producers struggling at these sustained low pricing levels. we estimate that 45 million tons of seaborne met coal production or 15% of seaborne supply is earning an unsustainable level of revenue at current price levels. Benchmark prices today stand at approximately $195 per metric ton. Next year's forward curve is in the $215 range. This coming quarter, we'll be looking at the pace of Chinese policies and the strength of the restocking cycle in both India and China. Seaborne thermal coal saw some support in the third quarter with the average benchmark price up 8%. Positives for demand include developed Asian markets in Korea and Taiwan favoring Australian imports over Russian coals, while Chinese coastal plant stockpiles stand at a 12-month low. Anti-involution policies are touching all of China's coal mines, where the 276-day work limits, safety checks and production quotas invariably have an impact on most. Enforcement has been observed, but has been sporadic. On the supply side, seaborne thermal production is adjusting with large exporting nations such as Indonesia and Colombia curtailing unprofitable production. An improving market balance is reflected in the forward seaborne thermal benchmark price contango with next year's Newcastle pricing up 9% above current levels. During Q4, we anticipate winter restocking post shoulder season, and we'll see if the recent rebound in Chinese imports accelerates. Within U.S. markets, I'll reinforce Jim's initial remarks. The favorable trends we've discussed all year are well intact. Through 9 months, total U.S. electricity demand is up 2% over the prior year. That relates mostly to the early-stage build-out of data centers and increased load growth from AI. Electricity demand growth only looks to expand with ICF International, for instance, forecasting 25% growth within 5 years and 78% growth within 25 years. Peabody has been saying that increasing utilization of existing coal plants represents the best form of incremental power in the U.S., and that's exactly what has occurred year-to-date. Percentage growth in U.S. coal generation has been 5x greater than overall electricity generation growth. The 11% increase in U.S. coal burn this year has been driven by good fundamentals, including natural gas prices that have averaged $3.45 per MMBtu, leading to gas generation being down 3%. And those trends may well be repeated next year with a forward curve for natural gas averaging an even stronger $4. Our view is spare generation capacity could provide substantial growth in coal consumption while filling the electron gap. First, consider the landscape in the U.S. Renewables continue to be built out, but don't solve the massive 24/7 reliability needs when the wind doesn't blow and the sun doesn't shine. Renewable saturation is a real concept. Gas plants are being built. However, new turbines ordered today may be 5 years away from being delivered given backlogs. Additional nuclear generation is fine, but at least a decade or 15 years away from reality. For those keeping score on coal plant longevity, add 3 coal-fueled plants in North Carolina to the list of those being extended. And these plants aren't just being kept in service, they are generating more electrons. The U.S. coal fleet ran at just 42% of capacity in 2024. The fleet can never run at 100%, of course, but optimal levels could look a lot like 2008 when coal plants ran at 72% utilization. Closing that gap could add 10% of generation to the U.S. electrical grid without needing to add any new plants. And that increase could translate to some 250 million tons or more per year of additional thermal coal demand. Now that isn't a projection, of course. It's just simple math. However, it does provide a compelling case for coal rebound in the U.S. and one that has already begun to play out this year. From a supply standpoint, providing those additional tons to meet growing U.S. generation can come somewhat from running mines harder and utilizing latent capacity. You've seen that from Peabody with U.S. shipments up 7% year-to-date. With higher coal burn, we also estimate that U.S. generated inventories are down 14% from this time last year. Market fundamentals continue to tighten. We've begun to see price indices increase while natural gas prices have risen across the curve. Coal continued to present attractive economics. That's a brief review of the coal market dynamics. I'll now pass the call over to Mark. Mark Spurbeck: Thanks, Malcolm, and good morning, all. I'll start with a quick overview. We delivered another strong financial quarter with adjusted EBITDA increasing from Q2, driven by higher Powder River Basin shipments, better-than-expected seaborne thermal coal volume and the lowest metallurgical coal costs we've seen in several years despite burdensome Queensland royalties. At September 30, our cash position was $603 million and total liquidity exceeded $950 million, ensuring we have the financial flexibility to manage short-term market volatility while fully capturing upside from more favorable pricing. Together with the increased operating leverage from Centurion, we expect to be positioned to generate free cash flow and deliver outsized returns to shareholders. Let's take a closer look at our financial performance for the third quarter. We recorded a GAAP net loss attributable to common stockholders of $70.1 million or $0.58 per diluted share, which included $54 million of acquisition termination costs, primarily related to financing arrangements, transition services and legal fees. We reported adjusted EBITDA of just under $100 million, generated $122 million in operating cash flow and continued completing development at Centurion South, now just 3 months away from starting the longwall. Turning to operating segment performance. Seaborne Thermal recorded $41 million of adjusted EBITDA and 17% margins. Sales volumes exceeded company expectations with an increase of 500,000 tons quarter-over-quarter as the company recovered the delayed tons from long Newcastle shipping queues in Q2 and then some. The segment expanded margins by 10% from Q2, demonstrating the continued strength of our low-cost Australian thermal platform. The Seaborne Metallurgical segment reported adjusted EBITDA of $28 million. Revenue per ton rose 6% quarter-over-quarter due to a higher product quality mix, enhanced by 210,000 tons of Centurion premium hard coking coal. Costs were significantly better than company targets with cost improvements achieved at all 5 met coal operations. The U.S. thermal mines generated $59 million of adjusted EBITDA on the improved domestic demand that Jim and Malcolm discussed. On a year-to-date basis, our U.S. thermal platform has delivered nearly $150 million of cash flow and EBITDA has outpaced capital by an almost 5:1 margin. The Powder River Basin delivered $52 million of adjusted EBITDA, a 20% increase from the prior quarter. Margin per ton improved 6%, driven by higher volume and reported costs at the low end of guidance. The new lower federal royalty rate improved costs by $0.70 per ton, but reduced revenue by $0.30 as certain contracts require law changes to be passed on to customers. To get a better sense of the momentum building in the PRB, shipments are up 10% year-over-year, yet margins have improved by 39%, resulting in a 53% increase in reported EBITDA compared to the prior year. The other U.S. Thermal segment contributed a modest $7 million of adjusted EBITDA in the third quarter. Sales volumes met company expectations despite an unplanned 5-week dragline outage at Bear Run, which led to a production loss of 400,000 tons. That was mostly offset by a drawdown of inventory, resulting in a net sales reduction of 100,000 tons. Related repair costs totaled $2.5 million, temporarily increasing costs above expected levels. The dragline resumed operating on September 18, and we don't anticipate any impact on fourth quarter production. Also, the Twentymile team completed the longwall move to the 11 East Panel in October, and we expect to return to normal production rates going forward, though we anticipate less than ratable sales in the fourth quarter as we rebuild inventory. Lastly, we recorded a onetime $5.5 million charge in the Corporate and Other segment for the settlement of claims related to a dispute over the calculation of overtime at our U.S. operations. Looking ahead to the fourth quarter, seaborne thermal volumes are expected to be 3.2 million tons, including 2.1 million tons of export coal, 200,000 tons of which are priced on average at $100 per ton. 800,000 tons of Newcastle product and 1.1 million tons of high ash coal remain unpriced. Seaborne thermal costs are expected to be between $45 per ton and $48 per ton, an improvement over prior implied fourth quarter guidance. As a reminder, Wambo Underground came offline in the third quarter. Going forward, we anticipate a seaborne thermal quality mix of 40% Newcastle and 60% higher ash product. Seaborne met volumes are targeted at 2.4 million tons, up 300,000 tons from the third quarter, while costs are expected to be $112.50 per ton better than prior full year guidance. In the PRB, we expect shipments of 23 million tons at cost of $11.25 per ton, both better than prior implied fourth quarter guidance. Other U.S. thermal coal shipments are expected to be just slightly below third quarter at 3.6 million tons as we rebuild inventory and production ramps up at Twentymile following the longwall move. Costs are anticipated to be approximately $45 per ton, a $5 improvement from prior quarter. With Wambo Underground closing as planned, we anticipate certain non-reclamation costs to be reported in the Corporate and Other segment. These costs are very much front-end loaded and estimated at $9 million in the fourth quarter. After third quarter's results, we are making favorable changes to full year guidance for the second quarter in a row. Seaborne thermal volumes are anticipated to be 350,000 tons higher at 15.1 million to 15.4 million. Seaborne met cost targets have improved by an additional $2.50 per ton to $115 per ton at the midpoint. PRB volumes are anticipated to be 3 million tons higher at 84 million to 86 million, while costs are being lowered another $0.25 per ton to $11.25 per ton to $11.75 per ton. With the recent challenges at Bear Run and Twentymile behind us, we are adjusting other U.S. thermal full year volume to be at or slightly below the previous low end of guidance at 13.2 million to 13.4 million tons and full year cost $2 per ton higher at $45 per ton to $49 per ton. In summary, we delivered another straightforward quarter, underscoring the continued discipline of our operations team. With the Centurion South investment nearly complete, we're well positioned to significantly expand margins. We expect another consistent quarter to end the year. We remain confident in our ability to bring Centurion online early next year and deliver stronger cash flow. Our robust balance sheet provides flexibility to navigate near-term seaborne weakness, capitalize on accelerating cash flows as conditions improve and create significant value for our shareholders. Thank you. I'll now turn the call back over to Jim. Jim Grech: Thanks, Mark. I'd like to briefly review our core priorities, which play into Peabody's compelling investment themes. First, we are highly focused on safe, productive and environmentally sound operations. That's our key to everything else we do. Second, we are on our final approach to Centurion's longwall start-up. Centurion joins our multiproduct met coal platform that will see a volume increase of approximately 25% in 2026. Third, we believe our low-cost thermal coal platform will continue to deliver EBITDA well ahead of its modest CapEx needs. Fourth, our leading U.S. thermal position will continue to benefit from the rising domestic generation trends. And fifth, we will maintain a fortress balance sheet with a focus on maximizing shareholder returns. Our sixth priority is also our newest, which is to leverage our #1 U.S. coal production position to assess our potential to meet growing U.S. needs for rare earth elements and critical minerals. We told you last quarter that we saw rare earth and critical mineral potential in preliminary studies performed in conjunction with the University of Wyoming and that a new sampling and laboratory analysis program was beginning in the third quarter. Preliminary data from our targeted zones indicate that we have similar or better concentration than others have reported in the PRB. We acknowledge that we are in the early stages in our assessment of our potential to produce critical minerals and rare earth elements with sustainable processes that could potentially generate attractive returns for our shareholders. In continuation of this assessment, we have multiple activities currently underway. We have accelerated our drilling program as we continue our assessment of both types and concentrations of rare earth elements in conjunction with several third-party labs. We are in discussion with multiple departments in the Trump administration regarding rare earth and critical mineral priorities and potential for funding. We also have been in early discussions with a number of potential technology partners regarding processing platforms. I would describe our actions as aggressive and pacing yet disciplined in approach. By our year-end reporting early next year, we will look to provide a greater sense of mineral types and concentrations while also discussing next stage plans. With that, operator, we can now open up the line to questions. Operator: [Operator Instructions] First question comes from the line of Nick Giles with B. Riley Securities. Nick Giles: My first question, obviously, some key tailwinds for domestic thermal this year. And Malcolm, you mentioned optimal coal-fired utilizations could be in the 70s. That would imply 250 million tons of demand. In this blue sky scenario, how should we think about Peabody's response? I mean, what's the maximum level of output we could see Peabody producing the PRB? How much capital would be required? And how long would it take to ultimately achieve this level? Malcolm Roberts: Look, Nick, I'll talk about the market and then capital, I'll hand over to Jim or Mark, depending on who wants to take it. Look, when we look at this market, there was quite a bit of latent capacity available over the last couple of years that we're seeing fill up very quickly. And so it's a great question that you asked because the expansion is going to come from really 2 things. One is going to be customer commitments and adding on capacity is not something you do for 1 year. So it's going to need customer commitments. And then we'll be looking for the price signals. And we'll see what the market does in terms of price signals to bring those additional tons on. I think that's the best way to look at it. But I would say we see ourselves approaching absorbing the latent capacity that we've had over the last couple of years. Mark or Jim? Mark Spurbeck: Nick, I think Malcolm's got it exactly right. I mean you look at what we've done, particularly in the PRB, increasing our volumes by 10 million tons from the beginning of the year. So that latent capacity really being taken up in the market. We've seen our peers do something similar. So there's going to be additional demand if any of these projections for load growth continue to bear out like we've seen so far this year. The amount of capital it's going to take remains to be seen. But certainly, we're going to have to see the economics and prices in the coal to justify the additional investment. I think there's 2 things, Nick, when I think about additional production, one is the capital, and that's mainly the equipment fleet, but two, also the labor and getting a workforce assembled to produce those additional tons. So Malcolm had it right, latent capacity being taken up and additional volumes are going to come at higher costs. Nick Giles: This is really helpful. Just as a follow-up here. I mean, you mentioned price signals, customer commitments. What would you need to see from a duration perspective? Would you need to see 2030 type commitments at this point to deploy incremental capital? And then just any volume figure, I mean, could we see 10 million more tons, 20 million more tons? I appreciate any clarity there? Mark Spurbeck: Well, we've -- with that 10 million ton increase this year, that's pretty much running at our full run rate. So there's no additional latent capacity to speak of, particularly at our NARM mine, which is the largest mine. With regard to the type of commitments, we're seeing those types of commitments. We're seeing multiyear commitments from customers already, a lot of inquiries around that. It would be -- it would look the same as any other investment. We'd have to see a return. How much can we do on an as-needed basis on a leasing basis versus outright investment and purchase. So to be determined, Nick, on that. But we fully expect with that latent capacity being taken up this year to see that upward pricing pressure. We're seeing it already. We expect that to continue next year, particularly if that forward curve on gas above $4 is right next year. Nick Giles: Got it. Switching gears. Obviously, you have Centurion coming on here shortly, and that will reweight you more towards the benchmark. But with the termination of the Anglo deal, I just wanted to ask how you're thinking about M&A opportunities in met going forward. I mean do you still have a desire to further reweight your met portfolio to higher quality grades beyond what we'll see at Centurion? Jim Grech: Nick, Jim here. And our focus has been on growing the seaborne metallurgical coal. And with the position we're in right now, our entire focus is on getting that Centurion mine up and running and getting it to the maximum capacity possible. And we're in good shape to do that. One of the things that we are addressing, which is going well, as Mark said, is labor. We've got 260 of the 400 employees hired that we need to get to full capacity, and we anticipate being able to get up to full labor complement as the longwall is coming online. So our focus really is on getting the Centurion mine up and running, maximizing the output from that mine and then really taking advantage of the U.S. tailwinds that we have and following up on your questions of getting as many tons out as economically as we can from our U.S. platform. That's really where our focus is. And if the market unfolds as we think it has the potential next year to do so with the upward pricing pressures domestically, internationally, our focus on our organic assets, we see some very robust cash flow potential. And of course, that can work back to share buybacks and so on for our shareholders. So that's really where the focus of our company is going forward. Operator: The next question comes from Nathan Martin with Benchmark Company. Nathan Martin: Just back to the PRB for 1 second. You said the operation, I think, Mark, is basically running at the max at this point. If we look out to the next 2 years, '26, '27, are you guys seeing enough demand to continue running at that max? And roughly how contracted are you and what price at that level? Malcolm Roberts: Malcolm here. Look, I think there are 2 questions. Are we confident about running at max capacity for the next couple of years? The answer is definitely yes in the PRB. I think your second question was what we think price levels will be. It's I can't comment on that, except we are encouraged by where we've seen index price movements and where we're doing business today. Nathan Martin: And Malcolm, just to clarify… go ahead, sorry. Jim Grech: I'm sorry, Nate. If there's something to take from what Malcolm has been saying and Mark as well is that we're seeing an environment in the market where it's certainty and demand increase and the ability for U.S. producers to quickly add production is going to be the challenge, and that should result in upward pricing pressure. So there's going to be some value to the first movers on the customer side that step out and enter into these multiyear agreements and securing the reliability that they're looking for. And we've been seeing some of that. So -- but this inflection point has a real potential to hit the market of the demand increasing quickly, the coal plant utilization wanting to increase to go along with it and how quickly can the production side respond. And for that production side to respond, we need to see more long-term agreements put in place where we can justify the investment, as Mark was talking about. So it's going to make for, I think, a pretty volatile pricing environment going forward if these demand projections hold as we're seeing many consultants forecasting. Nathan Martin: Got it. I appreciate those comments, guys. And then shifting to the Met segment, clearly, a nice quarter-over-quarter improvement in cost per ton there. If you look ahead to '26 and the start of Centurion longwall, should we expect that to drive another incremental improvement? I think I believe you said that was going to be the lowest cost operation in the segment. How should we think about how met segment costs could compare to 2025 guidance? Would just be helpful to get some puts and takes there? Mark Spurbeck: Yes, Nate, Mark. We're not sharing guidance for 2026 yet. We'll do that, obviously, on our next call. Over that 25-year life Centurion will be the lowest cost producer in the portfolio. We talked about the South having some shorter panels, lower production run rate of 3.5 million tons or so next year versus life of mine of 4.7 million. So there'll be some give or takes there. I wouldn't look for any step change next year. Nathan Martin: Mark, that's fair. And then maybe just one final -- it would be great to get thoughts on potential scenarios for how you guys see the arbitration process with Anglo playing out. And then specifically, are there any further adjustments to your results like the $54 million charge, let's say, that we saw this quarter expected going forward? Jim Grech: Yes. Nate, I'll talk about the process, and then I'll let Mark comment after that about any other adjustments. And our analysis of the MAC, which was a prospective analysis, we feel has been confirmed by events and the passage of time and of course, the enormous loss of value that we see. So we've hired 2 prominent law firms, Jones Day and Quinn Emanuel, and they've done their analysis and they join us in their high level of confidence in our position. An arbitration process probably takes years, all right? And we're on the front end of that arbitration process. I can't predict you how long it's going to take, but it will take a while to get to any resolution. But as each day passes by, we get more and more firm in our conviction of our position. And now as far as any other expenses with that or looking forward, I'll give that to Mark. Mark Spurbeck: Yes, on the $54 million charge for the quarter, that really brings the year-to-date charge to $75 million. That's a lot of costs that would have been capitalized had we been able to complete the transaction, primarily related to the bridge financing arrangements. That was significantly most of it, about $45 million of the charge year-to-date. There's also about $15 million of professional fees and transition services that is really a catch-up to where we're at, and that's obviously stopped now. So Nate, I wouldn't expect anything significant like you've seen. There will obviously be some legal defense costs going forward. We estimate that at about $5 million a year. Operator: The next question comes from the line of George Eadie with UBS. George Eadie: Can I ask more about rare earths and the PRB? So in terms of details, we'll get by year-end, should we expect to see grades volumes, costs and potential time line to get to market all of those by year-end? Jim Grech: So George, what we said is we're in the very early stages of our assessment, which is ongoing, and we're getting some preliminary data in. It's analyzed. We're getting more data in and more analysis is needed. We've accelerated our drilling program with that as well. So what we're planning to give at the end of the first -- at our year-end results, which we'll do in February, is a preliminary analysis of indicative element types and concentrations. So that's what we're looking -- that's what we're saying we'll be giving at that point in time. George Eadie: Okay. And you guys called out earlier similar or better grades than peers. Is it reasonable then for me to assume that it's a similar mix like other peers, so sort of heavy in scandium and gallium where the value is? And just sort of lastly on that, like can you help maybe elaborate on discussions on partnerships with the current administration? I guess you're a leading player in both coal and critical minerals, 2 clear top priorities. Like how can you help us understand a bit better like what could happen and how they're approaching this in your discussions? Jim Grech: George, so there's a few things there. First off, I'm not going to get speculative on the types and concentrations. We'll have that in just a few months here. We just want to make sure that we're very thorough in how we approach this. We take a disciplined systematic approach to how we're going to do this. And we'll get all the sampling done. We'll get all the data in and at the -- and when we give our year-end reports at the end of the -- in February, we'll give the information we have at that time. So we're not going to get too speculative at all right now on the concentrations and types. We have been very active within the -- with the Trump administration, meeting with various departments in Washington and we even have some more upcoming here in the near future. So we're working closely with them. And as you said, we are -- with the volumes that we do in coal and with the rare earth elements, we do have a unique position. And we also have a unique position that we do that both in the U.S. and Australia. And with the Trump administration and the recent agreement with Australia, we are looking at the potential for rare earth elements along with -- at our coal mines in Australia as well. So we're very unique in that position. And one other thing I'd like to point out that we're very unique in when it comes to the potential for rare earth elements is the massive scale, which we have in the PRB, which cannot be duplicated. We have the workforce, we have the equipment. We have the logistics facility, and we're currently mining 80 million tons of coal a year and moving over 400 million cubic yards of earth a year. No one else can duplicate that. And I would just say, while we aren't trying to get shovel ready here if there is an opportunity, we are already shoveling in the PRB. So that is a unique position we have. And as we get data and we can solidify our analysis, we'll certainly bring that out. George Eadie: Okay. Yes. No, that's clear. And just sorry, one last one, maybe for Mark. But on the Anglo termination, I might have missed it slightly earlier, but there was a $29 million deposit return. Is there another $46 million to come still? Is that right, the $75 million total? And can you just maybe remind me what the $54 million that has gone through in Q3? And if there's anything more in terms of costs beyond that legal $5 million a year you flagged before? Mark Spurbeck: You're right, George. On the remaining deposit, we expect that to be returned to us. We've asked for that in short order. Not clear why only a portion of the deposit was returned to us. Secondly, on the $54 million of costs, about $35 million of that was related to the financing, the bridge financing, which has now been terminated as we announced previously. And the additional amount was almost entirely related to kind of professional fees and transition services, which have completely been halted at this point. So they won't be going forward. The only thing we'll have going forward is kind of the arbitration legal fees, and we anticipate that to be about $5 million per year. Operator: The next question comes from Matthew [ Key ] with Texas Capital. Unknown Analyst: I have a macro one on the rare earth side. We saw this morning that the U.S. and China reached a tentative deal to pause some of those export controls on rare earth elements for about a year. What impact, if any, do you think this will impact government support for domestic rare earth projects? Jim Grech: Yes, Matthew, that's -- I'm not really sure I have a specific answer to that. I will comment on is that I know that there is a strong desire to have a domestic supply of rare earth elements here by our government. So there could be an international supply, maybe things with China. I'm not sure how that will play out. But I do know there is a very strong desire for conventional or unconventional supply right here native in the United States. And so I would expect that would continue, but I don't want to speak for the administration on that. That's just my expectation. Unknown Analyst: Got it. That's helpful. And just a follow-up on M&A in the seaborne met side. Given that you are in arbitration with Anglo and that could take some time, would you not really be considering any additional M&A in seaborne met until that arbitration process with Anglo is completed? Jim Grech: Well, first off, I'll just say that, again, our belief that the arbitration process will be successful for us isn't going to be a hindrance in anything we -- is not going to hold us back from doing anything in the future. We have 100% confidence in that process, and we are not going to stop anything strategic with our company because of that process. So I'd just like to put that out there right now and clear that up. But as you're asking about M&A, again, I'll just say our focus right now is on our organic assets, getting Centurion online, getting the full value of that for our shareholders and leaning into this market upside that we see happening both U.S. and internationally next year and making sure our platform is capitalized. We have the maintenance in order, we have the staffing in order to take full advantage of the upside we see coming in the market and to generate some very robust cash flows. That's where our focus is right now. Okay. Thank you, operator, and thanks to everyone for the time today. I'll thank our Peabody team, which amid everything else turned in safety performance that remains near our all-time record performance of 2024. We look forward to keeping all of you up to date on our progress as we finish up in 2025. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Beacon Financial Corporation Third Quarter Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Dario Hernandez, Corporate Counsel. You may begin. Dario Hernandez: Thank you, Jean, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page of our website, beaconfinancialcorporation.com, and has been filed with the SEC. This afternoon's call will be hosted by Paul Perrault and Carl Carlson. During the question-and-answer session, they will be joined by Mark Meiklejohn, Chief Credit Officer. This call may contain forward-looking statements with respect to the financial condition, results of operations and business of Beacon Financial Corporation. Please refer to Page 2 of our earnings presentation for our forward-looking statement disclaimer. Also, please refer to our other filings with the Securities and Exchange Commission, which contain risk factors that could cause actual results to differ materially from these forward-looking statements. Any references made during this presentation to non-GAAP measures are only made to assist you in understanding Beacon Financial's results and performance trends and should not be relied on as financial measures of actual results or future predictions. For a comparison and reconciliation to GAAP earnings, please see our earnings release. At this time, I'm pleased to introduce Beacon Financial's President and Chief Executive Officer, Paul Perrault. Paul Perrault: Thanks, Dario, and good afternoon, everyone, and thank you for joining us for our first earnings call as Beacon Financial Corp. Let me start by welcoming the Brookline and Berkshire stockholders, employees and customers to the new Beacon Financial Corporation, the holding company for Beacon Bank & Trust. This powerful combination between our 2 great legacy organizations will help position us as a leading Northeast financial institution that provides enhanced service capabilities for our clients, performance for our shareholders and resources for our communities. On September 1, the merger and consolidation of the bank charters was completed. However, until we finalize our core system integration in the first quarter of next year, we will continue to conduct business as Brookline Bank, Berkshire Bank, Bank Rhode Island and PCSB Bank operating as divisions of Beacon. We will formally introduce our Beacon Bank brand to the market over the next few months as we get closer to finalizing our system integrations. The Beacon Bank name represents guidance, strength and the promise of stability, the core principles the legacy institutions have upheld for generations. With the combined strengths of Berkshire and Brookline, Beacon can help customers make financial decisions with clarity and confidence. The integration is moving ahead as expected. Our priority remains ensuring our customers and communities continue to experience the outstanding service and support our banks are known for, which is driven by the attitude and expertise of our employees and supported by our 6 regional presidents. I want to thank all of our Beacon Bank employees for their hard work on this integration, their continued superior service to our customers and a commitment to ensuring a smooth transition. Beacon Financial finished the quarter with $23 billion in assets, $19 billion in deposits and $18 billion in loans, with third quarter operating earnings of approximately $38.5 million or $0.44 per share before merger expenses and special charges. We're already beginning to see the rationale for the merger play out with the addition of Berkshire's lower-cost deposit base, combined with Brookline's higher growth markets, creating opportunities to deepen relationships with clients. I'm particularly pleased with our strong retention of client-facing talent through this and the excitement amongst the team, and I'm optimistic to see this excitement and energy translated to even more robust results. I will now turn you over to Carl, who will review the company's third quarter. Carl Carlson: Thank you, Paul. As Paul mentioned, we closed our merger on September 1 with Berkshire as the legal acquirer and Brookline as the accounting acquirer. As such, historical results reflect Brookline performance and the assets and liabilities of Berkshire were mark-to-market and combined with Brookline as of September 1. On a combined basis, we finished the quarter with total assets of $22.8 billion. And on September 1, the fair value of Berkshire assets was $12.1 billion, of which we sold approximately $426 million, $177 million in securities and $249 million in loans. The proceeds were used to reduce wholesale funding. Excluding the purchase accounting mark, the combined loan portfolio declined $484 million during the quarter, largely driven by the sale of $249 million of purchased residential mortgage loans and the reclass of $83 million in similar loans to held for sale. The sale of those loans closed in October, except for a small pool, which closes next week. On the funding side, combined customer deposits increased $89 million. Payroll deposits declined $186 million, while broker deposits and borrowings declined by $249 million and $74 million, respectively. At the end of the quarter, the loan-to-deposit ratio was 96.5%. The allowance for loan losses finished at $254 million, reflecting a coverage ratio of 139 basis points. The allowance includes $77 million in specific reserves on approximately $380 million of loans, representing a coverage rate of 20%. The general reserve of $177 million represents a 99 basis point coverage on the balance of the portfolio. Given the strong coverage rate in the current environment, we expect that while charge-offs may remain elevated as we continue to work through these substandard assets, we expect the run rate for the provision to be $5 million to $9 million a quarter as the reserve coverage ratio trends lower. Net charge-offs for the quarter were $15.8 million, all but $1.4 million of the charge-offs were previously reserved for. Our quarterly results reflect 2 months of earnings for Brookline and 1 month of earnings on a combined basis. The quarter also included the merger charges and purchase accounting associated with the transaction. We will continue to have merger charges through the first quarter when our core systems integrations are completed and the remaining cost synergies realized. As we anticipated, we reported a GAAP loss for the third quarter of $56 million or $0.64 per share. The third quarter included pretax charges of $130 million, $78 million related to the initial provision expense and $52 million in merger expenses. Excluding these charges, operating earnings were $39 million or $0.44 per share. The net interest margin was 372 basis points for the quarter, which included a 30 basis point benefit from purchase accounting. We provided the performance for the month of September, representing the first month of performance on a combined basis and adjusted for the onetime merger-related charges. This is provided on Page 5 of the presentation. Net interest income for September was $72 million, which included $10.7 million in purchase accounting accretion for the month and resulted in a net interest margin of 412 basis points for September. Of the $10.7 million, $3.8 million was related to the credit mark with the remaining $6.9 million related to the interest rate mark. Of the $6.9 million, $1.8 million is due to loan prepayments. We expect FASB to release the final rule on accounting for acquired loans and the credit mark to be reversed in the fourth quarter, increasing equity and no longer reflected in income going forward. We currently estimate purchase accounting accretion to be in the range of $15 million to $20 million per quarter, depending on loan prepayment activity. Noninterest income was $8.5 million for the month, reflecting a $25 million to $26 million quarterly run rate. Noninterest expense of $40.6 million for the month captured some of the day 1 synergies created by the merger and reflects a quarterly run rate of $122 million. Amortization of intangibles at $2.7 million for the month reflects an $8.1 million quarterly run rate. Provision for credit losses for September was $6.6 million, but as is typical, true-up of reserves and provision requirements take place in the third month of the quarter. As I stated earlier, we anticipate quarterly provisions to be in the range of $5 million to $9 million. The September operating performance of 129 basis points on assets and over 15% return on tangible equity illustrates the strong performance of the combined franchise and the potential opportunity going forward. Yesterday, the Board approved increasing our quarterly dividend to $0.3225 per share to be paid on November 24 to stockholders of record on November 10. This represents a 79% increase in the cash dividends previously received by Berkshire shareholders and maintains the level of cash dividends previously received by Brookline stockholders. The quarterly dividend equates to an annual dividend of $1.29 per share, which was communicated when we announced the merger and currently represents a dividend yield of approximately 5.4%. As Paul mentioned, the team is optimistic and excited as we continue to deliver on the merger benefits. This continues my formal comments, and I'll turn it back to Paul. Paul Perrault: Thanks, Carl. We will now be joined by Mark Meiklejohn, our Chief Credit Officer, and we will open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Mark Fitzgibbon with Piper Sandler. Mark Fitzgibbon: Congratulations on the completion of the deal. Paul Perrault: Thanks, Mark. Mark Fitzgibbon: First question I had, I guess, for Carl. Carl, what should we expect for the remaining deal-related charges to be in 4Q and 1Q? Do you have a sense for a rough range on that? Paul Perrault: I think it's going to be between $22 million and $24 million in that range. Mark Fitzgibbon: Okay. Great. And then I wonder if you could share any color on that $12.4 million office loan that you referenced in Boston. Any color on that? And also, I was curious from which institution did this loan come from? Mark Meiklejohn: Mark, this is Mark Meiklejohn. That loan is a downtown Boston office property. It's a retail first floor, office above. At this point, the retail is full. And the -- otherwise, the building is largely vacant. We've got about a 30 -- 25% to 30% reserve on that loan. Currently, it's being marketed for a potential sale. So we feel like we're in a pretty good place on it. Mark Fitzgibbon: Okay. Great. And then lastly, it looks like your capital ratios were stronger than we expected coming out of the deal. And it sounds like with the accounting adjustment potentially in the fourth quarter, capital ratios get even a little bit better. I guess I'm curious what your thoughts are on stock buybacks going forward. Paul Perrault: We love the idea, particularly with the price where it is. But I think our first priority -- well, our first priority was to get the dividend increased as we promised when we announced the transaction. And now it's really to get the concentration on the commercial real estate to where we all want it to be. And so right now, we're targeting 300% by the end of 2027. Now we may have an opportunity to still be able to do increases in dividends and stock buybacks while also maintaining our goal of getting to 300%. So we'll continue to explore that as we move forward. Operator: Your next question comes from the line of Steve Moss with Raymond James. Stephen Moss: Paul, maybe just starting off, following up on credit here with regard to potential for elevated charge-offs. Just kind of curious if you could size that up a little bit. It sounds like it's going to be coming from the equipment finance portfolio, if I heard that correctly. Mark Meiklejohn: Yes. I think just a comment to be a little repetitive to Carl, we've got specific reserves of about almost $80 million on a population of about $380 million in what we consider troubled assets. Of that, I would say that a fair amount of that will come out of the -- those problems, as they resolve themselves, will come out of the Eastern Funding portfolio. There's really not much of that in office at this point. Stephen Moss: Great. Okay. Got it. No, that's helpful. I just dive that up a little bit. And then the other thing here in terms of the commentary, it sounds upbeat with regard to C&I lending. Just kind of curious to get a sense for the type of deals you guys are seeing and where loan pricing is these days. Carl Carlson: Well, to give you a sense, we put in the deck what the originations were. And of course, that's on a combined basis for the quarter. But we had coupons being added just a little south of 7%. And that does include some Eastern Funding originations in there as well. Stephen Moss: Got it. And then maybe just on the loan portfolio yields here in terms of the -- just curious, it's probably a bigger step-up than I was expecting. I realize the purchase account increase rate math there. But just kind of how you're thinking about where the loan portfolio yields shake out and how you guys are thinking about deposit betas as we go through these rate cuts on a combined basis? Carl Carlson: Well, of course, the deposit betas, right now, we're modeling about a 57% beta for all of our interest-bearing deposits. And it seems like the lines have been doing a little bit better job than that, than our modeling. And sometimes that happens initially and then it slows down. But in the model, that's what we're using is 57%. Stephen Moss: Okay. And one more housekeeping item here. Just curious how you guys are thinking about the core deposit intangible amortization expense going forward. Carl Carlson: Yes. I think we provided some guidance on that. I think it was about $8.1 million a quarter. That will come down over time. I think we're doing a 12-year sum of the years' digits method on that. Operator: Your next question comes from the line of David Bishop with Hovde Group. David Bishop: Curious within the legacy Berkshire Hills, they had some resilience and strength recently in the 44 Business Capital back small business line. Any impact this quarter in terms of their ability to get stuff to the finish line in terms of loan sales? I'm curious if there's a significant backlog or pipeline within that segment. Carl Carlson: That's an excellent question. I don't know if it really impacted September. I think September was fine. And as you know, you're only seeing Berkshire's results for the month of September in this. And I think that's important to realize. So -- but the fourth quarter, I would imagine there'll be a little bit of a shortfall in -- as far as timing and maybe even the level of gain on sale on the guaranteed portions of those SBA loans. So I do expect that, but I couldn't give you really guidance on how much that might may or may not be. David Bishop: Got it. Understood. And then I appreciate the deck noting some of the divestitures. Any more repositioning or loan sales or security sales anticipated after this? Carl Carlson: Yes. I put a note in there to keep my options open, but I think I'm pretty much done with that. There may be a few more securities that we would like to sell, but it's nothing material. Paul Perrault: And in terms of the branches, there's 4 or 5 overlaps, which will be dealt with post conversion. But I think that Berkshire had sort of cleaned up the footprint quite handily in the past couple of years, maybe 2 or 3 years. David Bishop: Right. And then, Carl, just curious, if you have available, the CRE concentration ratio at quarter end? Carl Carlson: 355% for ICRE to total risk-based capital. And just I'd like to highlight that our construction portfolio is only 33%. It's quite low. And it's nice to remind people of that. Operator: Your next question comes from the line of Karl Shepard with RBC Capital Markets. Karl Shepard: Congrats on getting all this done. Paul Perrault: Thanks, Karl. Karl Shepard: I guess I wanted to start with Carl. Thanks for all the help with Slide 5. And I'm just thinking high level here, this feels like a pretty good starting point once we kind of rightsize the provision and back out a little bit of the accelerated credit-related accretion this quarter. Is that fair? And then what's the message on the size of the balance sheet? Carl Carlson: You're right on with that. That's why I spent so much time -- almost all of my time on that. I think that gives you a good sense of the direction in the different categories and how that's laying out and September gives us a little snapshot of that. As far as the size of the balance sheet, we basically reduced the balance sheet $500 million when you include the loans held for sale. I don't expect that to go down going forward. We'll see exactly what kind of loan growth we're seeing on a combined basis as we move forward. But over time, I think we're targeting that probably mid-single-digit growth in interest-earning assets. And so I would be taking -- I want to be careful, a lot of ratios that people calculate. And even when you look at the yield tables and things like that, you look at our yield table in our press release, and you'll see interest-earning assets or loans might be $12 billion or something like that. It's a much higher number when you look at just where we ended September, right, because that included Brookline for 2 months and the combined organization for 1 month. So you got to be careful about averages and average balances and calculations like that. But we expect to be able to get on a growth trajectory on interest-earning assets going forward in the low single digits to mid-single digits. Karl Shepard: Okay. Yes, I was trying to do the algebra on NII for September. But I guess then one for everyone, but maybe Paul, in particular. Just can we get a few more thoughts on how the first 2 months have gone as a combined organization? And then what's the focus execution-wise between now and the systems integration for you? Paul Perrault: Well, I think it's gone exceptionally well. I mean everybody has an important role to play, and my management committee works very well together and have been knocking off the kinds of things that are necessary to do in these kinds of mergers, everything from employee benefits to consolidating contracts for services, all the technology stuff is well underway. That was done very early on. The selections were made. And so we're about execution at this point. And we've got the banking centers all set up under Chief Banking Officer, Mike McCurdy. We have 6 regions given the footprint that we have. And so we have decentralized all of the support for those regions. And as I travel around the land, I feel very good about the people that I'm meeting and the enthusiasm that they're bringing to this new adventure for everybody. So this is a lot different for everybody, but the optimism is there, and the talent is there. And so I'm feeling very good about where we are here a couple of months away from the conversion. Operator: Your next question comes from the line of David Konrad with KBW. David Konrad: Since you spent so much time on Slide 5, let's spend a little bit more time on it, I guess, if we could. But I'm just looking at the September expenses of $40.6 million and then the amortization of $2.7 million. And if I kind of quarterize that, if you will, I get to about $130 million of expenses kind of a run rate. I guess 2 questions. One, how much of the $68.9 million cost saves has already been implemented in that number, if any? Carl Carlson: I'd say quite a bit of the $68 million has already been realized. Just to step through that a little bit. Just since we announced the transaction, even before we announced the transaction, both companies were being very thoughtful about expenses going into that. And so when we were looking at -- and just people weren't getting hired, people who are leaving -- positions weren't getting filled. There was a lot of double work going on, things of that -- people -- things getting done by additional folks. And so there's been a lot of control around expenses right up until the merger on September 1. And both companies have done an excellent job of controlling those expenses and not spending a lot of money. Then you had September 1 come, and there are a lot of senior people and even department leaders that were let go on the first day. So they exercised their change of control of their contracts and they're gone. So while the number of people, and there's quite a few people right day 1, those are pretty high salary numbers and bonuses and things of that nature, benefits. And so those came right out of the run rate September 1. So that's a nice pickup. Now there's still some savings and synergies to be had on all the contracts and things of that nature, vendors that we use, professional services that we use. And so those things are still going on. And as we get through to conversion, we'll be able to realize on those. And then there's another staffing reduction at that time. Paul Perrault: Just to put some numbers around it for you, David, we're down almost a couple of hundred people in the combined company since a little bit before the combination actually came to fruition. And scheduled to let go post conversion at some point is almost another 100. And so we're being very methodical about it. And as Carl pointed out, there's a fair number of those people who have already left who are highly paid. David Konrad: Right, right. And then so when we look at the fourth quarter, the $130 million is probably a good run rate. Maybe I don't know if there's going to be more expenses -- core expenses seasonally in the fourth quarter. So I'm just kind of wondering what the core number for the fourth quarter range would be. And then the last question would be on Slide 11, that $119.8 million kind of 2Q expense number, we should probably add in the $8 million of the amortization on top of that to get the all-in expense? Carl Carlson: That's correct. That's correct. What I want to add -- I mean, there's a million moving parts on this thing, as you can imagine. And whether it's aligning the benefits across the organization, it's aligning salaries across the organization, the things of that nature. But there are positions that needed to be filled that have been postponed. And of course, we postponed them even further because we're not hiring anybody in December because we're doing the payroll conversion at that time. So there's a lot of things going on, but there's positions that we're going to have to fill. And so that $119.8 million is something that the management team is committed to delivering on, and we're working very hard to make sure that happens. And... Paul Perrault: And we're close. Carl Carlson: And I think -- I don't see a reason why we're not going to hit that and perhaps do better. David Konrad: And then for the fourth quarter, should we -- is $130 million kind of a decent for that? Or should we up that a little bit before it goes down? Carl Carlson: So I think I would use that number for now. I couldn't really give you -- I don't see a real reason why it would vary too much off of September. I didn't really do a deep dive on that. But I think that should be pretty accurate, including the intangible amortization. Operator: Your next question comes from the line of Laurie Hunsicker with Seaport Research. Laura Havener Hunsicker: I just wanted to clarify this. The $119.8 million on Page 11 there, that does or does not include the amortization expense? Carl Carlson: It does not. That's the operating cost. Laura Havener Hunsicker: Got you. Okay. I just wanted to double check. Okay. And then same thing, when we look at the margin, the 3.90% to 4% that you're guiding, that does include accretion income to the rate of an estimated $15 million to $20 million per quarter? Carl Carlson: Yes, it does. Laura Havener Hunsicker: Okay. Okay. And then just your comments here at the bottom of Page 11, can you expand a little bit on that, Paul and Carl, that management will continue to explore opportunities to optimize the balance sheet and capital structure over the next few quarters? Just help us think about that. Carl Carlson: Expand on that a little bit. I think I said it earlier, I wanted to keep my options open here. And I think for -- and I want to get -- this is something we will discuss with the Board more fully and size it correctly. But as you know, we both -- both organizations had sub debt outstanding, and it's something that we will probably look to refinance sometime during 2026. I don't want every single banker in the world calling me, but that's something that will be -- we will be looking to explore that. And I think we'd like to get a nice clean quarter behind us before we move forward with that. Laura Havener Hunsicker: Okay. And then just to clarify, no spot secondary anywhere in the future. Is that correct? Carl Carlson: We have nothing approved yet. Laura Havener Hunsicker: Okay. All right. And then on diluted income statement share count, I just want to make sure I have this right. It dropped 1.6 million or so in September. It's going down another 3.6 million just the accounting, right? So it takes diluted income statement share count will be about 84 million. Is that correct? Or is my math off on that? Carl Carlson: No, I think that's where folks got a little bit tricked up when it was Berkshire as the legal acquirer and Brookline as the accounting acquirer, and they were using the Berkshire share count and then the combined. It was really 2 months of Brookline's share count and then the combined. So the combined share count is around $84 million -- 84 million shares... Laura Havener Hunsicker: 84 million. Carl Carlson: On a diluted basis. Laura Havener Hunsicker: That's perfect. Okay. Good. And then, by the way, I appreciate so much all of your detail. You kept everything that you had in there that we loved is Brookline and you added more stuff. So just great. But just going to Slide 14, can you help us think a little bit about -- this is a smaller line item, but Firestone that came over with Berkshire Hills. What are you doing with that? Is that discontinued at all? Paul Perrault: Yes, it's just going to run off. Carl Carlson: It's about $23 million. Laura Havener Hunsicker: Okay. Perfect. Just wanted to make sure you weren't growing it. Okay. And then obviously, new here, it looks like -- so you're discontinuing the Fitness and the Macrolease. Paul Perrault: That's right. Laura Havener Hunsicker: So that's great. Okay. And then so your charge-offs this quarter, the $15.1 million in charge-offs, do you have a breakdown as to how much of that was Vehicle and how much of that was the Macrolease? Mark Meiklejohn: Yes. Actually, there was 2 large Eastern Funding deals on that. Neither of them were Vehicle or Macrolease. They were both Eastern Funding, but I would say they were noncore-type businesses. One was a commercial laundry and the other was a grocery operator. So yes, those are both long-term workouts, and those reserves had been put up over the last year or so. So we thought now was the appropriate time given where those deals are to take those charge-offs. Laura Havener Hunsicker: Okay. Great. That's -- yes, we've talked historically about the grocery. Okay. And then the specialty vehicle, what is that nonperforming? And same question with the Macrolease. So of your C&I equipment finance nonperformers of $42 million, how much is in those 2 buckets? Carl Carlson: Specialty vehicle is about $4 million. That $42 million is just made up of a handful of names, largely. Laura Havener Hunsicker: Okay. And then Macrolease, do you have nonperformers for that one? Carl Carlson: I think that number is 11. Paul Perrault: No, 13. Carl Carlson: 13, sorry. Laura Havener Hunsicker: 13. Okay. Okay. That's great. And then the office detail, and I appreciate the detail that you added around that. But can you just talk a little bit more? So you have your nonperformers and you're now at $22 million. And I think Mark asked the question earlier. Was this a Brookline? Or was this a Berkshire Hills credit? And not that it matters, I'm just kind of curious. And then also, can you comment, you had a massive jump to the criticized office. It looks like that's now $134 million. Just any color on that would be great. Carl Carlson: Yes. The deal that we mentioned earlier, the downtown office that moved the nonaccrual number was a legacy Brookline account. Laura Havener Hunsicker: Okay. And so then you had -- it looks like then you had another, what, $10 million or so, so nonperforming from your book. Is that right? Carl Carlson: Yes, that sounds about right. Laura Havener Hunsicker: Okay. Okay. And then the criticized there, the $134 million, is any of that coming due in the next couple of quarters? Or any color on that? Carl Carlson: In terms of office, we have 2 loans that are coming due over the next couple of quarters that are in the criticized bucket. Those loans are on short-term maturities at this point. We're well reserved on both of those loans, and we expect some resolution of them over the coming quarters. Laura Havener Hunsicker: Okay. And what is the amount on those? Carl Carlson: About $30 million in total. Laura Havener Hunsicker: In total. Great. Okay. And then do you happen to have the occupancies there on those? Carl Carlson: I don't. Off the top of my head, no. Sorry. Operator: Your next question comes from the line of David Konrad with KBW. David Konrad: Just had a follow-up on Slide 11 with the purchase account accretion expected to be $15 million to $20 million per quarter. Just wanted to kind of clarify to make sure like if you did adopt the new FASB rule, would we think of that range of being more like $11 million to $16 million? Or is that range contemplating the change of the accounting? Carl Carlson: It does contemplate the change in accounting. But again, this is an estimate. It's the best because just so you know, we -- that's done at the loan level, the individual loan level. And so it can be very volatile based on prepayments and things of that nature. Operator: Your next question comes from the line of Mark Fitzgibbon with Piper Sandler. There are no further questions at this time. I will now turn the call back over to Paul Perrault for closing remarks. Paul Perrault: Thank you, Jean, and thank you all for joining us, and we look forward to talking with you again next quarter. Good day.
Operator: Thank you for joining Ingram Micro's Third Quarter 2025 Earnings Call. I'll now hand the call over to Willa Mcmanmon, Vice President of Investor Relations. Please go ahead. Willa Mcmanmon: Thank you, operator. I'm here today with Paul Bay, Ingram Micro's CEO; and Mike Zilis, our CFO. Before I turn the call over to Paul, let me remind you that today's discussion contains forward-looking statements within the meaning of the federal securities laws, including predictions, estimates, projections or other statements about future events, statements about our strategy, demand plans and positioning, growth, cash flow, capital allocation and stockholder return as well as our expectations for future fiscal periods. Actual results may differ materially from those mentioned in these forward-looking statements because of risks and uncertainties discussed in today's earnings release and in our filings with the SEC. We do not intend to update any forward-looking statements. During this call, we will reference certain non-GAAP financial information. Reconciliations of non-GAAP results to GAAP results are included in our earnings press release and the related Form 8-K available on the SEC website or on our investor relations website. With that, I'll turn the call over to Paul. Paul Bay: Good afternoon, and thank you for joining today's call. The third quarter was strong with revenues of $12.6 billion, up 7.2% year-over-year and above the high end of our guidance. Non-GAAP diluted earnings per share was $0.72, at the high end of our guidance despite a small impact from the ransomware incident in July. As I shared last quarter, our team responded quickly and effectively to the incident, restoring operations with minimal business disruption, which is reflected in our results. In terms of market dynamics, we believe we're gaining market share across most regions in the businesses we serve and are encouraged by the growing momentum of our Xvantage digital platform as we deploy it globally. Looking forward, we enter the fourth quarter with confidence in our road map and our guidance, which Mike will detail shortly. During the third quarter, we saw continued momentum across our core business lines and geographies. Enterprise sales remained strong and our SMB customer category achieved a third straight quarter of sequential growth, which is encouraging. Client and endpoint solutions delivered yet another solid quarter while advanced solutions was down slightly year-over-year, though both server and storage posted strong double-digit gains. Networking grew modestly driven by an increase in AI proof-of-concept activity and enterprise, partially offset by tough comparisons to last year's strong virtualization sales. As we all know, enterprise companies and technology vendors alike are navigating the unchartered territory of AI transformation. In the third quarter, the pace of change accelerated rapidly with a wave of new partnerships and investments across the industry. Today, we're seeing enterprise customers at varying stages of their AI proof-of-concepts, mostly on-prem and still primarily focused on the compute layer, often in conjunction with open models. The ultimate goal for these enterprises is to create purpose-built end-to-end solutions using agentic AI, solutions that will redefine their operations, elevate customer engagement and deliver strong returns. We are well positioned to support this customer journey particularly as it moves from early adopters to the broader market. To do this, we've invested ahead of the curve as we did in the early days of the Internet, advanced solutions and cloud. Following the same playbook over the past 3 years, we've been executing a multiyear plan to build an AI ecosystem. We stand at the center of the $5 trillion global technology landscape with more than 4 decades of experience helping customers embrace technology disruption. This, in conjunction with our proprietary AI innovation, puts us in a unique position to lead our customers on their AI journey. We are doing this with our internal expertise through our Xvantage platform alongside our external customer-facing Enable AI program that educates and equips partners to assess, sell and deploy AI. With Xvantage, we're driving real business outcomes from meaningful OpEx reductions to automated top line growth, powered by our intelligent digital assistant, or IDA, which we discussed last quarter. Xvantage was architected 3 years ago with a proprietary AI Factory that supports hundreds of machine learning models across vast data sets. It's not only a growth engine but a learning platform that fuels demand generation for our sales associates and customers. The AI Factory allows us to design integrated solutions that bring together AI, cybersecurity and cloud, which is crucial because collaboration across the ecosystem is critical to unlocking AI's full potential. Many of our vendor partners are now co-creating solutions with other vendors. With Xvantage, we can deliver these integrated bundles through a seamless self-service experience that combines hardware, software, cloud and services. For our customers and vendor partners, Ingram Micro's Enable AI program provides the tools to gauge readiness, sell AI solutions and deliver measurable business outcomes at scale. It provides a structured step-by-step path to AI success through maturity assessments, base camps for foundational learning, growth tracks with leading vendors and access the global centers of excellence. Since its launch in early 2025, the Enable AI program has engaged thousands of customers, supported by our leading vendor partners, to walk through the complex AI opportunity with clarity and confidence. As proof points of the program's early success, AI is the most viewed resource content category on Xvantage by our customers. Additionally, one of the world's largest hyperscalers is using our Enable AI program to simplify customer AI certifications, and a leading GPU vendor is collaborating with us on a multi-vendor AI solutions for key industries. Both these internal and external efforts rely on the accelerating momentum of our Xvantage platform, which is visible in our metrics. In the third quarter, IDA contributed hundreds of millions of dollars of incremental revenue. We also had rapid international adoption of IDA with IDA-driven revenue with non-U.S. operations growing by more than 100% in the quarter. IDA also drove Q3 quote-to-order conversion rates nearly double those of non-IDA engagements. Earlier this week, we announced our first enterprise-grade AI agent built with our Xvantage AI Factory and powered by Google's Gemini large language model. This demonstrates how we are combining our internal AI intelligence, which is more than 400 models strong, with Gemini's advanced reasoning and language capabilities. The new agent, known as Sales Briefing Assistant, introduces a new standard for intelligence: scalable sales enablement in the enterprise. The agent will also help IDA generate better quote conversion driving complementary intelligence for our entire sales life cycle and pipeline. These innovations demonstrated how our AI-first strategy is playing out in tangible measurable capabilities. As we enter the fourth quarter, it's remarkable how much has changed in just 1 year since our IPO. While the pace of change in our industry is staggering, we continue to focus on what always guides our road map, and that is our customers. We understand that our success is dependent upon them, and what matters most is that we enable them to capture and deliver the value to the millions of end businesses they serve each and every day. One of our long-time customers, Mark Sutor, President of Access Group and a Trust X Alliance community member, reminded us of this recently when he said, "In my 32 years in IT, I've never experienced a partnership like the one I have with Ingram Micro. I see my own vision reflected in your innovations. It feels like you're building and iterating with me, not just for me. As an example, with Xvantage, our year-end cloud billing process went from 3 full days to just 3 minutes." At the end of the day, regardless of the sophistication of technology we are enabling, our biggest differentiator is our ability to serve our customers wherever they are in their technology journeys. We are grateful for our customers, our partners and our team members for their dedication and creativity as we transform the B2B experience together. With that, I'll turn the call over to Mike. Mike? Michael Zilis: Thank you, Paul, and good afternoon, everyone. As Paul highlighted, we had a strong third quarter with results that either exceeded or hit the top end of each of our guidance ranges despite the impact of the July ransomware incident. As discussed on our earnings call in August, the incident prevented us from transacting for a handful of days in early July. At that time, we estimated a potential 1% to 2% top line impact and a $0.02 to $0.04 impact on EPS. With the incident now more than 3 months behind us, we estimate the overall impact landed within a tighter range of 1% to 1.5% of net sales and $0.02 to $0.03 per share. And most importantly, we couldn't be prouder of how our team and our partners around the globe responded to minimize the impact and return to business so quickly. Looking at the third quarter in more detail. Net sales of $12.60 billion were up 7.2% year-over-year in U.S. dollars and up 6.0% on an FX-neutral basis. Client and endpoint solutions grew most notably at nearly 13% on an FX-neutral basis as we continue to see strong demand for notebooks, desktops and related products. Advanced solutions sales were down 4.5% as growth in servers and storage was offset by softer results in virtualization and infrastructure software. We also saw a 4% decline in cloud. However, excluding the impact of one of our noncore divestitures during Q3, our cloud net revenues were up low single digits year-over-year. The year-over-year comparison of our cloud net revenues was also diluted by a higher mix of demand for product sales that are recorded on a net basis. Geographically, we had robust FX-neutral growth in the low teens year-over-year in both Latin America and Asia Pacific regions, while North America growth was more moderate at a bit over 3%. EMEA grew just slightly on an FX-neutral basis as the overall macro environment remains generally softer in parts of Europe. As I scan across our regional segments, solid growth in client and endpoint solutions, and particularly, the desktop and notebook refresh was a common threat globally. Similarly, servers and storage along with cybersecurity were amongst the largest gains within advanced solutions across most of our geographies. We also saw cloud growth in most geographies, most notably in Infrastructure as a Service and modern workplace solutions. Networking growth continues to be more moderated in general, while the softness in infrastructure software that I noted earlier was mostly attributable to a large project that closed in Q3 of last year in Europe and did not repeat with the same timing in the current year. Turning to our customer categories. Our overall mix and year-over-year growth remain more concentrated towards large enterprise customers, but we are also encouraged to see growth starting to accelerate in our higher-margin SMB category, a trend that first started in Q1 of this year. Moving to gross profit and gross margin. Our third quarter gross profit came in at $870 million compared to $845 million last year. The increase in gross profit dollars was primarily related to increased net sales. An improving margin environment, combined with some strengthening in SMB that I just noted, helped to drive a solid 34 basis point sequential improvement in gross margins. On a year-over-year basis, our gross margins were down 29 basis points due to the continued higher sales mix towards our lower-margin client and endpoint solutions as well as a mix within our advanced solutions product categories towards lower-margin server, storage and other AI enablement product sets. These higher growth areas are important to our strategic priorities, in partnership with several of our key vendors, where our wins come at lower margin but deliver strong returns on invested capital and serve as a foundational piece to our AI ecosystem strategy. Excluding sales from vendors associated with large GPU shipments, for instance, that were done on a low margin and low cost to serve basis, our total company gross margins would have been Q3 above 7%. Q3 operating expenses were $646 million or 5.13% of net sales compared to 5.33% in the same period last year. Third quarter operating expenses included a $5.5 million loss or 4 basis points of net sales related to the two divestitures we discussed earlier. The quarter also included $3.5 million or 3 basis points of net sales related to restructuring costs associated with programs to continue optimizing the business, primarily in North America and EMEA. The year-over-year improvement in OpEx leverage reflects continued benefits of optimization and automation from Xvantage, the cost actions we have previously discussed as well as mix factors associated with lower cost to serve categories. Adjusted EBITDA for the quarter was $342 million, up 3% in U.S. dollars and up 2% in constant currency. Our non-GAAP diluted EPS of $0.72, which was at the high end of our guidance range, came in flat to prior year. However, our non-GAAP net income was up 6.0% year-over-year, growing from $159 million last year to $169 million this year. The current quarter includes the impact of the July ransomware incident that I noted earlier. And as we've discussed in the past, our tax rate is also impacted by higher volumes of sales from our Latin American export business, which yields a higher gross margin but also bears withholding tax. This withholding tax impact was $0.03 per share in Q3 of this year versus $0.02 per share in the prior year. Turning to our balance sheet. We ended the third quarter with net working capital of $4.9 billion compared to $4.3 billion to close the same period last year. The higher investment in working capital this year is driven by the increase in net sales and investment needed to capture these opportunities. On a days basis, our net working capital was 32 days versus 29 days in the same period of 2024. The higher ratio of cloud sales recorded on a net basis had an unfavorable impact on working capital days. On a similar note, adjusted free cash flow was an outflow of $110 million, again, reflective of investments to grow the business, although this was better than typical Q3 seasonal norms and improved when compared to an outflow of $255 million in the prior fiscal third quarter. We returned $18.3 million to stockholders through dividends paid during Q3, and we announced a 2.6% increase to our quarterly dividend to be paid in Q4. We ended the quarter with $830 million in cash and cash equivalents and debt of $3.8 billion. Our gross leverage ratio was 2.8x and our net leverage ratio was 2.2x, both of which are roughly flat year-over-year, reflective of our investment in working capital to fund growth, offset by our debt paydowns over the past year. Shifting now to guidance for Q4 2025. We are guiding net sales of $14 billion to $14.35 billion, which represents year-over-year growth of more than 6% at the midpoint. We expect fourth quarter gross profit of $935 million to $990 million, which would represent gross margins of roughly 6.8% at the midpoint. This revenue and gross profit guidance is reflective of some fairly consistent trends in sales mix across products, customers and geographies to what we saw in Q3. We expect non-GAAP diluted EPS to be in the range of $0.85 to $0.95 per diluted share. Our EPS guidance assumes approximately 235.9 million weighted average shares outstanding and a non-GAAP tax rate of 33% for the quarter. In closing, as we look to Q4, we expect to continue our trend of year-over-year net sales growth, and our team remains laser-focused on scaling our Xvantage platform along with other strategic capabilities in which we continue to invest to capture additional market opportunities. With that, operator, we can turn the call over to questions. Operator: [Operator Instructions] Our first question is from Ruplu Bhattacharya with Bank of America. Ruplu Bhattacharya: Paul, Mike, you talked about continuing strength in PCs, notebooks and desktops and some weakness in advanced solutions. I think you mentioned one large project that didn't renew. I think you said it's a timing issue. Given the dynamics that you saw this quarter and what you see for the December quarter, how should we think about margins going forward, either gross margins or operating margins? Do you think the trends can get better? And how does the mix of SMB versus large enterprise, how does that impact margins? If you can give us any color there. And I have a follow-up. Michael Zilis: Yes. Ruplu, this is Mike. I can start on that and then Paul can add for sure. So what you can see implied in the guidance that we gave on gross profit and revenue is still margins in the high 6s, around 6.9% at the midpoint. That would be still -- or 6.8%, I guess, in the 6.80s at the midpoint. So I think that's still looking at sort of seasonal norms where we see a little bit of a trend of more mix of the higher volume products that we usually see in the spike in Q4, but still less seasonal differential sequentially than what we normally see. And a lot of that is probably seeing the continued strength in SMB that we've seen gradually building over the last couple of quarters, which is very encouraging for us, of course. We see the advanced solutions, as you just called out from our comments, really more of a timing thing on one large project and a difference in virtualization from a year-over-year perspective. But we continue to see solid growth in servers and storage and we see the opportunity to continue to pursue some of the large GPU deals that we called out, which obviously could be a little bit dilutive from a margin perspective. But then lastly, cloud we see growing at a more robust level in Q4. So what's implied in our guidance from a growth perspective is client and endpoint probably more in the mid-single digits with still some legs on the desktop and notebook refresh. We see advanced solutions growing in the lower single digits and cloud growing mid- to upper single digits. And that's what's built into our guidance. Anything you want to... Paul Bay: I'd just say it's a geography mix again, too. So we continue to see Asia -- this is Paul. We continue to see Asia Pacific performing very well as a percentage of the overall business as we call out. It's a lower margin but a lower cost to serve also. Ruplu Bhattacharya: Got it. Mike, for my follow-up, if I can ask a little bit on inventory and free cash flow and cash conversion cycle. It looks like inventory sequentially went down a little bit. But as the hardware categories are recovering, how should we think about the pace of inventory reduction? And should we assume the fourth quarter also is a negative free cash flow quarter as you prepare for the first half of next year? So any color on how we should think about working capital and free cash flow going forward. Michael Zilis: Yes. So one of the things that we talked about in our last call is how we exited the end of Q2 with a little bit of buildup of inventory, which was mainly related to some large projects that we're going to sell through in Q3. And that did happen as expected, and that's what's contributing a little bit to the sequential decline you just noted and also a lower than normal seasonal investment into working capital in Q3, where we usually are stocking for the kind of the hockey stick that we see in Q4 sales. Now I would point you -- we don't give guidance on cash flow and balance sheet, per se. But I would look towards last Q4, where you can see we had quite a sizable positive cash flow in that quarter. And things would point to a very similar sort of trend dynamically as far as where we see the business mix between hardware, software and demand as we look at Q4 encompassing the mix factors that I just mentioned in answer to your first question. So we should see a solid cash flow quarter in Q4. Operator: Our next question is from Erik Woodring with Morgan Stanley. Maya Neuman: This is Maya on for Erik. Two questions from me. Maybe just to start, on the traditional hardware side, we've seen PCs growing for multiple quarters now, servers growing as well. Where do you think we are in the cycle kind of across those key like product markets? Paul Bay: So this is Paul. So thanks, Maya. Still seeing good trajectory on the desktop, notebook refresh. We're in the second half of kind of the refresh. But as we sit here today, we're still seeing good demand, not to the extent that we saw in the first half of the year. As you know, as we talked about coming into the year, it kind of progressed very quickly. So I would say we're in the back half or the later innings of the PC refresh. And if you look at server, that was a very good performance for us in the quarter within our advanced solutions. Networking still had growth. So there is still some of the refresh going on as we talked about previously some of the other categories, but there's still some legs to be there for those categories also. Maya Neuman: Got it. And then given what we're seeing in the memory market right now, in prior periods of component cost inflation, have you historically seen customers trying to pull forward spend to try and get ahead of rising component costs? Is this a topic in any conversations that you're having? Paul Bay: Yes. This is Paul again. No, we haven't had any of those conversations at this point in time in terms of pull forwards or from a pricing perspective. It's been pretty traditional from what we're seeing. Operator: Our next question is from David Paige with RBC Capital Markets. David Paige Papadogonas: Congrats on the great results here. I wanted to focus on Xvantage. It was good to hear the momentum with Xvantage, with IDA. I was wondering if you could help frame where the benefit Xvantage is being felt the most. Is that on the SMB side or more enterprise clients, customers using it? And maybe just help us frame like where the actual tailwind from the momentum is coming from. Paul Bay: Yes. David, this is Paul. So thanks for the question. So there's three phases really Xvantage. The first one is all about taking out friction, call it, cost to serve. The second phase is around demand generation, and the third phase is around using data and insights to help our partners drive profitable organic growth. And so what we're seeing is, to answer your question, within product category, actually it's across the board. Enterprise is using it for different reasons than SMB. SMB Is where they can really manage their whole business. So if you look at one of the things that we have talked about in terms of the benefits of this is you have a single pane of glass, one place to come where you have the customer, you have the vendor and you have our team members. And within the customers' visibility, there's multiple different personas that they can have in there, so effectively allowing small to medium-sized businesses operate and run their whole business. And that's one of the reasons that we continue to talk about our integrations hub or XI, which allows them to tie into their professional services platforms. And stuff they used to take minutes and months, they actually can do at the click of a button now into their ERP systems. We've given a couple of examples of that. Enterprise partners are using it, but it's more for the traditional pricing availability, partner lookup, does this go with that type of functionality. David Paige Papadogonas: Great. That's helpful. And then just to revisit the PC refresh cycle. I know you said maybe mid- to later innings. But looking ahead to '26, do you see maybe AI-powered PCs extending the cycle as people try to upgrade so the hardware could support more compute power that's needed for AI? Paul Bay: Yes. We're still in the early part of the cycle. What we see, and you've probably seen some of the other industry, people that play in this space or our vendors, probably 25% of our PC shipments today, refresh, is an AI PC. So that's still a low percentage. So that does, to your point, give a potential for a longer, smoother refresh kind of driven by AI PC. So I think it's still yet to be determined because the refresh we're still getting today -- because of only 1/4 of the PCs going out from an AI perspective are really around aged systems and the Windows' end of life. So it's yet to be determined. I think we'll know more kind of at the beginning of next year how AI could potentially provide a longer, smoother refresh cycle into 2026. Operator: Our next question is from Logan Katzman with Raymond James. Logan Katzman: This is Logan on for Adam. I just had a question. As we exit this year, what are you guys hearing from customers about a potential budget flush exiting 2025? We've heard from a couple of people that it may be there this year, but I just wanted to get your guys' thoughts. Michael Zilis: Yes. This is Mike. I can hit a first pass at that one. I don't think we're necessarily seeing anything abnormal there. I mean, that is part of the reason we typically see a seasonal pop in revenues is budgeting cycles in Q4. And you can see again a pretty healthy sequential increase in our guide going from Q3 to Q4 that would be reflective of that. I think the bigger variable this year is just how strong will SMB be where, again, we're encouraged to see spending grow. And that budgeting cycle exists just as prominently at an SMB customer to different magnitudes as it does in an enterprise customer. So that would be probably the only variable. But I think we feel pretty bullish that it's a fairly normal cycle in that regard when we look to Q4. Operator: Our next question is from Alek Valero with Loop Capital. Alek Valero: This is Alek on for Ananda. Just two quick ones. So I wanted to ask about the biggest catalysts that we can look for over the next 4 to 6 quarters. Paul Bay: This is Paul. As we mentioned in our prepared remarks, the things that are going on, what we're hearing from a market perspective are a couple of things. One, it's around services that the partners are continuing to build out. The other one, the other two that we're talking about, and you saw us make an announcement is around AI. What is AI, how do you monetize the AI, the spend that's going on in AI right now and then security kind of wrapped around everything. We also believe as kind of AI continues to develop, we have the opportunity to continue to take those products that are now proof of concepts. And as they go, and we're seeing some of the workloads go to the cloud and we have some of the large relationships with the hyperscalers, so the ability for partners to take what I would call proof of concept into kind of your everyday kind of downstream into the market, so wrapping services around it AI tied in with security. Alek Valero: Got it. And just a quick follow-up. Have you guys heard anything from the bars regarding any feedback around macro? Paul Bay: This is Paul again. Actually, if anything, it's been more encouraging. As we mentioned, last year we were talking about the challenges in SMB. And the fact that we've had 3 quarters now with SMB growth is encouraging because that market is normally the one that bounces back least. And we've been talking about kind of the enterprise for the last couple of quarters. So the good news is we're seeing sales. And within the SMB sales, we're seeing it across all categories, too. So it's not just centered around one category. So the cloud, networking, cyber and desktop, notebook, they're participating across all categories too. So that's encouraging also. Michael Zilis: Yes. Look, the one thing I would just add on that, we've called this out in previous calls when we were seeing the SMB strength. Our view, which isn't too uncommonly shared view from an economic perspective was that certainly tariffs and inflationary environment were creating probably a little bit more overhang, as Paul just alluded to, especially on that SMB space. So that was definitely the more sensitive part of our customer ecosystem to that environment. And as we see inflation temper back a little bit, more certainty around tariffs, interest rates coming down yet again yesterday with the Fed move, and we'll see what happens after this, those are all pretty encouraging signs that again make us a little bit more bullish about that category of customer for sure. Operator: Thank you. At this time, I would like to turn the floor back over to Paul Bay for any closing comments. Paul Bay: All right. Thank you. So before we wrap up, let me just leave you with a few thoughts from our quarter. First, we delivered strong financial results with all key metrics at or above the high end of guidance, and we are set up for a solid Q4. Second, our AI and platform momentum continues to build. Xvantage is scaling globally and delivering real value while our Enable AI program is gaining traction. Additionally, as you heard, we introduced our enterprise AI agent built on Google's Gemini large language models this week. Third, our profitable growth is broad-based across all geographies, business lines and customer segments. And finally, we're excited to welcome over 2,000 participants next week at our global ONE Innovation Summit in Washington, D.C. It's always great to connect with our team, our partners and our industry leaders to shape what's next in technology. So as always, thank you for joining us today, and a huge thank you to our more than 23,000 team members, our customers and our vendor partners for your continued support. We look forward to catching up with many of you here in the very near future. Thank you, and have a great day. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Christopher David O'Reilly: [Interpreted] Thank you very much for taking time out of your very busy schedule to join Takeda's FY '25 Q2 earnings announcement. I'm the MC today, Head of IR. My name is O'Reilly. Thank you for this opportunity. [Operator Instructions] Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in our most recent Form 20-F and in our other SEC filings. Please also refer to the important notice on Page 2 of the presentation regarding forward-looking statements on our non-IFRS financial measures, which will also be discussed during this call. Definitions of our non-IFRS measures and reconciliations with the comparable IFRS financial measures are included in the appendix to the presentation. Now we would like to start with the presentation of the day. We have Christophe Weber, President and CEO; Milano Furuta, Chief Financial Officer; Andy Plump, President, R&D; Teresa Bitetti, President, Global Oncology Business Unit; P.K. Morrow, Head of Oncology Therapeutic Area Unit, will provide you with presentation, which will be followed by a Q&A session. We will get started now. Christophe Weber: Thank you, Chris, and thank you, everyone, for joining us today. Our fiscal year 2025 first half results confirm our expected business dynamic for fiscal year 2025 with business fundamentals tracking as planned. This is the last year of very significant VYVANSE generic impact, which peaked in H1 and which will be much less of a headwind to our growth from now on. Growth on launch product grew 5.3% at constant exchange rate, and we expect this growth to accelerate in H2. ENTYVIO is growing, albeit at a slower pace as the pen is growing 20% quarter-to-quarter in the U.S., but still represent only 9% of ENTYVIO volume in the U.S. Our PDT business is expected to grow at mid-single digit this year with immunoglobulin and albumin growing high single digit. We will continue to maintain very tight OpEx control through efficiency improvement supporting profit. Our decision to update full year management guidance for core operating profit and core EPS was driven by a headwind from transactional foreign exchange, mostly generated by the euro appreciation, which has most notably affected QDENGA. Our updated reported forecast, including our EPS forecast reflect a nontax deductible impairment loss booked in the first half. From fiscal year 2026 onwards, Takeda will be in a new business cycle with VYVANSE generic impact mainly behind us, potentially three new product launch for rusfertide, oveporexton and zasocitinib and an evolving late-stage pipeline now enriched by our strategic partnership with Innovent Biologics. Our leadership in leveraging technology and AI will further transform the company, which will be led by Julie. Milano will discuss our financial results and expected results in more detail in a moment, and then Andy will present our pipeline advancement with exciting data on zasocitinib. Later on this call, Teresa Bitetti and P.K. Morrow will discuss our partnership with Innovent Biologics and we'll focus on two new late-stage molecules. With that, I'll hand it over to Milano to walk us through the financials. Milano? Milano Furuta: Thank you, Christophe, and hello, everyone. This is Milano Furuta speaking. Slide 7 summarizes our first half financial results. Overall, our business performance is tracking as we planned. As anticipated, this period was significantly impacted by LOE, as we lost approximately JPY 100 billion of VYVANSE revenue. Meanwhile, we have been focused on driving OpEx savings, which has partially offset the impact to corporate profit. We expect H1 to be the peak of VYVANSE generic impact, and we expect a better growth outlook for the full year. Revenue in H1 was just over JPY 2.2 trillion, a decrease of 6.9% or minus 3.9% at constant exchange rates or CER. Core operating profit, core OP, was JPY 639.2 billion, a year-on-year decrease of 11.2% at actual FX or 8.8% at CER. Reported operating profit was JPY 253.6 billion, a decline of 27.7% due to larger impairment losses this fiscal year. Core EPS was JPY 279 and reported EPS was JPY 72. The 40% decline in the reported net profit and EPS reflects the impairment of cell therapy, which is nondeductible from taxable income. Cash flow was very strong this period with adjusted free cash flow of JPY 525.4 billion, including improvements in working capital. Slide 8 shows our growth and launch products, which represent over 50% of revenue. In H1, this portfolio grew 5.3% at CER. This modest growth includes the impact of phasing of certain products, and we anticipate a higher growth rate in the second half. In GI, ENTYVIO growth was 5.1% at CER. We are encouraged to see increasing numbers of active ENTYVIO Pen patients in the U.S., and we are also making progress with expanding formulary access. That said, revenue growth has been slightly below our expectation, and we are revising our full year forecast for ENTYVIO to 6% at CER. In rare disease, TAKHZYRO continues to grow steadily as a market leader in HAE prophylaxis with 5.9% growth at CER. Our PDT portfolio growth reflects several factors, which were built into our guidance and fully in line with expectation. IG growth was 3.1%. While Medicare Part D redesign is impacting several products in the U.S. this year, one of the most impacted product is GAMMAGARD LIQUID, and we expect this to normalize in Q4. Our SCIG portfolio is growing at double digits, and we expect this to continue. Albumin declined slightly in H1 due to timing of shipments to China and the foreseen cost containment measures. Meanwhile, we have also secured additional sustainable tender markets outside of China, and we expect albumin performance to accelerate in H2. Therefore, we confirm the growth outlook of high single digit for both IG and albumin. In oncology, FRUZAQLA continues to expand as we roll out global launches. Finally, in vaccines, we have reallocated supply of QDENGA based on market needs, which has pushed some shipments timing into later this fiscal year. However, we expect annual demand to remain in line with our original estimate. Another factor impacting the growth rate of QDENGA is transactional FX, mainly due to the strength of the euro versus the Brazilian real. On Slide 9, you can see how the growth on launch products and the VYVANSE loss of exclusivity contributed to total revenue performance. FX was also a headwind this quarter due to appreciation of the Japanese yen against major currencies. As we expect growth and launch products to deliver higher growth in H2 and VYVANSE year-on-year decline to moderate, we project more favorable year-on-year growth dynamics in H2. Next, an update on efficiency program that we initiated in April 2024. We continue to make progress with initiatives in H1 this year, including additional organizational changes impacting 600 positions, further optimization of real estate and the growth initiatives to capture efficiencies across the R&D value chain. Restructuring costs in H1 were JPY 27.4 billion, and we are focused on further driving additional OpEx savings. As we show on Slide 11, these operational efficiencies are contributing to a reduction in R&D and SG&A expenses. In this bridge for core operating profit, you can see that LOE of high-margin VYVANSE was the main reason for the year-on-year decline of 8.8% at CER. Within this decline at CER, we had a negative impact from transactional FX, which accounts for about 1/3 of the decline. Let me take a moment to explain how this is impacting our P&L. Revenue can be impacted when there is an FX fluctuation between the currency paid for product and the currency of the entity where revenue is booked. This is exactly what is impacting QDENGA sales today, for example, because our European entity books revenue in Europe for its sales to Brazil in Brazilian real. Cost of goods can be impacted, too, when products are imported from other countries. For example, when the euro appreciates, commercial entities outside Europe have to recognize higher COGS when importing products to sell locally. As you know, Takeda has a large manufacturing footprint in Europe, so we are particularly sensitive to euro currency volatility. Next, reported operating profit on Slide 12. This decreased by 27.7% versus prior year, mainly due to the decline in core operating profit and higher impairment of intangible assets. The main item was a JPY 58.2 billion expense related to our recent decision to discontinue cell therapy efforts. Next, our updated full year outlook on Slide 13. Starting with management guidance, although we have reduced our forecast for ENTYVIO and VYVANSE, we expect total revenue to stay in the range of the broadly flat versus prior year. For profit guidance, we expect higher OpEx savings to fully mitigate the impact from unfavorable change in product mix. However, the transactional FX dynamic that I just described is having a larger impact on profits. Therefore, we are slightly lowering our guidance for core operating profit and core EPS from broadly flat to low single-digit percentage decline. The bottom part of the slide shows our reported and core forecast. This reflects our latest FX assumptions, including transactional FX and items booked in H1 that will impact the full year results. We have also revised our adjusted free cash flow forecast to include a USD 1.2 billion payment to Innovent Biologics for our recently announced in-licensing deal. This payment will be funded by cash on hand. Our dividend outlook remains JPY 200 per share for the full year. On Slide 14, we show more details about the updated operating profit forecast. You can see the relative magnitude of transactional FX impact, while OpEx savings compensate for unfavorable product mix. The net impact of all these moving parts, including transactional FX, is a JPY 10 billion reduction in our operating profit forecast to JPY 1.13 trillion. In summary, our business fundamentals are tracking as planned. While H1 growth was largely impacted by LOE, we expect better growth rates for the full year fiscal year. Meanwhile, we remain focused on cost discipline to deliver our guidance, while investing for future growth. Thank you for your attention. I will now hand over to Andy for more details on the pipeline updates. Andrew Plump: Thank you very much, Milano, and hello to everyone on today's call. Next slide, please. Fiscal year 2025, as you just heard from Christophe, is a pivotal year as we advance and accelerate our exciting high-value late-stage pipeline to launch. Today, I am pleased to provide pipeline updates reflecting our growing late-stage portfolio of promising programs powered by our increasingly productive and efficient development engine. We are 2 for 2 with positive Phase III studies for both rusfertide and oveporexton with zasocitinib Phase III data in psoriasis expected by the end of this calendar year. In a few minutes, Teresa Bitetti and P.K. Morrow will walk you through the details of our recently announced partnership with Innovent Biologics, which upon closing, will expand our oncology pipeline. With 2 highly differentiated late-stage oncology assets in development for multiple solid tumors, this deal has the potential to transform our oncology pipeline. But first, I'm going to highlight some recently presented Phase III data for oveporexton and long-term IgA nephropathy data for mezagitamab that we are particularly excited about. The results of these studies truly represent Takeda's high bar for innovation and the breakthrough benefits we seek to provide patients. Let's start with oveporexton on the next slide. Oveporexton is on track to be the first-in-class and potentially best-in-class orexin 2 receptor agonist that treats the underlying orexin deficiency in patients with narcolepsy type 1. We believe that the data presented at the World Sleep Congress last month establishes a new standard of care for NT1. In one of the largest, most comprehensive Phase III development programs for NT1 to date, we demonstrated statistically significant and clinically meaningful improvement across all 14 primary and secondary endpoints with most participants within normative ranges. It is clear that oveporexton has a profound effect on daytime symptoms like excessive daytime sleepiness and cataplexy, nighttime symptoms and cognitive symptoms. In addition, it significantly impacts how patients with NT1 feel and function. We believe we have created a new standard of care to treat NT1 by treating the entire range of symptoms with a safe, well-tolerated pill. Oveporexton sets a high bar with the new standard of care, which will be hard to beat. Feel and function were assessed using multiple objective and subjective measures. Based on these strong Phase III data, we plan to file for U.S. approval in NT1 as quickly as possible later this year with regional filings to occur simultaneously or shortly thereafter. Our orexin franchise is making rapid progress beyond oveporexton. The next-generation orexin 2 receptor agonist, TAK-360, is rapidly enrolling Phase II studies for narcolepsy type 2 and idiopathic hypersomnia. Results for these trials are expected to be read out by early fiscal year 2026. Next slide, please. We previously presented compelling 48-week proof-of-concept data for our anti-CD38 antibody, mezagitamab, in IgA nephropathy. This includes consistent and supportive trends in decreased IgA, IgG and galactose-deficient IgA1 levels, reflecting the selective targeting of CD38 on plasma cells, which produce pathological antibodies. I'll now preview the exceptional 96-week results from the proof-of-concept trial that continue to support this promising approach to modifying this disease. Mezagitamab-treated patients show persistent reductions in proteinuria or UPCR, nearly 18 months after the last dose, suggesting sustained efficacy beyond the treatment period. Importantly, the estimated glomerular filtration rate, or eGFR, that is the regulatory gold standard for measuring renal function remains stable at 96 weeks. Mezagitamab is the first IgA nephropathy therapy to demonstrate stable renal function 18 months after dosing. We look forward to presenting the full data at ASN Kidney Week next month. Our Phase III IgA nephropathy study is open and has been enrolling well. Next slide, please. The Phase III VERIFY study of rusfertide, a potential first-in-class synthetic hepcidin mimetic in development to treat polycythemia vera was presented at the American Society of Clinical Oncology in a plenary session in June. Updated 52-week data will be available at an upcoming medical congress. This quarter, we received breakthrough therapy designation, which speaks to the exceptional practice-changing data presented at ASCO 2025 and increases the probability of priority review for rusfertide, which we intend to file this fiscal year. Looking ahead to our next major pipeline milestone, we expect zasocitinib Phase III psoriasis data later this calendar year. Based on the data seen in Phase II, we believe zasocitinib will provide an important and very attractive oral option for patients. I'm also excited to report that the head-to-head study of zasocitinib versus deucravacitinib in psoriasis is expected to complete enrollment in the next few weeks. As you can see here, psoriasis is the first of many diseases where zasocitinib can benefit patients. With that, I will now turn it over to Teresa and P.K. to provide more details on the Innovent partnership, which has the potential to catapult Takeda into an industry-leading oncology company. Thank you. Teresa Bitetti: Thank you, Andy. Good morning, good afternoon, and good evening. We are pleased to be here today to share more detail about our recently announced partnership with Innovent Biologics and why it's critically important for patients and for Takeda. Next slide. Our collaboration with Innovent involves 3 differentiated assets, each with unique mechanisms. 363 is a potentially first-in-class PD-1/IL-2 alpha bias bispecific. 343 is a next-generation Claudin 18.2 ADC, and we're also receiving the exclusive option to license 3001, which is another ADC targeting EGFR and B7H3. This deal is strategically important because it adds cutting-edge anchor assets to our pipeline. First, a bispecific with the potential to be an IO backbone therapy across a broad range of indications, lung included. Second, a next-generation ADC with potential to address difficult-to-treat cancers, including gastric and pancreatic. And finally, an option to license a potential best-in-class bispecific ADC. These unique programs, each with differentiated mechanisms further demonstrate our commitment to science, our commitment to patients and have the potential to be significant growth drivers for the Takeda enterprise post 2030. So next slide. Let me spend a little time sharing how we've structured this deal and what it brings to the Takeda portfolio. So for 363, which is the PD-1/IL-2 alpha bias bispecific, Takeda will lead the co-development of this asset globally using a 60-40 Takeda-Innovent cost split. Takeda will also lead U.S. co-commercialization of 363 with a 60-40 Takeda-Innovent profit or loss split. And Takeda will have the exclusive right to commercialize and manufacture outside of Greater China. For 343, the Claudin 18.2 ADC, Takeda will have the right to develop, manufacture and commercialize worldwide outside of Greater China. And finally, we will have the option for 3001, which is the EGFR/B7H3 ADC currently in Phase I. If we choose to exercise the option, we will have global rights to develop, manufacture and commercialize outside of Greater China. Next slide. This collaboration further enhances and augments our oncology portfolio and is consistent with our clearly articulated oncology strategy. As a reminder, you can see here on this slide, our strategy is focused on 3 disease areas and 3 modalities. And as we have highlighted here in the red box, the programs included in this partnership fits squarely within our strategy. So now I'm going to turn it over to P.K. to explain more about the science behind these programs. Phuong Morrow: Thank you, Teresa. I'm now going to share more about the 3 programs in this collaboration and why we are so excited to bring them into our pipeline at Takeda. I will start with IBI363. IBI363, as you can see here, is a bispecific with a unique mechanism that has the potential to become an immuno-oncology or IO backbone. Specifically, IBI363 is what I would call an IO-IO molecule, meaning that it is designed to block the PD-1/PD-L1 pathway and selectively activate IL-2 alpha signaling while attenuating IL-2 beta gamma signaling. As you can see on the left-hand side of this slide, this differentiated IL-2 alpha biased approach has been shown to activate tumor-specific T cells that express both PD-1 and IL-2 alpha receptor within the tumor microenvironment, thereby unleashing a more effective antitumor immune response. IBI363, thereby supercharges tumor-specific T cells, resulting in apoptosis of the cancer cell. And by blocking the PD-1 pathway, IBI363 ensures that these T cells continue to stay activated and it reduces the risk of T cell exhaustion. IBI363 has now dosed more than 1,200 patients and has demonstrated very encouraging results. Next slide. We have seen clinically impactful results in trials involving patients with IO refractory squamous and non-squamous non-small cell lung cancer as well as in third-line microsatellite-stable colorectal cancer. And while median overall survival is immature at the higher doses, it already shows a positive trend even at these lower doses. The results you see on the screen were just shared as oral presentations at this year's ASCO. They are encouraging data, especially when indirectly compared to results from standard of care chemotherapy on the right. The safety profile of IBI363 is considered tolerable with the most common adverse events related to IBI363 being rash and arthralgia. Discontinuations due to these events have occurred in a small percentage of patients and a priming dose has been added to the dosing schedule to reduce the risk of immune-related events that may occur with bispecific dosing. The high caliber of these data is reinforced by the FDA's granting of a Fast Track designation in non-small cell lung cancer. Thus, while this is a competitive environment, we are very encouraged by the data we have seen to date and the potential of this differentiated mechanism. Next slide. To maximize the potential of IBI363, we have 3 very clear objectives, which are built on the efficacy that we've seen thus far. First is to establish foundational efficacy in tumors that have progressed as IO therapies. Second is to penetrate into earlier lines as either monotherapy or in combination. And third is to build on our known data to establish efficacy in immune desert tumors such as microsatellite-stable colorectal cancer in which other IO therapies have not worked. So that's why, as shown on this slide, we're initially establishing the 5 Phase III trials, including 2 trials in IO refractory squamous and non-squamous non-small cell lung cancer, 2 in frontline non-small cell lung cancer and 1 in microsatellite-stable colorectal cancer. We also have a series of life cycle management trials that we're discussing with Innovent, which will help to build upon proof-of-concept data as it evolves. Next slide. Now I'll walk you through IBI343. This Claudin 18.2 targeted ADC is seamlessly harmonized with our oncology strategy due to, first, its novel ADC platform; and second, its demonstrated efficacy in GI cancers. When examining the image on the left, I will walk you through the platform from left to right. First, on the very left, IBI343 has a humanized IgG1 with Fc silencing. This Fc silencing is important because it reduces the risk of off-target toxicity and increases the tolerability of this Claudin targeting molecule. This differentiates 343 from other Claudin-targeting agents, which are known to have increased gastrointestinal adverse events. In addition to that, in the middle, the glycan-specific conjugation and sulfamide spacer increases the stability, solubility and potential bystander effect, allowing the ADC to result in a more efficient apoptosis of the cancer cell. And it also supports a homogeneous drug-to-antibody ratio of approximately 4, which many of us believe is a favorable ratio for ADCs. And finally, this potent exatecan payload inhibits topoisomerase 1, so it fits seamlessly into many standard of care regimens. Next slide. 343 has been dosed in more than 340 patients. And as shown during oral presentations at this year's ASCO, IBI343 has demonstrated encouraging activity in pancreatic and gastric cancers. Compared to the standard of care, 343 has more than doubled the response rate and more than doubled the overall survival as compared to standard of care chemotherapy thus far. This, coupled with a favorable and consistent safety profile with manageable GI and hematologic adverse events supports its ability to fit seamlessly into the standard of care. All of this makes us very excited to continue advancing this asset in GI cancers with critical unmet need. And as with 363, these results were also reinforced by a Fast Track designation by the FDA for pancreatic ductal adenocarcinoma. Next slide. We also have an ambitious development plan for 343 in Claudin 18.2 expressing GI cancers as its topoisomerase inhibition enables us to fit seamlessly into the frontline treatment of pancreatic cancer. In the second line of the chart, you can see that Innovent has an ongoing study, which is well underway in China and Japan in the third-line setting in gastric cancer. We will leverage this data from this study and add a single-arm study in the U.S. and the EU to move forward towards global registration in the third-line setting. And in the bottom row, you can see that the plans are underway for a frontline study in gastric cancer to address the needs of more gastric cancer patients across lines of therapy. Next slide. And finally, I will review with you IBI3001, for which we have the exclusive option to license at a potential future date. IBI3001 is truly a novel molecule, which is both a bispecific and an ADC. It targets EGFR and B7H3, 2 targets that are highly expressed in many solid tumors, including lung cancer, colorectal cancer and head and neck cancer, and it is linked to the same potent exatecan payload as 343. Innovent has rapidly progressed this asset into the clinic, already producing data, as you can see on the right-hand side, that shows encouraging efficacy even in highly refractory solid tumors. We look forward to following the progress of this trial, which is moving at speed. And with that, I'm delighted to turn it back to Teresa to talk about the immense promise of this collaboration for patients. Teresa Bitetti: Thank you, P.K. So looking at this from a patient perspective against the backdrop of the top tumor types by overall prevalence worldwide, we have the opportunity to make a difference in areas of extremely high unmet need. So as you can see highlighted in red, the tumors in our initial development plan are not only prevalent but difficult to treat. In our initial plans, we can address 4 of these cancers and make a meaningful difference for patients. Next slide. As I mentioned at the start, this partnership will serve as a significant potential growth driver for Takeda. When we look at the market opportunity for our initial development plans for 363, we're looking at lung and CRC. In lung, we will be focusing on the IO refractory second-line setting, where the majority of patients will have already been treated with a PD-1 or PD-L1 and then move rapidly into the frontline setting as a monotherapy or part of a combination regimen. And in colorectal cancer, we'll focus on the frontline patients with MSS CRC. So in aggregate, the initial plan focuses on a potential combined addressable market of over $40 billion. Next slide. Now let's look at the market potential for 343. Globally, gastric cancer affects around 1 million people with 35% to 55% expressing the Claudin 18 biomarker. In pancreatic, the global incidence is approximately 500,000 with 30% to 60% of patients expressing Claudin 18. The current standard of care in these tumor types centers on chemotherapy and the 5-year survival rates are very low, highlighting the urgent need for innovative treatments. Altogether, 343 offers a potential combined addressable market of approximately $8 billion, although we expect this market to grow as we and other novel agents enter. So as you can see, across both assets, there's an enormous potential to make a significant impact for patients. So next slide. So in closing, we are incredibly energized by this extraordinary strategic partnership that brings great value for both patients and for Takeda. This agreement with Innovent will enable us to address critical treatment gaps in some of the most prevalent and difficult-to-treat cancers. It brings forward unique and truly differentiated programs that will overcome many of the challenges of currently available therapies, and it adds anchor assets to our solid tumor pipeline with the potential to be future growth drivers for Takeda. So in short, this collaboration is incredibly meaningful, both for us and for patients. So thank you for your attention. I'm going to hand back to Chris to open the Q&A. Christopher David O'Reilly: [Interpreted] Now I would like to take questions from participants. We have Christophe, Milano, Andy, Teresa, P.K. and Julie Kim, CEO Elect Interim Head, Global Portfolio Division and Giles Platford President, Plasma-Derived Therapies Business Unit are joining in the Q&A. [Operator Instructions] The first question is from Yamaguchi-san. Hidemaru Yamaguchi: This is Yamaguchi from Citi. The first question regarding to Innovent deal. I understand the potential of this product is pretty big. But at the same time, Takeda sales has not really involved in the solid tumor for a while after [indiscernible]. And investors have a lot of question on this one, how much you need to spend on R&D for the next few years where you have to balance the operating margin. So R&D investment, even though you're going to split, but solid tumor first line seems to be very costly. So can you give me some elaboration on how you're going to run this clinical trial to compete with the global guys on the R&D and trying to, I would say, finance your R&D and the impact -- potential impact to the margins? That's the first question. The second question regarding to the earnings change. Even though there's only a slight change on a CL basis on the ENTYVIO and VYVANSE, seem to have a big change on the currency things. And this year might be a unique year, but is there any way in the future trying to avoid those changes or through some other transactions trying to prevent or this year, it's hard to escape from this currency related to earnings divisions. That's the second question. Christopher David O'Reilly: Thank you, Yamaguchi-san. So the first question was around how we're going to run the trials for the Innovent assets and what that means for R&D expenses. So perhaps P.K. can just comment briefly on -- again, on the development plans we have in place for these programs. And then Milano can add a comment on how that will fit within our R&D budget. And then for the second question on this transactional FX impact, I'd also like to ask Milano to comment on that, please. Phuong Morrow: Yes. Thank you. So we are very committed to investment both within our oncology portfolio as well as overall in order to support our long-term growth, while continuing to support profitability. In terms of the financial implications of this deal, these have actually been reflected in our revised forecast and guidance. It's a little premature for us right now to comment on outlook for R&D spend and margins for fiscal year 2026. But I can assure you, we are very committed to achieving the margins in the mid- to long-term, which are driven by top line growth and optimizing our cost structure. Milano Furuta: Thank you, P.K. Yamaguchi-san, not much things to add to what P.K. said already. But I think you can see that we have been managing quite effectively or in some areas, we are even reducing R&D expenses beyond our initial expectations by the efficiency program, also the continuous -- with continuous cost discipline. That's one. And then the second one is we are very mindful about this -- the incremental R&D investment as well. So that's why you see this cost split of the 60-40 for this 363 compound. At the same time, as you might be aware that we have been arranging some cost sharing program, the partnership with Blackstone for mezagitamab. So that's kind of through those kind of arrangements. We are very consciously managing incremental investment. But in the end, we want to invest for growth, while optimizing OpEx. Eventually, that's going to be top line growth, should be the main driver to the long-term corporate margin improvement. Second question about transactional FX. This is very hard to answer, as it is very difficult to predict the currency fluctuation. But this transactional FX in Takeda's case, as I commented during the presentation, the euro volatility is quite -- have a big impact in this year. This is because of -- relatively, we have a large footprint in the manufacturing operation in Europe. So we have to see how currencies goes. But in the long -- if we want to mitigate, then we have to -- maybe in the long run, somehow we have to rebalance the manufacturing footprint, but that's kind of, of course, a long-term strategic plan. It's not -- we've taken actions depending on a 1-year currency volatility. We have to take a bit to long-term stance on that. Christopher David O'Reilly: [Interpreted] Next question from Mr. Matsubara from Nomura. Matsubara: [Interpreted] Matsubara from Nomura. I have 2 questions. First is about ENTYVIO. As you explained, ENTYVIO Pen penetration is advancing, but the insurance coverage as of now and to enhance penetration of pen furthermore, what actions are you taking now? The second question is Nabla Bio that you have partnership with now, and this is nonclinical as of now, and it's not fully disclosed, but by utilizing this R&D acceleration, how does it go? And for mid- to long-term pipeline enhancement and acceleration, how do you see that? Christopher David O'Reilly: Okay. So thank you for your questions, Matsubara-san. So the first on ENTYVIO, what is the state of insurance coverage? What are we doing to expand access to pen? I'd like to ask Julie to comment on that. And then the second question was on our recently announced collaboration with Nabla Bio. Perhaps Andy can add some comments on what we're doing in terms of utilizing AI in drug discovery. Julie? Julie Kim: Yes. Thank you for the question. And in regards to ENTYVIO Pen access, as you heard from Christophe in his opening comments, we are continuing to improve our overall position along the access continuum, and we're encouraged by the 20% growth that we're seeing quarter-over-quarter in terms of ENTYVIO Pen. Now that being said, we continue to work on access at various different levels. One, in terms of the -- I would say, the highest level of coverage. I think you are all aware that we have 2 out of the 3 big contracts signed for quite some time now, and we continue to work on the CVS piece. For the other levels of access, when you look at the way that the U.S. market is structured, it's actually -- there's a lot of localization even with the way that we have the big 3 PBMs. So while we continue to improve at the local level as well, we are putting in place very specific tactical actions to address the localized challenges in addition to what we're doing at the overall coverage level. So hopefully, that gives you a sense that we're working across multiple different levels on the access continuum in the U.S. Andrew Plump: And thank you, Julie, Matsubara-san, and thanks for the question. We're quite excited by the partnership with Nabla Biosciences. But maybe I can just dial up for a second and give you some sense of the work that we've been managing in our research laboratories for the last couple of years. We see discovery in the biopharmaceutical industry changing quite rapidly, and we're positioning Takeda to be at the leading edge of application of advanced technologies in research. And in fact, we're in the process of completing a new laboratory in Cambridge, Massachusetts in Kendall Square that we call the lab of the future. And the intent of this lab is to enable a workflow in discovery that can both improve our probabilities of success and also greatly accelerate the time that it takes to move molecules through discovery. Today, 1 in 5 -- 1 in 4 of our research programs are enabled by in silico technology. By next year, we expect that over 90% of our programs will be enabled by in silico technology. The partnership with Nabla Biosciences is one example of how we're embracing AI in drug discovery. This is a company that was started by George Church that uses algorithms to optimize sequences of large molecules. We've worked with them for over 2 years now, and we have 3 pilot experiments that each were successful, 2 accelerated programs and a third one actually took us to a novel space that we wouldn't have gotten to with traditional approaches. So we were quite excited about that, and that's what led to then the collaboration that you see at hand. Christopher David O'Reilly: [Interpreted] JPMorgan, Wakao-san. Seiji Wakao: This is Wakao from JPMorgan. I have 2 questions. Firstly, regarding gross margin trend and revised guidance. When comparing the initial guidance with the revised full year guidance, the gross margin has deteriorated 66% to 64.7%. Should we understand this is -- this primarily as an FX impact from the euro? If there are other contributing factors, could you elaborate on this point? And also, if FX is indeed affecting the gross margin, the second quarter gross margin looks relatively solid compared to the FX levels. I'd like to know this point? And why do you expect it to deteriorate in the second half? And second question about IV -- Innovent partnerships. When is the next data update for IBI363 expected, so Page 27. Regarding ongoing first-line and second-line NSCLC studies, we will be able to see data in 2026. In addition, when is the global Phase III trial expected to start? That's it. Christopher David O'Reilly: Thank you, Wakao-san. So the first question on gross margin trend and the revised gross margin outlook for the full fiscal year. I'd like to ask Milano to comment on that. And the second question on the next data point to come for IBI363 and whether we can give an indication of starting Phase III studies. I'd like to ask P.K. to comment on that, please. Milano Furuta: Wakao-san, thank you for the question. You asked about the bridge from initial forecast updated forecast. At the same time, how the H2 second half gross margin will be lower. Actually, the answer would be basically same. If you compare -- if we compare the May forecast and revised the forecast, as you said, gross margin is expected to be lower by about 1.4 percentage points. About half is coming from the transactional FX. And the other half is also coming from kind of product mix change. So we are reducing the VYVANSE, the revenue and the ENTYVIO revenue. And then these 2 revision has a negative impact on the gross margin. So that's the contributing this gross margin update in the forecast. And actually, this explains -- these dynamics explains in the second half because this is more about the second half sales. Also, we are updating the currency forecast for H2. So those 2 impacts were contributing lower gross margin in H2. Phuong Morrow: Thank you, Milano. And perhaps to address the other 2 questions that were asked related to the Innovent collaboration. The first is to say that we, like you, are very enthusiastically monitoring the data with both 363 and 343. We are not yet releasing when we will disclose further data in the coming year, but we will be following this closely, as we determine when the appropriate data inflection will be in order to release more data in a public forum. The second question you had was related to the start of the Phase III studies. And we have noted that the Phase III study in second-line squamous non-small cell lung cancer, we expect to begin in the coming months. And as you saw from the slides, we will also be looking towards moving and initiating additional studies at speed. Christopher David O'Reilly: [Interpreted] Next question is Stephen Barker, Jefferies. Stephen Barker: Steve Barker from Jefferies. The first question is about ENTYVIO and the second question is about your collaboration with Innovent. Starting with ENTYVIO. So you've cut your estimated current growth rate at constant exchange rates from 9% to 6% due to competitive pressures. I was wondering if you could give us more details of those competitive pressures and the implications for growth going forward as in next year and beyond? And secondly, regarding your deal with Innovent, certainly, the China data published to date on 363 is impressive. But there have been several cases where impressive data in China has not been replicated in international studies. So I was wondering if you could share your view on if that apparent trend or phenomenon is real or not? And more specifically, how confident are you that you can replicate the impressive China data in international trials? Christopher David O'Reilly: Thank you, Steve. So I think the first question on ENTYVIO and the reasons for the reduction in the full year forecast. I'd like to call on Julie to answer that. And the second question on data replicability of the China studies in a more global population. I'd like to ask P.K. to comment on that, please. Julie Kim: Thanks for the question, Stephen, on ENTYVIO. So let me start by saying that ENTYVIO has been on the market for 12 years now, and it is still the overall market share leader in IBD when you look at it from a patient demand perspective, and we are holding market share. But as you've noted, there are a few things that are impacting our top line. One is in terms of the intensified competitive activity, and we're seeing that particularly on the CD side, but it is also starting to impact UC. But as I said, overall, because ENTYVIO is still the only gut-selective medicine out there for IBD, we've been able to hold share. The other things that are impacting the top line, there are a few things. One, as Milano mentioned in his talks, it is about the channel mix. We've particularly had an increase in 340B population as well as an increase in Medicare Part D redesign impact. Beyond that, the pen conversion, as we've mentioned, is moving a bit slower than we anticipated. And while we are resolving those access hurdles, it has impacted the top line thus far. But we do expect as those hurdles are resolved, we will see an acceleration of growth, which is why we do expect to end the year higher than where we are year-to-date. Phuong Morrow: Thank you, Julie. And to answer the second question, I'll say 2 points. One is, as you alluded to, initially, Innovent has accrued more patients in China, but over the past few months has now begun to increase the enrollment ex-China, including in U.S. and Australia, and we are continuing to monitor that data as well as its applicability. The second element is the fact that we actually endeavored on very significant due diligence during the evaluation for this collaboration. And that included bringing our own Takeda radiologists in order to evaluate the -- many of the images that we were seeing of the patients as well as determining the correlation with our response criteria, i.e., RECIST. And we saw a very strong correlation there. Christopher David O'Reilly: [Interpreted] Next question, SMBC Nikko Securities, Wada-san. Hiroshi Wada: Wada from SMBC Nikko Securities. About Innovent pipeline, I have a question. 363, regarding mechanism of action, I want to know IL-2 alpha bias, what's the significance of this? Roche has -- well, IL-2 itself is approved for the melanoma and other cancers, but not expanded very much to other cancers. If you activate alpha, Treg may be activated as well. And because of that immune response is suppressed, I think that's what was the rationale. So alpha activated mechanism for 363, what's the meaning of that, including the clinical data you have obtained so far. Can you explain that, please? Christopher David O'Reilly: Yes, P.K., would you like to take that question? Phuong Morrow: Yes, absolutely. So it's a great question. And we also asked the same question and interrogated that data with Innovent and discussed this in depth. And I can tell you that what is actually unique about this particular pathway is the fact that, first, we did learn from the experiences of others within the industry as it relates to IL-2. And that's why our focus has been on this IL-2 alpha bias with attenuation of the beta-gamma pathway. And with that in mind, we have seen that the IL-2 alpha biased approach has been able to target specifically tumor-specific T cells that are addressing both -- or express both PD-1 and IL-2 alpha. So it's been a very precise and effective activation within the tumor microenvironment. The other question that you had was related to whether this would actually cause and trigger activation of Tregs, which we also had that question related to. And we have not actually seen activation of Treg cells, which would have resulted, of course, in a decrease in the immune response. Thirdly, I would say that because of this, we think that the clinical data are very consistent with the mechanism of action with findings of very encouraging data in both IO refractory as well as in earlier lines. Thank you. Hiroshi Wada: [Interpreted] May I continue? Christopher David O'Reilly: [Interpreted] Yes, go ahead. Hiroshi Wada: [Interpreted] And for development policy, so refractory cold tumor is the strategy that you want to take. I understand that additional IL-2 NSCLC first line and head-to-head with PD-1 for Phase III. Is that the plan going forward? Phuong Morrow: Yes. Chris, would you like to be to take this? Christopher David O'Reilly: Yes, please P.K. Phuong Morrow: Yes, of course. So I think your question was around the development plan related to IBI363 and where we see the experience with this and the promise of this and agree with you that we actually want to leverage the strong clinical data. So beyond the 2 second-line studies in IO refractory squamous and non-squamous non-small cell lung cancer, we will plan to go head-to-head against IO therapy, both likely in an all-comers population as well as in a TPS-high population. Christopher David O'Reilly: Next question, I'd like to call upon Tony Ren from Macquarie. Tony Ren: Tony Ren from Macquarie. A couple of questions again on the Innovent transaction. For the IL-2 PD-1 bispecific IBI363, I understand -- I actually cover Innovent myself. I understand they have a global Phase II study. The primary completion -- estimated primary completion of this study is March 2026. So really only 4 months away. Did you guys get a chance to look at the data from that Phase II study, which I believe primarily is conducted in the U.S. and looking to recruit about 178 patients? And if so, were the data better or worse than what you've seen in China? So that's my first question. Christopher David O'Reilly: P.K., would you like to answer that one as well, please? Phuong Morrow: Yes, absolutely. So yes, first, I would like to say that, yes, we have been in constant communication with Innovent related to the evolving data. And as you allude to, that data in the global Phase II is progressing or the trial itself is progressing very nicely and at speed. I can't disclose what obviously, the data shows thus far, but we can see that I would like to just say that the data thus far is fairly encouraging, but I think too early to comment further. Tony Ren: Okay. Thank you for addressing that. Also, Innovent is starting the Phase III global study. I think it's called MarsLight-11 trial in immunotherapy-resistant non-squamous non-small cell lung cancer, right? So that trial according to clinicaltrial.gov is literally starting today. But also -- Dr. Morrow, you said that you're looking to start in the next few months. So are you -- as Takeda is leading the clinical development, right, are you looking to change the trial design and the conduct of this MarsLight-11 study? Phuong Morrow: What I will say is that we -- as I noted, we have had great conversations and discussions with Innovent weekly, if not every few days. And related to the MarsLight study as well as these beginning studies, we've also had discussions about whether we would need -- we would desire to change or tweak any of the elements of the protocol itself. I would say right now, we have not required any or asked for any significant changes as of today, but we are continuing to have those discussions. Tony Ren: If you do decide to change the trial design or protocol or conduct, would that require a new FDA clearance? Phuong Morrow: I don't think so. Christopher David O'Reilly: [Interpreted] Next question is Ms. Ueda, Goldman Sachs. Akinori Ueda: I am Ueda, Goldman Sachs. My first question is regarding [indiscernible] therapy business. I think in the United States, now CSL has been closing some of its plasma centers recently. So it also appears that Takeda is currently focusing on moving -- improving efficiency such as optimizing utilization rates and implementing the digital transformation initiatives rather than expanding the number of centers. So are there any changes in the business environment in the U.S. such as like the demand outlook or the cost structure that are driving the shift? And furthermore, I think some other companies seems to be actively investing in the collection centers outside in the U.S. So could you also let us know whether you are also considering similar types of investments? [Interpreted] I'd like to ask a second question to Milano regarding your dividend increase. Given this -- the downward revision of the guidance, I believe that EPS is going to be also lowered. And you also are able to transfer from the accumulated fund to your hand. However, what is about the potential risk of the impairment loss and how you are confident to continue increasing the dividend payment? I'd like to ask the second question to Milano-san. Christopher David O'Reilly: So the first on the PDT business and specifically on our collection initiatives in the U.S., I think I'd like to ask Giles to comment on that. And then the second question on the sustainability of the dividend. Milano, if you could kindly answer on that one, please. Giles Platford: Yes. Thank you, Chris, and thank you, Ueda-san, for the question. We have been investing extensively to improve efficiency and productivity across our BioLife collections network, and that has positioned us very strongly to be able to meet the growing demand for plasma-derived therapies and to continue to grow our collection volumes without opening to the same extent, new centers. In particular, we have benefited this year from the accelerated rollout of the personalized nomogram for both our FK and Haemonetics devices, and that has enabled us to improve volume collection by approximately 10% to 11% on a per donation basis. And as a result, we won't be opening as many new centers, and we are also benefiting from the ramp-up of the centers that we have opened in the past years. To the second part of your question, we do continuously evaluate opportunities to open up new countries to contribute to global supply of plasma. We don't have anything to communicate at this point in time, but it is a big part of our advocacy work worldwide to ensure that we are having more countries contributing to sustainable supply of plasma. Thank you. Milano Furuta: [Interpreted] Thank you very much for your question. Basically, regarding our dividend policy, as we explained in the past, it is a progressive policy, meaning we will sustain or increase the dividend. And in order for us to make a decision, we will look at core EPS and reported EPS and mid- and long-term reduction of interest-bearing liabilities or borrowings. And looking at these 3 parameters, we make a proposal what to do with the dividend in the next year and going forward. Therefore, at this point in time, I cannot say anything definitely, but these are the 3 points, we will base our decisions. And for the next fiscal year, around May time frame, we would like to announce what is the policy of dividend. Christopher David O'Reilly: [Interpreted] Next question from UBS Sakai-san. Fumiyoshi Sakai: Fumiyoshi Sakai from UBS, two questions. One is the same plasma business. CSL issued profit warning. There are reasons very vague, but one of the factors that you mentioned is weakening demand of China albumin sales or revenues. And your page -- Slide 40, you have slight decline in China. However, you haven't really changed the guidance for FY '25. Do you think -- do you still think that this guidance is achievable? If it's so, can you just give us the -- what's really going on in China market right now? So that's the first question. The second question is U.S. Biosecure Act when you make a deal with Innovent, anything going on in the U.S. these days is a mystery, but this act is still pending? And have you considered what are the political consequences having China Biotech as a partner? Probably not? But if you could update with this Biosecure Act and your business tie-up, I would really appreciate that. That's the second question. Christopher David O'Reilly: Thank you, Sakai-san. So the first question on albumin demand in China and our confidence in the full year outlook, I'd like to ask Giles to comment on that. And then the second question on U.S. US Biosecure vis-a-vis the Innovent deal. I'd like to ask Christophe to answer that question, please. Giles Platford: Sure, Chris, and thank you, Sakai-san, for your question. It's true, our albumin portfolio did decline marginally by 2% for the first half. This was a result of the impact of shipment phasing to China, but also related to the continued government-imposed cost controls in the country, both of which were anticipated as well as some effect of tender timing globally. And I'd like to point out that with a somewhat slower near-term growth outlook for China linked to those government-imposed cost controls, we have been actively working to build sustainable market opportunities for albumin outside of China, and we do see continued growing demand for albumin worldwide. And we have successfully secured a number of tenders in markets ex-China, which will be delivered in the second half, hence, accelerating our growth for the balance of the year. So yes, we remain confident to deliver on our guidance of high single-digit growth for the year for albumin and for our IG portfolio. Thank you. Christophe Weber: Thank you, Sakai-san. This is Christophe here. Obviously, we take into consideration the geopolitical environment when we discuss a deal like our partnership with Innovent Biologics. So I will mention 2 points. One is that we will do -- we'll drive the global development of this asset, guaranteeing that it is meeting all the criteria required by regulatory agencies across the world. So that's very important. And the second point I will mention is that we will manufacture these molecules in the U.S. So we will do a full tech transfer and we manufacture -- we'll organize the manufacturing of this molecule in the U.S. And therefore, we think that this is also a way to mitigate the potential geopolitical risk. Thank you. Fumiyoshi Sakai: [Interpreted] Can you just -- Giles-san, can you give a margin update in PDT business? Giles Platford: Yes, absolutely. I can do that. So we continue to see our margin recovery year after year, and we expect to deliver continued margin improvement in fiscal '25. And that's part of the reason why we gave a slightly more modest guidance in terms of growth for this year. We are seeing more supply on the market. If you remember, Takeda was the first to recover post pandemic. So we benefited from strong growth the past couple of years in meeting unmet demand globally. We see that situation now normalizing. So we're being a little more selective in terms of tender participation ex-U.S., very much expected, anticipated and consistent with the guidance that we gave, and that's partly because we're trying to calibrate both the need to grow, but also the need to grow profitably and to ensure we're getting value recognition in the process. We see continued improvement in product mix. So our innovative subcutaneous IG portfolio has delivered 15% growth for the first half. So that product mix helps in improving margins. The BioLife productivity and efficiency efforts driven by data digital and technology transformation that I referenced earlier are also helping us to improve margin. And we have seen gradual improvement in yield in fractionation and process improvement across our manufacturing network. So all of that is contributing to an improvement in margin over time. Thank you, Sakai-san. Christopher David O'Reilly: For the next question, I'd like to call on Mike Nedelcovych from TD Cowen. Michael Nedelcovych: I have 2. My first is just a broad question on your celiac disease programs. I'm just curious what the breadth of your ambitions are here? How important could those programs become ultimately should they make it to the marketplace? And then my second question is on mezagitamab for IgAN. When we think about the target product profile for that agent, is it sufficient to have efficacy similar to competitor agents across mechanisms, but with potential treatment holidays? Or should we be looking for better efficacy? Christopher David O'Reilly: Thank you, Mike. I think both of those questions on our celiac ambitions and aspirations for mezagitamab, Andy you can answer those. Andrew Plump: Thanks, Chris. Mike, it's Andy. So firstly, on the celiac programs, we had 3 programs that were in proof-of-concept studies, one that we've discontinued, which was TAK-062, which was an orally administered glutinase, which failed to show benefits. And two, TAK-227, which is a transglutaminase 2 inhibitor that's got restricted and then TAK-101, which is a tolerizing vaccine. Both of those are still in Phase II studies right now. Of course, this is a huge unmet medical need with no established standards of care. The bar is quite high for moving forward and the science is quite tough. But we're excited to see data in the coming months and over the next year for both of those programs. So I think we can talk more about what the potential long term could look like after we've seen those data. In terms of mezagitamab, obviously, and you're referencing this, it's an incredibly competitive landscape. With mezagitamab, though, we've got a fairly unique opportunity here. I would say that in terms of efficacy, we wouldn't -- based on the data that we've seen, especially from the APO/BAF agents, I don't think that we expect to see more efficacy. I think the real opportunity with mezagitamab is at least similar efficacy. The 96-week data that I referenced that you'll see in the coming weeks at the upcoming ASN Week meeting is quite extraordinary. I think the real opportunity here is the potential for sustained benefit after relatively short-term dosing. And then secondly, the potential benefits on safety. Christopher David O'Reilly: [Interpreted] In interest of time, I would like to make the next question as final, Sogi-san, Bernstein. Miki Sogi: I have 2 questions. First question is about ENTYVIO. So this is to Julie. So you have mentioned that the evolving competition in the U.S. as well as the increasing -- the change in channel mix. I can imagine that those -- the dynamics are -- it's not really easily reversible. So should we assume that the slowing down the growth rate as you have included in the revision from 9% to 6%. Is this the kind of trend we should expect for the 2026 and beyond? And if that's the case, will you be revisiting the peak year sale of ENTYVIO at some point? That's first question. The second question is about the Innovent deal. I have a question about this IBI3001, very interesting product, the ADC -- bispecific ADC. For this molecule, should we think that this is kind of going to work as 2 ADCs in 1 molecule, meaning that it's just kind of working as EGFR ADC and the B7H3 ADC? Or if there's any synergy by putting these -- the functions in molecule? Those are 2 questions. Christopher David O'Reilly: Okay. Thank you, Miki. So the first question on ENTYVIO to Julie and the second on 3001 to P.K., please. Julie Kim: Thanks for the questions, Miki. In terms of the growth, what I would say is this, as I mentioned earlier, ENTYVIO has been able to hold share -- patient demand share in overall IBD. And what I would expect without giving any predictions about growth and whatnot that we'll provide for FY '26 in May. I would say that our growth is in line with market at this point in terms of patient demand, and we expect to be able to hold our share given the fact that we're still the only gut-selective molecule in IBD and the strong track record that we have, particularly in UC. And as I mentioned, where we see the significant competitive challenges is in CD thus far. In terms of the peak at this point, we are not changing our overall peak revenue guidance. Phuong Morrow: Thank you. And to add on related to IBI3001, happy to bring this forward. So we agreed and when discussing the data and the potential for this molecule with Innovent, it was based upon a few elements. The first is the fact that these targets are very well harmonized with our current disease area strategy in solid tumors, particularly in GI and thoracic cancers. These target specifically. And the second element is that we believe that, as they should target 2 elements and then use the same novel exatecan payload as well as platform that they would be able to very specifically harness a payload and result in more encouraging efficacy. We've seen some elements of that thus far in the earlier doses, as I noted, and we will continue to monitor as we progress up the dose levels. Christopher David O'Reilly: [Interpreted] Thank you very much. With this, we'd like to conclude today's webinar. Thank you very much for your participation today. We'd like to ask for your kind continued support. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good morning and welcome to the Sensient Technologies Corporation's 2025 Third Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Tobin Tornehl. Please go ahead. Tobin Tornehl: Good morning. Welcome to Sensient Technologies Corporation's earnings call for 2025. I am Tobin Tornell, Vice President and Chief Financial Officer of Sensient Technologies Corporation. I am joined today by Paul Manning, Sensient Technologies Corporation's Chairman, President, and Chief Executive Officer. Earlier today, we released our 2025 third-quarter results. A copy of the earnings release and the slides we will be using during today's call are available on the Relations section of our website at sensient.com. During our call today, we will reference certain non-GAAP financial measures, which remove the impact of currency movements, costs of the company's portfolio optimization plan, and other items as noted in the company's filings. We believe the removal of these items provides investors with additional information to evaluate the company's performance and the comparability of results between reporting periods. This also reflects how management reviews and evaluates the company's operations and performance. Non-GAAP financial results should not be considered in isolation from or a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release and slides. We encourage investors to review these reconciliations in connection with the comments we make today. I would also like to remind everyone that comments made during this call, including responses to your questions, may include forward-looking statements. Our actual results may differ materially from those that may be or are implied due to a wide range of factors, including those set forth in our SEC filings. We urge you to read Sensient Technologies Corporation's previous SEC filings, including our 10-K and our forthcoming 10-Q, for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today. I will now turn the call over to Paul Manning. Paul Manning: Thanks, Tobin. Good morning and good afternoon. Earlier today, we reported our third-quarter results. I am pleased that we continued to build on our strong first half of the year and delivered 14% local currency adjusted EBITDA growth and 18% local currency adjusted EPS growth. Local currency revenue grew 3.5% during the quarter. We continue to have particularly strong results from the Color Group, delivering 8% local currency revenue growth and 24% local currency operating profit growth. Flavors, extracts, and flavor ingredients product lines within our Flavors and Extracts Group also had a nice quarter, delivering 4.5% local currency revenue growth and significantly contributing to the group's local currency adjusted operating profit growth of 7.8%. These results align with our expectations and position us for a strong finish to the year. We are also increasing several elements of our full-year guidance for 2025. Previously, we indicated local currency adjusted growth of high single digits for EBITDA and high single-digit to double-digit for EPS. We now expect double-digit local currency adjusted growth in both EBITDA and EPS. The major storyline for Sensient Technologies Corporation and the industry continues to be the conversion of synthetic colors to natural colors in the United States. This activity remains at the forefront of our current strategic focus and continues to accelerate as we work with our customers to prepare them for this change. As before, the U.S. conversion to natural colors is the single largest opportunity in the company's history. Over the years, we have invested significantly around the world to increase our production capacity and to optimize our product portfolio. We are also working to build a resilient supply chain that provides the botanicals necessary to produce natural colors. Aside from our work to support these anticipated conversions, our emphasis on sales execution, customer service, and the commercialization of new tech continues to drive our current performance. During the third quarter, we continued to generate strong new sales wins across each of our groups. These sales wins are a result of our innovative product portfolio across our food, pharmaceutical, and personal care product lines. These new sales wins and our pricing discipline are not only driving our revenue growth but are also the main reasons for the margin strength we are seeing across each group. We remain focused on collaborating with our customers to support their development requirements, and our sales pipelines remain robust in each of our regions. We continue to win new business across the company, despite a flat overall consumer market. Growth in the North American and European food and beverage sector has been stagnant for the last several years. New product launch activity continues to be down across many categories in the Americas and Europe, and Q3 was a continuation of the trend. Also, as I mentioned during our last several calls, the current trade and tariff landscape introduces additional complexity and uncertainty to our business. While we have already taken price actions to offset the impacts of the initial wave of tariffs, and will continue to take these pricing actions into next year, we have witnessed some demand and volume disruptions in some areas of our business due to this uncertainty, particularly in Asia Pacific. We will continue to position our supply chain organization to minimize any disruptions to our customers and to optimize the flow of goods. Now, turning to Slide 6 in our group results. Paul Manning: The Color Group had excellent third-quarter results, delivering 7.9% local currency revenue growth and 23.8% local currency operating profit growth. The group's third-quarter adjusted EBITDA margin improved to 24.7% from 22.2%, an increase of 250 basis points versus the prior year. This margin improvement is a testament to our efforts to sell technically differentiated products, control costs, execute on our pricing strategy, and deliver quality new wins. In the third quarter, the group saw strong new sales wins. While these wins were particularly impressive in natural colors, let me clarify that the wins recognized in the third quarter are not yet the result of any significant conversions of existing products in the United States. The Color Group remains on a great trajectory, and I could not be more excited about the future ahead of us. Turning to Slide 7, the Flavors and Extracts Group saw local currency revenue decline in the third quarter by 1.2% but increased local currency operating profit by 7.8%. The group's adjusted EBITDA margin was 17.7%, up 130 basis points versus the prior year's comparable quarter. The Flavors, Extracts, and Flavor Ingredients product lines delivered 4.5% local currency revenue growth and significant local currency operating profit growth. The growth in these product lines is a result of our innovative flavor technologies and our focus on new and defensive flavor wins across North America, Europe, and Latin America. Turning to our Natural Ingredients business. We have renamed that business to Sensient Agricultural Ingredients. Sensient Agricultural Ingredients consists of dehydrated onion, garlic, capsicums, and other vegetables. To this point in the year, the business has been impacted by lower sales volumes and significantly higher crop costs. We expect improvements to begin in Q4 2025. Despite these dynamics in the Agricultural Ingredients business, I still expect the Flavors and Extracts Group to deliver solid results for the year. Now, turning to Slide 8. The Asia Pacific Group saw volume headwinds in the third quarter, delivering flat local currency revenue and local currency operating profit. The group's adjusted EBITDA margin was 24.2%, up 40 basis points versus the prior year's third quarter. The flat revenue is a result of lower volumes within certain selling regions that we expect to persist through the end of this year. The Asia Pacific Group is equipped with strong leadership and operations, and the group's new sales wins momentum sets it up nicely for 2026 and the future. Turning to Slide 9 regarding our full-year guidance. We now expect our local currency adjusted EBITDA and EPS to grow at a double-digit rate. Our previous guidance called for high single-digit local currency adjusted EBITDA growth and high single-digit to double-digit local currency adjusted EPS growth. We are maintaining our consolidated full-year local currency revenue guidance of mid-single-digit growth. On the capital allocation front, last quarter, we increased our capital expenditure guidance to be around $100 million to ensure that we are prepared for the forthcoming natural color conversion activity. The increased investments we are making in natural colors are a great use of our cash. Over the next couple of years, we anticipate elevated capital expenditures. We will give more guidance on our 2026 capital estimate in February; however, as of now, we anticipate our total capital expenditures in 2026 to be at least $150 million as we continue to invest in our natural color capabilities as well as across our Flavors and Extracts in Asia Pacific Groups. Beyond capital expenditures, we will continually evaluate sensible acquisition opportunities, but we do not anticipate any share buybacks at this time. Now, before I turn the call over to Tobin, I would like to provide more information on the current state of the synthetic color regulation and natural color conversion activity, along with a few of our innovative technologies. Turning to Slide 10. The regulatory environment and effective legislation have not seen much change since the last time we spoke. West Virginia became the first and still the only state to pass legislation that prohibits the sale of food products containing synthetic colors. There has been no change on timing, and that law goes into effect in January 2028. Additionally, Texas has passed legislation requiring food manufacturers to place warning labels on packaged food products that contain certain ingredients, including synthetic colors and titanium dioxide, effective 2027. As I have stated, the main effect of these state actions is the conversion to natural colors at the national level. Across the country, companies are stepping up and committing to converting their existing products and setting conversion timelines to meet that January 2028 deadline. Today, we have approximately $100 million of synthetic color revenue that has the potential to be converted to natural colors. Previously, we had valued this opportunity at about $110 million. However, it appears less likely that we will see wholesale conversions in the pet food and over-the-counter pharmaceutical spaces. As I said before, the conversion to natural colors results in revenue multiples of approximately 10 to one on average. Turning to Slide 11. The FDA is now maintaining a master tracking list on their website of commitments within the industry and progress made towards those commitments. Under the parent companies currently recognized, as of today, more than 50 brands have pledged the replacement of FD & C synthetic colors. These include some very well-known and highly colored products. We have also recently seen Walmart announce that it will eliminate synthetic dyes in all of its private label products by 2027. This change was noted by Walmart to be a direct response to end consumer demand. Turning to Slide 12. I would now like to take a moment to highlight CertiSure, our product safety program for natural colors. This internal standard has been in place for years and guarantees customers a high level of product safety and quality. Raw materials go through rigorous screening for pesticides, heavy metals, microbiological adulteration, and unauthorized solvents. We hope this program will become the market standard for all suppliers and are working with the FDA to support the development of a national testing protocol as we enter a more natural world of color. As we have done for the last several quarters, I would now like to highlight some of our innovative technologies. Currently shown on the slide is some information about one of our most successful natural color products, Pure S Orange. This novel paprika-based solution is a clear testament to the efficacy of the CertiSure program. Paprika is a widely popular source of color solutions with usage across a variety of categories, but it is also a high-risk raw material. Around 60% of paprika raw material lots fail Sensient Technologies Corporation's CertiSure screening. These failures are often due to exceeding levels of pesticides and adulteration. While our CertiSure program prevents the use of contaminated raw materials, it appears that other companies may not have such stringent standards as Sensient Technologies Corporation, as we frequently see our failed lots of paprika go back into the open market for others to procure. Only batches that pass our CertiSure process are used to make innovative color technologies like Pure S Orange. Pure S Orange leverages a clean purification technology to achieve the industry's brightest and clearest natural orange. While there are other great natural orange options like annatto, beta carotene, and carrot juice, none of them compares to Pure S's stability and clear, vivid orange in beverages. As we have discussed and as experience in the market has shown, converting to vibrant natural colors is critical for brands conducting the transition of their products. It is our goal to help our customers succeed and to preserve their brands through this transition. Turning to Slide 13. Next, I want to highlight some exciting technology from our Flavors and Extracts Group that can play an important role as companies open up formulas and perform some of the necessary reformulation work that will accompany the conversion to natural colors. First is BioSymphony, a signature innovation that elevates the flavor profile for a number of different product categories. BioSymphony gives developers the flexibility to elevate the taste perception of their products and to enhance the overall taste experience. Second is PURA Mask technology. It includes a range of products that are ideal for balancing taste and neutralizing off notes that could originate from various ingredients in a customer's product. This portfolio is effective in addressing a wide variety of taste issues, from bitterness relating to high-protein ingredients or potential off notes from the incorporation of natural colors. In summary, our R&D and supply chain efforts are centered around providing safe and consistent products. If you would like more information on our natural color or taste modulation technologies, please visit our website. Overall, I am pleased with our financial performance in the third quarter. We are on track to deliver a strong performance in 2025. I am excited about the growth opportunities within each of our groups. Our pipeline for natural color conversions continues to build. Customers continue to refine their launch timelines, so we can provide more definitive guidance on revenue timing going forward. Looking ahead to 2026, we will give more detailed guidance coming in February. However, we continue to expect our long-term growth rate to be incremental to this growth rate. As I mentioned earlier, we anticipate our capital expenditures to be north of $150 million in 2026 to support our natural color conversion preparation activities. The growth we are experiencing is a direct result of the execution of our strategy and seizing the opportunities in the markets in which we operate. I remain optimistic about 2025 and the future of our business. Tobin will now provide you with additional details on the third-quarter results. Tobin Tornehl: Thank you, Paul. In my comments this morning, I will be explaining the differences between our GAAP results and our non-GAAP or adjusted results. The adjusted results for 2025 and 2024 remove the cost of the portfolio optimization plan. We believe that the removal of these costs produces a clearer picture of the company's performance for investors. This also reflects how management reviews the company's operations and performance. Turning to Slide 15, Sensient Technologies Corporation's revenue was $412.1 million in 2025 compared to $392.6 million in last year's third quarter. Operating income was $57.7 million in 2025 compared to $50.5 million of income in the comparable period last year. Operating income in 2025 includes $3.3 million, approximately 9¢ per share, of portfolio optimization plan costs. Operating income in 2024 included $1.2 million, approximately 3¢ per share, of portfolio optimization plan costs. Excluding the cost of the portfolio optimization plan, adjusted operating income was $61 million in 2025 compared to $51.7 million in the prior year period, an increase of 15.7% in local currency. Interest expense was $7.3 million in 2025, down from $7.7 million in 2024. The company's consolidated adjusted tax rate was 23.8% in 2025 compared to 23.1% in the comparable period of 2024. Local currency adjusted EBITDA was up 14.3% in 2025. Foreign currency translation had a minimal impact in 2025. Turning to Slide 16, cash flow from operations was $44 million in 2025. Capital expenditures were $20 million in 2025, and as Paul indicated, we still anticipate our capital expenditures to be around $100 million for the full year of 2025. Our net debt to credit adjusted EBITDA is at 2.3 times as of September 30, 2025. Overall, our balance sheet remains well-positioned to support our capital expenditures and sensible acquisition opportunities, our long-standing dividend. As Paul indicated, we will continue to invest in our natural color production capabilities and capacity. These investments will remain elevated for the next few years, and we expect to drive favorable volume and profit growth in the years to come. Turning to Slide 17, revisiting our 2025 guidance. We expect our consolidated full-year local currency revenue growth to be mid-single digits. We have now raised our local currency adjusted EBITDA to double digits. Previously, our expectations were high single-digit growth. We now expect our local currency adjusted EPS to be up double digits in 2025. Last quarter, we guided high single to double-digit growth. We expect our fourth-quarter interest expense to be around $7.5 million, and we expect our fourth-quarter adjusted tax rate to be around 24%. Based on current exchange rates, we still expect the impact on EPS to be a slight tailwind for the year. Considering our GAAP EPS in 2025, we now expect approximately 28¢ of portfolio optimization plan costs. We expect our GAAP EPS in 2025 to be between $3.13 and $3.23, compared to our 2024 GAAP EPS of $2.94. Thank you for participating in the call today. We will now open the call for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Our first question comes from Ghansham Panjabi from Baird. Please go ahead. Ghansham Panjabi: Hey, guys. Good morning. Hope you are doing well. Paul Manning: Morning. Ghansham Panjabi: Well, thanks. I guess, first off, it sounds like you have honed in on the $100 million in sales as it relates to food and nutraceuticals and the potential with that conversion, etc. Can you give us a sense as to what portion of that is in the process of reformulation conversion? Clearly, regulations are moving around, and there seems to be a sense of urgency with these public mandates and polls that a lot of these companies have announced, as you pointed out in your slide deck. But can you just quantify that in terms of backlog? Paul Manning: Well, let me think I get where you are going with this one, Ghansham. The $100 million, I mean, it is a cross-section of really a whole range of customers. In fact, it includes everything from candy to beverage to baked goods to processed foods, you name it. In fact, as I noted in the comment, really, the only thing that you would probably exclude from this longer-term may even be pet food and pharmaceutical OTC. So that said, any customer that I have spoken with or any of our sales folks or other leaders have spoken with, everybody is moving in this direction. The only real variable here, I think if you go back a few months, I would tell you that there were probably three groups of customers. Group one, they were doing it, going there, knew they were gonna have to do this and wanted to do this. There was another group, maybe group two, was a bit more, "We need to kind of understand where this may make some sense, which products." And then there was a group three that, I must tell you, was a bit more cautious. Perhaps wondering if this was really gonna happen, if there was really gonna be a requirement here? Even just the last few months, I do not hear anything of a group three anymore. And I would tell you that just about every company out there is either well down the path of this, working very, very diligently, or it is really the bucket two that has probably evolved to "yeah, we are gonna do it. We just need to figure out which ones go first and which ones go last in terms of how we prioritize." So there is a strong expectation from customers that this deadline on 01/01/2028 is the deadline. There is really no kind of playing around with that one. And so I think everyone that we are speaking with, every customer and every prospect, they're fully aware of the requirement. And it is going to be either sometime in 2027 or sometime in 2028. But one way or the other, I think everybody gets there. In 2028 is certainly the goal that we observe. Ghansham Panjabi: Sure. But it does take time for the reformulation and so on, and I think senior technical people are, you know, a big part of that process. So I guess that is what I am referring to. Is the activity starting to match up with the customer's narrative as it relates to wanting to push towards natural at this point? Paul Manning: Yeah. Well, I think you said it perfectly. These are like new launches, and new launches are very, very complex, and they can take some time. And, you know, beyond just the formulation challenges of trying to match a synthetic color, selecting the right colors to include in that formulation, there is stability testing. How well does that color do in that formulation? They may have never experimented with that particular beverage or that candy or that baked good. So there is a need to conduct stability testing. Will this color still look good? Will this formulation hold up six months down the line after it has been sitting in a warehouse or on a store shelf? Many companies will do test marketing. How does the consumer perceive this product? Do they like it? Is it aligned very strongly with the taste expectations? And then, you know, there are a thousand other elements that go into these launches, and the bigger the company, the bigger the risk. There are regulatory questions. There is repackaging. Production scale-up. So it is a massive, massive undertaking. What has happened here is that the biggest multinationals who may have hundreds of products that they are reformulating, they are essentially doing hundreds of launches, relaunches, within a fairly narrow window and time frame. And so, yeah, it is a complicated game. You know, it gets less complicated as you get to smaller customers who maybe have a handful of products that they are looking to launch. They still have to contend with all those factors that I just described. But that is what puts a lot of, you know, if folks wanna ask me when is it gonna happen, what percent by what month, and what date? Well, that is a hard question to answer because most of our customers have not necessarily definitively pointed out a specific timeline for all these hundreds and dozens of products that they may be reformulating. So yeah. But your comment there really gets at what is the complexity of predicting precisely when somebody launches? And that is why I encourage folks just to remember it is 01/01/2028. That is nine quarters from now. So there is not a whole heck of a lot of variability that would be associated with these outcomes, I would suggest right now. Ghansham Panjabi: Okay. That is very clear. And then on the Food and Pharma growth of almost 11% during March, what exactly is that being driven by if you are saying that you are not really benefiting yet from the $100 million converting etc. and how much of that 11% growth is being driven by maybe new wins in natural color? How would you think about that? Paul Manning: So the reason that business is growing so well is because we have a really good strategy. We are focused on really understanding why we win and why we are successful at customers. We are very selective about the types of projects and customers we want to work with. We tend to say no to business that does not align very closely with our strategy. So you are going to see us continue to avoid commoditized high volume here today, gone tomorrow, let me send out a bid and win this by a penny type business. We stay away from that stuff. So we very much insist on having that differentiated, defense business model. And so that means that the product starts with product performance. So we have great, great products that we continue to use today. Many have been developed over the years, and we continue to develop them. But I would tell you that is a considerable source of our success. We continue to have exceedingly robust service levels across the board. And this is on the basic blocking and tackling of the business—samples and documents and salespeople showing up, and being responsive—that is certainly a foundation for why we are successful there as well. But you know, the natural colors, we are generally regarded as a very good natural color company. And so we have got really great products. We have products that I would argue others do not have and certainly do not have them to the same level of precision and consistency. And so I think our customers recognize this more and more. They see us as a tremendous resource, not just for providing color or flavor or cosmetic ingredients, but all the other components of making their launch and their business successful. So I think it is just a continuation of the ongoing strategy. Nothing particularly new that I would comment we did during Q3, but what I would note is, I think I asked Tobin before this, "What was the final amount of conversion in Q3?" You know, products that were synthetic that converted to natural. And we have calculated less than a million dollars. So that is not at all driving those results right now. So when those conversions start happening, it should be a real exciting time around here. Ghansham Panjabi: Okay. I look forward to it. Thank you so much. Paul Manning: Okay. Thanks, Ghansham. Operator: The next question comes from Lawrence Scott Solow from CJS Securities. Please go ahead. Lawrence Scott Solow: Great. Thanks. Appreciate that. It was some good call, Paul. I just follow up on that, I guess. On the 100 million target, I guess, to change, that is obviously your existing customer base. Curious, there is a whole outside of your current share on the synthetic side. I suppose there are lots of customers out there who are using synthetic colors today who will be switching to natural, who are not a customer of yours today, at least on that synthetic piece, but I suppose are target. So I am just kind of curious, you know, outside of that. I know you focus on that initial 100, but I suppose there is a much greater circle outside of that. And then, I guess, on the flip side, is there also a possibility that some of this 100 million, yes, they have to get away from synthetic, but are there cases where there is not a 10 to 1 conversion, or they may not have a great alternative for them to get to that exact color and maybe they do not get a match color and can go on a cheaper route to get a much, you know, even like Pepsi's has this naked out there? So I am just kind of, you know, throwing out other alternatives to where you go natural, but not necessarily that exact color match in a 10 to 1 revenue ratio. Thanks. Paul Manning: Alright. I see where you are going there. So the first one, the 100 million. So the simplest way to look at this is 100 million at that 10 to 1 ratio. Now, to your point, are we gonna get all 100 million of that? No. Do you know why? Because I do not necessarily want all 100 million of that. Some of this stuff, you know, there is a whole range of natural colors. There's the very strongly performance-driven, technically differentiated variety. And then, there is the sort of the belly wash commodity variety. And it is a spectrum. And so our business has very strongly focused on the former and largely ignored or avoided the latter. And so in that 100 million, yeah, there may be some synthetic colors that lend themselves to less expensive, exciting natural color solutions. We may be less interested in some of those. But then again, there are some synthetic colors in the market out there, not in that 100 million, that maybe were not real interesting to us as a synthetic color. Maybe we just never had that business. But you know what, when those convert to natural, it is really technically challenging. It is really performance-based stuff, and we would be super excited to get it. So, you know, it is all those pluses and minuses. So I think right now, we use 100 as kind of just a good benchmark. You are absolutely right. There are pluses or minuses within that. And, you know, we will keep you folks kind of posted, I think, as we continue on this journey. But I like our chances. We have been putting in a heck of a lot of work, and there are a lot of folks bringing this thing together. But, you know, the nice thing is this is a culmination of fifteen-plus years in this company. So as I said before, this is very much the long game strategy in this company. And so I think we have a very good chance and very good opportunity here to win some very, very nice looking projects. Now, to the second part of your question, kind of that 10 to 1, yeah, that too is an average. So think of it this way: the brighter a product appears and the more harsh the manufacturing environment it took to bring it to you, the higher that ratio is going to be. So think about maybe something that got baked in an oven, and it has got a natural color. That may be a higher ratio than 10 to 1. Still has that bright vivid, but it is being produced in a very, very tough, harsh environment. So heat, light, hot low acid conditions like a low pH, these are all very, very damaging to color. I think I told you, if you look at that sofa in your room and by the sunlight, that chair is just not as brown as it used to be. Well, that is what happens to color in food and beverages, too. So, it is trying to find ways to retain that vibrancy despite those really tough situations. Those types of products lend themselves to a higher ratio. Now, on the other end of the spectrum, to your point about guys like, "Well, you know, I just want this lightly colored. I've got it in an opaque package. Or, you know, I am gonna get really cute and try to take color out." Well, a couple of things on that. So, first of all, some of those would come in, obviously, at lower than a 10 to 1 ratio. But I think our guidance to our customers is you want to match, and you need to match the synthetic color. All the data and all the cautionary tales in the market suggest that if you go with less than the synthetic color match, you're putting your brand at risk. Because consumers' first complaint, more than any other, it seems, they are upset that the flavor has changed. So, the color is very strongly tied to the flavor expectation of a product. And when you modify that in a way that off the standard, consumers will revolt in some cases. And then still in other cases, they may just simply not like it because the color does not look as good. So those are the reasons that we guide our customers and advise them to go with the best match possible that gives you the best chance to be as successful as possible. But I am not going to deny that. I am sure there will be a handful of brands out there who, again, will attempt to use less color, or no color, or put it in an opaque package and, you know, try their luck with that. But I do not believe anybody has ever demonstrated that to work in any market that I am familiar with. Lawrence Scott Solow: No. No. That all makes sense. Really helpful. One quick follow-up, Paul. Just you mentioned no real change in regulations or ongoing legislation things in the last few months. Just any thoughts on the potential change on the general recognized as safe? I guess the FDA may tighten regulations a little bit on that where you actually are now required to file something where I think prior, previously, it's or currently, it's kinda self-governed, basically. Right? Does that could that potentially have any effect on your business at all? Paul Manning: Not really. The GRAS standard that you are referring to is specific to colors. Colors, I continue to argue, are the most regulated food product in the world. Synthetic colors anyway. In as much as every manufacturing batch has to be approved by the FDA, certified by the FDA. But even to get the right to manufacture those products, you have to petition the FDA for use of that product in food. And so that involves an extensive set of testing, pathological testing, quality control, and all sorts of parameters. And so that is the case with a natural color. If you would like to add one, there is no GRAS process for adding natural colors. One would have to actually file with the FDA and petition that, again, go through that rigorous process. So now, there could be impacts on other components of the business. For example, flavors, which do not have that equivalent color additive petition, but that would not be applicable to the cosmetic business. So there could be, but that is a rather vast and extensive part of the food world today. So attempting to modify that, I will be interested to see what that proposal could look like. That would be a, that may bring elements of the food industry to an absolute halt in terms of bringing new products into the market and introducing new ingredients. And so I think that is an interesting conversation. Ultra-processed foods is another one. And so I think a lot remains to be seen on those two fronts. But I think there is a lot of good discussions underway on both of those. Lawrence Scott Solow: Gotcha. Great. I appreciate all the color. Thank you. Paul Manning: Okay. Alright. Thanks, Larry. Tobin Tornehl: Thanks, Larry. Go Jets. Operator: Again, if you have a question, please press 1. And our next question comes from Nicola Tang from BNP Paribas. Please go ahead. Nicola Tang: Hi, everyone. Paul Manning: Hi, Nicola. Hi. Nicola Tang: I want to stick on the color topic, but then I do have some questions on other divisions as well. Paul Manning: On Nicola Tang: Colors, you mentioned in the remarks that even Walmart, you know, is also committed to committing some of its products towards natural colors. Well, firstly, how do you see other private label brands also following suit? How meaningful could this be from a Walmart or a general private label point? And given these tend to be lower price point items, do you see any impact in terms of this conversion price, I guess, to Larry's earlier question around whether some of those customers might choose to compromise on vibrancy or something else? That's my question. Paul Manning: Okay. So yeah, I think Walmart, the largest retailer, certainly in the U.S. market, their declaration that their private brands, Great Value being one of them, will convert to natural colors by 01/01/2027, was a big move in the right direction for the natural color market and this whole notion about conversion. Many folks have sort of wondered, is this really going to happen? Could these deadlines slip? Could this maybe just be a facade, and it's really not going to happen? I really do not think that is going to happen. And Walmart making this an expectation and moving up the timeline a year earlier than West Virginia, I think is a very positive development. Because again, consumers want natural colors. So I suppose you could say, well, why don't we give consumers what they want? And certainly, that is what Walmart has said that they intend to do. They want to give consumers what they want. So they deliberately made this edict, and they intend to do that by 01/01/2027. So that may move some of the other launches to the left, which again could be a positive. We certainly do not want everybody to attempt to convert their products by 2027 because that would be physically impossible. This move is important for that reason. Now, and because of its size and its influence, it is very, very meaningful for other brands and private labels to follow suit, to be competitive with those brands that are converting. With respect to this generating lower price points, I do not think so. I think that, you know, when you look at a lot of products, raw materials are not, in fact, in general, they are not the driving cost behind bringing a product to market. Now, synthetic colors represent almost nothing to the cost of a product on an individual SKU basis, but as you convert to naturals, they certainly become more expensive. And in most applications, it becomes somewhat at the level of a flavor, which is to say, still fairly small on the annals of raw materials but substantially more than they would have been paying for a synthetic color. So, I do not necessarily anticipate that being dilutive in any way to, certainly, by no means is that dilutive to the quality expectation of natural colors. I mean, these are fairly well-established brands and very, very strongly performing brands. So I think they have every expectation, I would assume, to have the highest performing colors in their products. So, no, I do not think that there's any diminishment of quality or price or anything else between private label and brand on a product like a natural color. Nicola? Operator: It looks like her line has dropped. Paul Manning: Oh, okay. Yeah. There are no more. Hopefully, I did not make her upset with it. Operator: There are no further questions at this time. I will turn the conference back to the company for closing remarks. Tobin Tornehl: Thank you for joining the call today. That concludes our prepared comments. If you have any follow-up questions, please reach out to the company. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Wood Group Half Year Results Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Iain Torrens, Group CFO. Please go ahead. Iain Torrens: Thank you, and good morning, everybody, and welcome to the Wood Group Half year '25 announcement. So just to begin, this past year has been 1 of significant challenge and transition for the group. That said, we are pleased to have published our full year '24 annual report and accounts and H1 '25 interim results, together with the supplementary circular to the Sidara acquisition. I would like to thank our shareholders, employees and clients for their continued support and patience during what has been an extremely difficult period. I also believe yesterday represented an important milestone for Wood in moving forward, providing stability for the business and delivering some value for shareholders through the proposed Sidara acquisition. The preparation of the financial statements and the subsequent completion of the order process has taken longer than anticipated, reflecting the complexity of the issues identified and the extensive work required to ensure the integrity of the financial statements and appropriate safeguarding their preparation. Due to the passage of time, the departure of key personnel and the inherent limitations in applying retrospective knowledge to historic events. It was not possible to determine with precision the appropriate financial periods for certain adjustments. Accordingly, our focus in the first instance has been to ensure that the 31 December 2024 balance sheet reflects an accurate and reliable position with allocations to financial periods undertaken on an estimated basis. This approach provides a clear and definitive starting point of the group as it moves forward. It also satisfies certain of exceptional conditions related to the Sidara offer, enabling us to move forward with the shareholder vote for the Sidara acquisition. In response to these challenges, we have taken and are continuing to take decisive action to reinforce governance and financial discipline. This has included leadership changes within the finance function, the engagement of external technical accounting experts and the implementation of enhanced controls. Whilst the restatement of prior year results and the adjustments identified through our auditors challenge and the independent review have been significant, they represent an important step in restoring confidence ensuring compliance with accounting standards and maintaining the integrity of the group's financial records on financial statements. Against this backdrop, I will today provide some high-level context in the financial statements and take any questions at the end, you may have, recognizing that the full detail, including the impact of restatements as set out in the published documents. Looking ahead, now that the financial statements have been published, our focus is on bedding these improvements, strengthening our operating model and delivering sustainable value for the business. We are also seeking the readmission of shares as soon as possible to the resumption of trailing. If we look first at 2024, revenue of $5.5 billion in '24 was down 1% compared to '23, with growth in operations offset by a significant decline in consulting and a small decline in projects. Adjusted EBIT of $81 million in '24 was 52% lower than '23, despite benefiting from the cancellation of the year's employee annual bonus originally planned to be $36 million. Included within adjusted EBIT of $55 million of independent review charges that will not repeat in future periods. To help explain our results, we have shown this as a separate line item. Even excluding this, we saw an underlying decline in profitability across all business units. Consulting saw a 68% reduction in adjusted EBIT to $20 million. This was -- this mostly relates to $22 million of losses on 1 contract in our system integration business within Digital Consulting, where we recognized a $16 million loss provision and derecognized $6 million of revenue. In Projects, where we saw an adjusted EBIT of $38 million, though this includes $46 million of charges related to the independent review. Excluding this, so adjusted EBIT for Projects at $84 million and up 19% compared to last year, an improvement driven by the completion of a number of contracts and cost savings we have made. Operations saw revenue growth but a reduction in adjusted EBIT to $94 million as revenue growth and some improved pricing was offset by $24 million of charges recognized across 3 contracts. The largest loss here relates to 1 contract where our client trades under Chapter 11 and is currently going through a complex sale process. We expect to recover some of these losses in the future as we establish a relationship with the new owner. Group performance was lower than previously reported in our trading update on the 14th of February '25, with actual 2024 adjusted EBIT of $81 million versus previously reported $205 million to $215 million. And this difference was driven by $55 million of nonexceptional independent review charges, $46 million of losses related to the consulting and operations fee used, in part due to the extended time line of the results process, which led to further assessment of contracts in '25, and a revised assessment of the classification of some charges between exceptional and adjusted results. Whilst operating cash flow improved, we saw a free cash outflow of $153 million in the year despite the benefit of actively managing working capital at the year-end. Net debt excluding leases remain broadly flat after business disposals and at 31 December '24 was $683 million. The prior year was $694 million, after combined disposal proceeds in 2024 of $170 million. However, average net debt, excluding leases, was arrived at $8 billion throughout the year and the prior year was about $800 million. Our statute results show a loss of $2.8 billion with the largest impact being at $267 million reflecting revised revenue recognition on a legacy AFW Project, reflecting the stringent requirements of IFRS 15, $158 million of other exceptional items included in continuing operations related to further charges related to LSTK and large-scale EPC contracts, asbestos-related charges, the cost of our simplification program costs related to implementing the SaaS ERP system and charges related to the independent review. And finally, a $2.2 billion impairment of goodwill and intangible assets, reflecting the impact of higher discount rates and an increase in the risk factors, particularly around the Projects business unit, leading to significant downward revisions to forecast used. Turning to the H1 '25 results. Our results for the first half of '25 reflected the challenges we have faced. Whilst our order book grew overall, helped by some large EPCM opportunities and projects and big renewals in operations, revenue was down 13% compared to last year at $2.4 billion. Adjusted EBIT of $63 million was 38% lower than the last year when we exclude independent review charges. We faced some delays in key client programs in Projects and a slower-than-expected ramp-up in operations. Our trading was also impacted by the difficult situation we faced with a backdrop of uncertainty related to the independent review. The delays of publication of our 2024 audited accounts and the tightening of liquidity as the period progressed, given that we had to postpone our planned refinancing. In particular, access to our uncommitted financing facilities was restricted, including bonding and receivable facilities making it more difficult for us to win new business and begin work on new projects we had previously won, as well as creating a significant working capital unwind. Our trading in this period was reflective of these pressures. However, despite these challenges, our clients have continued to award us significant work during this period, and this is a testament to the excellent work our people do every day of our deep technical expertise. Given the continued uncertainty at this point, we are not providing financial guidance, having previously removed our profit forecast in the Sidara scheme document published in September '25. Wood remains well placed to benefit from significant long-term growth drivers across the energy and material markets, supported by our technical expertise and long-term client relationships. The company has continued over the last 18 months to receive strong support, including new awards from our client base with business wins during the year, including from BP, Shell, Total Energies, Woodside's Trion project, OMV, Petron and [indiscernible]. Our order book at the 30th of June '25 was around $6.5 billion, significantly improved in the $5.8 billion position at 31 December '24. The publication of our financial statements yesterday satisfies certain of the conditions relating to Sidara's offer. And a supplementary circular to the scheme document has been sent to shareholders. The Sidara offer represents the best through this difficult period and provides a clear pathway to secure the long-term future of the company to ensure -- to enable us to continue serving our clients around the world. The Board of Wood continues to recommend the shareholders book in favor of the transaction. To ensure shareholders have sufficient time with the supplementary circular prior to the vote, we have delayed the shareholder vote to 17 November 2025 at 3:00. Shareholder approval of the transaction will enable the extension of our debt facilities to 2028 to become effective and facilitate the receipt of the initial $250 million capital injection from Sidara, which will significantly reduce uncertainty and improve our liquidity position, creating a path to stability for the business our clients and our employees. Subject to the approval of our shareholders, the transaction is expected to complete in the first half of 2026. I would like to thank the employees of Wood for working tirelessly through 2025, continuing to deliver for our clients and for helping us to deliver on the audit of times. As previously announced, Ken Gilmartin will step down the shareholder vote on the Sidara acquisition, and I will take over as Group CEO. Since joining Wood, I have developed a strong belief in the underlying strength of the business, our client relationships and the quality of our people. We are now focused on improving the execution of the company's strategy for our clients and employees while delivering an outcome that delivers some value for our shareholders. I appreciate that there is a huge amount to digest across yesterday's announcements. I will be happy to take any questions. Thank you very much. Operator: [Operator Instructions] We will now take our first question. This is from Alex Paterson, Peel Hunt. Alexander Paterson: Well, congratulations on getting the results out anyway, but it's an enormous relief. I've got lots of questions, which apologies, very basic because, obviously, so many things have changed, and there's been so much going on, I'm slightly lost track of where we are on some of them. If I give you sort of maybe 3 or 4 at the start, and then we'll see if anybody else wants to ask any questions. But I was just going to say from the point of view of the listing, have you actually applied for to restart trading now? And how long do you expect it to take before you do? On the Sidara transaction -- sorry. Sorry, do you want to answer them in between? Or what's the easiest way do you think? Iain Torrens: There was a slightly technical glitch at our end there were suddenly disappear. So in the first -- I heard the first question, Alex. And then it may be that's helpful if you repeat the others. But in terms of readmission for trading, we've made the application. My expectation is that we will hear back from the FCA early next week. Alexander Paterson: That's great. And then can you just remind me of the outstanding conditions from Sidara and the process to deal completion? It sounds like you've got the 2024 balance sheet to meet those exceptional conditions. Shareholder votes is on the 17th of November. What are the other phases are the hurdles that you need to clear, please? Iain Torrens: Yes. So I mean, in essence, we are into normal regulatory approvals. So as you say from today, the next big event, shareholder vote on the 17th of November. Following that, we then receive the capital injection, the first $250 million from Sidara and our amend and extend with the bank facilities and the noteholders will go live without simultaneous. And you'll see in the annual report that gives us access to $200 million of bonding lines, which is incredibly important when we're looking at the commercial side of this business. We're then into normal regulatory approvals, all the regulatory filings to be made. So a normal cycle through to completion some time H1 2026. But there are no other specific Sidara conditions that were back into the normal regulatory type cycle. Alexander Paterson: So yes, so all the Sidara exceptional conditions have been met? Iain Torrens: That's correct. The exceptional conditions related to delivery of accounts by the 31st of October, and a clean balance sheet opinion have been met. Alexander Paterson: You removed your profit forecast from the Sidara scheme document and you've not given any financial guidance. What has changed to mean that you've done that, please? Iain Torrens: Well, I think if you look at both -- if you look at the interim results that were published yesterday, I think we illustrate a very complex world we're working in. It's both complex from an external perspective with our clients going through, in many cases, substantial internal change. But clearly, from a Wood perspective, we've had our own unique issues, and that's made it incredibly difficult to forecast outturn for the current year, when do clients, for example, starts -- when does work ramp up versus when we might expect the work to have ramped up. So we withdrew the forecast on the basis of really the ability to predict what would happen for the balance of the year. Quite normal in a public company takeover as you're aware, not to provide profit guidance. Alexander Paterson: Absolutely. And the -- just in terms of the legacy contracts, what remains to be completed? And the -- what's outstanding? If I remember correctly that you were basically had done everything other than Aegis. Is that the case? Or are there other things that are likely to need further work? Iain Torrens: Well, I don't think there's -- all of the legacy, when we look back to the legacy contracts, they have all now been completed, or from our perspective, complete. We have a deal of contractual disputes is probably 1 word you might use, which we're working through. We settled 1 of those. It was a very large one, just at the -- and it's reflected in the end of last year's results. So we're working through, I would say, the tail of contractual disputes, but there's no physical work taking place on the ground. What we have seen, and I'm sure Simon will be happy to take you through the bridge of it, as we work through independent review findings, the accounting treatment for some of these smelters is very complex. And it's fair to say, it doesn't always follow where you expect the commercial outturn to land their apartments around IFRS 15, in particular, and recognizing revenue need 85% certainty when you talk about highly probable that revenue won't reverse. So I think that's probably something. It's worth maybe a session with Simon just to walk through, how that all trues up into the balance sheet. But it's in the annual report in some detail. Alexander Paterson: Understood. Yes, forgive me, I've not been able to read all of that. Iain Torrens: It's not really a bed time reading. Alexander Paterson: I've never done so many searches for specific things, I think, in the document in such a short period of time. And then just finally, the -- just on the Aegis contract that obviously you've made a substantial increase to the provision there. And am I right in understanding that this is -- it's going to proceed to a trial? And if so, what are the sort of dates around that, please? Iain Torrens: I think a couple of things going on. I think, firstly, it falls squarely into that camp of accounting and looking at what information do you currently have and how do you get over that highly probable threshold. Now there's a significant amount of disclosure on it in a number of different places down to report. I think it's probably worth reading. Sitting here today, there is 1 of the path through is to ultimately, trial. On trial is a probably 3- to 5-year time horizon. The alternative, of course, is that we are able to reach a commercial settlement with the customer, which is the U.S. government. At this point, it's too early to determine which route becomes more likely. And there's -- I'd say, I'll have a look at the description and then having a follow-on session because it's fairly complicated. Alexander Paterson: Understood. Well, that's great from my side. I've got obviously a lot of reading to do. Operator: [Operator Instructions] There are no further questions coming through at the moment. So I will hand back to the speakers. Thank you. Iain Torrens: Thank you, everybody. And again, maybe going back to the start. I think having joined Wood earlier this year, it's at the heart, a fantastic business here. And I'd like to thank you all for your support. I know it hasn't been easy, and I appreciate the fact that we have delivered both the FY '24, but the interim statement later than would normally be expected. By all means, if you've got any further questions, please reach out to Simon, and we'll be very happy to help you going forward. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect. Speakers, please stand by.
Nuno Vieira: Good morning, and welcome to CTT's 9 Months '25 Results Conference Call. This event is hosted by Mr. João Bento, CEO of CTT; by Mr. Guy Pacheco, CFO of CTT; and by Mr. João Sousa, CCO of CTT. Please note that this conference call is being recorded. [Operator Instructions] I'll now turn the call over to Mr. João Bento, CEO. João Bento: Good morning, everyone. Welcome to our third quarter results presentation. I would invite you to follow us through the presentation that has been distributed yesterday evening. So if we move to the first slide, Slide #4. We have a plot of the -- a bridge of the revenue and EBIT in the quarter, with our, we'd call resilient organic growth; revenues growing 6%; recurring EBIT doubling that, 12%, with positive contributions from all the business lines in terms of revenues. This 6.1% are, in fact, 17.2%, taking into account the contribution of Cacesa. And on EBIT, the pro forma growth of 12.3% is in fact -- corresponds in fact, to 38.1%, which illustrates how competitive the addition of Cacesa represented to our e-commerce solutions portfolio. Moving to Slide #2 and with additional -- with additional detail on the growth of parcels volumes. We see a comparison between second quarter and third quarter, with a slight sequential improvement in e-commerce volumes. But we have to take into account that there were a couple of events, very significant in the end of September, that somehow impacted volumes in the quarter. Indeed, we have this typhoon Ragasa in South Asia that kept significant amount of volumes, e-commerce volumes sourced in China in the ground, so they could not fly. Some of them were sent by land, but there were also impacts in the border between Poland and Belarus, and some of the volumes that came through roads were also halted there. There was also, well, I would say, meaningful delay in main volumes that we can discuss later on. The good news is that all these volumes were merely delayed and they showed up already in October. But on the right-hand side of the slide, we can see that we have, well, double-digit growth in July, in August and then in September, a flattish improvement basically for the reasons that we have mentioned. So because of that, we are -- we keep quite confident also because October is looking extremely positive, and we anticipate a strong growth outlook for volumes, around 15% year-on-year for the fourth quarter of this year. Moving to Slide #6 and moving from volumes to revenues and margin. What we see is an improvement of 36% in revenues, that without Cacesa would even still represent a double digit, around 11% growth, which is significantly amplified when we move to the EBIT margin in the sense that with the pro forma of Cacesa, the growth would be very slight, 4.5%, but indeed a 50% growth on EBIT. The good news that we'd like to highlight here is that although -- well, despite of these volumes delayed given the typhoon and the closing of the Polish border, we still see an improvement in margin from 8.7% to 9.5% that, as you know, is, well, the best EBIT margin for any parcel business in the market. So given the contribution of Cacesa, that differentiates our E&P offering. We -- with this integrated model, we continue to drive profitability in parcels. And in that sense, we think that we should signal that. Moving to Mail. I will pass the floor to my colleague, João Sousa. Joao Carlos Sousa: Thank you, João. Good morning, everyone. On Mail & Other services, as you can see, in the third quarter of 2025, we are already seeing a recovery in address mail, with volumes down only 4.3% compared to a decline of 8.5% over the first 9 months of the year. In fact, this improvement reflects a gradual stabilization of the activity after several quarters of more pronounced declines in traditional mail volumes. This recovery is mainly explained by the normalization of volumes and clearance of backlog from major clients, which had a negative impact in the previous quarters. And we are seeing also these positive trends already -- or continued in October that reinforce this recover momentum. I would like also to highlight the business solutions that is driving good performance. Business solutions continue to play a key role in supporting both revenues and margin in the Mail & Others business area, with recording growth of 10.9% year-on-year. As with this mix of revenues and services, as a result of this, we have total revenues reaching EUR 341.9 million, representing a limited decrease of 1.9% comparing with the previous year. On EBIT for the Mail & Other segments took on EUR 2.28 million for the first 9 months, maintaining a flat margin of 8.9%. This stable performance demonstrates that our operational discipline on cost control and continuous on to managing these ongoing structural change in the mail market. On Slide 8, now we are going to financial services and retail. We continue to see a sustainable performance across public debt and insurance offering. Financial sales continue to show a solid and consistent growth, supported by stronger results in public debt products and insurance. Public debt placements, up to 167% in Q3 compares with versus period in last year. Savings certificates maintain like a preference savings vehicle for the Portuguese citizens. And I would like also to highlight that the digital sale channels for these products continue to be performing strongly, and September was the record month for these channels. This has also allowed us to bring new citizens to this product. Also, we are -- with a robust growth in insurance and health plans, we are in this strategic to build recurring revenue streams continue to deliver. Health plans -- the stock of health plans, growth, 69% versus the end of last year and almost 33 -- sorry, 12.8% on quarter-on-quarter. Insurance products also, with a very good outlook, performing pretty well. And I would like also to highlight that in -- already in October, we launched a new health insurance that also allow us to have a new product in this area. And the first numbers give us also a very good highlight -- a very good outlook for the coming months. Seeing this on this business area, the revenue is up to 57%, reaching EUR 9.8 million, and EBIT up to 44.8% to EUR 5.2 million. This reflects the success of our diversification strategy for this business area. And now pass to Guy. Guy Patrick Guimarães de Pacheco: Thank you, João, and good morning to all. On Slide 9, we can see Banco CTT's numbers, where we witnessed a strong growth in business volumes, growing 11.4% year-on-year in the third quarter, with a strong performance on the loan book that grew 16.4%. And on the off-balance savings, that grew 25.7%, where we see Generali partnership already at cruise speed and gaining -- continuing to gaining traction on the market. That translated to banking revenues growing 3.7% in the period, although with some compression in net interest margins as interest rates seem to reach a bottom, which gives us positive trends going forward. We see net interest income going up EUR 0.9 million, and commissions led by insurance and card commissions growing EUR 0.6 million in the period. We -- in terms of profitability, a flattish performance as we continue to invest in our future growth, deploying additional commercial capabilities, be it digital or physical, and we invest in technology to support that growth. Our return on tangible equity stood at 13%, a slight increase vis-a-vis the 12.4% of last year. Moving on to the financial review. In Slide 11, we have our key financial indicators where we see resilient growth throughout most of the metrics. On revenues, 17.2% growth. And if we consider Cacesa last year with the 6.1% growth in the third quarter, recurring EBIT growing 38.1% or if we account for Cacesa, 12.3%. Specific items reached EUR 7.6 million as we concluded the restructuring project that we have ongoing on the Mail division for this year. We invested EUR 4.2 million in exits of people. M&A expenses and strategic projects account for the rest of the value. Net profit in the quarter reaching EUR 10.7 million, growing 35%, or reaching, in the 9 months, EUR 32.8 million, growing 18.4%. Our free cash flow stood at negative EUR 6.4 million, and this is due to strong working capital investment that I will detail towards the end. On Slide 12, we see our revenue reach, where we continue to see Express & Parcels as our main contributor to growth. Revenue is growing 6.1%, accounting with Cacesa, with Express & Parcels growing EUR 15.7 million or 10%, with softer parcel volumes due to a weak September, putting some pressure on growth. And this was caused by the extraordinary effects that João shared, the typhoon and the military movements on the Polish border. Cacesa continues to perform very well. In Mail, we witnessed a EUR 2.4 million decline or 2.3%. This is -- this shows 2 different performance, Mail declining EUR 3 million in the quarter or 3.4%, that were partially offset by the good performance of Business Solutions as we continue to diversify along the value chain of our customers in order to further increase the resilience of the revenues of these business units. In the bank, EUR 1.3 million increase or 3.7%, fully driven by net interest income and commissions growth as we continue to grow our business volumes. In Financial Services, an increase of EUR 3.5 million in the quarter, and fully due to the strong performance in public debt placements, that grew more than EUR 1.1 billion as debt certificates continue to be a very attractive product in the market vis-a-vis other low-risk alternatives and already with some positive contribution of the recurring revenues that we continue to bet on in order to find additional diversification on these business units. All in all, other key metric is the Express & Parcels in the quarter already are above 50% of our revenue, reaching 52% of our total revenues this quarter. On Slide 13, we see our costs. Our OpEx grew 5.6% in the quarter, driven by parcel, in line with activity, but softer volumes putting pressure on our unit costs. As you know, we start to scale for the peak season, where we keep prioritizing quality as we see that as paramount to further growth in the future. Mail & Others with a decline of EUR 3.3 million on OpEx or 3%. We continue to optimize our routes with a strong reduction on the number of routes and account reduction that mainly account for that OpEx savings. In Financial Services, we see a EUR 1.9 million increase, fully in line with higher activity. And in the Bank at 5.8% increase or EUR 1.5 million, and this is fully to the commercial and technology investments that I already shared. Cost of risk this quarter with a good performance, reaching 0.7% of cost of risk. So good dynamics there as well. In Slide 14, we see our recurring EBIT, where we posted a 12.3% growth with bank, flat and all the other business units with a positive contribution. In Express & Parcels, we see very resilient margins despite these lower-than-expected volumes in the quarter, with 9.5% margin and increasing EUR 0.7 million. In Mail, positive contribution of business solutions and cost reductions, leading to a EUR 0.9 million increase in the quarter. Financial Services, with good -- very good performance in placements, also contributing positively with EUR 1.6 million. And the Bank, with this flattish performance, with the investments in capabilities offsetting the growth in banking products. Going forward, we expect a very strong peak season that will underpin the EBIT growth in Express & Parcels. Mail seasonality will lead to a sequential margin improvement as fourth quarter continues to be, seasonality-wise, the strongest quarter of the year. Financial service will continue to grow, although with a tougher comparable in the fourth quarter. And the Bank will post a flat to single-digit growth due to the continuous investments in commercial activity. Slide 15, we see our consolidated cash flow. Operating cash flow reached EUR 42.9 million in the 9 months, with a strong growth year-on-year. Free cash flow also stood in 20 -- 12 -- sorry, 18.8%, also with a EUR 10 million growth. And our net debt now stands at EUR 61 million at consolidated level. In Slide 16, we see pretty much the same figures, but excluding the bank or having the bank under equity accounting, where we see, in the 9 months as the operating cash flow reached EUR 20 million and due to this high investment in working capital. In the third quarter, our working capital increase EUR 13 million. And this is due to seasonality or third quarter is normally very strong in working capital investments, and that is due EUR 5 million to the travel subsidy to the Portuguese Island, a service that we provide to the Portuguese government, and because of summer normally has this high growth and payment terms with Portuguese that are always pressured. And we have EUR 8 million increase in accounts receivables, both by increase in activity and some delays in payments of some key customers that we expect to fully offset in the fourth quarter as normally we do. Our net debt now stands at EUR 2.4 million due to this working capital investment, but we expect to -- that to be deleveraging towards the 2x in the end of the year. And with all that, I'll hand you over to João Bento for his final remarks. João Bento: Thank you. So moving to Slide #18. We have a plot of the evolution of EBIT and the corresponding contribution of E&P that we see that, well, after the drop between '19 and '20 associated with the COVID crisis, it's been very, very steady. And looking at the trailing last 12 months up to the third quarter of this year, we see that we are already at EUR 105 million of EBIT, which means that we would require fourth quarter, that would be roughly EUR 10 million or more above that number. The right-hand side chart, it illustrates the gap between where we are and what we need actually to do. So we see the fourth quarter EBIT of last year at EUR 30.5 million. If we would consider the contribution of Cacesa, that would take us to EUR 37.2 million, meaning that because we need EUR 41 million to achieve the guidance, we are at a 10.3% increase or 34.4% versus the actual number of last year. This 10.3% of growth quarter-on-quarter -- fourth quarter-on-fourth quarter is, I would say, significantly less than what we have exhibited throughout the year. So at the top hand side of the slide, you can see that in the first quarter, we grew 19.5%, 28% on the second, 12% on this quarter, with all the delays associated with the typhoons. And so I'm not saying it's easy, but it's quite feasible, and that's why we are strongly committed to keep our ambition of recurring EBIT equal or higher than EUR 115 million. And by completing a quarter along those lines, this will, in fact, represent the conclusion of, I would say, notable transformation cycle that we have been taking this company. I would still ask you to follow me on the last slide, just to remind you that we have our Capital Markets Day taking place next Monday and Tuesday. We have quite promising news for you. We're going to do the similar exercise that we did 3 years ago, discussing and illustrating the strategy for our business areas and committing with financial targets for 2028. So we are looking forward to meet you all there. And I believe that you'll be very pleased with the news that we have to bring. With that, we remain available for your questions. Nuno Vieira: [Operator Instructions] Our first question will come from João Safara. Joao Safara Silva: I'll start just with 2 questions. The first on -- to try to understand a little bit what is implicit in the fourth quarter margin for Express & Parcels. Obviously, and you've mentioned that you've been focusing a lot on quality ahead of the season. Nuno Vieira: João, sorry, we are having significant difficulties in listening to you. If you can speak louder, please. Joao Safara Silva: Yes. Is it better now? Nuno Vieira: It's better now. Joao Safara Silva: Okay. Sorry. Okay. Yes. So what I -- yes, so going back to my question, what I was wondering and trying to look implicitly to the fourth quarter. To meet your guidance, you obviously have to have some kind of improvement in Express & Parcel margins. So I think basically, I just wanted to have a confirmation there since we've been having in the last quarters, in first quarter, margins were flat, obviously, trying to exclude the impact of Cacesa, which I know it's difficult. And then in the second quarter, you've recovered. And now in the third quarter, it seems that margins, again, they've more or less been flat versus year-on-year. And for the fourth quarter, according to my numbers, it would still imply an improvement in margins. So if you could -- well, just give me some color there on what are you seeing for the fourth quarter in terms of margins? And then the other question is just on the extraordinary costs you had this quarter for the employment contract suspension. The question here is, I mean, basically, if this is something related to the plan you're going to present on Tuesday? Or is this something that was already contemplated and part of your ongoing cost savings? Guy Patrick Guimarães de Pacheco: Thank you, João. So on your first question, so we are expecting a strong peak season in Express & Parcels, that will once again be the main driver of our growth in the fourth quarter. Obviously, as you know, scale here plays a role and because we have this unforeseen lack of volumes on the third quarter, especially in September, that put some pressure on unit costs. And as such, our margin was stable-ish. And I would like to underline that, nevertheless, we were able to post a 9.5% EBIT margin that shows a lot of resilience of that business unit. But nevertheless, as you said, we expect both a volume increase and a slight margin increase during the fourth quarter. That was again Express & Parcel as a main driver. We also expect growth coming from Mail -- sorry, positive impacts for Mail and the growth coming from Financial Services as we continue to see resilience on the placements, although the comparable will be tougher as last quarter was already very strong in placements last year. On the specific items. So 2 main things. First, it's the restructuring project that we ended, and that we continue to explore opportunities to optimize Mail & Others as we continue to see that paramount to sustain margin going forward. And that project comes to an end in the third quarter. And now we also had some strategic projects that are, as you mentioned, linked with the next strategic cycle that we'll announce next week and some M&A expenses as we continue to have projects ongoing and what's ongoing, be it with the transactions already announced and other internal projects. Joao Safara Silva: Just a follow-up, would there be, on the fourth quarter, additional nonrecurring cost? Guy Patrick Guimarães de Pacheco: On people, no. We should expect some costs around M&A, but nothing as meaningful as this quarter. Nuno Vieira: Our next question comes from Filipe Leite. Filipe Leite: Yes. I have 3 questions, if I may. The first one is on Cacesa and the integration of Cacesa. Basically from the EUR 5 million synergy that you announced at the time of the acquisition. If you have an idea of how much do you have already achieved in terms of synergies, and when should you expect or should we expect the full achievement of this EUR 5 million synergies with the incorporation of Cacesa? Second question on Mail and CPI used this as reference for the upcoming year. Mail price increase, I believe, is up to June or July. And the question is if you have already an idea of the potential magnitude of the price increase for mail next year? And last one is a clarification on specific [indiscernible] because looking at the breakdown, you mentioned in 9 months, EUR 1.4 million positive impact from regulatory compensation. But in second quarter alone, this positive impact was EUR 3.5 million. If you can clarify what are those regulatory compensations and why the reversal in third quarter? João Bento: I'm afraid we didn't get exactly what you mean in the third question, but I will start with the previous 2 ones. So on Cacesa, things are going pretty well. What we can say is that we are more or less around midterm achieving the full synergies that have been announced, and they will be fully embedded across next year because there are several -- the nature of the synergies is diversified, but so we are probably halfway to be there. On CPI, actually, the formula is public. We know the volume decline, we know the inflation. The issue here is that the proposal has been put, but it's not been approved. In any case, you should expect something around 6.5% plus or -- more or less around that, just not to give you the exact figure because it's not been approved. But it's very easy to compute the numbers and it should be something around -- well, between 6.5%, 7%, some like that. Guy Patrick Guimarães de Pacheco: On the third question, because we didn't fully get it, I suggest that Nuno Vieira will follow up with you in the end of the call. Nuno Vieira: [Operator Instructions] As there are no further questions at this point, I would like to hand the call back over to Mr. João Bento, CEO, for any additional or closing remarks. João Bento: Thank you, Nuno. Well, as we've seen, it's been a mild quarter, fortunately, positioning us strongly in line to achieve the guidance this year. And I believe that the most promising news are to be shared with you on the forthcoming Capital Markets Day next week. So thank you again for coming. We remain available to your questions through the IRO team, and hope to meet you all next week. Thank you. Nuno Vieira: Thank you very much for your participation. This earnings call is now concluded.
Operator: Ladies and gentlemen, welcome to the Third Quarter 2025 Conference Call. I am George, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Aritz Larrea, President and CEO. Aritz Uribiarte: Thank you very much. Good morning, everyone, and welcome to the third quarter presentation for Loomis. My name is Aritz Larrea, and I'm the CEO of Loomis. And with me here today, I have our CFO, Johan Wilsby; and Jenny Boström, our Head of Sustainability and Investor Relations. I'll start by providing a quick summary of our third quarter performance before taking questions. Let's start the presentation by turning to Slide #2. We delivered a solid and positive performance in the third quarter with revenues reaching SEK 7.6 billion and currency-adjusted growth of 7.1%. Despite the expected decline in our ATM business, the group achieved a strong organic growth of 3.9%. This was also the first quarter to include the full results of Burroughs, which made a meaningful contribution to our overall growth and further strengthened our position in the U.S. market. Our efficiency initiatives continue to deliver strong results with the operating margin rising to 13.2%, up from 12.9% last year. We've successfully grown the business without increasing our headcount, further driving margin improvement and demonstrating the impact of our ongoing operational discipline. We delivered another quarter of strong operating cash flow with a rolling 12-month cash conversion of 95%. This robust cash generation enables us to continue investing in the business while also delivering attractive return to our shareholders. Our commitment to optimize capital allocation to drive returns is also reflected in the increased return on capital employed, which was above 16% in the quarter. While we have been active in M&A, invested in our business and continued our share repurchase program, our net debt-to-EBITDA ratio has improved compared to the second quarter. During the third quarter, we completed 4 acquisitions and signed an agreement for a fifth one. I will address each later on in the presentation. As announced yesterday, the Board has also approved a new share repurchase program of SEK 200 million for the fourth quarter. Let's now turn to our reporting segments, starting with Europe and Latin America. Our European and Latin America segment delivered a solid performance in the quarter with revenues reaching close to SEK 3.7 billion, and the organic growth was 2.3%. We have seen a different mix of performance across our business lines during the quarter. While we continue to experience strong demand for our cross-border valuables transportation and storage solutions within the international business line and the Automated Solutions business delivered solid results, the ATM business declined due to previously announced losses in Sweden and France. In addition, there was a negative impact due to the ATM consolidation market in the U.K. While these developments have led to short-term volume headwinds, we expect the long-term industry trends to continue to favor specialized providers. In addition, revenue in Europe was also affected by the ongoing restructuring activities in Germany, where we continue to discontinue unprofitable contracts as part of our efforts to strengthen profitability. These developments have temporarily affected growth in the region, but our initiatives are consistent with our strategy to focus on efficiency, scalability and long-term profitability. We can also see that the restructuring initiatives implemented in recent quarters are having a positive effect on profitability, while with the operating margin increasing to 12.9% versus 12.4% in prior year. In September, we completed the acquisition of Kipfer-Logistik announced in July. Kipfer-Logistik is a leading pharmaceutical logistics provider based in Switzerland, and this acquisition significantly accelerates the growth of Loomis Pharma. By integrating a well-established company specialized in high-security, temperature-controlled road freight, we are further strengthening our international business line, where Loomis already provides cross-border, high-security logistics for banknotes, precious metals and jewels, including customs clearance. With our long-standing expertise in Secure Logistics, we continue to explore opportunities to expand and enhance our services in this area. Let's turn to the next page and talk about the performance in the U.S. The U.S. segment delivered another strong quarter. If we adjust for currency impacts, which was negative 9%, the U.S. achieved record high revenues and operating profit. Organic growth was 5.4% and the acquisition of Burroughs contributed to the overall growth. The International and Automated Solutions lines of business had notably strong performance in the quarter. Our implemented staffing planning measures have enabled a more efficient way of working, allowing us to grow the business without adding employees. At the same time, we have secured a high service quality and maintained customer satisfaction. The volume growth, combined with improved efficiency contributed to the improvement of operating margin. The operating margin increased to 16.3%, up from 16.1% in prior year. This is the first full quarter with Burroughs, and we continue working on integrating their business into our U.S. operations and our Loomis culture. We are still early in the integration process, but while the business is adjacent to our existing operations, it represents a new line of work for us, one that is highly technology-driven and involves technical service teams we previously did not manage. We are seeing great progress and are already observing how it complements our current business. Burroughs is a strong strategic fit as it allows us to provide a fully integrated ATM and automated solutions service offering to our customers. In August, we acquired Keys Armored Express, a CIT service provider operating in the Florida Keys area. We've also signed an agreement to acquire Precious Metals Vault and storage facility in Toronto. This acquisition will strengthen our local presence in Canada and increase our depository service and storage capacity within the international business line. Let's turn to the next page and talk about SME Pay. Revenues in the SME Pay segment increased to SEK 65 million in the quarter. Nearly 40% of this revenue now comes from new small- and medium-sized customers, demonstrating that our strategic focus on SMEs is delivering both growth and margin. We're also making strong progress on the digital side. Loomis Pay continues to scale, broadening our payments offering and strengthening customer loyalty. Transaction volumes through our payment gateway surpassed SEK 2.5 billion in the quarter, representing a 23% increase compared to last year. In addition, in July, we took an important step in Spain with the acquisition of 2 POS companies in Catalonia. This significantly strengthens Loomis Pay presence in the region, enhances our POS capabilities and expands our customer base among SMEs. Let's now move to the next slide, where I'll share a few updates on our sustainability progress. This quarter, we adopted 2 new sustainability policies, an environmental policy and a human rights policy, further reinforcing our commitment in these critical areas. Our environmental policy includes our emissions reductions targets to 2030 with the actions being taken to reach these. The key focus here remains on reducing emissions from our vehicle fleet. For the first 9 months, we have reduced our Scope 1 and 2 emissions by approximately 2% compared to prior year. I want to highlight that the increase you can see in emissions in the graph here compared to the second quarter is largely related to the acquisition of Burroughs. Initiatives are ongoing to align Burroughs to our carbon emissions reduction plan. Continuing to decrease emissions while growing the business is, of course, challenging, especially due to difficulties with charging infrastructure for an electrified fleet, but something that we are fully committed to. As a global employer with an important role in society, it is crucial to uphold fundamental human rights across our operations and value chain. Our new human rights policy reinforces our dedication to safeguarding the rights of our workers and how we intend to uphold our efforts in addressing actual and potential human rights. Now let's turn to the income statement slide, where I'll begin by noting that despite a significant negative impact from exchange rate fluctuations, we achieved a strong currency adjusted growth. This quarter includes costs classified as items affecting comparability, primarily related to the ongoing restructuring efforts in Europe and Latin America. Our financial net has declined compared to previous years, following lower financial expenses, driven by declining interest rates. I would also like to highlight that the effective tax rate has gone up to 30% for year-to-date 2025 due to changes in our assumptions for deferred tax assets. This year-to-date adjustment impacts the effective rate in the quarter. Additionally, the tax rate in 2024 was also lower due to the U.S. green tax credits, which have now been removed. For the full year, we expect an effective tax rate of about 30%. Despite the considerable currency headwinds and higher effective taxes, earnings per share rose to SEK 7.83 per share. I would also like to highlight that also our net debt-to-EBITDA ratio is about the same level as prior year, and we also see an improvement compared to the second quarter, even after several M&A and continued share repurchases. Now let's move on to the next slide, where I'll provide a longer-term view of our performance. As we can see, we have a stable and resilient business model that continues to deliver. We delivered a strong third quarter, and I'm confident in our journey ahead. Our restructuring initiatives in Europe and Latin America are showing results, and we've seen clear margin improvements over recent quarters. On a rolling 12-month basis, we generated over SEK 30 billion in revenue and reached an operating margin of 12.6%. Currency adjusted growth was 6.1%, fully in line with our financial targets for the strategic period. The major focus in this strategy is accelerating growth within the SME customer segment. This is already contributing to our performance. We have seen healthy revenue momentum and solid margin contribution from SMEs across all our key markets. As we look ahead, it's important to recognize that we are up against a very strong fourth quarter last year, which benefited from favorable movements with U.S. tariff uncertainties. We're also managing the impact from ATM business losses in Sweden and the consolidation of ATM networks in France, both impacting our European operations. In addition, there's a negative impact due to ATM market consolidation in the U.K. compared to Q4 last year. That said, we still see solid opportunities for organic growth, both with our actual customers as well as with SMEs. And as we outlined at our Capital Markets Day, value-creating M&A will continue to be a key lever in our strategy going forward. This concludes my summary of the quarter. Operator, we are now ready for questions. Operator: [Operator Instructions] Our first question comes from Simon Jönsson with ABG. Simon Jönsson: I want to start off with the M&A track. I think it's nice to see that you are more active again as you have been talking about, of course. And I wonder specifically about Burroughs, you mentioned it a bit, and you have had some time now to digest it. So my question is what you're seeing in terms of the turnaround on margins in Burroughs, if that is something that you have already started to see a positive impact on? I mean, the margins in the U.S. were quite good despite the full integration of Burroughs. So I guess I wonder if you have seen any margin impact already in Burroughs. Aritz Uribiarte: Thanks for the question, Simon. I would say that it's still early stages with Burroughs, but our immediate focus is just on resolving some existing quality issues to ensure service excellence. Once this is achieved, we will shift our efforts to improving operational efficiency and margins, with the objective of making the business margin accretive over time as we promised when we announced the acquisition. Simon Jönsson: All right. So I'm guessing that it's fair to assume that it remains quite margin dilutive here as of right now, at least. Aritz Uribiarte: You're right, yes. Simon Jönsson: Then I wonder about the SME Pay segment, just specifically on the organic growth acceleration we saw here in Q3. If there are like any specifics you could point to here, like bigger customers or something that drove the organic growth acceleration Q3? Aritz Uribiarte: So as we explained at the Capital Market Day, we've been always focused on big retailers and big banks. SME was never our focus. And we shifted that, and that has been a shift that our sales teams have made. And we've seen an important progress there. And consider that Q3 also has the seasonality, the normal seasonality that we have in Europe, but it was a great quarter from that perspective, and we expect the following quarters to continue the same way. Simon Jönsson: All right. Great. Then lastly, maybe a bit more general reflections, but on Latin America and maybe specifically on Argentina, I mean, it continues to look like the business environment is improving, more politically stable and so forth. So do you have any general reflections right now, what's going on? And if that's positive or negative for you? Aritz Uribiarte: I think, I mean, when you look at Argentina, it's really small when you look at our group. But I think that progress has been made there from the country side. We keep investing there, and we're looking into growing in that market as well inorganically. So it keeps being an interest market for us. Operator: Our next question comes from Dan Johansson from SEB. Dan Johansson: A couple from my side. Maybe firstly, I was curious to hear how we should think about the revenue mix right now. I noticed you continue to have very good momentum in both Automated Solutions and also international, which is, of course, good for margins and CIT is down like 5% or so versus last year. And I mean, long term, your mix shift will, of course, continue, but it would be interesting to hear how you think about business mix more near term for coming quarters. Do you see sort of a near-term recovery in CIT? Or should we expect these trends to continue and revenue mix to continue to be supportive ahead here? Aritz Uribiarte: Yes. Thanks for the question. And my first comment there would be, I was surprised on your comment around CIT because we should look at the business lines currency adjusted, and I don't see that decrease happening in CIT. Looking forward, as I said in the call, I mean, we're facing -- we're up against a very strong fourth quarter that we had last year. We had the favorability of the U.S. tariffs uncertainty there. And we are having a negative impact on the ATM business due to the losses in Sweden, France and the U.K., and that will impact our European operations. But we keep working on finding alternatives. And as you've seen, for example, our international business, despite the slowdown due to tariff uncertainty, the business has also keep growing. So we keep looking at other revenue streams as well. Dan Johansson: Yes. Fair point on the currency effect there. But also interesting on international. I mean, as you say, is the performance and the momentum in international sort of even throughout the quarter? Was there any notable difference in growth rate July versus September and beginning of October? I mean, before it was tariffs, but now it seems to be other factors driving the performance. So a little bit of momentum throughout the quarter. And also, is there anything in particular driving the very strong performance you have in international still now? Aritz Uribiarte: I mean the front of thing we have with international, Dan, is that it's not a recurring business. So we can't see it as we see our domestic business there. We do expect the international business line to slow down a little bit versus what we've had in Q3. But again, as I told you, we're looking into how can we keep growing this business and keep expanding as we did with pharma, keep expanding to other verticals and other areas of interest as well. Dan Johansson: Yes. Makes sense. Interesting to follow. And maybe a final one, just a small comment there on the ATM market consolidation in the U.K., just so I get it right there. Did you experience an impact already this quarter? Is that more gradually ahead as we move into Q4 and further on here? Aritz Uribiarte: Sorry, I didn't catch that question. Can you repeat again, please, Dan? Dan Johansson: No, it was just -- did you see the ATM slowdown in U.K. already this quarter? Did it impact the numbers in Q3? Or is that more for Q4 and going forward here? Aritz Uribiarte: Yes. You should expect more or less the same trend, rather trend in Q4 and first half of next year. Operator: The next question comes from Viktor Lindeberg with DNB. Viktor Lindeberg: Maybe following up on Dan's question on U.K. as a start. And can you quantify the amount of the contract or contracts that you've lost so we can pin down the magnitude of this? Aritz Uribiarte: We don't disclose those numbers, Viktor. Viktor Lindeberg: Okay. But it's fair to say that it was already in the full quarter of Q3? Aritz Uribiarte: It has been -- yes, it's been in the whole Q3 quarter. That's correct. Viktor Lindeberg: Okay. You mentioned the tax rate, and it's come up to about 30%, and you guide for that for the full year as well. Is that a good ballpark proxy going into next year as well? Aritz Uribiarte: Yes, I would say so for now. Viktor Lindeberg: And on the tax rate from a cash tax perspective, the cash tax has come up quite a lot this year. Are there any one-off items, if you will, in that amount? Or should we pencil in similar, call it, cash tax rates going into next year as well, do you think? Aritz Uribiarte: No, that's going to come down because we had a delay of U.S. tax payments from '24 that came into '25. So they are artificially large this year. And that piece will wash out when you get into '26. Viktor Lindeberg: Super. That's very helpful. Two final points. One very small on your Loomis Pay and SME. I noted you have about SEK 9 million of revenue now in automated solutions in this segment, and that's quite an astonishing number for the small size of that segment. But curious to understand, is this Automated Solutions revenue a product sale similar to CIMA? Or is it actually more installed base type of revenue, more recurring in that sense? Aritz Uribiarte: No, it's exactly the same. The only thing is that when you look at CIMA, you have a huge portfolio of solutions, and we're talking about a smaller range of solutions. Viktor Lindeberg: Yes, that was my question. So if it is more the actual product installed generating SEK 9 million in the quarter and then in that sense that we maybe can expect SEK 9 million also in the coming quarters or if it's more product sales? Aritz Uribiarte: Additional product sales and recurring revenues. Viktor Lindeberg: Okay. Super. Final question on the U.S. and automated solutions growth accelerated quite dramatically. And my numbers tell me 31% in organic terms. But that begs the question, if you have added revenues from Burroughs or something else into that segment? Aritz Uribiarte: Yes, you have revenue coming from Burroughs as well. Viktor Lindeberg: All right. So can you give us an indication on the underlying SafePoint or Automated Solutions organic trend? Is it similar to what we have seen in the mid-teens or so? Or has it started to deviate? Aritz Uribiarte: I think you're right that it's more or less same. Operator: [Operator Instructions] There are no more questions at this time. I would now like to turn the conference back over to Mr. Larrea for any closing remarks. Aritz Uribiarte: Thank you very much all for listening in. Please reach out if you have any follow-up questions. Thank you. 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.
Claus Jensen: Good morning, everyone. Welcome to the conference call for Danske Bank's financial results for the first 9 months of 2025. My name is Claus Ingar Jensen, and I'm Head of Danske Bank's Investor Relations. With me today, I have our CEO, Carsten Egeriis; and our CFO, Cecile Hillary. We aim to keep this presentation to around 20 minutes. After the presentation, we will open up for a Q&A session as usual. Afterwards, feel free to contact the Investor Relations department if you have any more questions. I will now hand over to Carsten. Slide 1, please. Carsten Egeriis: Thanks, Claus. And I would also like to welcome you to our conference call where I'm pleased to share the highlights of Danske Bank's financial results for the first 9 months of 2025. This period saw a solid financial performance rooted in our strategic priorities as outlined in our 428 strategy. Net profit for the first 9 months came in at DKK 16.7 billion, equivalent to a return on equity of 12.9% for the first 9 months and 12.6% for the third quarter. On the macroeconomic front, the Nordic region shows promising growth, aligning closely with structural rates. And despite some downward revisions of GDP growth for Denmark, the economy remains strong. The supportive low interest rates set by central banks in Europe are contributing positively to the business environment we are operating in. And our achievements can be attributed to a good performance across core income lines, prudent cost management and while maintaining strong credit quality. We are pleased with the increased commercial momentum that we saw during the first 9 months. This is in particular evident from an uplift in lending and deposit volumes of 4% and 3%, respectively. The positive traction for lending is mainly due to higher customer activity in the corporate segment, whereas the increase in deposits is driven by the retail segment where our customers favor savings over spending. Our asset management business continues to grow, reaching an all-time high of more than DKK 950 billion in assets under management, bolstered by strong net sales in both the private banking and institutional segments. Credit quality continued to be strong and was supported by favorable macroeconomic conditions. For the first 9 months, the loan loss ratio amounted to 2 basis points, unchanged from the preceding quarter, and the PMA buffer is kept largely unchanged. And then just a few comments when comparing to the preceding quarter. Core income came in slightly better. NII was unchanged as a combination of lending growth and the contribution from our structural hedge had a positive effect that offset the impact of lower market rates. Fee income was higher due to a positive development in asset prices and continually strong momentum for net sales across all channels within asset management, which resulted in a solid increase of 6% in assets under management. We, therefore, maintain our guidance range from net profit of between DKK 21 billion and DKK 23 billion. However, we now expect net profit to be at the upper end of that range. The expectation is driven by better NII and an improved outlook for loan impairment charges, which we now expect to be no more than DKK 0.6 billion. And then Slide 2, please. At Personal Customers, we saw a stable financial performance supported by deposit growth and healthy customer activity while managing the impact of policy rate cuts on deposit margins in the first 9 months of the year. In Q3, total income was supported by an 8% increase in fee income that reflected a positive uplift across all fee categories. Net interest income also benefited from an updated hedge -- our updated hedge allocation framework, and Cecile is going to talk about that a little bit later. We continue to see strong credit quality and prudent cost management, which support our 2026 financial objectives and the trajectory on cost income and return on allocated capital is in line with our 2026 targets. In terms of lending, the development in home loans generally remained stable, reflecting a somewhat subdued housing market when looking across the Nordic countries as a result of cautious consumer sentiment. In Denmark, housing market activity has gradually risen and total home loans in PC Denmark grew modestly as the lending volume of our bank home loan product, Danske Bolig Fri, increased by another 11% in Q3 and is now up more than 35% year-on-year. This is also a reflection of changed customer preferences with customers substituting the more conventional Realkredit Danmark mortgage product by bank home loans, which highlights our ability to offer flexible loan products through a rate cycle. And then simultaneously, we've adapted our pricing and our holistic advice to serve our customer needs and enhance Realkredit Danmark's competitiveness. And then finally, while deposit volumes are typically affected by increased summer spending, we continue to see elevated cash savings and an overall 2% deposit growth year-on-year. And then additionally, our commercial traction within Private Banking was underpinned by another quarter of higher net sales and inflow to investment products. And this, in turn, drove assets under management to record high levels and again shows our ability to expand offerings and support customers' financial planning regardless of the market environment. Slide 3, please. At Business Customers, we see the momentum building and our financial performance reflected continued progress on our commercial priorities. Core banking income was up 3% in the third quarter relative to the same quarter last year, supported by solid fee income driven by higher everyday banking fees, including FX activity as well as finance-related fee income growth. Total income quarter-on-quarter was supported by stable fee income despite typical seasonality and NII benefited from the updated treasury allocation framework. Our growth agenda was supported by improved credit demand and our efforts to expand our customer base, resulting in increased market shares across all 4 Nordic countries. And this was underpinned by the growth in lending volumes of 1% quarter-on-quarter and then 4% year-on-year, which again was largely broad-based across industries. With a sustained focus on diligent cost management, the cost-income ratio continues to be in line with our 2026 target and the robust credit quality and benign level of impairments further supported profitability with profit before tax increasing 3% quarter-on-quarter and in line with our 2026 targets. Our strategy execution has been encouraging and clearly highlights the business potential, and we continue to focus on improvements to our digital offerings, coupled with targeted advisory services to support customers efficiently across the region, where complex solutions are in demand from our customers across the Nordics. And then Slide 4, please. In our Corporate and Institutional franchise, we saw a strong financial result for the first 9 months of the year. Total income was up 8% year-on-year as we continue to leverage our strong balance sheet to the benefit of our corporate and institutional customers and saw strong customer demand for our investment solutions. In addition, we focus on executing our strategy to be the leading Nordic wholesale bank. Importantly, our leading solutions in product areas such as loan capital markets, debt capital markets and cash management see solid customer demand and help us continue to attract new corporate customers outside Denmark, in turn, delivering on our strategy. Total income was up 1% relative to the second quarter, driven by solid customer activity in our markets area alongside continually strong credit quality. And this helped us generate a return on allocated capital of 25%, well ahead of our 2026 target. And then we continue to grow our corporate lending book. We saw lending growth of 12% year-on-year and 4% quarter-on-quarter. We were also very proud that as the only Nordic bank, Danske Bank was mandated as joint global coordinator in the largest ever capital raising transaction in the Nordic countries. Operating expenses, they grew 2% relative to the second quarter as we continue to invest in the business and selectively add competencies as needed to drive our advisory offering and execute the strategy. And then assets under management grew 6% in the third quarter relative to the preceding quarter to a record high level of DKK 954 billion, primarily driven by strong net sales across channels and also a robust investment performance. And then with that, let me hand over to Cecile for a walk-through of our financial results for the group, and that's on Page 5, please. Cecile Hillary: Thank you, Carsten. As Carsten just mentioned, our financial performance was solid in the first 9 months of the year. Net profit for the group came in at DKK 16.7 billion and was down 5% year-on-year, firstly, due to the loan impairments line and secondly, from lower insurance income. NII remained stable as the impact of rate cuts was mitigated by the growth we saw in volumes and the contribution of our structural hedge. Fee income benefited from higher customer activity and the growth of assets under management. The result for the third quarter came in at DKK 5.5 billion, up 1% from the level in the second quarter, mainly due to lower loan impairment charges. Total income was slightly down as income from both trading and insurance activities decreased from strong levels in the second quarter. This decline was partly mitigated by stronger fee income, thanks to the rebound in customer activity in the third quarter. Trading income saw a decline in Q3, mainly due to valuation adjustments in group treasury and a one-off in Q2. Trading income from customer activity at LC&I was on par with the level in Q2. Income from insurance activities came in lower in the first 9 months of 2025 compared to the year before, partly due to an increase in provisions in the first quarter. In the third quarter, the result was lower due to return on investments and the results of the health and accident business. We continue to focus on repricing, preventive care and reactivation initiatives to improve the financial outcome of insurance contracts and respond to current market trends related to long-term illnesses. Operating expenses were almost unchanged relative to the same period last year as well as the preceding quarter. And finally, as Carsten mentioned, credit quality remained strong with a net reversal in the third quarter. Slide 6, please. Let us take a closer look at the key income lines, starting with net interest income. Overall, NII remained stable both year-on-year and quarter-on-quarter despite the impact of lower rates on deposit margins. When comparing net interest income, not only with the same period last year, but also with the preceding quarter, NII has benefited from a continually positive development in lending volumes, particularly evident on the corporate side. The growth in deposit volumes contributed to NII year-on-year with a stable quarter-on-quarter level. In addition, our deposit hedge has helped to mitigate the impact of rate cuts on deposit margins and the lower return on shareholders' equity. In this context, please be aware that as part of our ongoing focus on asset and liability management, we have increased our bond portfolio hedge slightly to approximately DKK 170 billion. With respect to deposit margins, the increase that can be observed relates to changes to our fund transfer pricing framework implemented in the second quarter with the objective of allocating NII from the structural hedge to the business units according to their contribution. It is important to note that these are not driven by changes to customer pricing and do not impact group NII. Our NII sensitivity, which was updated in the second quarter, remains unchanged. With respect to expectations for the full year, I would like to highlight that they are based on the current rent environment with forward rates as of the end of September and subject to balance sheet developments. We consider the current market view and consensus on NII to be a good indication for the full year of 2025. Now let us turn to fee income. Slide 7, please. Our fee income grew by 2% relative to last year. Adjusted for a nonrecurring item from last year and the divestment of PC Norway, fee income was up 3%. The increase mainly came from everyday banking transactions due to higher activity among existing as well as new customers. Relative to the second quarter, fee income was up 3% in the third quarter, driven by higher investment activity among our customers and the recovery from the sentiment we saw in the second quarter. Investment fees benefited from increasing asset prices and continued growth in assets under management with positive net sales for all types of clients. Income from financing had a positive effect in the third quarter, driven by higher corporate activity, whereas fee income from everyday banking and capital markets transactions declined slightly from the second quarter due to summer seasonality. However, the somewhat muted transaction activity in ECM and M&A was offset by continually good primary activity in DCM and LCM. Next, let us look at net trading income, Slide 8, please. Net trading income increased 12% from the level in the same period last year. The increase was mainly due to positive market value adjustments in group treasury, partly offset by xVA adjustments. Trading income at LC&I improved from the level in the same period last year due to higher customer activity. In Q3, customer activity at LC&I held up well despite the third quarter being a seasonally slower quarter. Net trading income was down 27%, mainly due to the positive one-off item booked in the second quarter as well as valuation adjustments made in group treasury. This concludes my comments on the income lines. Let's turn to expenses. Slide 9, please. Looking at the cost development for the first 9 months, our focus on cost management and improved efficiency continues to yield the expected results. Operating expenses are in line with our full year guidance of up to DKK 26 billion. And at 45.6%, the cost-to-income ratio is progressing towards our 2026 targets. Relative to the level last year, costs were in line as structural cost takeouts and the planned reduction in costs for the financial crime plan mitigated the impact of wage inflation and performance-based compensation. The relatively modest increase in digital investments should be seen in the light of the significant ramp-up we made last year. Relative to the preceding quarter, costs were down by 1%, mainly due to lower costs related to financial crime prevention, which continued the trajectory towards a lower run rate by year-end according to plan. While the cost discipline and trajectory during the year have been encouraging, we continue to expect full year expenses to end close to the guided level given higher quarterly costs in Q4 due to seasonality. Slide 10, please. Let us take a look at our credit portfolio and the trend in impairments. Credit quality continued to be strong, underpinned by a well-diversified and low-risk credit portfolio. The macroeconomic environment remained benign with increasing employment and steadily improving household finances. Consequently, impairments continue to be below the normalized level. In the third quarter, credit deterioration related to a few single name exposures was offset by workout cases. In combination with the update of our macroeconomic models, we saw a small net reversal for the quarter. The update of the macroeconomic models included a small revision to the weighting of our scenarios towards a slightly more balanced approach with the upside scenario now weighted at 25%, the base case scenario at 50% and the downside and severe downside scenarios combined at 25%. In addition, we have kept our PMA buffer unchanged at DKK 5.7 billion. The decreases in PMAs for CRE and agriculture have been reallocated to global tension. We continuously keep our macroeconomic scenarios under review in conjunction with the PMA buffer. Given the strong asset quality we saw in the first 9 months, we have lowered our full year guidance for loan impairment charges from around DKK 1 billion to no more than DKK 0.6 billion. Slide 11, please. Our capital position remained strong in the third quarter and was further supported by another quarter of solid capital generation post dividend accrual and lower REA as a result of lower market risk. At the end of Q3, the reported CET1 capital ratio was unchanged compared to the preceding quarter at 18.7% despite a temporary impact from Danica of around 0.4 percentage points due to the call of a Tier 2 instruments. We continue to operate with a healthy CET1 buffer versus the regulatory requirements now at 390 basis points, and we intend to progress steadily in the coming years towards our stated capital target of a CET1 capital ratio above 16%. The ongoing share buyback program we announced in February is being executed and will continue to provide support throughout the year. Now let us turn to the final slide and our financial outlook for 2025. Slide 12, please. As previously mentioned by Carsten, we reiterate our outlook for net profit to be in the range of DKK 21 billion to DKK 23 billion. However, we now expect net profit to be in the upper end of that range. For total income, we continue to expect slightly lower income this year than in 2024. Income will be driven by lower albeit resilient net interest income and will be supported by our focus on fee income. We will continue to drive the commercial momentum and growth in line with our financial targets for 2026. Income from trading and insurance activities remain subject to financial market conditions. We continue to expect operating expenses of up to DKK 26 billion, reflecting our focus on cost management and cost-to-income targets for 2026. We have revised our full year guidance for loan impairment charges of around DKK 1 billion due to continually strong credit quality. We now expect loan impairment charges of no more than DKK 0.6 billion. And finally, our financial targets for 2026 also remain unchanged, subject to our current economic and market expectations. Slide 13, please, and back to Claus. Claus Jensen: Thank you, Cecile. Those were our initial comments and messages. We are now ready for your questions. Please limit yourself to 2 questions. If you are listening to the conference call from our website, you are welcome to ask questions by e-mail. A transcript of this conference call will be added to our website within the next few days. Operator, we are ready for the Q&A session. Operator: [Operator Instructions] And our first question today comes from the line of Shrey Srivastava from Citi. Shrey Srivastava: Two for me, please, one bigger picture and one sort of more technical. I want to ask about recent M&A activity that you've seen in the Danish market and how it affects your view on the competitive landscape across your various business areas and how you're changing your strategy in response to that, if at all? That's the first. And the second one is you -- it's going back to your comment on the deposit hedge. You've been increasingly using derivatives to manage the interest rate risk in the banking book. And it says in your report that you begin to -- you expect to begin use of derivatives in a hedge accounting format in the first half of next year. Can we get some more color around this decision and what sort of impacts we can expect to see, if at all, and the rationale? Carsten Egeriis: Thanks for that. I'll take the first one, and then I'll hand the second one over to Cecile. M&A landscape in Denmark, we've obviously seen the news this week of the Sydbank and Arbejdernes Landsbank merger. I think this is very much in line with -- not speaking to the specific merger, but the consolidation and acceleration of consolidation is very much in line with what we have been expecting. And I've said before that particularly the changes around the competition landscape on Realkredit related to the Totalkredit decision some time ago would make it more interesting, beneficial to consolidate. And so this is very much in line with that. We don't see any change to our strategy. We're focused on continuing to deliver our strategy, growing with our customers, taking market share. We're investing in technology. We're investing in advisory services, and we believe that we have a very good focus strategy and position in the Danish market. And yes, so no changes in strategy. Cecile, do you want to take the deposit hedge question? Cecile Hillary: Yes, absolutely. So in terms of the deposit hedge, Shrey, currently, it includes the bond hedge, the loan hedge, but we don't use yet derivatives. That's in plan indeed for next year. So let me unpack these different components. The deposit hedge or structural hedge, obviously, as we call it, includes a bond hedge, which, as I've just mentioned, has increased this quarter from DKK 160 billion to DKK 170 billion, really reflecting the continued stability and strength of our deposit base. That bond hedge is -- has got an average life of about 3, 3.5 year average life and obviously provides the NII support that we're aiming for. In addition, there is a loan hedge, which is about DKK 200 billion. That loan hedge is not a perfect hedge from the point of view of deposit hedge in the sense that there are several durations. There is also a little bit of optionality with respect to certain loans, but we still see that as obviously a good hedge when it comes to providing NII support. Going forward, our intention is indeed, and we're very progressed in our capabilities now to use derivatives in order to affect our structural hedge. And those derivatives would be, as we would expect, hedge accounted, meaning that effectively, they will not create sort of mark-to-market volatility precisely because they will be effectively hedging our deposit book. Having -- so what will it do? It provides additional liquidity and additional ease effectively of reinvesting the deposit hedge. However, what it doesn't do is it does -- it's not necessarily in itself going to increase the hedge. Effectively, the way it would be managed is that derivatives would slowly replace part of the bond portfolio that we currently have in place. So that's to give you a little bit more detail on this hedge. Operator: Your next question today comes from the line of Namita Samtani from Barclays. Namita Samtani: My first one, do you expect net interest income to grow into 2026 now? And could you explain me how you think about the structural hedge going into 2026? Do you still expect it to be accretive? And my second question, in Danica, there was a health and accident provision in Q4 of last year. Will the same happen again in the fourth quarter? Carsten Egeriis: Thanks, Namita. In terms of NII, we'll come with an updated guidance as part of year-end. So I think I'll keep my focus today on the quarterly results. But as you've seen, NII has stayed pretty stable and rates have now stabilized. And at the same time, we continue, of course, to have a strategy where we're focused on growing our balance sheet, including our lending. And I think, again, you could probably think about the hedge accretion as being close to neutralizing as rates now are stabilizing at 2%. But again, we'll update on '26 NII outlook as part of year-end. And then on Danica, we do do model updates every year on the health and accident, and we continue to do that. And there is no question, as you've seen that the health and accident continues to be under some level of pressure, but it's too early to say what the quarterly updates will show, but we continue to be focused on one, improving the operational management, which includes particularly being much more proactive towards our customers in terms of how we can help them. And then at the same time, of course, it is also correlated with health trends and that includes mental health illness trends, which still are quite high in Denmark. Namita Samtani: Could I just have a follow-up? The fourth quarter '25 NII, do you still expect that to be flattish versus the third quarter? Carsten Egeriis: I would say at this stage, of course, again, we don't want to give an outlook on Q4. But again, there is still some remnants of impact of the reducing interest rates that we've seen earlier and that offset by the volume growth that we're seeing. So we continue to feel good about the level of NII that we're seeing in Q3 into Q4. That's probably the way I would formulate it. Cecile Hillary: I would guide you to for -- if you want to think about the NII for the full year, actually, we find that consensus and market expectations are actually pretty accurate. Operator: Your next question comes from the line of Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: Yes. It's Sofie from Goldman Sachs. So the first question would be the risk-weighted asset decline that we saw. Should we expect any further risk-weighted asset declines to come? And how should we think about any further kind of capital headwinds or tailwinds in the coming quarters? And related to that, kind of given that you have the U.S. corporate probation coming to an end this year, is there anything that you think would restrict Danske from distributing over 100% of profits in 2026? What is the FSA's general thoughts around over 100% distribution? So if you could kind of comment around that. Carsten Egeriis: On the first one, REA decline, there's a particular sort of larger movement, if you will, on market risk. This tends to move a little bit up and down depending on market. So I wouldn't say that we should see any particular movements on REA and more think about REA as a function of growth. So no particular sort of movements expected either way. And then on U.S. probation, I think I've earlier said that we have before distributed over 100% of capital also in line with the sale of, for example, the Norwegian retail business. So that is not a constraint in itself. But we will update on the capital strategy and distribution strategy as part of our Q1 results where we're also planning to give an update on, obviously, both '26, but also financial metrics targets for '28. Sofie Caroline Peterzens: Okay. That's clear. And just going back to the risk-weighted asset growth. In the fourth quarter, should we expect any increases from the operational risk? Carsten Egeriis: Not major. I mean, you're right, we do update it every year. And as you know, we're on standardized and it's a little bit of a function of income. And as you know, income has been pretty stable year-on-year. So I wouldn't see it as anything material. There will always be some movements, but nothing material. Operator: Your next question comes from the line of Tarik El Mejjad from Bank of America. Tarik El Mejjad: Two questions, please. First, on the corporate growth. Can you maybe shed some light on what sectors or what area is growing because you're posting quite a healthy growth here and came a bit of a positive surprise. And the second one is on the cost of risk. I mean you had releases without PMA releases. And I want to understand if there is a particular specific area where you had some releases on some files? Or is it just a structurally lower cost of risk? Carsten Egeriis: Yes. Tarik, thanks for that. On corporate growth, it's broad-based. We've been looking at exactly that question. And there are no particular sectors driving that. One would have thought, okay, maybe the defense side, the energy side. In fact, I think that those growth opportunities are yet to come at larger scale. And in fact, the growth we're seeing at this stage is, yes, pretty broad-based. And again, broad-based, but also driven by the fact that we see that we're taking market share in corporate lending across the Nordics in line with our strategy. Cost of risk, nothing particular. Look, we've kept the PMA stable, as you've seen. And PMAs, I would say, are still at the higher end of what you would sort of expect through the cycle. A large part of it, as you can see in the breakdown also sort of linked with general macro uncertainty. If you look at sort of the actual flows in -- through stage 1, 2, 3, I think nothing particular that we would call out. We continue to see strong asset quality and sort of stable flows. Cecile Hillary: And if I can maybe add to that. The release and the impairment line that you see, indeed, obviously without any changes to the PMAs other than some redistribution from the CRE and agriculture line into global pensions is really linked to 2 different things as well. So one, actually, if you look at the various divisions, we actually saw net reversals both in LC&I and BC. So obviously, some strong workout cases there and some recoveries. Net-net, positive in PC, but frankly, very minimal. So all in all, clearly, a very strong asset quality all around. And then some moderate impact from the IFRS 9 models, where we have made a few changes just to obviously reflect economic assumptions, number one. And also the weighting of the scenarios has slightly changed to be more balanced with a sort of 50% base case instead of 55%, 25% upper case and 25% combined severe downside and downside cases. Tarik El Mejjad: Okay. Can I squeeze in a very quick follow-up on the other and treasury line, this is more for our models, to be fair. I want to understand what's the big negative there just for the future period? Cecile Hillary: Is that on the trading income line that you mentioned? Tarik El Mejjad: Yes. Cecile Hillary: Yes, yes. So on the trading income line, there are 2 reasons why this came down quarter-on-quarter. And again, just to be clear, this is not linked to LC&I. So the first one is the one-off in Q2, which was the sale of the export finance shares, which I think we mentioned in Q2. The second thing is, as you mentioned, indeed, is treasury effectively market valuation adjustments. What it is there is as part of our hedging. So obviously, these are not open positions, but purely hedging of both interest rates and currency and FX risk. We obviously use derivatives. These derivatives are held at fair value in the center. So in this case, obviously, in treasury. And clearly, they will fluctuate according to rates and FX considerations in the market. And sometimes they go up, sometimes they go down, and this is effectively what it comes to. So I will reiterate, this is not due to any economic loss, and there is always some fluctuations up and down throughout quarters. Operator: Your next question today comes from the line of Mathias Nielsen from Nordea. Mathias Nielsen: Congrats on the strong underlying results this quarter. So the first question goes like if we take a step back and look a bit into the next year, like if you were to highlight the top 3 priorities like both strategically and financially into '26, which 3 things would you then highlight as the most important? And secondly, maybe related to this, when I look at the lending growth in LC&I, it clearly looks like you're getting to a strong business momentum there. It also looks like the business customer segment is starting to look stronger and stronger and pretty strong as well. And then lastly, like when do we see the personal customers? I know it's always easier to get business momentum with the big clients because you're closer to them than the small clients. But when should we expect the personal client segment to get even more on fire compared to where we see today? Carsten Egeriis: Thanks, Mathias. Look, as we look into '26, it's really about continuing on our Forward '28 strategy. we said that we wanted to be the leading wholesale bank in the Nordics, a leading bank for SMEs across the Nordics with sort of more complex needs and then a leading private bank and personal bank in Denmark and Finland. And we continue to invest in both advisory capabilities and in technology and to ensure that we can really deliver a leading bank across those priority segments and focused customer groups. So that's what '26 and out to '28 is all about. There's no question that since the presentation of our strategy in June '23, technology has moved quite significantly in terms of what we're seeing in artificial intelligence more broadly. So no question that is a huge focus is how can we accelerate and augment our existing strategy by investing further in artificial intelligence and using technology to position us even stronger. To be more specific, we're also investing in capital markets and advisory capabilities in Norway and Sweden across our Private Banking segments. And as you've seen here in Denmark, Mathias very heavily in our technology digital solutions where we're investing heavily in both our district platform for corporates and in our mobile bank for Personal Customers. Your question on Personal Customers and when do we see as much clear green shoots and clear blue water in terms of acceleration and business growth. Look, I would say on the one hand side, on Personal Customers, where I would call out strong traction is private banking and investments. You see us taking market share on the investment side in Denmark. That's closely linked with also good traction in Private Banking, where, in fact, we're also increasing customer inflow. We're investing in our family office in that area as well and see good traction. And then it does take longer to move the needle on the broader retail segment. Our focus is really on the customers that require more advisory-heavy solutions. And we do see customer inflows in those segments. And we continue to, again, invest in, for example, the housing, the mortgage area, where we believe that we need to do more. So hopefully, that's helpful and gives you a few examples of what we're doing. Cecile Hillary: If I may, let me add, you asked for obviously financial objectives. And obviously, Carsten gave you the sort of strategic and financial combined. I would add that one of certainly my key objectives and the group's key objectives is also to ensure that the group is efficient, right? So our focus on cost will remain and our focus on cost-to-income ratio. And that focus on ensuring that we balance obviously the need to be efficient and the need to continue to invest, both of which obviously can enhance each other. So that's on the priorities. On the PC side, the other thing I would add to what Carsten mentioned is that I am pleased to see that on the housing front, on the financing on the housing front, we have stabilized volumes. That's particularly the case in Denmark. And we have done that whilst protecting profitability, right, and returns. And given the competitive situation that we operate in, the fact that we managed as we obviously endeavor to do to continue to balance, obviously, the competitive pressure we're seeing on the RD side with our progress that has been extremely significant on the bank lending side and protect, as I mentioned, profitability has been pleasing to see. Mathias Nielsen: So just to wrap all your things you set up, like the way I understand it is like there's still some way to go to -- to get to the peak performance of how much you can actually deliver after what -- in turnaround after all this AML cases. Is that fairly understood that you're not at a fully up running state yet? Carsten Egeriis: We absolutely see plenty of unrealized potential, not least in the PC segment, but certainly also in the corporate segments where we're still punching below our weight across the Nordic countries. We still have a challenger position in many areas in those countries and have much more opportunity to again grow market share. Operator: [Operator Instructions] We will now take the next question -- and the next question comes from the line of Martin Gregers Birk from SEB. Martin Birk: Just continuing along the lines of Personal Customers, I guess your Q3 numbers is perhaps implicitly also another testament to your successful Danske Bolig Fri. Do you guys see a limit to that story? And when does that dilute RD too much? That would be my first question. Then the second question goes back to the M&A story that is unfolding in the Danish space. You have a [ Sydbank ] that is increasingly talking to large customers being attractive, you have a Nykredit which has beefed up their own bank balance sheet after acquiring Spar Nord. [ Sydbank ] now that is also getting a balance sheet that allows them to tap into this segment. Do you feel increased competition from this? And when is -- when sort of does your role as a big brother in the Danish banking market? Or let me rephrase this, when are sort of the little brothers in the Danish banking market becoming too big and that forces you to act? Carsten Egeriis: Thanks, Martin. I think on DBF, Danske Bolig Fri, so the bank lending side and then the Realkredit side. Look, I see this very much as being able to offer our customers a broad range of products based on both market situation. So where rates have been, it's been interesting to take out a bank loan given the increased flexibility around that. So I think we're very much focused on being able to offer the broad palette of products and services and then letting customers decide. So I see that we can both continue to grow in Danske Bolig Fri, but certainly also have a lot of focus on growing the Realkredit side of things. And as you all know from Denmark, we're investing really heavily again in improving our Realkredit offering, both digitally with the housing universe with giving customers faster turnaround on decisions with giving them more clarity on how much they can borrow as well as making targeted price adjustments where we think it's interesting. So again, much more opportunity there. M&A story, competition, is there competition? Yes. Is that -- is it a very competitive market environment out there? For sure. I think we've been able to show that we can grow and take market share in that. I'm not concerned about the consolidation in the Danish market. I welcome that consolidation. We have a strong strategy, which we think is very competitive, very compelling. And with the pace of change that we're moving and the investments we're moving with, we think that we can continue to grow in the market. Claus Jensen: Can we have the last question, please? Operator: Your last question today comes from the line of Jacob Kruse from Autonomous. Jacob Kruse: So just 2. So firstly, you talked about being a challenger in some of the other markets. How do you view your sort of nonorganic growth opportunities there? I think there's been clearly a lot of activity going on. And with respect to, I guess, it's the 13th of December where you come off the probation period. Does that immediately change something? Or what's the time line there? And then secondly, just on the -- you mentioned on the structural hedge, this replacement going into derivatives and an increase in liquidity. Will that have any effect on your NII or P&L? Carsten Egeriis: Thanks, Jacob. I think, as I've also mentioned before, that the Nordic markets, particularly Sweden, would be an interesting market to look at nonorganic and we'll continue to do so. There is nothing sort of relevant at this stage. We continue to be focused on our organic strategy, but we certainly are continuing to scan the market and looking at opportunities on the nonorganic side as well. But again, very important to underline within the focus segments that I also mentioned before in terms of where our strategy focus is. No, I don't think that the post probation changes -- I mean, it changes that we will update our capital situation and distributions situation because we've always said that we would be carefully looking at legacy excess capital during this period. And so we'll have that discussion. And again, our preference is that we grow and use our capital to grow at interesting return levels, but we'll also look at other opportunities. And then, Cecile, do you want to just talk about the hedge piece? Cecile Hillary: Yes, I'll take the hedge piece, and thank you for your question, Jacob. Just to confirm, the inclusion of derivatives is effectively going to help us manage more effectively the reinvestment of the hedge. In itself, it doesn't add additional NII or it could, but I would say, marginally just because of the additional liquidity, the additional ease of effectively targeting a certain point, I guess, in the curve. So I would say any additional uplift due to derivatives specifically is more marginal. But just to take a step back, right, with the deposit hedge, the bond hedge and the loan hedge combined, we expect to continue to get a very good lift in the coming years, particularly next year before, as Carsten mentioned, in horizon, a few more years tailing off, right? But I mean, the lift will continue to be there to NII. Carsten Egeriis: Okay. Thank you very much, everybody, for your interest in Danske Bank. Very much appreciate the questions. And as always, please do reach out to Investor Relations and Claus, if you have any questions.
Operator: Good morning, and I would like to welcome everyone to the Jupiter Mines Q1 call. Today, we have Jupiter Managing Director and Chief Executive Officer, Brad Rogers; and Chief Financial Officer, Melissa North, to provide a brief update on the first quarter of the 2026 financial year, and then we will open up to questions from callers. Thanks, Brad. Please go ahead. Brad Rogers: Thank you, and thanks very much for joining the call, everyone. As usual, I will just give some overarching remarks in respect of the key points from the quarterly activities report that was released to the market this morning, and then I'll allow time for any questions at the end of those opening remarks. So the quarterly activities report that was released this morning for the first quarter, the September quarter of our 2026 financial year summarizes a very solid start to the year in line with our expectations, and I'll run through some of the details in a moment. But in summary, the operational outcomes in every respect were in line with what we expected and in line with our full year targets. We had costs that were pleasingly in control, particularly given headwinds from a strengthening rand against the U.S. dollar, a build in cash at Tshipi, notwithstanding Tshipi distributed a ZAR 300 million dividend to Jupiter and to the other shareholders of Tshipi, which we passed on adding our own cash to that dividend to our shareholders during the quarter. So good outcomes operationally in line with our full year targets. And obviously, that's what we're trying to do as we build through the financial year. I'll get into the details also on the manganese market. But through this quarter, we saw a slight strengthening in manganese prices and pretty good downstream demand from a manganese alloy perspective. And that meant that relatively strong supply, including GEMCO reentering the market and good volumes out of South Africa were consumed by the market. And prices reflect that, there was a slight increase and prices today sitting just above 4-year average levels, which given Tshipi's cost levels is quite positive for us. So we're in a stable market right now. Prices have been range trading within a relatively narrow range for the last few months. And that's a good thing for Tshipi and that frames the cash generation that we've been able to see in this quarter. So I'll go into a little bit more detail on those opening comments and starting with Tshipi's operations. There were no lost time injuries during the September quarter. There were two minor medical treatment injuries. From a sales perspective, the sales for the quarter were 837,577 tonnes of manganese ore sold. That was down on last quarter, but everyone should bear in mind that what we're trying to do at Tshipi is hit 3.4 million tonnes of ore sales for the year. Usually, in the makeup of that 3.4 million tonnes, you'll see about 3 million tonnes of high grade and about 400,000 and sometimes a bit more of low grade. And that 837,577 tonnes for the September quarter was bang in line with that 3.4 million tonne target. So notwithstanding it was down on last quarter, as you do for all quarters, you're going to see Tshipi sales up and down quarter-on-quarter, you probably shouldn't focus on that too much. It's more the trend towards the 3.4 million tonnes that we have averaged for the last 7 years since Jupiter listed and that we're targeting again this year. And so that number that we recorded for the September quarter was right in line with that 3.4 million tonne full year target. Production was very close to that as well, 829,798 tonnes for the quarter. That was slightly up on last quarter and slightly up on our plan for the September quarter and certainly supportive of, again, achieving that 3.4 million tonnes of ore for the full year. Logistics of 868,442 tonnes were slightly up on plan and up on last quarter as well. The more interesting thing to note out of the land logistics was we had significantly more rail allocation than we expected and planned for. And what's going on there is smaller producers in South Africa are not taking up their rail allocation, notwithstanding the manganese price that's prevailing is quite positive for Tshipi given our cost curve positioning. It's not so positive for others. And that's the reason why some others are not taking up their rail allocation. But as it has in the past, and it certainly was in this quarter, that goes to the benefit of Tshipi, where we had much more rail allocation than we had anticipated. We did almost no South African road haulage for the quarter. And so naturally, given that rail is cheaper than South African road, we benefited from a cost perspective with respect to that particular situation. From a mining perspective, we saw an increase quarter-on-quarter in grade ore production, about 21%. And costs, as I mentioned earlier on this call, came in at USD 2.27 per dmtu. That was a particularly good outcome given the rand strengthened through the quarter, and that figure would have been $2.19 had the exchange rate in the September quarter been the same as the exchange rate observed in the June quarter. But at $2.27, notwithstanding that unhelpful exchange rate movement in the quarter came in anyway in line with where we would be targeting for costs at the moment and where we've been guiding on previous calls. So that was a very good outcome, again, benefiting from the mix of rail, but also benefiting from good cost control across our cost composition, including at the mine site itself. From Tshipi's financials perspective, EBITDA of $26.6 million for the quarter was down on last quarter, and the major driver of that was sales volumes being down. And again, the last quarter that we're comparing to was the fourth quarter of last financial year that had particularly elevated volumes of more than 1 million tonnes, and we're not trying to achieve 1 million tonnes a quarter or 4 million tonnes for the full year at the moment. If we step up to that, and that is part of our strategy, then that will be a decision to do that on a consistent basis. So where you see that sort of variability quarter-on-quarter from a sales perspective and naturally earnings is going to follow that variability, you will expect to see that average out for the full year at about 3.4 million tonnes unless and until we make the decision to expand sales to 4 million tonnes, but we don't intend to do that until we're in a more robust market environment. That EBITDA of $26.6 million, while it was down because of sales for the most part of the last quarter was actually higher than the prior comparative period, the first quarter of last year by about 27%. And that was a quarter where volumes were higher than they were in this quarter. So that earnings can be contextualized in not just the comparison to the prior comparative period, but also -- rather the last quarter, but also the first quarter of last financial year. Tshipi's cash at quarter end increased by 9% to AUD 140.3 million. And that was a good outcome, particularly because Tshipi also distributed a ZAR 300 million final dividend to shareholders in that period. So if you look at the quarter just ended 30 September cash compared to 30 September last year, the cash we have on hand now, 30 September at Tshipi is 45% higher than at 30 September last year. So again, good outcome and good outcome, particularly given the dividend that was distributed by Tshipi during that quarter. Turning to the manganese market. Manganese prices increased during the quarter. The FOB price for ore grade manganese was $3.36 per dmtu at 30 September, compared to $3.20 at 30 June. So good step up there. Today, end of October, it's $3.39, so slightly higher again than the price at the end of the quarter. That price today is around 2% higher than the full year average. And that reflects, as I said earlier, relatively strong downstream alloy demand. And that relatively strong downstream alloy demand has been sufficient to consume the volumes that have been supplied into that market, principally into China, such that stocks really didn't move. The stock number, this is manganese ore stockpiled at port in China in total, was 4.4 million tonnes at 30 September. At the end of this quarter, we're talking about compared to 4.3 million tonnes at 30 June. And that number has come down slightly as you'll see in the quarterly report, but really to the end of October. But that really reflects steady stockpiles at levels that are considerably lower than the full year average, about 25% lower than the full year average level of 5.8 million to 5.9 million tonnes that you would expect to see looking back at the last few years of stock levels in China. So given stockpiles haven't moved and prices have slightly increased, that's good. And it's remarkable in that the market has consumed GEMCO coming back into the market that's now producing at full volumes as in the market that we've just seen. And also some South African volumes have been relatively robust in a couple of the months in the quarter that we've just seen. So good downstream demand, prices slightly improving to levels that given Tshipi's FOB cost of production, as we talked about, $2.27 are quite healthy for Tshipi. But that's because Tshipi, as we know, is an efficient cost producer. Other mines on the manganese supply side are not making so much money at these prices. And that's also in part why the prices have held up. There's good cost -- supply cost support for prices at these levels. So we're really sitting in a market that has gently increased over the last quarter and gently increased again over the last month, but has actually been relatively stable since about May where you've seen steady solid downstream demand, supply month-to-month moving around and sometimes increasing, but the market being able to consume that supply, including the return of GEMCO to the market. So in summary, just wrapping all of that together, the Q1 outcomes from an operational perspective were in line with our expectations. Sales were down quarter-on-quarter, but was in line with our expectation of 3.4 million tonnes for the full year. Production was 2 million tonnes. Costs were actually quite pleasing given the rand U.S. dollar exchange rate was unfavorable to U.S. dollar reported costs during the quarter. So that $2.27 was in line with our expectation, but had to consume that exchange rate headwind. All of that resulted in a good cash build at Tshipi through the quarter, notwithstanding there was a dividend payment during the quarter as well. And as we look at the manganese market, we're in quite a supportive manganese market at the moment. Prices increased, stocks are steady. Downstream demand has been relatively robust, sufficient to consume without increasing ore at stockpile in China, some reasonably healthy at times supply coming from the market, including the return of GEMCO. So hopefully, that paints you a picture of how we've gone for the September quarter. I'll just pause there and see if there are any questions on the line. Operator: [Operator Instructions] Your first question comes from Adam Baker from Macquarie. Adam Baker: Brad, just wondering one on sales volumes, please. Now that we're approaching the traditional November to February wet season, what are you thinking about sales volumes for the upcoming 2Q and 3Q? Do you think it will remain steady at around 800 kt or could there be some variation to this? Brad Rogers: There could be some variation, Adam. I think if you look at the history going all the way back to the time of Jupiter's listing, we have delivered our target of 3.4 million tonnes a year on average. Some years, we've been a little bit higher than that. We were last year as well. But what we're looking to do is to deal with natural operational variability during the course of the year and still hit that 3.4 million tonnes. So wet weather is something that we have to factor into our plans. And if you look at the second quarter of the last few years, the quarter we're going into now, which does often have some wet weather, some quarters see slightly lower volumes because of that factor, and we have to pick it up at the back end. You will typically see a very strong fourth quarter, for example, and that is part of the plan. I think if you're looking at the way that we deal with wet weather, we have stocks on the ground. We have some stocks at port as well. You do sometimes see wet weather impacts on land logistics, but the main weather impacts you'll see are at the mine itself. And part of the planning so that we don't have too pronounced an impact from any wet weather impact at any time of the year is to have safety stock. So it could be the case. We do plan for wet weather in our plan. But obviously, if we don't see as much wet weather or if we are able to mitigate better than expected, then you won't see much variability. And as I sort of cast my eye over the last few years, we've had some second quarters that have been quite strong, stronger than the one we've just delivered. The quarter we just delivered was about 3% above average for the first quarter and slightly above our plan to give you an idea. So we think we're going to the full year plan, including factoring in risks like weather better than we would expect at this point. But we're also pretty experienced at dealing with the usual wet weather impacts that you'd see in the second quarter in South Africa. So not sure, but we have mitigations in place and the overall plan is to pick it up at the back end of the year if we do see any wet weather impacts in the second quarter. And overall, we are absolutely targeting and online for the 3.4 million tonnes of total ore for the full year. Adam Baker: Okay. That's clear. And just noticed during the quarter that you mined a fair bit more low-grade tonnes. Was this a function of the mine plan? Or were there some other factors at play here for the increase in low-grade tonnes like changing cut-off grade, et cetera? Brad Rogers: No, it wasn't that, Adam. It was more opportunistic. So the mine plan hasn't changed. The figure that you're referring to is actually the processed tonnes. So that's the amount of low-grade ore that we crushed through the circuit and have sitting on the finished ore stockpile ready to sell. So that figure, which from memory was -- just have a look was 175,304 tonnes that we produced through the circuit. We sold less than that into the market. So you wouldn't necessarily expect to see that same level of production of low-grade ore every quarter for the remainder of this year. But we had capacity in the processing circuit to do it in this quarter. We do want to have an amount of that finished and ready to sell, not having to crush in future quarters if we think it's opportunistic to do it. And there were some other operational factors in the quarter that factored into that as well. We thought that processing it through the mill rather than hauling it to a ROM stockpile hauling it back to the processing circuit given the capacity that we had in the fleet and the crushing circuit for the quarter, it made sense to crush that. We didn't sell too much more into the market than we expected to for this quarter. But in terms of low-grade ore sales, we did sell a bit more than we might have expected than you might have expected us to given the prevailing manganese prices during the quarter. But part of the reason we decided to do that was that we're able to get low-grade ore on to rail, which is unusual. Normally, low-grade ore has to be road hauled, and that makes it a bit more expensive. And so it was a bit more opportunistic to sell some low-grade ore in this market given the rail availability than it might have otherwise been. Operator: [Operator Instructions] Your next question comes from Jon Scholtz from Argonaut. Jon Scholtz: Just a question on the attributable cash at Tshipi. Is there any other way to access this outside of the Tshipi distribution and dividends? Brad Rogers: So no is the short answer, Jon. The shareholders' agreement at Tshipi, as we have talked about before, I think, on these calls, is fairly tight. It confers joint control amongst the shareholders. Currently, Ntsimbintle Mining and Jupiter and going forward at the completion of the Exxaro transaction with Ntsimbintle, it will be Exxaro and Jupiter. And that's good for Jupiter, that shareholders' agreement. It means that our rights are well protected and that our agreement must be sought in relation to all important matters, including to cash and the distribution of it. The flip side of that is to the extent that there's to be a greater distribution of that cash that's held there, and there is a fair amount of cash held there, as you can see, AUD 140 million for a mine that has done a very good job of producing positive cash through the cycle. So you could make a case for a greater distribution at some point in time while still being responsible for the requirements of the mine. And I think that's what you might be alluding to, and it's not a unique thought. I get that question from time to time. Anything like that, whether it's a normal upsized dividend or a special dividend would require agreement between the parties. And going forward, that will be agreement between Jupiter and Exxaro. I would say that Exxaro is, as a public company, very focused on returns from all of its investments. And if you have a look at the public announcement of Exxaro's binding agreement to invest in Tshipi and other mines, the first page of that presentation highlights is Tshipi's track record of dividend payments. So I'm expecting out of all of that, Exxaro to be focused as we are on responsibly maximizing returns, including release of cash from the mine over time, but that would require agreement between the parties. Jon Scholtz: And if I can just ask on what's the differential today between a rail ton of ore to port and a truck ton of ore to port? Has that widened or has it come down? Brad Rogers: Yes. So on average, over time, you would expect road haulage in South Africa, which is typically road hauled to Port Elizabeth just as rail mostly goes to Port Elizabeth, so like-for-like distance. On average, you're talking about 35% to 50% higher to road haul a tonne than to rail haul under the MECCA arrangements. And for us, Lüderitz and East London, which is another South African rail port that's outside of the PE MECCA allocation sits about midway between South African rail and South African road. The South African road haul rate does move around based on demand because the nature of that demand and not just from manganese or haulers, but from other bulk commodities as well, waxes and wanes based on prices. So right now, road haulage is a bit cheaper than that, but it's still considerably more expensive than South African rail. So it's possibly about 25% higher than South African rail right now, but the more normal average is somewhere between, say, 35% and 50% higher. Jon Scholtz: That makes sense. And maybe just one more. Could you give an update on anything to do with the high purity manganese? Brad Rogers: Yes. Thanks, Jon. So we continue to do our work in the background in that regard, but we're taking a very purposeful approach to that work. Our view is that any real effort and investment in this part of our strategy needs to be market-led, but that we want to be ready and well positioned as we think we should be for the option to monetize when we see that market moving. So what we're doing with that framing in mind is ongoing discussions under NDA with a set of carmakers and battery makers and PCAM makers from around the world that we've been talking to for several years who are interested in potential future supply of HPMSM from Jupiter. And the purpose of those discussions, obviously, is relationship building, but it's also information exchange, them getting technical information from us, us getting demand profile information from them. And from a Jupiter perspective, what we want to see that build into is a 5-year offtake at some point in time that will underwrite the volume of output from any future HPMSM facility and see Jupiter off risk to that volume because that's the key thing really. This is a market that we believe in, that we believe is going to continue to grow. But we believe manganese has a really important value-adding role to play in, and we think Jupiter is well positioned to be a player in that regard and to get value from that. But that volume is not there today. And we can't predict when that volume will be. And so we want to be off risk in that regard. So that's the major reason why we're approaching that part of the study in that way. But from a practical perspective, what that means is we're having ongoing discussions, monthly meetings, exchanging information, building confidence, building relationships, and that's an ongoing piece of work. On the other side, we are also progressing technical work. And so we have a small pilot plant in Johannesburg that is based on our own flow sheet that has already been tested and creates acceptable HPMSM. But the purpose of continuing work in that regard, again, on a very targeted low-cost efficient basis is to continue to refine the costs and the quality of that process and to continue to be able to share meaningful information and samples with potential customers as well. So that's how we're approaching that. This part of our strategy is really about in a future point in time, monetizing the option that we're well positioned for because we're producing low-grade ore from Tshipi in excess to which we can ever sell into the steel market. But that low-grade ore, given we're producing it anyway, gives us a big OpEx advantage over other participants in the HPMSM market in the future, about a 20% OpEx advantage, and that creates a pool of value that we can take value from ourselves but share some value under those arrangements with future customers as well. So in short, continuing the work, Jon, what we want to see in order to accelerate effort in that part of our strategy is those customers that we're talking to coming forth and saying they're in a position to be able to put in place long-term offtake agreements. And that has been building in the 2 or so years that we've been talking to them. The advantage of manganese is that it's cheaper, more available and more chemically stable than other minerals in the cathode. And so we have always believed in that, and we're seeing that confidence growing, clearly on the customer side. But from a practical and a risk perspective for that business case to be advanced, which will be very valuable once we're able to square away this risk, we want to see the volume committed by customers over a term that will underwrite the payback and financials of the Jupiter business case. Operator: [Operator Instructions] Your next question comes from Andrew [indiscernible], private investor. Unknown Attendee: My question is, given the sort of long-term plan you guys, are you thinking becoming more of a dividend sort of paying out company? Or are you looking at maybe getting taken over? Is that right? Brad Rogers: Yes. Thanks, Andrew. Thank you for your question. So our strategy is to continue to pay dividends, and we've got a very good track record in that regard as you have a look at what we've done to date, we paid $0.22 a share in dividends in the 7 years that Jupiter has been listed, and that's pretty close to our market cap today, notwithstanding the mine that has supported those dividends as we've seen again today, is very steady, produces cash through the cycle, even at relatively low manganese prices and has more than 100 years of mine life remaining. So that's an underpinning of a really highly valuable value proposition that we've demonstrated to date. And we see no reason for that to change. So regardless of whatever else happens, unless we are taken over and we're able to monetize that value for our shareholders, then that's something we intend to continue. We also believe very firmly in the value of consolidation within the Kalahari Manganese Field, and that's a core tenet of our strategy as well. And there are various ways to release that value, but it does start since we have the investment in Tshipi with the consolidation one way or another of the ownership at the Tshipi mine. You would have heard perhaps when the Exxaro announcement was made that they were binding themselves to acquiring our joint venture partner at the mine and also to become Jupiter's 19.99% shareholder by taking Ntsimbintle Holdings out of their Jupiter shareholding at completion of that transaction. Jupiter and Exxaro both comment in the shared value and belief of consolidation in the Kalahari. And so we see that Exxaro transaction as consistent with our strategy. And we intend to work with Exxaro and Exxaro has made similar comments to prosecute the ways to release more value for both of our shareholders. And I'm focused obviously on Jupiter shareholders. So that's not something that I can obviously get into detail about until there is something sufficiently well advanced other than to say our strategy is on foot. We see the Exxaro transaction is consistent with that strategy, and we intend to work with Exxaro in order to prosecute further value through consolidation. In the meantime, we continue to pay dividends. We have, again, in this quarter just passed -- produced positive cash at the mine, notwithstanding we also paid a dividend in that quarter. So that's something which is baked into our strategy and we tend to stay focused on, but we absolutely see the opportunity for value for Jupiter shareholders through consolidation, and we see that Exxaro is focused on the same thing and the intention is to work for them -- work with them rather in order to deliver that value for both shareholders. Operator: There are no further questions at this time. I'll now hand back to Brad for closing remarks. Brad Rogers: Okay. Thank you. Thank you for your questions, and thanks for joining the call. I hope those comments have been helpful in framing a quarter that, again, delivers on Tshipi's really strong track record for stable in line with expectation, operational outcomes and good cash generation. And we're sitting in a manganese market that we're quite happy with. Prices have increased. GEMCO is back in the market and the market has consumed those tonnes. And for the quarter that we've just seen and the market that we're sitting in today, we see pretty robust downstream demand, which has supported stable low stocks of ore in China and prices that have increased through the quarter. So hopefully, that's all clear. Again, thank you for your time, and I look forward to talking to you all next time.
Masaomi Gomi: Good evening. This is Gomi, Head of Investor Relations for Coca-Cola Bottlers Japan Holdings. Thank you for joining us today for our third quarter 2025 earnings presentation for analysts and investors. Today, we have our President, Calin Dragan; and CFO, Bjorn Ulgenes. We are also joined by Executive Officer and President of the Retail Company, Alex Gonzalez; Executive Officer, President of the Food Service Company and Chief Business Strategy Officer, Maki Kado; Executive Officer, Chief Supply Chain Officer and Chief Sustainability Officer, Andrew Ferrett. Following prepared remarks, we will be happy to take questions. Simultaneous interpretation is both -- in both Japanese and English is being provided for both today's call and the Q&A. Before we begin, let me remind you that today's presentation contains forward-looking statements and should be considered together with cautionary statements contained in our presentation. With that, I'd like to turn the call over to Calin Dragan, Calin-san, please. Calin Dragan: Good evening, everyone. This is Calin Dragan. And thank you for joining our earnings call. Before I share details of our financial results, this time, we are announcing earnings about 1 week earlier than before and compared to any other major company in the domestic beverage industry. This progress reflects our efforts to standardize and streamline our operations through process reengineering and digitalization. It shows that our transformation initiatives are delivering positive results in this area as well. Now, let's move on to the financial results. First, I would like to explain the positive trend in our current performance improvement. Please turn to Slide 3. Over the past 4 years, we achieved a robust increase in business income of JPY 39 billion. We highly value this and are very satisfied with this trend of profit growth. Now looking back in 2021 under the severe business environment, our business income was at a loss of approximately JPY 15 billion. Since then, we focused on profitability-driven commercial activities and transformation of our business, achieving significant results and remarkable performance improvement. Regarding price revisions, one measure for improving our profitability, we have implemented 8 revisions since 2022, driven by our strong commitment to enhancing profitability. And as a result, this year's business income is expected to reach JPY 24 billion following this upward revision. This JPY 24 billion business income includes the impact of significant cost increases due to external factors not in our control, such as ForEx and commodities. If would be to exclude this impact, the adjusted business income would exceed JPY 50 billion, reaching the highest level in the history of our company. Overall, business restructuring has led to this very strong performance. We achieved this business growth together with our customers and partners. In our customer survey satisfaction survey conducted by Advantage, we are recognized as the most highly valued partner within the consumer goods industry and the domestic beverage industry, which includes many local and global companies. This demonstrates that we have built a solid growth foundation and a great partnership. Our achievement of improved performance based on this robust growth foundation proves the correctness of our strategic direction and gives us great confidence in achieving our upcoming strategic business plan, Vision 2030. Slide 4 details the largest shareholder return program in our company history announced in Vision 2030. Alongside ambitious growth in business income, we plan to significantly accelerate the pace of expanding shareholder returns in line with our Vision 2030. The JPY 150 billion planned for share buybacks announced in Vision 2030 represents approximately 35% of our market capitalization. We are pleased to note that, this represents one of the largest buyback amounts relative to market capitalization in the Japan market. Our company has thus created a positive cycle linking improved performance with enhanced shareholder returns, and this announcement is consistent with that approach. Now, let's turn to today's highlights. Please take a look at Slide 5. I'm very pleased to share another set of strong results with you all. This year, third quarter delivered financial results that demonstrate the steady success of our ongoing initiatives. The third quarter year-to-date business income reached JPY 24.5 billion, 1.7x higher than last year, exceeding the plan that had been revised upwards in August. This strong performance was the solid result of profitability-focused commercial activities and cost savings achieved through transformation and other measures during the peak demand third quarter delivering above plan. Sales volume also stayed strong in the third quarter, exceeding the growth rate of the overall market. So based on this strong performance, we have decided to further raise our full year business income forecast once again. We are now targeting JPY 24 billion in business income for the full year. This is double of the last year results and 20% above our original plan. Along with this upward revision, we are enhancing shareholder returns in line with our shareholder value enhancement policy outlined in Vision 2030. Further details will be provided later, but as part of the initiatives, we will implement the cancellation of treasury shares equivalent to 6.5% of the total share issues and increase the year-on-year dividend by 10% compared to the initial plan. Additionally, as previously announced, we will continue to share buyback program starting in November, targeting JPY 30 billion to further enhance shareholder value. Now, our CFO, Bjorn Ulgenes, will walk you through our financial results in more details. Bjorn Ulgenes: Thank you, Calin. Good evening, everyone. This is Bjorn. Slide 7 shows the P&L statement for the third quarter year-to-date. Revenue continued to grow and business income gained momentum, resulting in a larger profit increase. Revenue increased by 1% year-on-year. This was driven by higher wholesale revenue per case of the price revisions despite lower sales volume and weaker channel mix. Gross profit increased by JPY 2.4 billion year-on-year, driven by the benefit of price revisions despite being affected by deteriorating channel mix and rising costs due to external factors. Business income rose by JPY 9.8 billion year-on-year, driven by higher revenues and cost savings from our transformation initiatives. The third quarter profit increase was the largest among the year's quarters, accelerating the trend of quarterly profit growth. The next slide explains the main factors behind this change in business income. Operating income and net income decreased year-on-year due to the recording of an impairment loss of JPY 88.1 billion in the vending business during the second quarter, as previously explained. Now please turn to Slide 8 for factors behind the change in business income. Starting from the left, we can see the impact of volume, price and mix. These reflect changes in marginal profit from our commercial activities, contributing a positive JPY 6.9 billion year-on-year. The main factors were a negative impact of JPY 6.3 billion from volume, including channel mix and a positive impact of JPY 15.1 billion from unit price and a negative impact of JPY 1.9 billion from other factors. Although, lower volume and an unfavorable channel mix affected results due to changing consumption trends, improved wholesale revenue per case from price revisions made a strong positive contribution. Transformation benefits totaled JPY 4.6 billion. This is mainly driven by strong results from vending transformation and improved efficiency in our supply chain network. In particular, the vending transformation is progressing ahead of our original plan. Marketing expenses increased by JPY 1.2 billion compared to the previous year. This increase reflected strengthening activities in the third quarter to capture peak season demand and secure shelf space ahead of price revisions in October. However, spending remained below the initial plan, thanks to careful investments based on return on investments and market conditions. Manufacturing costs fell by JPY 1.7 billion compared to the previous year. This was the result of cost-saving measures implemented at our production sites and through more efficient procurement processes. Other costs increased by JPY 700 million year-on-year. This was mainly due to higher outsource fees, logistics costs and vehicle and facility expenses despite reduced personnel costs. This figure also reflects special factors, including lower depreciation expenses following the impairment loss of the vending business. Commodity and utility costs increased by JPY 1.5 billion. Market conditions and exchange rate impacts accounted for JPY 1.4 billion of this increase, while higher energy costs added a further JPY 100 million. Next is Slide 9, outlining sales volume performance by channel and category. Third quarter year-to-date sales volume was impacted by past price revisions. The cycling impact of last year's strong Ayataka renewal and the temporary surge in demand following the Nankai Trough emergency notice. However, contributions from strengthening core categories, expanded sales force base and effective marketing helped limit the decline to 1%, outperforming the overall market. Wholesale revenue per case achieved a double-digit yen improvement year-on-year across all channels, reflecting the impact of price revisions. Supermarket sales volume decreased by 4%, primarily due to lower volumes of tea beverages and large PET water bottles, influenced by price changes and the cycling of last year's performance. At drugstores and discounters, growth in medium-sized PET coffee bottles helped limit the volume decline to 1%. At convenience stores, volume decreased by 5%, but profit rose, thanks to a profit-focused strategy that included optimization of promotions. In vending, market conditions remain tough with volume down 5%. However, price revisions continue to have a positive impact, improving wholesale revenue per case by JPY 98. In Retail and Foodservice, volume increased by 6%, supporting by new customer acquisitions and stronger sales in the sparkling category. Online volume grew by 17%, driven by growth in the tea category and the launch of channel exclusive products. By category, Sparkling grew 3%, driven by contributions from Coca-Cola and Coca-Cola Zero. Tea volume held was flat year-on-year, supported by Ayataka's solid sales after last year's successful renewal and the strong performance of KochaKaden. Sports drinks and water saw a decline due to factors, including price revisions and cycling of the Nankai Trough emergency notice. Coffee volume remained at last year's levels, supported by contributions from medium-sized PET bottles despite tough competition. Slide 10 shows market share and retail price trends. Profitability focused sales activities helped us grow our value share and maintain price premiums. Market share increased by 0.1 points in the total channel value share and by 0.4 points in volume share. We are very pleased that we achieved both higher volume share and positive value share growth even while implementing price revisions. Vending volume share increased by 0.3 points even as the overall market continued to shrink. The strong growth in volume share compared to value share reflects the impact of product mix, while our wholesale revenue per case showing solid improvement, as mentioned earlier. In the OTC channel, share declined due to lower volume and changes in channel and package mix. However, profitability is improving steadily here as well, supported by higher wholesale revenue per case. Our retail prices maintained a premium relative to the industry average. We have applied price revisions with discipline and retail prices for both small and large PET bottles have improved compared to last year. Now on the next slide, Alex will explain the status of our commercial activities. Alex, over to you. Alejandro Gonzalez Gonzalez: Good evening. This is Alex. Slide 12 covers the status of our commercial activities. In the third quarter, we continued to execute our profitability-focused commercial strategy while also building a stronger foundation for future growth. We are proud that our sales volume outperformed the overall market growth rate during the third quarter peak demand period while focusing on profitability. Our targeted summer sales initiatives helped boost volume. By focusing on our core categories and leveraging marketing that connected with drinking occasions, along with effective digital promotions, we maximize in-store exposure. We also offset last year's cycling effect of the Ayataka renewal by introducing new products like Ayataka Koi Ryokucha was a key point. In addition, we expanded sales opportunities by rolling out packaging tailored to consumer needs and by executing growth strategies aligned with each channel, supported volumes. Our efforts to build a foundation for further profit growth also moved forward steadily. Price revisions, which are key to profit growth are progressing smoothly. We're maintaining improved shipment prices achieved through previous revisions, and these are contributing to improved profitability as planned. We have also been preparing for the price revisions that began in October. Looking ahead, we aim to implement further price revisions for our green cheese products, market suggested retail price by up to JPY 20 per bottle by the first quarter of next year. Tea leaf prices have continued to rise since the second half of this year and expected to reach a level of 3 to 5x from last year. We expect this trend to significantly impact the entire industry. We see this action as a necessary response to cost increases within the Coca-Cola system. From the perspective of both growth investment and cost control, we made appropriate marketing investments during the third quarter peak season while keeping annual sales promotions expenses below plan. We also focus on strengthening our growth foundation through customer engagement and vending transformation, further reinforcing the foundation for future expansion. As Calin explained earlier, our commercial capabilities are highly valued by our customers and represent a key strength of our company. Moving forward, we will continue to enhance our market execution capabilities on this solid foundation of engagement and pursue further growth. Slide 13 covers our third quarter marketing activities. To strengthen our core brand, we launched the CoChiLu campaign, encouraging consumers to enjoy Coca-Cola wood chicken through joint promotions that lever our strong partnership with McDonald's. We also partnered with Star Wars, releasing limited edition products and boosting in-store visibility using the campaign as a hook to successfully attract a wide range of consumers. As for new products, we introduced FANTA Amazuppai Lemon and brought FANTA Fruit Punch, an iconic FANTA flavor from the 1980s and 1990s for a limited time to strengthen the sparkling beverage category. As part of our experiential marketing, we ran a campaign where customers could enter a code found inside their bottle cap for a chance to win tickets to Coca-Cola X Fes 2025. We also rolled out vending machines across Japan set 2 degrees colder than usual to capture demand during the intense summer heat. Next is highlights of our fourth quarter marketing activities. Coca-Cola launched its winter campaign in October, featuring promotions with exclusive Coca-Cola gifts to boost brand engagement. Georgia will also run gift campaigns, including invitations to live concerts by our brand ambassador, Adam. As for new products, this month, we have launched Kochakaden CRAFTEA Grape mix tea from the popular Kochakaden series. In November, we will release FANTA Golden Apple, a flavor loved across generations and highly requested by consumers. As part of our experiential marketing, we will partner with Japan's national baseball team, Samurai Japan for a campaign on the Coke ON app. Users will have the chance to win tickets to the WBSC Premier 12 tournament as well as original Samurai Japan merchandise. Additionally, for the consistently strong Ayataka brand, we will also launch a winter campaign to further boost engagement and sales. Now for the further future outlook, I'll hand back to Bjorn. Bjorn Ulgenes: Thank you, Alex. This is Bjorn again. From here, we will cover the revised full year earnings forecast for 2025 and the expansion of shareholder returns. So please turn to slide 16. This is our second upward revision of the full year earnings forecast this year. Business income has been revised upward once again, showing robust progress in our core performance. This revision reflects the fact that year-to-date business income exceeded the plan, supported by profitability-focused commercial activities and transformation benefits. As a result, we are raising the full year business income target to JPY 24 billion, which is 20% above the initial plan and double the previous year's figure. Regarding sales volume and revenue, the previous revision was made prior to the peak demand period, and so detailed updates were not provided. This time, we are revising our plans based on the latest market conditions. In the fourth quarter, we will focus on achieving the revised full year business income target of JPY 24 billion, while continuing to strengthen our foundation for profit growth beyond 2026. This includes implementing price revisions in October, making mid- to long-term marketing investments and driving further transformation. As Alex mentioned, we are also preparing additional price revision for green tea products in the first quarter of 2026. Our October sales volume showed mid-single-digit growth, maintaining a strong trend. We will leverage this momentum to achieve our full year business income target of JPY 24 billion. Slide 17 shows the revised full year 2025 profit and loss plan following the upward revision. Full year revenue is now projected at JPY 887.9 billion, a 0.5% decrease year-on-year. While we expect the positive effects of price revisions as planned, revenue will be impacted by volume declines and channel mix. Reflecting the current market environment, sales volumes is expected to decrease by 1.4% year-on-year. Full year business income is targeted at JPY 24 billion, double the previous year's figures, driven by profitability-focused commercial activities and transformation benefits. This represents an even more ambitious target and is a JPY 4 billion upward revision from the initial plan. Key factors affecting business income will be explained on the next slide. The main factors contributing to lower operating income and net income remain largely the same as in the previous revision, such as the impairment loss of the vending business recorded in the second quarter. However, this time, we have newly factored in the additional impact from the revised timing on fixed asset sales. Slide 18 explains the factors behind the change in business income under the revised plan. For the fiscal year 2025, we are targeting a significant increase of JPY 12 billion in business income compared to last year. This growth will be driven by profitability-focused commercial activities and cost savings from transformation. On the left side, under volume price/mix, we expect a positive impact of JPY 8.7 billion, driven by increased profit from improved wholesale revenue per case following price revisions. This also reflects the impact of volume declines and channel mix trends in the current market environment. Transformation-led cost savings aim to contribute JPY 6.7 billion to profit. Transformation benefits have exceeded expectations and initiatives in other areas are also progressing smoothly. This represents an additional JPY 1.5 billion benefit compared to the initial plan. Marketing expenses are expected to rise by JPY 800 million as we optimize spending in line with marketing market conditions. However, this still represents an improvement of JPY 3.7 billion compared to the initial plan. Manufacturing efficiency has progressed beyond expectations. Cost-saving measures at our manufacturing sites and in procurement are delivering results, contributing JPY 1.3 billion in profit. Other costs are projected to increase by JPY 2.6 billion as we continue to make strategic investments for future profit growth. This figure also includes factors such as the approximate JPY 5 billion reduction in depreciation expenses from the vending business impairment in the second quarter and the profit impact associated with changes in Coca-Cola Japan's marketing methods. Commodity and utility costs are expected to worsen by JPY 1.3 billion due to the impact of higher raw material prices. These are the main factors affecting business income in the revised plan. On the next slide, Maki will explain the expansion of shareholder returns. Maki? Maki Kado: Hello. This is Maki Kado. Please turn to Slide 19. From here, I will provide the explanations. Along with the upward revision of our full year earnings forecast, we have also decided to enhance shareholder returns in line with the shareholder value enhancement policy outlined in Vision 2030. As new additional measures, we are announcing the cancellation of treasury shares and an upward revision of the dividend forecast. First, regarding the cancellation of treasury shares, we will cancel 12 million shares in November, equivalent to 6.5% of total shares outstanding. This represents nearly all of the treasury stock acquired over the past year. We believe that appropriately canceling treasury shares is an important action that enhances shareholder value. While our Vision 2030 plan calls for cumulative share buyback totaling JPY 150 billion, we will continue to cancel acquired treasury shares at appropriate times going forward. Next, regarding the upward revision of dividend forecast, we have raised the year-end dividend per share by 10% from the initial plan, revising the full year dividend forecast for 2025 to JPY 60 per share, representing a JPY 7 increase from last year. We will also continue our share buyback program. The JPY 30 billion share buyback announced last November was completed yesterday as planned and another JPY 30 billion buyback will begin this November. By implementing this comprehensive shareholder return program, we aim to further enhance shareholder value. Regarding shareholder returns, over the past 2 years, we have significantly accelerated efforts to strengthen shareholder returns. This includes our comprehensive shareholder returns announced in November last year and our largest ever shareholder return program included in Vision 2030 this August. We see it as a major achievement that improved performance and has enabled us to expand shareholder returns, creating a positive cycle. We will continue to build on this positive momentum going forward. Finally, let me summarize today's presentation. Please turn to Slide 20. This year, we have pursued both profit growth and strengthening foundations for sustainable profit growth, positioning the year as a year to achieve both profit growth and strengthening foundation. I am very pleased to share this strong update with you today. We have achieved business income growth that exceeded the upward revision announced in August. As a result, we are announcing our second upward revision of the business income plan this year. Furthermore, we have decided to enhance shareholder returns based on these improved results. I firmly believe this success reflects our ongoing profit focused activities even in a challenging environment and our commitment to the shareholder value enhancement policy outlined in Vision 2030. We will maintain this positive momentum through the fourth quarter and beyond, working to achieve our full year business income target of JPY 24 billion, double of last year's result. At the same time, we will diligently strengthen our foundation for future growth, including preparations for further price revisions on green tea products to ensure a strong start in 2026. Next year marks the launch of our ambitious Vision 2030. Building on our solid business momentum and strong track record, we will continue to commit to further improvement performance and expand shareholder returns. We will also keep driving our key initiatives with a mid- to long-term perspective. This concludes today's presentation. Thank you very much for your attention. With that, I will hand it over to Gomi-san for the Q&A session. Masaomi Gomi: Thank you, Kado-san. This Q&A session is for analysts and investors. For members of the media, please refrain from asking questions as this time as we will have a separate session later today. Due to interpretation please ask only 1 question at a time. Now, I would like to start the Q&A session. Operator, please begin. Operator: [Interpreted] [Operator Instructions] From UBS Securities, this is Ihara-san. Rei Ihara: [Interpreted] This is Ihara from UBS Securities. I have 2 questions I would like to ask. First question is about the third quarter performance. I want to know more details. So, I thought the profitability, you might be struggling a bit more -- a little bit more. So, I was really surprised for the really strong performance. Looking at the third quarter, it seems that the volume is negative for the third quarter actually. And if you go into the details, the manufacturing cost, maybe that is really showing a strong impact. So, what is the background of seeing a drop in the manufacturing cost because it seems that, that is one of the drivers for the good Q3 performance. Masaomi Gomi: Thank you Ihara-san. So, the third quarter profit, you thought that it will be very tough, but it actually seems that we're enjoying lots of profit in the manufacturing side. And what is the background? So Bjorn-san, would you like to answer this question? Bjorn Ulgenes: Thank you, Ihara-san, for the question. We are, as you heard from the prepared remarks, extremely pleased with the Q3 performance, where we are, as we also heard, outperforming the market. And when it comes to the details behind it, I think it's very important to see we had -- if you look at the waterfall that we provided, we have a very balanced and I think very strong performance delivery across all the levers of the business. First and foremost, we're growing commercial profits, which is important. We continue to drive transformation savings in the business, again, pushing -- changing how we work and investing in future digitization. You also mentioned the manufacturing cost, which, of course, helps, which also includes procurement benefits that we have implemented in the quarter, and also how we utilize utilities, for instance, inside manufacturing. So overall, very pleased with the quarter and the overall performance of our profit delivery. Rei Ihara: [Interpreted] And I want to focus on the manufacturing cost actually. More details there will be helpful. So looking at the full year number, the manufacturing cost reduction, there was a certain number. But is this like a onetime thing? Or are you going to expect more savings in the manufacturing area next fiscal year? Masaomi Gomi: So Ihara-san, thank you very much for the additional question. So, you are wondering about Q4. And if you calculate backwards from the full year number, it seems that Q4 will be a little bit shy in the numbers. So, you're wondering about the background for that. Bjorn-san, do you want to answer again? Bjorn Ulgenes: Thank you, Ihara-san. Bjorn again. Manufacturing cost, remember, is a function of several things. One is the volume that supply chain is producing and putting through our network. And secondly, you have the impacts of how they utilize the resources, as I said earlier, for instance, water and energy. And then you have the procurement part. So you always see variations in manufacturing costs going up and down basically daily, weekly, monthly and quarterly. However, when it comes to transformations, the supply chain is really pushing forward. And as you heard in my earlier parts of the prepared remarks, supply chain is the second driver of our transformation savings year-to-date, and it will continue to be so as we go into the future. So we're very pleased, as we said earlier, with the transformation efforts, you will see these continue to flow through into the P&L, including manufacturing, but also vending and back office as we have talked about earlier. So, thank you for that. Rei Ihara: [Interpreted] So, if I could move on to my second question. So, the price revision from October, I want to know more details. So, in the third quarter, looking at the revenue per case compared to the second quarter, I think the impact is smaller. In the fourth quarter, looking at your plan, the revenue per case, it seems that it's getting deteriorated by like 3% or so. You mentioned that you have mid-single-digit growth in October, but I'm not really sure if that is the case. So, I'm just wondering what is going to be the situation after October after you fully kick in the price revision? Masaomi Gomi: Well, thank you very much. So, we have revised the price from October. So, I would like Alex-san to provide a little bit more detail on that. Alejandro Gonzalez Gonzalez: This is Alex. First and foremost, I think it's clear, we evaluate the series of price revisions positively overall contributing to profitability. The price revisions are being implemented as scheduled starting October 1. It's too early to evaluate as they have been implemented. I think it's important we're strategically raising the shipment prices in consideration of the market conditions with implementation expected to be mostly completed within this year. I think also just want to reiterate what I also said in the prepared remarks, looking ahead, we aim to implement additional price increases of up to JPY 20 per bottle for green tea as by the first quarter of 2026. The increasing costs are putting pressure on the beverage industry, make it urgently for the industry to secure profitability. And this decision to implement additional price revisions proves again that we at CCBI, we walk the talk, and we lead the industry towards more rational pricing in order to shape healthier industry dynamics. Masaomi Gomi: Operator, we would like to move on to the next question. Operator: [Interpreted] Next person is Morita-san from Nomura Securities. Makoto Morita: [Interpreted] This is Morita from Nomura Securities. I have 2 questions. First is about the tea leaves costs. So, with regard to this cost increase, is this more to do with the lower cost that CCJC should bear? Am I understanding it right? Because if the inflation happens for the tea leaves, it means that the cost is going up as in like you are going to pay more to the CCJC -- or are you paying more to the outsiders? Masaomi Gomi: Thank you, Morita-san, for your question. If we see further increase in tea leaves cost, I would like to ask Bjorn-san to take this question. Bjorn Ulgenes: Thank you, Morita-san. So first and foremost, yes, we're seeing market movements in the cost of green tea leaves, which are quite significant. And you also heard Alex and Maki in the prepared remarks underscoring the opportunity for the industry to take price across as we have done now in October, and also for specifically the green tea business. So we believe this is something that's going to hit the industry overall. And again, it's a great opportunity to again look at pricing. we're not seeing any changes in the incidence model you're referring to with CCJC. But as, of course, we take up price in the market, a percentage of that will naturally go to CCJC. But overall, very confident with the price increases we're pulling through and looking forward to see it happening in the marketplace. Makoto Morita: [Interpreted] So going forward, do you -- are you -- is there any potential that you will see this incidence-based model will change over time? Masaomi Gomi: Thank you for your question. Your question is, is there any possibility that the CCJC will revise the pricing for the incidence pricing model? So Bjorn-san, would you like to answer this question? Bjorn Ulgenes: Thank you, Morita-san. There is no indications of anything like that happening. We are on an incidence-based pricing model with the Coca-Cola Company as we have spoken about many times, and we do not expect any changes to that. So, the answer is no. Makoto Morita: [Interpreted] So, my second question is, so you are going to stock up JPY 1 billion on the BI, so it's wonderful. So, I was just understanding that SG&A is going to be reduced by JPY 18.1 billion. So, when it comes to this reduction of JPY 18.1 billion in SG&A, what is the factors behind it? Masaomi Gomi: Thank you, Morita-san, for your question. So, within our revision on the BI, your question is how we reduce the SG&A to the tune of 18.8%. Bjorn-san, would you like to answer this question, please? Bjorn Ulgenes: Thank you, Morita-san. In our P&L management, first and foremost, very happy again to report the second increase in our profit target for this year. When you look at the overall SG&A for our business, I think it's very important to look at it from many angles. One, we continue the transformation efforts across the board in our business. I mentioned that both in the prepared remarks and in the prior question from Ihara-san. That is impacting everything that we do in this business, as we said, across the 3 business units and in the functions that I referred to. Secondly, we are also doing heavy cost control, again, across the business units and the different functions. And overall, by doing that, we are able to deliver good cost trajectories while we improve the commercial profit in our business. Therefore, we're able to deliver the strong results you saw in Q3. and we continue or plan to continue that into the full year. Thank you. Makoto Morita: [Interpreted] So what are the breakdown? Is this going to be a marketing or any other item? So, what are the plan? And what are the planned items inside that reduction plan? Masaomi Gomi: Thank you, Morita-san, for your follow-up question. So, your question is about the specific items that we are looking to reduce the cost. So Bjorn-san, would you like to follow up, please? Bjorn Ulgenes: Thank you, Morita-san. There's many elements coming into it. And I think you will appreciate that I can't give you all of the details there in our management accounts. But think of it as overall in the enterprise, as I said earlier, we're cutting back and using return on investments, as we said earlier, as a measure for all our spend. Secondly, as I said, we're focusing on optimization. That includes people costs, for instance, and other budgetary elements. We also have the effect of the depreciation that is reduced from the vending impairment. You remember, we posted in Q2 and overall, a very, very strong budget and cost control regime that we have in the company. So overall, that gives us a very good trajectory on the cost management side. Masaomi Gomi: Thank you very much, Morita-san. Operator, proceed with the next question. Operator: [Interpreted] Next, we have Miyake-san from Morgan Stanley MUFG. Haruka Miyake: [Interpreted] This is Miyake from Morgan Stanley. And may be overlapping with the previous questions, but let me ask my question. Up to Q3, BI progress Q3 YTD versus your initial plan, how you can compare? How much is the upside compared to the initial plan? And when you announced your first half results, -- from the initial plan, you said that most of the items in your financial reporting are almost in line with the initial plan. That's what you said at the end of Q2. But you mentioned the effect from vending transformations and so on. So from Q2 to Q3, why you were able to accelerate the performance or how did you accelerate outperformance versus in Japan? Masaomi Gomi: Thank you very much, Miyake-san, for your question. So as for the upward revision you announced this time from Q2 to Q3, how you were able to accelerate the change -- positive change? That was the question. That led to the -- another upward revision. Bjorn-san, please take this question. Bjorn Ulgenes: Thank you, Miyake-san. So we are, as we said in the prepared remarks, extremely pleased with our Q3 performance. And when we announced back, as you said, in Q2, our performance, we were still ahead of the -- or entering into our peak season, which is the summer period. During the summer period, as you can see from the Q3 performance and then as I also said earlier, we delivered a very, very balanced and strong profit improvement across all the levers that we can control in the business. We had good commercial growth in the period, even though at certain points, there were some weather challenges, et cetera, and cycling of the Nankai Trough as of last year that you all remember. We continued the transformation. We managed our marketing spend, and we also start flowing through, as you know, the impact of the depreciation of the vending and all the other cost measures we are doing. So therefore, we accelerated into Q3, which, as I said, we're very pleased with. Thank you. Haruka Miyake: [Interpreted] And you mentioned the depreciation of lending business and the payment to the Coca-Cola Japan company are included in others. And you also mentioned the DME or depreciation. So, what are the major changes from Q2 to Q3 that led to the upward revision this time? Masaomi Gomi: Thank you for your additional questions. From Q2 to Q3, transformation, DME, what exactly have changed from Q2 to Q3? Bjorn-san, please take this question. Bjorn Ulgenes: Miyake-san, I'll probably repeat some of the items that I answered to your first question because they're very, very much linked. So, inside the cost part that I mentioned, leading to the excellent performance in Q3, we continued the transformation and accelerated it. You saw that also flowing through very nicely in Q3 and the full year. We are also seeing other cost measures that I referenced earlier, both to Ihara-san, Morita-san and yourself, therefore, coming out of the strong cost control. And overall, we're also seeing the benefits then, as I said, of the depreciation flowing through. So overall, that delivers very, very strong performance for the quarter. Calin Dragan: I'm sorry -- if I may continue with a little bit of stressing a little bit more, if I may, on the tones of the questions today. I am Calin Dragan trying to add here, just a bit of nuance. My colleagues here are trying to answer about almost any questions since the beginning of the call, all related to our performance. And I cannot say anything else other than we are extremely pleased with our performance over the quarter 3 and as well year-to-date. But I'm -- as I said earlier, I'm a bit surprised about the tone of the questions that are coming. And it's referring to the start of -- and the reason why I put it at the beginning of the deck today, the first 2 slides and primarily the first slide, which reminds everyone the transformation and the swing in performance of this company. By now, I was expecting that it is going to drive way more confidence in what we are doing. We are coming out of 9 or 10 quarters, successive quarters of overdelivering our performance. we are producing a swing of almost JPY 40 billion in performance over 36 months or 40 months or so in total. And pretty much we were discussing in this -- in the meetings in the same forum here with all of us, meaning after 3 or 4 years of overdelivering quarter-over-quarter, meaning I'm a little bit surprised about the tone of the question and the misbelief in the performance. So -- and I'm sorry to say that bluntly at this moment in time. I was thinking that by now, after we led about 8 wave of price increases and every time they were concerned, so is it going to be able to do another one? Well, I always answer, I don't know, but we are going to drive it, and we drove it 8 times so far. and we always overdelivered. What I'm trying to say here, I think it is a moment of a reset in evaluation of Coca-Cola Bottlers Japan performance. It is quarter-after-quarter delivery, leading industry in initiatives like digitalization, like transformation, cost savings, if you measure our cost savings in one company compared with the entire beverage industry, I think you would be really surprised about the outcomes that will come there. If you measure our performance in terms of pricing in the market over the last years and the moments when we took price, I think you understand as well that we are leading the industry. And of course, in the circumstances on which we are operating exclusively in Japan, and we are not an integrated company like all the other players in the Japan industry. I think the performance needs to be evaluated in a way more positive way and should be less surprised when Coca-Cola Bottlers Japan deliver performance, especially in a very big quarter like quarter 3. So the numbers that you are seeing are significant because we are generating a lot of our profitability in quarter 3 every year historically. So that's why probably JPY 1 billion up or down shouldn't be that much of a surprise. I hope that I'm not going to shock you with my very bold statements today. Apologize if I do that. And I'm very happy to take questions if something of what I said is not clear. If everything is okay, I'm happy to continue to take questions and answers on topics that you might be interested in. Thank you so much. Haruka Miyake: [Interpreted] So as Coca-Cola Bottlers Japan, so you said that you were able to deliver a very strong result by Q3 YTD and you were able to deliver very strong profits even after price revision. So, I'd like to understand why or exactly why that is why we are repeating the similar question. So, my second question is also referring to the price revisions. And you said that, you are thinking about the ninth wave by the end of Q1. That why are you considering another price increase? And of course, other beverage companies are increasing their prices as well. But -- when we look at other channels except from CVS or vending, I've observed your Ayataka prices are relatively lower priced than your suggested price. So, I understand that price revisions, if there is a justification is a good thing for the industry. But it seems -- so I'd like to understand what is the right approach because when I look at the actual selling prices in the market, it may not be fully reflected. And what are the premises needed for another price hike? As for the green tea price division, that was mentioned in the prepared remarks. So, what is the situation now? Alejandro Gonzalez Gonzalez: Miyake-san, Alex here. Just probably repeating myself, price revisions, we see it as one of the key levers in driving overall contribution to profitable growth. I think when you step back and look why price increases, the fact is the cost of doing business, the cost of commodities is -- we need to see the Japanese yen to the dollar exchange rate depreciation and with U.S. dollar-denominated commodities, it's natural that the cost, not only for CCBJI but for the industry in general is pressed for price increases to help offset commodities. So, what we're doing here is we are essentially driving price increases to capture the value from the market and creating that value to consumers and customers. And that's what we will continue to be doing. We are growing our consumer base -- we are delivering on our profitability targets sustained quarter-over-quarter. And we are working to continue to earn the right to price by creating and adding that value to consumers. So that is at the essence of what we need to do to win in the long term in Japan. Haruka Miyake: [Interpreted] So, you continue to observe how the October Wave 8 will be responded or reacted in the market. So, you continue to look at the market reaction of Wave X and make the final decision about Wave 9, understood. Masaomi Gomi: And our scheduled time has already passed, but we still have some people waiting in the queue. So, I'd like to put through the next question. Operator: [Interpreted] Saji-san from Mizuho Securities. Hiroshi Saji: [Interpreted] So I would like to ask a question about the gross profit. For the third quarter, July to September, it's almost flat. And accumulative is minus 0.3% drop and the gross profit rate is about JPY 200 billion increase. So mostly is the S&GA drop. and the channel mix decline, I think this will continue for the future. But this gross profit improvement, how are you planning to improve the gross profit? Cost inflation is continuing and the price hike or price revision is continuing, but the gross profit rate estimate for the future, I would like to ask your estimate for the gross profit. Masaomi Gomi: Saji-san, thank you for your question. The plans for the future for the gross profit. Bjorn-san like to answer this question. Bjorn Ulgenes: Thank you for the question. Overall, remember for the Q3 that we delivered a very strong profit overall, including the commercial profit, which is, of course, heavily impacted by the gross profit. Inside gross profit, there's many parts that we can influence directly when it comes to improvement. One is the element you heard us talking about at [ OCM ], which is pricing. We are now executing our eighth price increase and the gross margins, of course, include the effects of the prior 7 ones. That is the major determinant. The other parts that we are also impacting, again, the controllable elements is how we execute in the marketplace. And you have seen us running the business in 3 business units or 3 segments, which is a major ability to focus and deliver targeted activities to our customers and our consumers. So therefore, how we balance the mix between the business units and the subchannels is also an important way to improve gross margin. Overall, you also have what we call revenue growth management, which is a very, very important part for any consumer goods company. It includes pure pricing increases, but it's also about how you manage, for instance, terms and conditions with your customers. So overall, going forward, we will continue, just as you heard Calin mentioned earlier, we are continuing to drive price in the industry. We are continuing to execute revenue growth management. We are continuing to have BU and channel-focused execution and brand programs, and we will continue the transformation. So hopefully, that gives you some comfort how we will work on it. Thank you. Hiroshi Saji: [Interpreted] So the mix improvement, you are going to -- the gross profit margin is going to be improved, and that is how we are paying attention to. And in the future, if you -- if we can confirm that in some of the opportunities, I'd like to know that. Masaomi Gomi: Thank you for your question. Operator, please move on to the next question. Operator: [Interpreted] So this is Igarashi-san from Daiwa Securities. Shun Igarashi: [Interpreted] This is Igarashi from Daiwa Securities. So, I would like to ask about the sales trend from October on. I want to check once again actually. And from October, you have revised the price is executed. And on the other hand, the sales has gone up as a downward revision. So, I'm just wondering about the sales like volume, et cetera, from October on. So, the upside potential downside risk, which is going to be stronger in the fourth quarter? And are you going to invest strongly for the following year as well? This is another question. Masaomi Gomi: Well, thank you very much for the question. So, the sales trend after October is one of the questions. So, I would like to ask Alex-san to answer, please. Alejandro Gonzalez Gonzalez: Alex here, the October, although it's preliminary sales figures, October volumes is in the mid-single digits, although it's very preliminary, we have preliminary indications that we're outpacing the market, but we will continue to observe and monitor the trends as the retail prices in the market are materialized and we continue to increase our wholesale price in an agile and monitor and flex all the muscles behind our revenue growth management algorithm. Shun Igarashi: [Interpreted] In November and December, is it going to be negative? Is that your plan? Masaomi Gomi: Well, thank you for the additional question. So, November and December, our volume, is it negative or not? Alex-san, please? Alejandro Gonzalez Gonzalez: At this point, the numbers that we have reflected in the guidance is our best estimate of what the quarter 4 figures will do, and we will continue to monitor the situation as it progresses. Masaomi Gomi: And we would like to move on to the next question. Next question will be the last question. Operator: [Interpreted] Sumoge-san from BofA Securities. Manabu Sumoge: [Interpreted] This is Sumoge speaking. I hope I'm audible. Masaomi Gomi: Yes, you are. So please go ahead with your question. Manabu Sumoge: [Interpreted] So, I would like to look into more to the midterm vision. So, you mentioned about like JPY 50 billion to JPY 55 billion as a target for 2028. Masaomi Gomi: Sorry, you are very intermittent and sound. Can you repeat that? Manabu Sumoge: [Interpreted] I would like to question about how your vision about the midterm plan. So, in 2028 target, you mentioned about like JPY 50 billion to JPY 55 billion, right? So, every year, you have to stock up like JPY 10 billion and above. So, in the previous quarter, you mentioned about the business unit separation, right? So, you have a vending, OTC and food service. And you mentioned about how you're going to execute separately in this segment. But what is your vision in each segment? For example, OTC and foodservice, they have a high profitability. So, are you going to hike the pricing there? Or are you going to improve the profitability in the vending because they have a lower profitability? So, what would be the approach going forward in each segment in midterm? And maybe the projection of each profitability in 3 segments? Masaomi Gomi: Thank you, Sumoge-san, for your question. Your question is about the growth trajectory and the forecast of our 3 segments going forward. So, Bjorn, would you like to take this question, please? Bjorn Ulgenes: Thank you, Sumoge-san. Very good, a more long-term question. Very happy to answer that. First and foremost, we are very confident that we can deliver these targets, whether it's the 2028 that we revised up or the 2030. And you can see that confidence coming through in the revisions we have done for this year. Going into more specifics of your question, yes, overall, the performance will be driven by, first, the 3 business units or segments as we also call them. And secondly, they will be supported by transformation initiatives in supply chain and back office. If we take or step back, if you remember what we spoke about in our update in August, sorry, late July. We said the different business units have different job tickets. So, OTC clearly will be delivering top line growth and profit growth, and that is by far our biggest channel and segment. And the pricing you heard about in the prepared remarks and the comments by Alex earlier are paramount inside that. Foodservice remains a growth engine, both for top line and for profitability. And you also heard in the prepared remarks that we're doing exceedingly well in this business unit, capturing new customers while driving profitability and pricing. Vending, the higher focus will be on profitability because as you also mentioned, the profitability or relative profitability there is lower than the other segments. And overall, all of them coming back to my question about supply chain and back office will support through efficiency programs, digital programs, et cetera, to improve the overall profitability for the company. So that's why we're saying with confidence, we believe in our plan, and we're executing it right on the mark on how we envision it. Thank you. Manabu Sumoge: [Interpreted] With regard to the vending business, I would like to dig a little bit deeper here. I know the marginal profit is really high in here, but the -- I know the volumes are kind of struggling in here in this business segment, and you don't really expect it to jump so easily. So, if the volume goes down, maybe you can think about the price hike or reducing the fixed costs to secure the profitability. But is that the kind of idea that you have with the vending business right now? Masaomi Gomi: Thank you for the follow-up question. So, your question is about more detail about the vending business. So, we have a high GP in vending business, but what are our forecast on how we are going to generate the profit in vending business. So Bjorn, would you like to take this question, please? Bjorn Ulgenes: Love to take it. Thank you, Sumoge-san. You kind of answered your question. So, I'll try to just say it a little bit different words. Yes, the marginal profit is the highest in vending, but also it has the highest operating cost given the nature of this retail business. So, when it comes to balancing volume and profitable growth, we will balance definitely how we execute in vending, which you have heard about in earlier investment calls, we have said we're getting more and more data-driven. It's a key element on how we're going to improve vending performance overall and by machine. We are also focusing a lot on operating efficiencies in vending, again, with the nature of the retail business. And pricing, as you also mentioned, will, of course, play a part in that retail landscape. So, in the end, you summarized it well. It's a balance of initiatives that we are in control of that we will execute across the board for vending. So, looking forward to the next steps. Thank you. Masaomi Gomi: Thank you , Sumoge-san for your question. Sorry for running over time. I would like to now close the Q&A session for today. So, today's materials will be posted on our website. So, if there is any follow-up question that you would like to ask, please get in touch with the IR team. Thank you very much for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Nuno Vieira: Good morning, and welcome to CTT's 9 Months '25 Results Conference Call. This event is hosted by Mr. João Bento, CEO of CTT; by Mr. Guy Pacheco, CFO of CTT; and by Mr. João Sousa, CCO of CTT. Please note that this conference call is being recorded. [Operator Instructions] I'll now turn the call over to Mr. João Bento, CEO. João Bento: Good morning, everyone. Welcome to our third quarter results presentation. I would invite you to follow us through the presentation that has been distributed yesterday evening. So if we move to the first slide, Slide #4. We have a plot of the -- a bridge of the revenue and EBIT in the quarter, with our, we'd call resilient organic growth; revenues growing 6%; recurring EBIT doubling that, 12%, with positive contributions from all the business lines in terms of revenues. This 6.1% are, in fact, 17.2%, taking into account the contribution of Cacesa. And on EBIT, the pro forma growth of 12.3% is in fact -- corresponds in fact, to 38.1%, which illustrates how competitive the addition of Cacesa represented to our e-commerce solutions portfolio. Moving to Slide #2 and with additional -- with additional detail on the growth of parcels volumes. We see a comparison between second quarter and third quarter, with a slight sequential improvement in e-commerce volumes. But we have to take into account that there were a couple of events, very significant in the end of September, that somehow impacted volumes in the quarter. Indeed, we have this typhoon Ragasa in South Asia that kept significant amount of volumes, e-commerce volumes sourced in China in the ground, so they could not fly. Some of them were sent by land, but there were also impacts in the border between Poland and Belarus, and some of the volumes that came through roads were also halted there. There was also, well, I would say, meaningful delay in main volumes that we can discuss later on. The good news is that all these volumes were merely delayed and they showed up already in October. But on the right-hand side of the slide, we can see that we have, well, double-digit growth in July, in August and then in September, a flattish improvement basically for the reasons that we have mentioned. So because of that, we are -- we keep quite confident also because October is looking extremely positive, and we anticipate a strong growth outlook for volumes, around 15% year-on-year for the fourth quarter of this year. Moving to Slide #6 and moving from volumes to revenues and margin. What we see is an improvement of 36% in revenues, that without Cacesa would even still represent a double digit, around 11% growth, which is significantly amplified when we move to the EBIT margin in the sense that with the pro forma of Cacesa, the growth would be very slight, 4.5%, but indeed a 50% growth on EBIT. The good news that we'd like to highlight here is that although -- well, despite of these volumes delayed given the typhoon and the closing of the Polish border, we still see an improvement in margin from 8.7% to 9.5% that, as you know, is, well, the best EBIT margin for any parcel business in the market. So given the contribution of Cacesa, that differentiates our E&P offering. We -- with this integrated model, we continue to drive profitability in parcels. And in that sense, we think that we should signal that. Moving to Mail. I will pass the floor to my colleague, João Sousa. Joao Carlos Sousa: Thank you, João. Good morning, everyone. On Mail & Other services, as you can see, in the third quarter of 2025, we are already seeing a recovery in address mail, with volumes down only 4.3% compared to a decline of 8.5% over the first 9 months of the year. In fact, this improvement reflects a gradual stabilization of the activity after several quarters of more pronounced declines in traditional mail volumes. This recovery is mainly explained by the normalization of volumes and clearance of backlog from major clients, which had a negative impact in the previous quarters. And we are seeing also these positive trends already -- or continued in October that reinforce this recover momentum. I would like also to highlight the business solutions that is driving good performance. Business solutions continue to play a key role in supporting both revenues and margin in the Mail & Others business area, with recording growth of 10.9% year-on-year. As with this mix of revenues and services, as a result of this, we have total revenues reaching EUR 341.9 million, representing a limited decrease of 1.9% comparing with the previous year. On EBIT for the Mail & Other segments took on EUR 2.28 million for the first 9 months, maintaining a flat margin of 8.9%. This stable performance demonstrates that our operational discipline on cost control and continuous on to managing these ongoing structural change in the mail market. On Slide 8, now we are going to financial services and retail. We continue to see a sustainable performance across public debt and insurance offering. Financial sales continue to show a solid and consistent growth, supported by stronger results in public debt products and insurance. Public debt placements, up to 167% in Q3 compares with versus period in last year. Savings certificates maintain like a preference savings vehicle for the Portuguese citizens. And I would like also to highlight that the digital sale channels for these products continue to be performing strongly, and September was the record month for these channels. This has also allowed us to bring new citizens to this product. Also, we are -- with a robust growth in insurance and health plans, we are in this strategic to build recurring revenue streams continue to deliver. Health plans -- the stock of health plans, growth, 69% versus the end of last year and almost 33 -- sorry, 12.8% on quarter-on-quarter. Insurance products also, with a very good outlook, performing pretty well. And I would like also to highlight that in -- already in October, we launched a new health insurance that also allow us to have a new product in this area. And the first numbers give us also a very good highlight -- a very good outlook for the coming months. Seeing this on this business area, the revenue is up to 57%, reaching EUR 9.8 million, and EBIT up to 44.8% to EUR 5.2 million. This reflects the success of our diversification strategy for this business area. And now pass to Guy. Guy Patrick Guimarães de Pacheco: Thank you, João, and good morning to all. On Slide 9, we can see Banco CTT's numbers, where we witnessed a strong growth in business volumes, growing 11.4% year-on-year in the third quarter, with a strong performance on the loan book that grew 16.4%. And on the off-balance savings, that grew 25.7%, where we see Generali partnership already at cruise speed and gaining -- continuing to gaining traction on the market. That translated to banking revenues growing 3.7% in the period, although with some compression in net interest margins as interest rates seem to reach a bottom, which gives us positive trends going forward. We see net interest income going up EUR 0.9 million, and commissions led by insurance and card commissions growing EUR 0.6 million in the period. We -- in terms of profitability, a flattish performance as we continue to invest in our future growth, deploying additional commercial capabilities, be it digital or physical, and we invest in technology to support that growth. Our return on tangible equity stood at 13%, a slight increase vis-a-vis the 12.4% of last year. Moving on to the financial review. In Slide 11, we have our key financial indicators where we see resilient growth throughout most of the metrics. On revenues, 17.2% growth. And if we consider Cacesa last year with the 6.1% growth in the third quarter, recurring EBIT growing 38.1% or if we account for Cacesa, 12.3%. Specific items reached EUR 7.6 million as we concluded the restructuring project that we have ongoing on the Mail division for this year. We invested EUR 4.2 million in exits of people. M&A expenses and strategic projects account for the rest of the value. Net profit in the quarter reaching EUR 10.7 million, growing 35%, or reaching, in the 9 months, EUR 32.8 million, growing 18.4%. Our free cash flow stood at negative EUR 6.4 million, and this is due to strong working capital investment that I will detail towards the end. On Slide 12, we see our revenue reach, where we continue to see Express & Parcels as our main contributor to growth. Revenue is growing 6.1%, accounting with Cacesa, with Express & Parcels growing EUR 15.7 million or 10%, with softer parcel volumes due to a weak September, putting some pressure on growth. And this was caused by the extraordinary effects that João shared, the typhoon and the military movements on the Polish border. Cacesa continues to perform very well. In Mail, we witnessed a EUR 2.4 million decline or 2.3%. This is -- this shows 2 different performance, Mail declining EUR 3 million in the quarter or 3.4%, that were partially offset by the good performance of Business Solutions as we continue to diversify along the value chain of our customers in order to further increase the resilience of the revenues of these business units. In the bank, EUR 1.3 million increase or 3.7%, fully driven by net interest income and commissions growth as we continue to grow our business volumes. In Financial Services, an increase of EUR 3.5 million in the quarter, and fully due to the strong performance in public debt placements, that grew more than EUR 1.1 billion as debt certificates continue to be a very attractive product in the market vis-a-vis other low-risk alternatives and already with some positive contribution of the recurring revenues that we continue to bet on in order to find additional diversification on these business units. All in all, other key metric is the Express & Parcels in the quarter already are above 50% of our revenue, reaching 52% of our total revenues this quarter. On Slide 13, we see our costs. Our OpEx grew 5.6% in the quarter, driven by parcel, in line with activity, but softer volumes putting pressure on our unit costs. As you know, we start to scale for the peak season, where we keep prioritizing quality as we see that as paramount to further growth in the future. Mail & Others with a decline of EUR 3.3 million on OpEx or 3%. We continue to optimize our routes with a strong reduction on the number of routes and account reduction that mainly account for that OpEx savings. In Financial Services, we see a EUR 1.9 million increase, fully in line with higher activity. And in the Bank at 5.8% increase or EUR 1.5 million, and this is fully to the commercial and technology investments that I already shared. Cost of risk this quarter with a good performance, reaching 0.7% of cost of risk. So good dynamics there as well. In Slide 14, we see our recurring EBIT, where we posted a 12.3% growth with bank, flat and all the other business units with a positive contribution. In Express & Parcels, we see very resilient margins despite these lower-than-expected volumes in the quarter, with 9.5% margin and increasing EUR 0.7 million. In Mail, positive contribution of business solutions and cost reductions, leading to a EUR 0.9 million increase in the quarter. Financial Services, with good -- very good performance in placements, also contributing positively with EUR 1.6 million. And the Bank, with this flattish performance, with the investments in capabilities offsetting the growth in banking products. Going forward, we expect a very strong peak season that will underpin the EBIT growth in Express & Parcels. Mail seasonality will lead to a sequential margin improvement as fourth quarter continues to be, seasonality-wise, the strongest quarter of the year. Financial service will continue to grow, although with a tougher comparable in the fourth quarter. And the Bank will post a flat to single-digit growth due to the continuous investments in commercial activity. Slide 15, we see our consolidated cash flow. Operating cash flow reached EUR 42.9 million in the 9 months, with a strong growth year-on-year. Free cash flow also stood in 20 -- 12 -- sorry, 18.8%, also with a EUR 10 million growth. And our net debt now stands at EUR 61 million at consolidated level. In Slide 16, we see pretty much the same figures, but excluding the bank or having the bank under equity accounting, where we see, in the 9 months as the operating cash flow reached EUR 20 million and due to this high investment in working capital. In the third quarter, our working capital increase EUR 13 million. And this is due to seasonality or third quarter is normally very strong in working capital investments, and that is due EUR 5 million to the travel subsidy to the Portuguese Island, a service that we provide to the Portuguese government, and because of summer normally has this high growth and payment terms with Portuguese that are always pressured. And we have EUR 8 million increase in accounts receivables, both by increase in activity and some delays in payments of some key customers that we expect to fully offset in the fourth quarter as normally we do. Our net debt now stands at EUR 2.4 million due to this working capital investment, but we expect to -- that to be deleveraging towards the 2x in the end of the year. And with all that, I'll hand you over to João Bento for his final remarks. João Bento: Thank you. So moving to Slide #18. We have a plot of the evolution of EBIT and the corresponding contribution of E&P that we see that, well, after the drop between '19 and '20 associated with the COVID crisis, it's been very, very steady. And looking at the trailing last 12 months up to the third quarter of this year, we see that we are already at EUR 105 million of EBIT, which means that we would require fourth quarter, that would be roughly EUR 10 million or more above that number. The right-hand side chart, it illustrates the gap between where we are and what we need actually to do. So we see the fourth quarter EBIT of last year at EUR 30.5 million. If we would consider the contribution of Cacesa, that would take us to EUR 37.2 million, meaning that because we need EUR 41 million to achieve the guidance, we are at a 10.3% increase or 34.4% versus the actual number of last year. This 10.3% of growth quarter-on-quarter -- fourth quarter-on-fourth quarter is, I would say, significantly less than what we have exhibited throughout the year. So at the top hand side of the slide, you can see that in the first quarter, we grew 19.5%, 28% on the second, 12% on this quarter, with all the delays associated with the typhoons. And so I'm not saying it's easy, but it's quite feasible, and that's why we are strongly committed to keep our ambition of recurring EBIT equal or higher than EUR 115 million. And by completing a quarter along those lines, this will, in fact, represent the conclusion of, I would say, notable transformation cycle that we have been taking this company. I would still ask you to follow me on the last slide, just to remind you that we have our Capital Markets Day taking place next Monday and Tuesday. We have quite promising news for you. We're going to do the similar exercise that we did 3 years ago, discussing and illustrating the strategy for our business areas and committing with financial targets for 2028. So we are looking forward to meet you all there. And I believe that you'll be very pleased with the news that we have to bring. With that, we remain available for your questions. Nuno Vieira: [Operator Instructions] Our first question will come from João Safara. Joao Safara Silva: I'll start just with 2 questions. The first on -- to try to understand a little bit what is implicit in the fourth quarter margin for Express & Parcels. Obviously, and you've mentioned that you've been focusing a lot on quality ahead of the season. Nuno Vieira: João, sorry, we are having significant difficulties in listening to you. If you can speak louder, please. Joao Safara Silva: Yes. Is it better now? Nuno Vieira: It's better now. Joao Safara Silva: Okay. Sorry. Okay. Yes. So what I -- yes, so going back to my question, what I was wondering and trying to look implicitly to the fourth quarter. To meet your guidance, you obviously have to have some kind of improvement in Express & Parcel margins. So I think basically, I just wanted to have a confirmation there since we've been having in the last quarters, in first quarter, margins were flat, obviously, trying to exclude the impact of Cacesa, which I know it's difficult. And then in the second quarter, you've recovered. And now in the third quarter, it seems that margins, again, they've more or less been flat versus year-on-year. And for the fourth quarter, according to my numbers, it would still imply an improvement in margins. So if you could -- well, just give me some color there on what are you seeing for the fourth quarter in terms of margins? And then the other question is just on the extraordinary costs you had this quarter for the employment contract suspension. The question here is, I mean, basically, if this is something related to the plan you're going to present on Tuesday? Or is this something that was already contemplated and part of your ongoing cost savings? Guy Patrick Guimarães de Pacheco: Thank you, João. So on your first question, so we are expecting a strong peak season in Express & Parcels, that will once again be the main driver of our growth in the fourth quarter. Obviously, as you know, scale here plays a role and because we have this unforeseen lack of volumes on the third quarter, especially in September, that put some pressure on unit costs. And as such, our margin was stable-ish. And I would like to underline that, nevertheless, we were able to post a 9.5% EBIT margin that shows a lot of resilience of that business unit. But nevertheless, as you said, we expect both a volume increase and a slight margin increase during the fourth quarter. That was again Express & Parcel as a main driver. We also expect growth coming from Mail -- sorry, positive impacts for Mail and the growth coming from Financial Services as we continue to see resilience on the placements, although the comparable will be tougher as last quarter was already very strong in placements last year. On the specific items. So 2 main things. First, it's the restructuring project that we ended, and that we continue to explore opportunities to optimize Mail & Others as we continue to see that paramount to sustain margin going forward. And that project comes to an end in the third quarter. And now we also had some strategic projects that are, as you mentioned, linked with the next strategic cycle that we'll announce next week and some M&A expenses as we continue to have projects ongoing and what's ongoing, be it with the transactions already announced and other internal projects. Joao Safara Silva: Just a follow-up, would there be, on the fourth quarter, additional nonrecurring cost? Guy Patrick Guimarães de Pacheco: On people, no. We should expect some costs around M&A, but nothing as meaningful as this quarter. Nuno Vieira: Our next question comes from Filipe Leite. Filipe Leite: Yes. I have 3 questions, if I may. The first one is on Cacesa and the integration of Cacesa. Basically from the EUR 5 million synergy that you announced at the time of the acquisition. If you have an idea of how much do you have already achieved in terms of synergies, and when should you expect or should we expect the full achievement of this EUR 5 million synergies with the incorporation of Cacesa? Second question on Mail and CPI used this as reference for the upcoming year. Mail price increase, I believe, is up to June or July. And the question is if you have already an idea of the potential magnitude of the price increase for mail next year? And last one is a clarification on specific [indiscernible] because looking at the breakdown, you mentioned in 9 months, EUR 1.4 million positive impact from regulatory compensation. But in second quarter alone, this positive impact was EUR 3.5 million. If you can clarify what are those regulatory compensations and why the reversal in third quarter? João Bento: I'm afraid we didn't get exactly what you mean in the third question, but I will start with the previous 2 ones. So on Cacesa, things are going pretty well. What we can say is that we are more or less around midterm achieving the full synergies that have been announced, and they will be fully embedded across next year because there are several -- the nature of the synergies is diversified, but so we are probably halfway to be there. On CPI, actually, the formula is public. We know the volume decline, we know the inflation. The issue here is that the proposal has been put, but it's not been approved. In any case, you should expect something around 6.5% plus or -- more or less around that, just not to give you the exact figure because it's not been approved. But it's very easy to compute the numbers and it should be something around -- well, between 6.5%, 7%, some like that. Guy Patrick Guimarães de Pacheco: On the third question, because we didn't fully get it, I suggest that Nuno Vieira will follow up with you in the end of the call. Nuno Vieira: [Operator Instructions] As there are no further questions at this point, I would like to hand the call back over to Mr. João Bento, CEO, for any additional or closing remarks. João Bento: Thank you, Nuno. Well, as we've seen, it's been a mild quarter, fortunately, positioning us strongly in line to achieve the guidance this year. And I believe that the most promising news are to be shared with you on the forthcoming Capital Markets Day next week. So thank you again for coming. We remain available to your questions through the IRO team, and hope to meet you all next week. Thank you. Nuno Vieira: Thank you very much for your participation. This earnings call is now concluded.
Operator: Good morning. Welcome to Indra's 9 Months 2025 Results Presentation. I now hand the conference over to Mr. Ezequiel Nieto, Head of Investor Relations. Ezequiel Nieto Baquera: [Interpreted] Good morning, and welcome to Indra's earnings call for the first 9 months of 2025. My name is Ezequiel Nieto, Head of Investor Relations. Let me first call your attention to the current slide, which contains the legal framework under which this presentation should be considered. Let me now introduce today's speakers, Jose Vicente Los Mozos, Indra's Chief Executive Officer; and Miguel Forteza, Chief Financial Officer. Jose Vicente, you have the floor. Jose vicente Los mozos: [Interpreted] Thank you very much, Ezequiel. Good morning, everybody, and welcome to Indra's 9 Months 2025 Results Presentation. Indra has continued to grow and make solid progress in executing our strategic plan leading the future delivering financial results in line with our guidance and achieving significant business milestones while we keep on transforming the culture of our company. Starting with the financial results. So what I must say is that we are going to overcome and to have better results than the ones we had set for 2025. So the first question you might ask is why are you not following the guidance? Well, our objective now is to get ready for the new programs, which require operational expenses and investments. And our priority today is to get ready for the future. Our backlog and intake have grown at double digit compared to the first 9 months of 2024. And specifically, the backlog has grown by 35%, partly due to the consolidation of TESS. And intake by 20%. These figures are prior to the PEMs, the Special Modernization Programs. Revenues grew by 6% and EBITDA and EBIT by 10%. Operating profit has grown by 11% in absolute terms and the net profit reached EUR 291 million, 85% compared to the first 9 months of 2024, in part due to the consolidation of TESS. Furthermore, with the forthcoming contracts under the special modernization programs, our defense backlog will exceed EUR 10 billion during 2026. In terms of business milestones, I would like to highlight the main achievements in the implementation of the first phase of Leading the Future. We are implementing with a great commitment on the part of our teams. The first pillar of the strategic plan is Indra's focus on aerospace and defense. In defense, between September and October, we were awarded a prefinancing of 30 special modernization programs. Indra received over EUR 4.2 billion as coordinating company and a further EUR 3.6 billion through joint ventures in which we participate. Total, we will receive EUR 7.8 billion. And we also aspire to participate as subcontractors in 12 additional programs. So out of the 31 programs, we are going to be involved in 29. And this award strengthens Indra's Group position as a national benchmark in defense and as a driving force in Spain's industrial ecosystem. And that's something we saw yesterday, over 600 companies participated in the second meeting and it's been the biggest amount of companies in the area of defense. And this is going to be the starting point to become also reference -- European reference in defense. And these results are the outcome of months of work. We have a streamlined supply management, and we have concentrated spending among key partners. And we must highlight that 77% of defense procurement was sourced from domestic suppliers, and we are tripling our industrial and technological footprint in Spain, enhancing our production and delivery capacity and increasing our regional presence nationwide. Another strategic pillar of the plan is portfolio rotation. And in July, we completed the acquisition of Aertec DAS, specialized in unmanned aerial systems such as the TARSIS family. And we will also be closing the acquisition of Hispasat/Hisdesat in the fourth quarter, strengthening our position in space and secure communications. And in parallel, we are continuing to roll out IndraMind, consolidating its commercial positioning and its role within the group's technological growth. And at the same time, we are expanding our industrial footprint to reinforce our production and delivery to prepare to -- for the growing demand. As well, an example I'd like to share with you is the launch of our first automated radar production line in Córdoba with an annual capacity above 100 Nemus radar. And as you know, this radar is a benchmark that will become the future anti-aircraft system, both in Spain and in Europe or the launch of a new LTR 25 radar line with a capacity of five radar per shift. And specifically, we will be investing more than EUR 150 million over the next 2 years in Spain. And in the United States, EUR 100 million in our factors of Gijón, Vigo and Córdoba, EUR 50 million for a new plant in Kansas for mobility and ATM. Another key element is our investments in R&D&I, where in 2025, we will be investing between 8% and 10% of our annual revenue. Let's now look at these items. If we focus on the defense area, we have advanced in our position as a European reference group. As you know, the sector is going through a decisive moment driven by a significant increase in investment in Spain and Europe. And there is a clear bet to strengthen technology and industrial capabilities. And in this context, if we take a look at Spain, the government through the industrial and technological plan for the security and the defense has awarded 31 programs to modernize the capabilities and the equipment of our armed forces. Out of them, 16, which is 66% will be led by Indra or joint ventures in which we participate. In addition, we will take part as subcontractors in another 12 programs, reinforcing our presence across the entire value chain. This achievement consolidates Indra group as one of the main drivers of Spain's defense industrial ecosystem like Airbus or Navantia in their respective domains, and it encourages us to continue to strengthen our industrial and technology capabilities contributing to Spain sovereignty and security. Within this context, I would like to highlight five especially relevant programs. First, the joint tactical radio system that will provide our armed forces with secure and efficient communications, ensuring real-time information between units in the field. And second -- sorry, this program will allow all our armed forces to be able to start using this type of radio in the future. And second, the multidisciplinary connectivity in our security systems program and the Anti-Air Artillery Operation Center System, which will modernize the 18 systems of the Army and will create a single integrated one, enabling a more efficient and coordinated a combat control. Third, the next-generation integrated air system, which will allow us to continue with the studies and technology packages of new generation weapon systems within the Future Combat Air System, FCAS. This is a key project for Spain's technological and strategic autonomy. And fourth, the truck support vehicle awarded to TESS for the manufacturing of a multipurpose armed vehicle that we replace the armies armored transport, showing the state's firm commitment to this program. And finally, the advanced manufacturing program in sustainable land mobility 1, which foresees new self-propelled howitzers on wheels and the replacement of current ML109A5 units. And this program has been awarded to a joint venture formed by Indra and Escribano Mechanical and Engineering. And these programs represent a qualitative leap in the technological capabilities of our armed forces and position Indra Group as a benchmark within the defense industrial ecosystem. As I have mentioned, we have made 180 degree of our assessment and this is one of our capabilities. And we have developed what we are doing in the automotive industry. A clear example is our supply chain. In under a year, we have made a significant progress in the management by concentrating more than 90% of the defense expenditure in fewer than 550 Tier 1 suppliers, that's Plan 500. This optimization relies on a tiered structure that mobilizes a substantial portion of the national industrial ecosystem, ensuring a solid, efficient, collaborative and competitive chain. And within this plan, we haven't left any company behind. This modernization has been used to make sure that we can all work in a more organized way. And our focus has been on strengthening our domestic supplier network. In 2025, 64% of Indra's total procurement volume has come from Spanish suppliers. We have increased by 14 percentage points the previous year. And in defense, this proportion is even higher. 77% of procurement are sourced from national companies, and our target is to surpass 80%. Through these advances, we reinforce Indra's group's role as a driving force in Spain's industrial ecosystem by fostering collaboration with SMEs, start-ups, universities and research centers as we showed yesterday in the event we held with the Spanish entrepreneurial ecosystem. So now is the moment to escalate our manufacturing capabilities to make sure Indra becomes or turns what used to be an industrial company and now -- well, now we're going to add this industrial DNA that we truly need. And we are strengthening our Indra's industrial and technology capabilities through our ambitious plans to triple our industrial footprint by boosting our production and delivery capacity. As we -- and it was noted by the European Commission, the European Union has around 52% of the defense capabilities it requires, which highlights the urgency of reinforcing our industrial base. Specifically in Spain, we have decided to open several production and technology centers distributed across our territory. In Gijon, we are creating a production hub for the design and manufacturing of land platforms and vehicles throughout their life cycle. And I can mention today that before year-end, we will start with the first operations of 8x8 vehicles in our plant, which shows how agile we are transforming our industrial centers. In Vigo, we are reinforcing our technology center to specialize in electronic warfare counter UAS systems, hardware design, microelectronics and command and control systems. And we are also participating in the development of gallium nitride. And in Lugo, we are expanding our aerodrome for ground and flying testing in collaboration with Inter. It's been designed to be able to test all of Indra's portfolio. In Barcelona, we are strengthening a specialized center -- sorry, a center specialized in communications space and cyber defense. In Seville and Malaga, we are creating a center dedicated to advanced software focused on space applications and unmanned aerial systems, also supported by Aertec DAS in Córdoba. We are opening a new production site to increase our capacity to manufacture radars, command centers and mechanical structures. And within radar manufacturing, our objective is to have an excellence center for European radar manufacturing. And last in Aranjuez, we continue enhancing our capabilities in aftermarket activities and Eurofighter support with the new SMD card production line. To be able to support this expansion, we expect to hire more than 3,000 new professionals in the next 3 years in Spain in all our geographies. And internationally, I would like to announce an investment of around EUR 50 million for a new plant in Kansas in the United States to be able to support the air traffic management division in the manufacturing of radars for the American market and Radio and Mobility division with free flow tolling systems. We are already present in over five states in the United States in tolling. And this plan will generate over 200 new jobs in the United States. Let's now take a look at a new product, IndraMind. This new product that we are very proud of, it's a dual-use line, both civil and military. As we were -- as presented in the first half 2025 results from Indra Group, we continue to drive our advanced artificial intelligence platform, IndraMind. Our ambition is to offer advanced software solutions that are AI-powered that will enhance decision-making and ensure the reliability of mission-critical operations. In the recent months, we have consolidated its commercial positioning aligned with three key market trends in production solutions, cognitive superiority, intelligence and decision, autonomous operations and cyber resilience. IndraMind maintains a dual-use focus, addressing both civil and defense needs. But I would like you to know our value proposition a bit better. And that's why in the afternoon, I'd like to invite you to follow our IndraMind presentation event. As you can see, you have the link, the connection link on this page, and that will take place at 1800 hours Spanish time. As a preview of what we will be showing in the afternoon, I'd like to share with you a military use case of IndraMind. It has been applied to intelligent combat systems designed for mission planning, autonomous guidance and decision support. IndraMind will enable us to simulate complex scenarios through the massive capture of data from multiple sources, satellites, radars, cameras and ground space networks, allowing a more precise and efficient planning. Moreover, it will facilitate the orchestration of fully autonomous operations through collaborative platforms that operate with distributed decision-making. In summary, this use case allows us to first model and simulate scenarios to anticipate situations and support the decision-making process. Second, to build and orchestrate autonomous and collaborative platforms through edge computing and deployable communication nodes. And third, they will be able to ensure protected communications through secure applications and end-to-end encryption. In the afternoon, we will go into greater detail on these and other civil applications during our IndraMind event. And let me now briefly recap the progress achieved in the first phase of Leading the Future that we presented on March 6, 2024, with the first phase lasting until March 2026. Thanks to these advances, we continue to make solid progress on the pillars of Leading the Future, reinforcing Indra's focus on aerospace and defense. We have also created a new space division with end-to-end capabilities following the acquisitions of Deimos, Hispasat, and Hisdesat. The closing of the Hispasat and -- Hispasat transaction is expected to take place in the final quarter of 2025. At Minsait, we remain focused on high-value offerings, expanding on our digital solutions and advancing the potential divestment of nonstrategic businesses. And in parallel, we have reorganized our digital capabilities to be able to cater for the needs of all the business units and capture efficiencies through the new cross-cutting function, tech operations, which has already been deployed under the leadership of Sebastian Valmonde. We are strengthening our international presence. We have introduced the new role of International Director, and we have simplified our model. We have gone from 27 to 19 units to increase in agility and focus. If we continue with our portfolio rotation throughout strategic acquisitions such as TESS and Aertec DAS in Defense or Deimos and Hispasat and Hisdesat in space. We have also launched a joint venture in the Middle East with Edge Group for the design and manufacturing and selling radars to non-NATO countries besides other operations that we complement and reinforce our value proposition. We have also increased our investment in R&D with milestones such as the creation of IndraMind and the deployment of the Indra Technology Hub with around EUR 829 million already invested in R&D, aligned with our goal of reaching EUR 1.2 billion by 2026. And we are also strongly focused on attracting critical talent, throughout our country, and we have already onboarded 3 out of the 5,000 new hires planned for 2026. If these three new hires, if we add to those 3,000, the other 3,000 we are going to be adding, as you will see, we would have been able to have hired over 5,000 people in our country. And to finish, I'd like to share an important piece of information, the acceleration of the market marked by a historic increase in defense investment combined with a sustained and rapid progress across the pillars of our Leading the Future strategic plan, both in operational and financial terms, places us in an exceptional position. And in fact, we expect that by the end of 2025 on a pro forma basis, we will have nearly achieved the financial targets initially set for 2026. And moreover, Indra Group's perimeter has evolved significantly. We have executed key acquisitions in defense and aerospace, and we have launched new business lines, Indra land vehicles, Indra weapons and ammunition and Indra mine that expand our industrial technological and digital capabilities. And last, these achievements have translated into a substantial value creation for our shareholders. Indra's share price has appreciated by more than 190% since March 6, 2024, compared to 81% in the Defense index, 58% in the IBEX and 16% decline in the IT sector. This has meant that we have tripled Indra's market capitalization in the strategic plan period, reaching around EUR 9 billion this week. And that's why I would like to thank our shareholders for their trust. Within the plans framework, and the EBITDA contribution from defense and ATM has grown and it has now reached 51% of Indra's group of Indra Group. And we expect this share to increase further to the group's EBITDA in the medium term. And all of this means that the internal budgeting work for the Indra Group in 2026 gives -- provide us with financial projections well above the targets originally defined for our 2026 strategic plan. So we could say that we have completed the first phase of the plan 1 year ahead of schedule. And we have already started working for the future. This would not have been possible without the full support of our Executive Chairman, Ángel Escribano, whose industrial and technological vision I fully share for our company. And together, we have instilled a new renewed ambition across the company that reflects the extraordinary commitment and dedication of all the people who made the Indra Group. I would also like to thank the Board of Directors for the ongoing support. As a result, Indra Group is ready to take the next step in its strategic plan, moving from the focus phase to the scale-up phase 1 year earlier than planned from 2026 to 2027 to 2026, a new stage that will allow us to multiply our reach, accelerate growth and consolidate our leadership in the strategic sectors where we operate. And therefore, I am pleased to announce that we will hold a Capital Markets Day in the second quarter of 2026, a key milestone in the company's transformation journey. During that event, we will present the second phase of our strategic plan, Leading the Future scale up. We will also share at that point, the road map that will help us achieve the EUR 10 billion in revenue before 2030 as well as our strategic priorities to improve operating profitability and cash generation. Likewise, we will like to show you how this new stage of the strategic plan will continue to generate value for our shareholders. Let us now review the financial results for the first 9 months of the year for the Indra Group. The figures reflect a solid performance, allowing us to reiterate all the financial targets set for 2025. Our backlog grew by 35%, including the impact of the consolidation of TESS, which provides us with greater stability and visibility for future growth. These results were mainly driven by the strong momentum in Defense and Air Traffic management businesses. Order intake increased by 20%, double-digit growth in ATM, Defense and Mobility. Revenues rose by 6% with growth across all business areas and stable performance in mobility. We have also improved our operational profitability. The EBITDA margin reached around 11.2% and EBIT margin 8.8%, both up 10% in absolute terms. And this EBIT could have been higher. But as I mentioned, our priority right now is to get ready for the plans in operational expenses, training and CapEx. And this shows that besides tailwinds, we are working. All those of us involved in the Indra Group are working to improve our efficiency and create a more balanced business. Net profit reached EUR 290 million, an increase of 58% compared to 2024, thanks to our improved operations and also the incorporation of TESS. In terms of cash flow, we generated EUR 57 million, slightly less than 2024 due, as I have mentioned throughout the presentation, due to the work that we are doing in preparation for the increasing investment in defense. And finally, that debt remained practically neutral, which is a remarkable milestone in the context of strong sector growth. If we take a look at our sales figures in detail, we have achieved a growth of 8% in local currency and 5% in organic growth. We can also see that this positive trend has been reflected in the third quarter of the year with sales increase by 8% in local currency. In terms of the distribution -- geographical distribution of our revenue. Spain remains our largest market with a growth of around 5% compared to the same period last year. In international business that already represents 50% of total sales, we can see a special strong growth in Europe, has grown 11%. By division, Defense and ATM account for more than half of the contribution to EBITDA, reinforcing their growing weight in line with the objectives of our strategic plan in terms of the evolution of our workforce. We have achieved an evolution of 2% in revenue per employee compared to September 2024 and 3% compared to the end of last year. And we keep on attracting the best talent in the market aligned with our strategic priority of becoming an employer of choice in Spain. And as a result, we have increased our headcount by 5% compared to the first 9 months of 2024, including a remarkable increase in the defense workforce, which has been 35%. And we will continue investing in talent acquisition. And as you might imagine, if we have increased 35% in defense, you are probably able to imagine the next few months and years, our sales are going to be going to grow similarly. And now let's continue seeing the results of our business by segment during the first 9 months of 2025. As you can see, our defense business delivered a robust growth in order intake, 47%, driven by Eurofighter programs, radar contracts in Germany and Oman and the inorganic contribution of Deimos. Revenue increased by 14%, supported by Eurofighter, space and weapons and ammunition. And in addition to this double-digit growth rates, the EBITDA margin stood close to 20% and EBIT margin reached 17%. Those are figures that are true benchmark in the European defense market. In terms of ATM, the ATM division, intake -- order intake rose sharply, 57%, mainly due to the new radar contracts in the U.K. and Spain as well as radar systems in the United States, which position us as a benchmark for the transformation of air traffic that will take place in the next few years in the United States. And that's why we have already decided to invest in the new plant in Kansas. The sales increased by 16%, driven by this double-digit growth, both in the Americas, thanks to the United States and Canada and Hi-Tech and in Europe, including the United Kingdom, Belgium and Germany. And the EBITDA margin has reached 15.3% and the EBIT margin 12.4%. And now take a look at the Mobility division. Order intake rose by 10%, boosted by urban transport management systems in the San Francisco Bay Area as well as projects in Chile, Colombia and Romania. And we are still waiting for new mobility programs within Europe. Sales remained stable with growth both in Europe and Spain that offset the declines in the Americas. And margins have narrowed slightly in EBITDA margin, 6% and in EBIT margin as well. This is a dimension that we are working on. And if we take a look at Minsait end results, we have a stable progress expanding our backlog, order intake and revenue with a growth of 14.7%, 6.7% and 3.1%, respectively. If we take a look at the other companies of the sector in our country, we can see that we are above any of our competitors. And likewise, the profitability of Minsait also improved slightly. EBITDA margin has gone from 7.8% to 8.3% and EBITDA -- sorry, an EBIT margin from 5.6% to 6%. We can see a clear potential of further improvement. And under Luis Fernandez' leadership, I am sure this transformation will take place in a short time. It's going to be efficient. And that's why our current priority is to achieve greater efficiencies, advance on the cost-cutting deployment of our digital capabilities and getting even closer to our clients. And this is Indra Group's situation. And now I would like to give the floor to Miguel, who will provide further detail on the financial information. Thank you. Miguel Forteza: [Interpreted] Thank you, Jose Vicente. Let us now continue with the main financial highlights for the first 9 months of this fiscal year. Starting with free cash flow. During the first 9 months, we generated around EUR 57 million, slightly below the figure recorded in the same period last year. However, as we mentioned in the previous quarterly earnings call, the evolution of the fiscal year follows a pattern consistent with our historical series, particularly considering the seasonality that typically affects this metric during the first 9 months of each year and which ends in a very strong fourth quarter. Therefore, we ratify our expectation of achieving free cash flow generation above EUR 300 million for the full year 2025. Regarding working capital, although the evolution of days of sales outstanding has not been as favorable as in the same period of 2024, this variation is mainly explained by the increase of inventories in defense and ATM or air traffic due to projects with longer life cycles as well as by the rise in trade receivables. As a result, we stand at plus 21 days compared to plus 6 days at the end of September 2024. As shown on the slide, the consolidation of TESS had a significant effect, adding 46 days of sales in inventories and 52 days of sales in the heading trade receivables. Let us now analyze the evolution of net financial debt during the first 9 months of the year. Over this period, net debt stood at approximately EUR 140 million compared with a net cash position of around EUR 86 million at the end of 2024. And this change is mainly due to the contribution from operating cash flows, which added EUR 348 million, the negative impact from working capital variation for EUR 172 million. And finally, nonrecurring financial effects associated with investments amounting to about EUR 257 million. As a result, the net debt-to-EBITDA ratio remains at very solid levels, standing at around 0.2x. This reflects an almost neutral financial position, very similar to the one posted in September 2024. Finally, regarding the structure of our debt, we continue to reduce the average cost of gross debt now at around 3.2%, down from 4.2% at the end of 2024. Consequently, the average debt maturity has extended to around 3.2 years compared with 1.5 years in the same quarter of the prior year. On the other hand, we closed the quarter with a cash position of approximately EUR 604 million. Finally, the company holds around EUR 790 million in available credit lines, including financing from the European Investment Bank of roughly EUR 385 million with a defined allocation of funds. We now conclude our presentation and move on to the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Beatriz Rodriguez from Bestinver. Beatriz Rodriguez Fernandez: I have a question about the PEM programs. You said that we already know the loans that will be -- or that were granted in 2025. Can you give us some color as to the percentage of total programs in connection with those loans? Have you received any details from the government concerning these PEMs? Are there any figures that you can share with us? And on the other hand, I would like to know the outlook for 2026. I understand that you are planning to invest 2% of GDP next year. I would like to know whether you have any outlook for 2026 and subsequent years? Jose vicente Los mozos: [Interpreted] On the contracts, well, we have seen by the government. We have a joint radio systems. It's a contract that compared to the funding of EUR 768 million, it accounts for 65%. And this is the first phase because we are going to renew 100% of all the networks of our army. So we expect more phase in the future. Our second program, the multidisciplinary connectivity. It's a joint venture with Telefonica with a contract of EUR 785 million with a funding of EUR 380 million that accounts for 40% -- 48%, right. And the crypto capability is EUR 159 million program through ApeCoin with a funding of EUR 67 million. As contracts are launched, we will inform them. Are we working for the PMs from the specialization programs. Of course, we are. I believe there's a commitment of the government of Spain and the President mentioned that they are going to invest 2% to keep on adding an increasing capability. So we are working with that hypothesis in mind, and we are working around two main axles. Space programs, we believe that we have an important element to play with here because within the European program, Phase 1 is to improve space capabilities in Europe and our country has something to say there as well. That's why we are working to make sure the SMPs include space programs, and that's why we've made the investment. We have paid EUR 725 million for Hispasat and controlling Hisdesat and the anti-air system. We have a first phase ready in Spain with 18 teams, but with one of our European competitors, we are the anti-air system that's better prepared. And not only are we thinking about selling in Spain, but we are planning to sell in Europe. And we believe that in the 2026 plans, the first 18 systems that are our part of the plan in 2025, we believe that those -- they are going to be expanded throughout all the Spanish air systems. Those are two examples on which we are working, and that's why we are investing. In the case of the anti-air system, we are investing in important and robust production lines to be able to respond to the demand that the Spanish and European markets are requesting. Operator: Next question from Juan Cánovas from Alantra Equities. Juan Cánovas: [Interpreted] Going back to the prior question, could you give us more detail as to the percentage that Indra would hold in these programs, PEM programs? And concerning contracts in Europe, could you please let us know which your target is in Europe? Or how can Indra achieve the same success in Europe as in Spain? Jose vicente Los mozos: [Interpreted] On the joint ventures. Well, as you know, once the contract is ready, we need to develop the industrial plan. So when the industrial plan is developed, we will be in a situation in which we'll be able to tell you which is our share we're going to get. Those that are led by us, those are programs we consolidate and we have to provide both the Ministry of Defense and Industry, our industrial plan. Because -- let's not forget that we need to deploy over 30%. With 30% have to be in the hands of Spanish suppliers. So as the contracts, we work on the contracts, we'll be able to share -- tell you which is the share -- the shares are throughout the value chain. On European programs, I'd like to share with you some examples. Spatial Vigilance Radars, and we've only gotten two in Spain, and we believe that within the European program, we have been the first company in Europe, and that's what I showed Commissioner Kubilius, and I showed it in Brussels a few weeks ago. We have created a portfolio with all our products, all the products that can be used within the set program. And where is Indra relevant? Well, we've already shown it in radars, that dual use, civil and military and the LTR-25 and the Lanza radars. Those are radars that are at the same level as any other radar manufacturer in the world, may them be American or European the NTO system, well, is advanced, thanks to the joint venture we have with Escribano, because otherwise, if we did not have that joint venture, we couldn't cater for whole programs within the aerospace. And that's why we are working on the possible operation with Escribano, because that's going to add to our product capabilities, and it will include an industrial DNA that the speed at which we are transforming will be extremely helpful to keep on catering for the needs of Indra's objectives. Operator: Next question from Carlos Treviño from Santander. Carlos Javier Treviño Peinador: [Interpreted] I would like to deep dive into defense possibilities, taking into account the backlog that you announced for 2026. I believe that those EUR 10 billion would account for pure business for Indra regardless of the participation of other companies in such projects. So do you expect to include all the PEM projects into the backlog that have been awarded in Phase 1? Or do you think that there are other projects that could be assigned in subsequent years and therefore, would not be included in the 2026 backlog? I would like to know about the average life of such backlog, taking into account that we are talking about multiyear projects. And considering additional cost in order to address future growth, can you quantify how that has affected your operating profit for the year and what could happen going forward? Jose vicente Los mozos: [Interpreted] Well, we have to make a difference between the washer and intake -- order intake. When we are saying that it's over EUR 10 billion, we are not only thinking about the plans. So we think about SAFE and other international programs that -- in which we're in. And that's why in the Capital Markets Day, we will be able to provide more detail. Once we know all the 2025 programs. So once we know SAFE orders, we will be able to provide a figure, but I believe that EUR 10 billion is quite conservative. If we take a look at everything that's going on in Europe, these are 3- to 6-year programs. And in many of the cases, this is just the first phase. So let's talk about specific programs, the radio program. That's the first phase. In the first phase, with the first phase, we won't be able to transform 100% of the radio systems. There are going to be more phase in the next few years. So the anti-aircraft system with 18 anti-aircraft systems, that's not enough for the Spanish system. So that's one first phase. And well, it is the Ministry of Defense, the one that will set its priorities, and they will explain which are the priorities for the armed forces. What we are doing within these programs, this benchmark programs is not just thinking about Spain, but actually thinking about Europe. And taking a look at some international markets because the volume effect will improve our competitiveness to reach markets that maybe are out of our reach today. Operator: Next question from David López Sánchez from JB Capital. David Sanchez: [Interpreted] I would like to follow up on the prior question about the backlog of EUR 10 billion for 2026. Would that include Indra's interest as main contractor would include its participation as a member to joint ventures? And what about the financing that has been recently approved for defense programs? Can you give us some color as to how that dovetails with your backlog and the amounts that you expect will be reported in the last quarter of 2025? Jose vicente Los mozos: [Interpreted] In the EUR 10 billion, we include everything, both joint ventures and the ones in which its just Indra. So that's the whole business figure. In terms of funding, Miguel, please? Miguel Forteza: [Interpreted] Okay. Let me explain the dynamics behind this prefinancing in order to get it right. Each contract will be associated with an account where the Ministry of Industry will be making deposits for the prefinancing that has already been granted. Such accounts will be independent accounts, restricted cash accounts, so to speak, that will only be available as stated explicitly in the agreements. We don't know the details yet, but all the milestones will be set out under agreement. Therefore, that restricted cash will be released according to such terms. When that happens based on certified milestones authorized by the Ministry of Defense, they will be recorded as cash flows for the company. Now while the financing is on the restricted cash accounts, we are going to have a neutral financial effect with other financial assets and liabilities that will have no effect whatsoever on our debt ratios. As you very well know, these ratios are not impacted by such advanced payments. And as for the amounts concerned, they have already been disclosed. There are some prefinanced amounts for each contract, and there are some allocations that will be made in 2025 all the way to 2031, that is a full breakdown of such amounts. Jose vicente Los mozos: [Interpreted] Something I forgot to mention to Carlos Treviño from Banco Santander. There is the impact of the preparation for the special modernization programs. I want you to know that operational expenses made in the third quarter. Well, I ask the team to recover to have the same EBIT as the one we had in 2024 without the preparation, so above 18%... Operator: Next question from Carlos Iranzo Peris from Bank of America. Carlos Peris: I have two, if I may. On the more than EUR 10 billion defense backlog in 2026, any color about how many billions or what is the percentage of this backlog that is coming from the PEM programs versus non-PEM? And then the second question, just coming back to the path to EUR 10 billion sales. I mean you already mentioned back in February this year that you could deliver EUR 10 billion sales in 2028. So I guess post PEMs allocation, clearly, the growth outlook has strengthened significantly. So should we then think that it could be possible to potentially achieve those EUR 10 billion earlier? Jose vicente Los mozos: [Interpreted] Let's try to understand this correctly, the EUR 10 billion, most of them are going to be PEMs and Special Monetization Programs but not just that. We have other elements in which we're working like SAFE our other European programs or international programs. But the base that we take as a benchmark and I still believe it's a conservative figure are the 2025 PEMs. On the EUR 10 billion, we never said 2026. What we said was that our ambition was 2030. Today, I can say, and our President mentioned already that his intention was to be able to get there by -- in 2028. And that's what we're working towards. And I believe that from today until the Capital Markets Day, we'll be able to tell you when we're going to reach those EUR 10 billion. Operator: Next question from Michael Briest from UBS. Michael Briest: Just on going back to the loan program. I think I heard you say that on the MC3 program, you've got loans of EUR 380 million and the contract value is EUR 785 million. Is that ratio of loan to order roughly the same across the entire EUR 7 billion loan book? And then just in terms of test focusing on the here and now, could you talk about the deliveries in Q3? I know there were 11 in Q2 and you were hoping to do 60 as a minimum this year, but it doesn't look like there was much contribution in Q3. And therefore, do you still think you'll hit 60 units for the year? Jose vicente Los mozos: [Interpreted] First of all, while Miguel will explain the financial part about non-vehicles, our commitment was to be able to provide one division or 57 vehicles and reach 70. That's what we are working for and that's -- that was our commitment, not just Indra's commitment, but the rest of the partners that are part of TESS. So [indiscernible] and Escribano, because this is a commitment that has to be a commitment by all of the 4 companies, although it is true that starting in July, Indra is leading TESS on the figures... Miguel Forteza: [Interpreted] Okay. Let me supplement the CEO's remarks. As you know, in Q3, there were no significant revenue coming from TESS, but we believe that, that will come from future deliveries. As the CEO mentioned, we expect that to take place in Q4. As for financing ratios and contracts, we provided an example concerning the EUR 380 million financing for a total contract of EUR 785 million or 48%. You are right. However, we should take into account that we need to wait for the agreements to be formalized. We need to know exactly the terms and conditions governing those agreements. Otherwise, it will not be possible to start setting out a clear ratio and therefore, think about an increase in our backlog. We have to weigh whether phases will be established, whether they will have a full or partial scope or outreach. Nonetheless, as soon as we formalize those agreements, we will keep you posted because all that information will be included as part of our backlog and order intake. For the time being, we cannot report a standard ratio because we believe that these figures might change significantly in some cases and from one contract to another, there might be variations. Next question, please. Operator: Next question from the line of Jessica Agarwal from Goldman Sachs. Unknown Analyst: I just have two on basically the other -- like the segments. First of all, the air traffic management. It was like a slight decline organically, but I understand it can be lumpy. So how are we tracking when it comes to that like expectation around a low double-digit growth in this segment? And how do you see that developing over the span of next 12 to 18 months? And the second one is basically like any update on Minsait as in like what exactly we completely understand there is a part like where you want to keep the core and there are some businesses which might be like available for sale. So any updates on that would be helpful. Miguel Forteza: [Interpreted] It is true that as for ATM, the past quarter was not as solid as we initially expected, but we should take into account that in the first half of the year, ATM revenue grew by 25%, 26% roughly. And therefore, that is what we need to take into account. However, as for the end of the year, we expect a double-digit growth in ATM. Maybe you might remember that at the beginning of the year, we said that we expected a high single digit concerning revenue coming from ATM. Now however, we estimate a double-digit growth by the end of 2025. As for our outlook with regards to the next 12 to 18 months, it's pretty clear as the CEO pointed out, we expect the same growth as the one we estimate for other regions such as the United States, where we said we are going to be making an investing effort in the Kansas plant through the contracts that have already been awarded to Indra, taking into account the American Aviation agencies, they are going to be investing up to EUR 10 billion in total. And we're also focusing on Asia Pacific as another region. Jose vicente Los mozos: [Interpreted] Just to reinforce what Miguel Forteza mentioned, when we're talking about ATM, we cannot focus on a quarter because we don't really control the contracts. We are talking about over 50%. So it's normal in one country to be ahead of time, some others a bit lag behind. It's important to see the difference year-to-year. And what I can say is that in ATM, today, we have the most advanced solution in the market. And I'm saying this not just for the sake of it, but I came back from the United States 2 weeks ago, and I can say that airport authorities are very happy with Indra solution. And we have NAF Canada as well and in London, we've got Eurocontrol, the Middle East. So it's not happening by chance that we are in most markets in the world. So I'm not concerned on nonstrategic assets at Minsait. Well, we -- both the President and myself, we know which are the assets that are not nonstrategic. There are several processes open. And if there's a proposal that satisfied the needs and the expectations of the company, we will carry it on. We are not in a situation which we can -- we want to lose value or just lose assets. If we understand that there's a proposal and that amount helps us invest on another asset that generates more value for our shareholders, we will do it. And we will inform you as it happens. So at a point in which the company is getting transformed. And we are talking about 20%, 50% of contracts, 100% in defense. We are getting our portfolio organized. We are 1 year ahead of schedule in our strategic plan. And at the same time, we haven't increased our leverage at all. So well, I believe that there's going to be a business case in the next few years to see how in 2 years, we turned around the company. Operator: Next question from Nicolas David from ODDO. Nicolas David: The first one is regarding IndraMind. Could you help us understand the magnitude of the opportunity in terms of order intake you see regarding the contracts which are part of PEMs linked to digital and cybersecurity? And what could be the time frame for those allocations? My second question is regarding CapEx. Now that you have a bit more visibility on the contract we signed, what kind of CapEx to sales do you expect in the coming years? Should it increase? Or is the level of 2025 something we should consider for the future? Jose vicente Los mozos: [Interpreted] IndraMind is a solution that Europe needs for its technology sovereignty with that dual use for civil and military. So with the President, we assessed Indra within Minsait, we have many use cases, both civil and military, but we have a platform. And I believe that for that European sovereignty, IndraMind can provide a solution, both in military and civil cases because we already have the use cases. So on the information, well, in the afternoon, there's an event at 6:00 p.m. Spain time, and I don't want to advance any of the things that we're going to be mentioning in the afternoon because our teams are working and fighting to explain the market what IndraMind is going to be, what we are going to do with it and what we expect. And I don't think it is right to reveal beforehand what we're going to be communicating in the afternoon. So those were the results for the first 9 months of the year. And as I mentioned, well, first of all, I want to thank our teams. Indra group has nothing to do with what I was here before I got here. The arrival of our President in January has accelerated it because we share a vision and we share a project. I believe that yesterday's event with the companies is a clear turning point of what Indra means in the Spanish sector. And we I'll finish with the idea of Minsait's going to be sold or not. We are working together. We have turned ATM into a leading company globally in its sector. We have transformed mobility with benchmark projects like the projects in the United States or some other projects we are about to launch in Europe that are going to be relevant from a global perspective in defense, we did our portfolio rotation. For example, we are experts in raiders at a world level, we are working on anti-aircraft systems. We have entered the space and securing communication. And the result of it all is that we have advanced in a year our strategic plan, and we are already working on a road map towards those EUR 10 billion. One year ago, none of you expected Indra to achieve EUR 10 billion before 2030. And we are going to get there. But not only are we're going to get there in terms of sales, but we are going to be leaders in terms of profitability and with a very low debt. And that's possible, thanks to the work of the whole team, and we will keep on working. Thank you very much, and see you in the annual results presentation and in the second Capital Markets Day. Thank you very much for your trust. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Hello, everyone. Thank you for joining us, and welcome to the Cboe Global Markets Third Quarter Earnings Call. [Operator Instructions] I will now hand the call over to Ken Hill, Head of Investor Relations. Please go ahead. Kenneth Hill: Good morning, and thank you for joining us for our third quarter earnings conference call. On the call today, Craig Donohue, our CEO, will discuss our performance for the quarter and provide an update on our strategic initiatives. Jill Griebenow, our Chief Financial Officer, will then provide an overview of our financial results for the quarter as well as discuss our 2025 financial outlook. Following their comments, we will open the call to Q&A. Also joining us for Q&A will be Chris Isaacson, our Chief Operating Officer; Prashant Bhatia, our Head of Enterprise Strategy and Corporate Development; and Rob Hocking, our Global Head of Derivatives. I would like to point out this presentation will include the use of slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of the website. During our remarks, we will make some forward-looking statements, which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise after this conference call. During the call this morning, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. Now I'd like to turn the call over to Craig. Craig Donohue: Good morning. Thank you for joining us today to discuss our third quarter results. Our performance this quarter underscores how Cboe is operating from a position of strength, a result of our world-class products, platforms and people. We're building on that momentum and sharpening our strategic focus designed to unlock even greater value and opportunities for growth. Following the conclusion of a rigorous review of our businesses, we will initiate a sales process for our Cboe Australia and Cboe Canada businesses. We will discontinue our U.S. and European Corporate Listings efforts, and we will reduce our costs related to our U.S. and European ETP Listings businesses, Cboe Europe Derivatives Exchange and several of our smaller Risk and Market Analytics businesses. This strategic realignment ensures Cboe is well positioned in a dynamic and evolving market and strengthens our long-term vision to be a global derivatives leader. These changes will be accretive to earnings, and Jill will discuss in her prepared remarks how these actions strengthen our financial position and unlock new growth opportunities. I'd like to express our deep appreciation to all our team members for their dedication and hard work in supporting each of these businesses. While our Australian and Canadian equities businesses are performing well, we've determined that they fall outside of our core focus and strategy. We are grateful to our regulators in Australia and Canada for the support and collaboration they have shown us, and we will work closely with them to ensure a smooth transition for all of our key stakeholders. With this renewed focus, we are directing greater attention to our core businesses, which are operating from a position of strength. We see tremendous opportunities across index and multi-list options, Futures, U.S. And European Equities and FX, inclusive of Data Vantage. Leveraging these core areas of strength for Cboe and the strong secular growth trends supporting them, we believe we are well positioned to fully capture their growth and earnings potential as we strengthen our competitive positioning. Turning now to the third quarter. Cboe grew net revenue 14% year-over-year to a record $605.5 million and adjusted diluted EPS increased a robust 20% to a record $2.67. These results were again driven by strong volumes in both our multi-list and proprietary index option products, solid new sales growth in our Cboe Data Vantage business, robust industry volumes in our Cash and Spot markets and continued strong expense discipline. Most importantly, our performance once again underscored the durability of our net revenue generation with strength evident across nearly every segment of our business. In fact, in the third quarter, all 3 of our revenue categories: Derivatives Markets, Cash and Spot Markets and Data Vantage posted double-digit net revenue growth. As we head into the final months of the year, we look forward to building on those broad-based trends. Taking a closer look at the third quarter trends by category, our Derivatives franchise delivered another record quarter with net revenue increasing 15% year-over-year. In our multi-list options business, net transaction and clearing fees revenue was up a solid 14% given higher industry volumes and positive market share trends. While the multi-list option space remains highly competitive, Cboe is well positioned to benefit from strong secular trends, having taken meaningful steps to deepen our talent pool in the options space, while actively pursuing thoughtful regulatory reforms that support both the industry and investors. On the index options side, net transaction and clearing fees revenue was up a strong 19% as our proprietary SPX options complex set new records, powered by robust growth in 0DTE options trading. SPX 0DTE average daily volume surged 62% year-over-year, while overall SPX ADV increased 26% to a record 3.9 million contracts. 0DTE options made up over 61% of SPX volumes, up from a 48% share a year ago. We saw a similar dynamic in Mini-SPX options, where 0DTE, ADV more than doubled over the past year and drove an impressive 66% increase in total ADV during the quarter. 0DTE options now make up roughly half of Mini-SPX volume, up from 35% a year ago. In our proprietary options business, it's noteworthy that 9 of the 10 highest average daily volume months occurred in 2025, with September ranking as the third highest month on record only behind March and October month-to-date activity. In fact, our largest SPX day on record occurred on October 10 with 6.4 million SPX contracts traded and a record 33.2 million total options contracts traded across our index and multi-list products. It's also worth noting that growth in our 0DTE options franchise reflects not only wider adoption and broader access, but it's also a result of Cboe's distinct advantages in product innovation, contract design and market structure. We look forward to leaning into these advantages with our new [ MAG 10 ] index options and futures launch subject to regulatory approval, giving investors a simpler way to gain exposure to the AI and tech theme and a more precise way to manage risk using cash-settled European-style options. While SPX volumes in the third quarter were robust, our VIX products faced a more stable macro backdrop and lower realized volatility. The continued growth in our index options despite the lower activity in our VIX complex highlights the strength and versatility of Cboe's comprehensive volatility toolkit. Looking ahead, we remain positive on the outlook for our core derivatives business. With trade tensions, a government shutdown and more uncertain economic outlook, we see investors continuing to utilize options to manage risk. Secular trends of increasing retail participation and international expansion should provide further tailwinds. We continue to onboard more international brokers as global customers seek exposure to U.S. financial markets. Moving to Cash and Spot Markets. Net revenue was up a strong 14% as our European cash equities business continued to drive robust performance for the category, led by another quarter of strength in our European transaction businesses, the Europe and Asia Pacific segment delivered the strongest year-over-year net revenue percentage growth of any Cboe segment for the fifth quarter in a row, achieving an impressive 24% increase. This was driven by a 35% year-over-year growth in net transaction and clearing fees resulting from strong industry volumes, solid market share gains and a higher net capture. Global FX also made another solid contribution, growing net revenue 13% year-over-year in Q3. Over a longer time horizon, FX has delivered quarterly year-over-year net revenue growth in 17 of the last 18 quarters, speaking to the durability of this segment's revenue generation. Turning to Data Vantage. Net revenue increased by 12% on a year-over-year basis, reflecting continued momentum across our platform. Notably, nearly 90% of the growth across our market data and access businesses was driven by new unit and new sales as opposed to pricing. This growth speaks to the sizable demand for Cboe's Data and Access products, including our newer offerings, Dedicated Cores and Timestamping. Now I'll turn the call over to Jill to walk through the details of our financials and guidance for the quarter. Jill Griebenow: Thanks, Craig. Cboe posted another strong quarter with adjusted diluted earnings per share up 20% on a year-over-year basis to $2.67. I will provide some high-level takeaways from this quarter's operating results before going through segment results. Net revenue increased 14% versus the third quarter of 2024 to finish at a record $605.5 million, with each of our categories producing healthy year-over-year growth. Specifically, Derivatives Markets net revenues grew 15%. Data Vantage net revenues grew 12% and Cash and Spot Markets net revenues grew 14%. Adjusted operating expenses of $210 million were up 3% on a year-over-year basis. Adjusted operating EBITDA of $409 million grew 21% and adjusted operating EBITDA margin expanded by 3.8 percentage points to 67.5% versus the third quarter of 2024, demonstrating both our strong business performance and disciplined expense management. Turning to the key drivers by segment. Our press release and the appendix of our slide deck include information detailing the key metrics for our business segments, so I'll provide some highlights for each. The Options segment delivered its fifth consecutive quarter of record net revenue with 19% year-over-year growth. Cboe total options ADV was up 26% with a 15% increase in index options volume and a 31% increase in multi-listed options volume. North American Equities net revenue increased 6% on a year-over-year basis. Access and capacity fees increased 10% as compared to the third quarter of 2024 and stronger industry volumes helped temper softer net capture and market share in our transaction net revenues. Europe and APAC produced 24% year-over-year net revenue growth, reflecting another quarter of strong growth in Europe. Net transaction and clearing fees for the segment were up 35%, while non-transaction revenues were up a combined 14%. Futures net revenue decreased 22% from the third quarter of 2024, primarily due to lower volumes. And finally, Global FX net revenue was up 13% on a year-over-year basis, driven by a 3% increase in average daily notional value and a 9% increase in net capture. Looking at our Cboe Data Vantage business, net revenues were up 12% on an organic basis in the third quarter. Building on the solid year-to-date trends, revenue growth was again driven by strong new subscription and unit sales. New sales represented nearly 90% of Market Data and Access Solutions revenue growth in the quarter, with the remainder coming from pricing changes. As Craig discussed, we are encouraged by the sales momentum occurring across our new product offerings. Turning to expenses. Total adjusted operating expenses were $210 million for the quarter and up 3% on a year-over-year basis. The increase was primarily driven by higher compensation and benefits expense as a result of our strong revenue trends, which have increased our bonus incentive accrual. Before moving to our 2025 guidance update, I would like to discuss the anticipated financial impact of the business decisions announced earlier this morning. While we are still working through these changes with our key stakeholders, we do not anticipate that these actions will have a material impact on our 2025 total organic net revenue growth or our 2025 adjusted operating expenses, and they are fully captured in our updated guidance. On a go-forward basis, we expect the annualized run rate impact of both today's announcements and the completed wind down of our Japanese Equities business to be accretive to our earnings, resulting in roughly a 3% reduction in net revenue and an 8% to 10% reduction in adjusted operating expenses using the 2025 guided ranges as a baseline. That being said, realizing the full impact of the actions will take time as we work through the various realignment actions and sales processes. We will look to provide a more fulsome progress update to help calibrate the timing of various impacts when we announce our 2026 guidance during fourth quarter earnings in February. Moving to our full year 2025 guidance. We are increasing our full year total organic net revenue growth guidance range to low double digit to mid-teens from high single digit given our strong year-to-date results and fourth quarter trends. We are increasing our Data Vantage organic net revenue growth range to high single digit to low double digit from mid- to high single digit following stronger-than-expected year-to-date growth. We are lowering our full year adjusted operating expense guidance range to $827 million to $842 million from $832 million to $847 million. This decrease reflects our year-to-date operating discipline as well as reduced expectations for depreciation and amortization expenses, partially offset by higher incentive compensation given our healthy revenue generation. We are lowering our full year guidance range for CapEx to $73 million to $83 million from $75 million to $85 million, and we are also lowering our expectation for depreciation and amortization to $50 million to $54 million from $53 million to $57 million. We continue to expect the effective tax rate on adjusted earnings under the current tax laws to come in at 28.5% to 30.5% for the full year. And while we don't provide formal guidance on interest income or interest expense, we expect that interest expense net of interest income will be approximately $3 million in the fourth quarter. On the capital front, our adjusted cash position of $1.5 billion and leverage ratio of 1.0x demonstrate our healthy balance sheet. In addition, Moody's recently upgraded our credit rating by 1 notch to A2, reflecting the strength of our financial profile. In the third quarter, we returned $76 million to shareholders in the form of a $0.72 dividend, representing a 14% year-over-year increase in our quarterly dividend. Turning to our investment in the 7RIDGE Fund holding Trading Technologies. The transaction detailed in last quarter's earnings call is expected to close in the fourth quarter of 2025, subject to regulatory approval. As of September 30, 2025, the carrying value of the investment reflects assumptions, including the agreed sales price related to the estimated fair value of trading technologies. A gain of $45.6 million is included in our earnings on investments for the third quarter, but the impact has been adjusted out of our non-GAAP income statement. In the fourth quarter, we anticipate recognizing an incremental gain upon the final closure of the transaction. Similar to the third quarter, we will adjust the gain out of our non-GAAP income statement. As an organization, we are focused on optimizing capital deployment to strike the right balance between margin efficiency and investment in emerging growth trends following our review. And while the decision process to strategically realign our business portfolio is complete, our commitment to continuously assessing new opportunities and optimizing our businesses will be unwavering. We will maintain a disciplined approach to assessing all aspects of our business with a clear emphasis on driving revenue growth and enhancing profitability to maximize shareholder returns. Now I'd like to turn it back over to Craig for some closing comments before we open it up to Q&A. Craig Donohue: Thank you, Jill. As Jill highlighted, our business is operating from a position of exceptional strength, and we now have a clear path to unlock even greater value. The strategic realignment of our business portfolio and human capital allows us to focus on optimizing our core businesses for further growth and profitability and pursue opportunities in emerging growth areas. While we continue to undergo change, our continued success makes us a destination for talent. The realignment and focus on growth allows us to continue to build senior leadership talent across the organization. In the past 6 months, we have made key hires in strategy and corporate development, global derivatives, clearing and Data Vantage. And yesterday, we announced another key hire as we welcome JJ Kinahan as Head of Retail Expansion and Alternative Investment Products. JJ is a well-regarded industry veteran in the retail brokerage space with deep expertise in equity derivatives markets. He brings a wealth of experience to the Cboe management team, and I look forward to working closely with him and Rob as we pursue new growth opportunities in the retail-oriented digital crypto and event contract space. We have made meaningful progress over the last 6 months, and we have a great deal more to do. I am energized by the momentum of the organization and excited to channel what we've learned into driving transformative change. I'll now turn the call over to Ken for Q&A. Kenneth Hill: At this point, we'd be happy to take questions. [Operator Instructions] Operator: [Operator Instructions] Your first question comes from the line of Patrick Moley with Piper Sandler. Patrick Moley: I thought maybe we'd start off, Craig, if you wouldn't mind just maybe just talk about some of the decisions made today as a result of the comprehensive review process, why were Cboe Australia and Canada, why did you decide to initiate a sales process there? And then as we think about the proceeds that you'll receive from those transactions and some of the expenses that will be freed up, what specific areas of the business are you looking to kind of deploy that capital into? Craig Donohue: Thank you, Patrick. Yes, happy to address that. I mean, obviously, as you've heard us comment before, the review process is something that began under my predecessor, Fred Tomczyk, that process continued. But my goal since joining Cboe has been to try to accelerate that process and reach a conclusion. And essentially, what I've been focused on and the team has been focused on is trying to pivot people toward the largest growth opportunities that we have among all the available choices. Obviously, we feel like we've done a very good job in Australia and Canada. But at the same time, our best opportunities for growth are in our current large core businesses that are hugely successful, where we've got a critical mass of successful markets, products, liquidity and customers. Some of our core businesses are ones that are performing extraordinarily well and others are such that we know that we've got further growth opportunities within those core businesses, and we also have further opportunities to optimize for greater profitability in each of those businesses. And so from a human capital perspective, I want to make sure that we're all focused on really the largest growth opportunities that we have in our current core business. And that's what you'll hear us talking about in terms of optimizing the core. At the same time, there's a lot of emerging growth trends in the industry that I feel align really well with our core capabilities. And so we're really starting to shift as we've described during the call, and as Jill commented on toward those new emerging growth opportunities. And so I want to make sure that we're focused on event and prediction markets, digital and crypto markets, there's extraordinary growth there. I think they align well with our core capabilities in terms of what we've been able to achieve with the retail segment. Those are largely at this point, retail-oriented product opportunities. I'd like to think that we've been an innovator in shorter-dated contracts through 0DTE, and event and prediction is really just sort of coming at it from a different way, but that's something that we have demonstrable expertise and success in. And then as you'll recall, I mean, we were also an early participant in digital markets. We still have a lot of our core capabilities in that area. So those are things that I want to make sure that we are focused on. I'll let Jill comment on reinvestment of capital, but most of what we are focused on is going to be kind of low capital intensity in terms of further investment in the business. So what I'm primarily focused on is the reallocation and reinvestment of our human capital, but it does free up opportunities for us to make sure that where we do need to invest capital in those new growth opportunities that we have the agility and the ability to move quickly and do that. Jill Griebenow: Yes. So just a couple of words on the reinvestment or the proceeds, the investment. I will say from an organic growth perspective, we have the flexibility to make investments into some of the areas that Craig mentioned. As it stands now, we wouldn't expect those to be material. We will come back in February with our 2026 guidance. But really, what this affords us is just incremental flexibility, the ability to invest where it makes sense. And then to Craig's point on the strategic allocation of human capital as well to these higher growth areas. Operator: Your next question comes from the line of Eli Abboud with Bank of America. Elias Abboud: Can you help us understand the drivers behind the stronger outlook for your Data Vantage business? The past couple of years, it's been a high single-digit grower. What has changed that's going to allow you to get north of that? And then do you expect you can hit that target even in years when volumes and capacity fees are down? Christopher Isaacson: Eli, thanks for the question. This is Chris Isaacson. So we've seen above expectations uptake in some new products. We rolled out in the last 1.5 years with Dedicated Cores and Timestamping Service. Customers continue to demand that. They have -- each of them has their own adoption curves, and we've seen really strong growth throughout 2025 as well as data products outside the U.S. For instance, 85% of Cboe Global Cloud growth has come from outside the U.S. So that's what's contributed this year. And I can hand it to Jill about what we see looking forward. Jill Griebenow: Yes. So really, I mean, we've seen some outperformance in 2025, really pleased with the results there. As I commented in my prepared remarks, about 90% of that incremental revenue has come from new units, new sales and about 10% of that then from pricing. So we, again, pleased with the 2025 results that we've had to date, the outlook for Q4. But what I will say is different products have different adoption curves. This has been a good grower for us. What we will do is, again, take a look and reassess our guidance. We'll come back in February with our update on the '26 outlook. Operator: Your next question comes from the line of Brian Bedell with Deutsche Bank. Brian Bedell: Can you hear me okay? Craig Donohue: Yes. Brian Bedell: Maybe just to focus in on the retail strategy and JJ's game plan for -- maybe just sort of expand more on how you might be doing this differently, the connection with other brokers, online brokers, the potential white space that you have there, because I know you're already connected with a lot of retail participants. And then if you can talk a little bit more about the prediction markets how that weaves into the retail strategy? What's the timing of when you think you might start to launch event contracts? And I don't know if there's any view on pricing of those yet. Prashant Bhatia: Yes. Brian, Prashant here. Just real quick on prediction markets. We see broad-based interest in prediction markets. We think it aligns well with the cross-section of secular trends, increased retail participation, the appetite for short-dated options. And again, smaller contract sizes, dollar-sized contracts are really the ultimate mini contracts. So we want to leverage our strengths and provide industry participants there with a neutral infrastructure platform, and we're thinking both on the exchange side and on the clearing side. So we think there's an opportunity there. You can expect our focus will be on financial and economic-related contracts when it comes to those products, and we're crafting a go-to-market plan, and we'll provide you with updates there as we make progress. So, yes, event and prediction market is clearly an area of interest for us. And I think we've got an offering that could benefit the marketplace. Robert Hocking: Yes. And I would add, I'd just jump in, maybe giving a little more background on why we think we have the right to win in that space. Options have always been centered around forecasting future market volatility, but the direction, timing of events. So you could actually say we've been in the prediction business since we started in 1973. Further, a lot of this was the basis for creating products like the VIX Index. The VIX is a real-time measure of the market's expectation of a trading range of the S&P 500 over the next 30 days. And its predictive nature is really what's driven it to become one of the most watched equity market benchmarks in the world. And so with options, every strike expiration embeds the market consensus on where that underlying could be at any specific point in time. That's why we're so excited about the space and believe with the decades of experience we have, investments in infrastructure, along with really most importantly, the community of market participants already active in doing business on Cboe that this is a tremendous opportunity. Now specifically, when I think of the liquidity providing community and really the tangential nature of the event and prediction market, we're excited to work with those core partners and tap into the vast amount of liquidity that they provide each and every day. And to put that in perspective, an average of about $18 billion in premium trades each day in SPX options. And that event and prediction market year-to-date in similar products is less than $50 million in premium. So if we do this correctly, we're really bringing these liquidity pools to that event and prediction space, which give us a really unique opportunity to enter it and to grow. And so on the retail side, you mentioned that we've led that charge. You've heard it already about the ultra-short-dated options, the growth of that retail participation. In many ways, we view the event and prediction market as kind of an introductory product to help those investors in that journey to understanding more complex and more complex products. So you start with stocks. You move to kind of binary, yes, no products and then ultimately, you bring them into options and kind of the continuous spectrum of probabilities that they can work with. And so this is a process and really a formula we pioneered. And by offering the right products, education, that's another real important one. You may have heard we just launched our OI learning management portal, which allows individual retail investors to expand and better understand these products. And then through all of these efforts, obviously, hiring JJ was a big one with regards to 4-plus decades of retail experience and how to reach that market and understand that market and what that user and investor wants to see on our platform is crucial, and we really think we can build that long-term user base for Cboe. Operator: Your next question comes from the line of Chris Allen with Citi. Christopher Allen: Just would love to hear your thoughts on the strategic realignment, particularly the sales of overseas -- the international businesses and how that fits with the international strategy for the data business, where clearly you're seeing good progress. Just love to hear -- if I remember correctly, some of the deals that were done, they were done to expand global footprint to drive data sales. So now you're pulling back. Just help us think about that strategy moving forward. Prashant Bhatia: Yes. Thanks, Chris. So when we went through the process to evaluate our portfolio of businesses, we looked at each of these businesses from a strategic lens, from a financial lens and from a growth potential. lens. And when it came down to our Australia and Canadian businesses, they both performed quite well, but we simply determined that we have better opportunities to drive meaningful growth for Cboe in other areas. And that's why we decided to pursue a sale there. And when you talk about some of the linkages to data, these are core local market platforms in the Canadian market and the Australian market. In terms of our data, a lot of our data sales aren't really driven by having a local exchange presence. So we see an enormous amount of demand for our data throughout APAC. We've added salespeople. We've added marketing resources in those regions, and it really drives a lot of access from clients overseas. When you look at the connectivity we have with APAC brokers and how we continue to grow that, there's an enormous demand around the secular trend of flows with the U.S. being a destination. So we don't think it's going to have an impact from that perspective at all. These were more local market exchanges that are performing well. So we made the decision really driven by where we find the biggest growth opportunities going forward, so we can drive focus there. Operator: [Operator Instructions] Your next question comes from the line of Anthony Corbin with Goldman Sachs. Anthony Corbin: This is Anthony on for Alex. Maybe just on prediction markets, how are you thinking about M&A versus a less capital-intensive partnership? And do you see any risk of cannibalization to your existing short-dated product suite? Craig Donohue: I'll start with that. I mean I think we're looking at this as an organic opportunity, leveraging a lot of the key strengths that both Rob and Prashant have commented on. I mean, obviously, we'll always look at inorganic opportunities if they make sense. But the primary focus that we have right now is a launch plan that's focused on organic efforts. Operator: Your next question comes from the line of Ashish Sabadra with RBC. [Operator Instructions] Ashish Sabadra: Just wanted to follow up on the earlier question. And as you think completed your strategic review, how are you thinking about organic investments going forward, but also like inorganic investment broadly outside -- across all the spaces, including the Data Vantage space? Craig Donohue: Yes, I'll start. Jill and others may want to comment, too. But I mean, we do see opportunities for continued investment in our core businesses. I mean, obviously, with the focus on adding scale in derivatives generally, event and prediction markets, retail-oriented digital and crypto products. There are opportunities for us to invest further in our clearing capabilities, both in Europe and also in the U.S. There are also investment opportunities for us in terms of developing on-chain capabilities as well as migrating increasingly toward atomized settlement capabilities that will further extend our products and reach beyond our traditional trading hours. So those are some of the kinds of things that we would be looking at. I mean, obviously, we also have a very successful and growing business in both index options and in multi-list. And so there are also investment opportunities there, especially in multi-list in terms of how we can better facilitate more liquidity and more trading volume. So there's a range of things that we will be focused on in terms of investment. And that's a big part, as I said, of this whole strategic pivot is really making sure that we're extracting as much growth and profitability as we can, not only from our current core businesses, but from these other areas that we'd like to pivot and shift to. Operator: We have a follow-up question from Eli Abboud of Bank of America. Elias Abboud: You highlighted how Data Vantage revenue growth is being disproportionately driven by international unit sales. In past calls, I think you've said about 50% of the incremental growth comes from international. I was hoping you could break that down a little bit further. How are international users consuming your data? Is the growth concentrated in one particular channel? And then how do we square your outsized international data growth with the fact that global trading hours are still a relatively small part of your total volumes? Prashant Bhatia: Yes. So I'd say a couple of things on Data Vantage. In terms of the growth we're seeing overseas, it's absolutely driven by a lot of our -- an appetite for data or U.S. proprietary market data, and we're seeing high demand for that. In terms of global trading hours, it's not as correlated to data sales there as to GTH volumes. So we're not seeing a high correlation there. The demand is coming, and they are trading within the 24-hour, 5-day windows that we have. So we're seeing a good demand and appetite there. And when you look across the Data Vantage platform, we're not only seeing growth on the data side, we're seeing growth on the index side. We're seeing growth in our risk and market analytics platforms as well. So it's pretty broad-based growth. Again, with any kind of sales-oriented business, you end up with some variability quarter-to-quarter depending on when sales hit. This was just a particularly strong quarter for us. We continue to think we're well positioned going forward. So good story there, and all that growth is really organically driven. Robert Hocking: And to put a finer point on the GTH hours point and how that doesn't tell the whole story, given the larger liquidity pools in our regular trading hours session, a lot of international participants that are still buying the data and need the data for trading are trading during those regular trading hour sessions as well. And so I think we're using that from the stance of you continue to build the liquidity pools. We have them in the regular hours. We continue to build them in the global trading hour session, and you start to see some of that flow migrate to more, I would say, call it, on-hours trading for the international clients. But I just want to be clear, like a lot of those trading in the international space are doing it during the regular trading hours. Christopher Isaacson: And Eli, I might just finish here with our goal here is to get our data as close to customers in whatever format or mechanism that works best for them. So we've added Cboe Global Cloud in partnerships where we need to. But as Prashant mentioned, the real demand is coming for U.S. data from around the world, wherever we interact with customers, they want access to the U.S. markets and our bellwether products. So our goal is to get them that data in whatever format works for them. That's where we're seeing the growth. Operator: Your next question comes from the line of Ben Budish with Barclays. [Operator Instructions] Benjamin Budish: I wanted to ask a higher-level question about AI. It's something we've heard a lot about from some of your exchange peers this earnings cycle. Just I'm wondering if you could share any high-level thoughts, how might that help you in terms of new data and analytics products? How do you think about potential to increase efficiency in your operations? I think your margins are already quite high, but how are you thinking about opportunities either on the product side or internally to employ or deploy more AI capabilities? Christopher Isaacson: Glad to take that one Sorry. Thanks for the question. Yes, obviously, AI is all over the news outside of our industry, but also in our industry. AI has been a journey for us, and we've made significant investments in AI. It's primarily been a productivity multiplier across all of our functions from sales, legal, HR, finance, infrastructure to software engineering, security, business intelligence is basically touching every part of our business internally. And it's embedded in our data platform, so we can surface insights for both for us and our customers. And it's really underpinned by our data strategy, where you've heard about us talk about we've been public about having our data platform running on Snowflake on AWS, and that underpins our AI strategy. So we're finding use in it for the product development life cycle, especially with the unique data sets that we have to new products. We stood up a center of excellence in mid-2024. And that's not just a hub for software engineering, but it's for company-wide resources to make sure we're getting adoption across the enterprise. And now we have 900 active associates working on that. So we're also -- we're in the age of agentic AI. We deployed multiple agents across our enterprise, including in areas such as infrastructure and information security and really focused on building infrastructure with an AI platform internally, but also in educating all of our associates. So it's been primarily internally focused, but now we're turning to what products can we commercialize based on the insights that AI gives us. So we also have had a fun program internally called the AI Olympics and AI Champions and the winners of the Olympics, and we then we go implement those projects because they are delivering great value for us. So we are, frankly, all in on AI because we think it has tremendous power to unlock greater productivity. You've heard a lot on this call about human capital, and we have great people here. We want to make sure that we fully leverage those great people. Operator: [Operator Instructions] We will now move to Kyle Voigt of KBW. [Operator Instructions] Kyle Voigt: You noted opportunities in the multi-list options market multiple times today on the call. I don't want to say that multi-list hasn't been a priority for Cboe, but maybe it seems like it's going to be more of a focus of investment for Cboe moving forward. As you noted, it's a very competitive space. So just wondering what you think you could do differently in that market versus the way Cboe has looked at and addressed that market over the past several years? Robert Hocking: Yes. Thanks, Kyle. I appreciate the question. We're really excited about the multi-list space and the revenue opportunities we see going forward. As you mentioned, multi-list is core to Cboe, and it's an area we're going to be heavily focused on competing in. Industry volumes are up 20% year-over-year. Retail is driving much of that growth. Options adoption amongst retail is still in the early innings. So we really see plenty of runway ahead. As far as the multi-list landscape, yes, you touched on it. It's highly competitive. In early 2026, I think we'll be up to 20 exchanges in the space. That said, Cboe still commands over 24% of the multi-list market share and is #1 in overall industry market share with just under 31%. So we feel we're playing from a position of strength. Earlier this year, we made several additions to our U.S. team. Meaghan Dugan joined us from NYSE in February. We also added Gary Hunt, long-time industry veteran from Bank of America. And between both of them, they have over 50 years of industry experience in multi-list options. I know, I look forward to working with them, and we're going to be focused on increasing our competitiveness. On the functionality side, we're really working on a host of, I would say, market structure and pricing improvements across our different exchange medallions, things like liquidity adding incentives for market makers, competitive rebate program for customers bringing flow to Cboe. But ultimately, we feel we're well positioned to continue to be an industry leader, and we will remain focused on really striking that right balance between maximizing market share and revenue capture. Christopher Isaacson: Kyle, I just might mention you've heard a lot in previous calls when we were deep in the heart of integrations, and we had a lot of, frankly, tech resources focused on integrations. This year, we've really been able to fully focus on our core businesses as outlined in this call. And it's really encouraging to see we have a bigger and fuller derivatives road map. A lot of that is around multi-list options that I've seen in years. So we're, again, using that human capital, focusing the highest growth opportunities. Operator: Your next question comes from the line of Michael Cyprys with Morgan Stanley. [Operator Instructions] Michael Cyprys: Hopefully, you can hear me okay. I wanted to ask about AI to your earlier point. I was hoping you could elaborate a little bit on what products might make sense as you look out over the next 12 to 24 months? And then also more longer term, how you might see AI helping contribute to revenues at Cboe over time? Christopher Isaacson: Yes, it's a good question. I'm going to have a full clean answer here with the exact products that will come from AI. As I said, our data strategy underpins our AI strategy. I'd say the insights and the products are still yet to come. But we do have unique data sets because of the unique products we have, especially our proprietary products, and we think new products can come from that. I think one product I'll point out that's not really AI related, but Open-Close products, for instance, regarding SPX has had great uptake AI product, but it's something that's surprisingly simple, but very, very high demand. So we think we can surface more product ideas from AI or outside of AI and just use it as one... Robert Hocking: Yes. And I would add, as Chris said, we're in the early days. But from a product development standpoint, I think where we've seen the most progress is in research analysis and being able to go through these data sets faster, quicker, be able to pinpoint things where we see opportunities and need to explore them further. We can then get those opportunities, and we're quicker to then go get in front of clients and float them and see if they're beneficial to their portfolios. That process is starting to speed up for us. And I think we're in early days, but it will continue to build momentum as we go. Operator: Your next question is a follow-up from Brian Bedell from Deutsche Bank. Brian Bedell: Maybe just zooming back out on the global strategic pivot. So as we think of what you plan to divest of, should we be thinking of the future global footprint for Cboe as largely being U.S. and European centric? Maybe just comment on your commitment to continuing to have a leading market share in European Equities trading. And then -- and I would presume the global strategy is then more coming from the U.S. as you kind of talked about in this call. And then just to confirm, Jill, I think you mentioned that the early view of the impact of this financially would be a 3% reduction in revenue, 8% to 10% reduction in OpEx. So that would indicate that the businesses you're divesting from were breakeven or losing money. I just want to confirm that. Craig Donohue: Brian, I'll start and just say that I think what you said is right. I mean, obviously, we have very large and successful businesses that we're operating in certainly both the U.S. and Europe. You mentioned European cash equities. I mean, we've been really pleased with the growth and the results that we're seeing there. We see between European Equities and European clearing, a lot of future growth potential and some new ideas that we're working on there. I think the takeaway is that we don't feel that our presence in Australia, Japan or Canada are really vital to the continued globalization strategy that we have for the firm. It's really more along the lines of the things that you've heard us been commenting on during the call, which is investor education, sales and marketing in those regions, working with retail brokers throughout Asia Pacific to give them access to our markets. There's obviously, given the significance of the U.S. market relative to the global market, tremendous demand from institutional as well as retail customers. So our globalization path is going to be along those lines where we see continued growth, continued opportunity. And I'll let Jill take the rest of it. And Chris, you might want to add something before Jill. Christopher Isaacson: Yes. I just want to mention our FX business as well, which has been a nice steady grower again, this quarter, 13%, I think. It's just -- and that's -- if there's any global business, so that would be it. It's been an incredible business for us over the years and fairly global in the way we touch customers. Craig mentioned our super strong position in European Equities. I think its fifth straight quarter we're the highest grower for us. That's a great, market volumes great, market share great capture, just great competitive positioning there by our European team. So we remain very, very global. And I also say we're deploying infrastructure where necessary globally to touch those customers so they can come back to the U.S. or other markets. So, yes, it is a strategic pivot, but we will remain very global. I hand it to Jill. Jill Griebenow: Yes. So as it relates to the financial piece, I just want to clarify that the percentage amounts that we included in today's call, they relate to the aggregate portfolio or collection of actions. Those figures are not specific to just Canada and Australia together. And then also further clarification is that those ranges also include the previously disclosed action that we're taking to wind down the Cboe Japan business. So when you look at the collection of actions, as mentioned, we expect the impact on overall net revenue from all of these actions taken together to be, let's say, roughly 3% of what our guided 2025 ranges would be. But then from an operating expense savings, we expect to save somewhere in the amount of 8% to 10%. So as we did refer to in our prepared remarks, we do expect the collective action of these items to result in accretion to overall earnings. Again, it will take time. We're in the very early stages of the sales processes of these also looking, obviously, some of the enhancements we're looking to make. But again, overall, we do expect this to be accretive to earnings. Operator: Your next question is a follow-up from Anthony Corbin with Goldman Sachs. Anthony Corbin: I wanted to know how you're thinking about the net impact to expense growth over time from the cost savings from today's announcement and Japan: wind down versus the incremental spend needed to support retail expansion and the build-out of prediction markets? Jill Griebenow: Yes. So obviously, I'm not ready to share 2026 guidance just yet. But I think if you look at the results that we've communicated here in 2025 year-to-date, where we're looking to land from an updated guidance perspective, -- what I will say is disciplined expense management is it continues to be top of mind, but we're also very committed to investing in long-term growth. So again, just on a go-forward basis, we'll share our guidance for 2026 in early February. But we will be committed to striking the right balance between the disciplined expense management and the generation of future revenue. Obviously, that takes dollars to invest organically to stem that, but we will be very, very disciplined and again, just maintaining disciplined expense growth rates going forward. Operator: Your next question is a follow-up from Ben Budish of Barclays. Benjamin Budish: I was wondering if you could talk a little bit about your expectations for expanding trading hours. I think there was a press release from maybe a week or 2 ago about looking to add a morning session, I think, starting at 7:30 and expanding the afternoon to 4:15. Just curious, I think the release said you expect this would be a meaningful step on the way towards 24x5, but those hours, in particular, would capture a lot of other sort of economic data releases. So just curious, like with that in mind, based on what you see historically, how do you think about capturing that time might impact your SPX volumes in particular? Robert Hocking: Yes. Thanks, Ben. I'll start out and maybe Chris can add something if you'd like. Yes, as you referenced on October 20, Bloomberg reported on our filing with the SEC to add additional hours for U.S. equity options outside the normal 9:30 to 4:00 Eastern Time regular trading session. If approved, we would be adding a morning session from 7:30 to 9:25 Eastern Time and a post-close session from 4:00 to 4:15. Additionally, our plan is to start with, call it, roughly 25 names that represent the highest market cap, the most liquid names across the underlying options and equities. As you mentioned, this is in response to the surge that we've seen in equity option volumes and just the generalized industry push towards 24x5 trading. We feel it's a good first step, and it really begins to acclimate investors to that off-hours trading session. It also accounts for where we see the majority of volume in our current GTH session. Without stressing the liquidity providers, having the staff and provide liquidity and kind of the less active overnight hours, we see the majority of our volume trading, call it, about 2 hours before the regular market opens. Lastly, this is just an evolution. It's a good next step in single-name option trading. As the industry continues to assess the risks associated with introducing even daily expiries in single names and so forth, we think it's generally just a good practice to introduce new functionality in stages, and this just seemed like a really good first stage. Christopher Isaacson: And just a follow-up there, but it's just one of many products that will be trading with more expanded trading hours. As Rob has mentioned, we already trade SPX and VIX 23x5, almost 24x5. VIX futures, our FX products. We trade U.S. equities from 4 a.m. to 8 p.m. And the theme of 24x5 and eventually 24x7 is going to be a multiyear theme. We we'll have products, again, the industry is ready in the case of single stock options in the U.S. As soon as the industry is ready, we want to be there and leading as an innovator as we have all along list options. Operator: Your next question comes from the line of Michael Cyprys from Morgan Stanley with a follow-up. [Operator Instructions] Michael Cyprys: Just wanted to ask about prediction markets and crypto. I was hoping you could elaborate on your aspirations there. What steps might you be taking over the next 12 to 24 months? And how do you see this contributing to Cboe over the next couple of years? And to what extent might inorganic steps might help accelerate the time frame to scale? How are you thinking about that? Prashant Bhatia: Yes. I think in terms of prediction markets, we're going to start with what we would call financial and economic contracts. Digital is definitely something we'll explore, there's a lot of demand and activity there as well. So we will look at that. As Craig said earlier, our view is we've got the capability. We've got the exchange platforms. We've got the clearing platforms. A lot of this build-out initially will be organic. So we're not focused as much on acquiring things like that. Obviously, there will be partnerships involved. Think about the retail client base and the demand we're seeing there. We'll look to establish partnerships with retail platforms that want an industry utility type platform. And when we think broadly around things like M&A, not relatively related to the prediction markets, but we're always interested in looking for businesses that have compelling strategic and financial rationale. There's nothing we need to do there today, but we're always open to that. You've heard Jill talk about how strong our balance sheet is. So we'll just keep our options open. Robert Hocking: Yes. And even more specific, the crypto derivatives and perpetual Futures front, obviously, the market is growing rapidly. We've seen nice growth in our new Bitcoin index options since we've launched them in December of last year. ETF issuers, in particular, have gravitated towards using these products to introduce many of their options-based strategies. And so we already have, I think it's, at this point, 20 ETFs that are using CBTX and MBTX in their strategies, and we really expect more to come. And then we're also preparing to launch Bitcoin and Ether Continuous Futures. Now these are long-dated futures, cash settled designed to provide access to that perpetual style future in a U.S. regulated environment. The launch obviously has been slowed down a little bit by the government shutdown, but we're hopeful to get them out into the market soon. But we really see this even crypto events in the U.S. as a greenfield space to leverage our decades of derivatives experience. As I mentioned, a lot of this isn't happening on U.S. soil. And so that's where we see we can really step in and have an advantage. And I'll just reiterate, like I said yesterday, not yesterday, but like we announced yesterday, we're really excited to have JJ coming in. I don't think you can underpin the 4 decades of experience serving this client base. And so as he stands up this new vertical, I think we are excited about what's more to come. Operator: There are no further questions at this time. I will now hand it back to the management team for closing remarks. Craig Donohue: Well, thank you very much for joining us. I just want to say on behalf of all of us that this is a really exciting time for us. We are happy to be completing the business reviews, making the strategic realignment of the business. I want to thank all the people that have worked so hard to make us successful in these different areas that we've tried to work on, and we look forward to talking with you again next quarter. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, everyone. Welcome to the Dominion Energy Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. David McFarland, Vice President, Investor Relations and Treasurer. Please go ahead, sir. David McFarland: Good morning, and thank you for joining Dominion Energy's Third Quarter 2025 Earnings Call. Earnings materials, including today's prepared remarks contain forward-looking statements and estimates that are subject to various risks and uncertainties. Please refer to our SEC filings, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q for a discussion of factors that may cause results to differ from management's estimates and expectations. This morning, we will discuss some measures of our company's performance that differ from those recognized by GAAP. Reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measures, which we can calculate are contained in the earnings release kit. I encourage you to visit our Investor Relations website to review webcast slides as well as the earnings release kit. Joining today's call are Bob Blue, Chair President and Chief Executive Officer; Steven Ridge, Executive Vice President and Chief Financial Officer; and other members of senior management. I will now turn the call over to Steven. Steven Ridge: Thank you, David, and good morning, everyone. Since the conclusion of the business review last year, we've focused on 3 principal priorities first, consistent achievement of our financial commitments; second, continued on-time achievement of major construction milestones for the Coastal Virginia Offshore Wind project, and third, constructive achievement of regulatory outcomes that demonstrate our ability to work cooperatively with regulators and stakeholders to deliver results that benefit both customers and shareholders. As we successfully execute against these priorities, we empower our employees to provide the reliable, affordable and increasingly clean energy that powers our customers every day, and we position ourselves to deliver on the commitments we made to our investors at the conclusion of the business review. We believe that continued execution against these commitments will deliver compelling value for our shareholders. I'll address our financial results, and then Bob will address CVOW and regulatory progress. As shown on Slide 3, third quarter operating earnings were $1.06 per share, which includes $0.03 of RNG 45Z credits and $0.06 of worse than normal weather. Relative to third quarter 2024, positive factors for the quarter included $0.06 from regulated investment growth, $0.08 from increased sales, $0.05 from our DESC rate case settlement in 2024 and $0.03 from higher margins at Contracted Energy. Third quarter results also included worse weather, higher DD&A and higher financing costs. A summary of all drivers for earnings relative to the prior year period is included in Schedule 4 of the Earnings Release Kit. Third quarter GAAP results were $1.16 per share, A summary of all adjustments between operating and GAAP results is included in Schedule 2 of the Earnings Release Kit. Turning now to guidance. With 9 months of 2025 financial results reported, we're narrowing our full year guidance range to $3.33 to $3.48 per share, inclusive of RNG 45Z earnings while preserving the original guidance midpoint of $3.40. On last quarter's call, I highlighted sales and weather as noteworthy tailwinds through 6 months of the year. Over the last 4 months, we've seen weather reverse. And through 10 months of the year, now represents a small headwind of approximately $0.02. Continued strength from commercial and residential sales combined with other initiatives, gives us confidence in our ability to deliver full year results at or above the midpoint of our guidance, assuming normal weather for the last 2 months of the year. We've provided year-over-year drivers for the fourth quarter in the appendix of today's materials for your reference. Finally, we are reaffirming all other existing financial guidance. Turning to Slide 4. We've completed our 2025 financing plan. And as mentioned on prior calls, taking steps to further derisk future ATM equity. We remain focused on balance sheet conservatism, and there is no change to our previously communicated credit-related targets. Finally, we'll provide a comprehensive capital investment forecast update through 2030 on our fourth quarter earnings call, which will take place in early 2026. We expect incremental opportunities to deploy regulated capital on behalf of our customers, with a timing bias towards the back end of the plan. As always, we will look at incremental capital through the lenses of customer affordability, system reliability, balance sheet conservatism and our low-risk profile. In conclusion, I am highly confident in our ability to deliver on our financial plan. We've built our plan to be appropriately but also not unreasonably conservative to weather unforeseen challenges that may occur. And with that, I'll turn the call over to Bob. Robert Blue: Thank you, Steve, and good morning, everyone. I'll begin with safety on Slide 5. Through September, our OSHA recordable rate was 0.28%, continuing the positive trend from the last 3 years. Continuing to reduce workplace injuries is one way we can honor the memory of our colleague, Ryan Barwick, who we lost in an accident earlier this year. We must continue to focus relentlessly on improving our safety performance. Now I'll turn to updates around the execution of our growth plan. I'll start with the Coastal Virginia Offshore Wind project. Slide 6 highlights what makes CVOW such an important and unique generation resource. The project is now 2/3 complete, and just a few months away from delivering much-needed electricity to our customers. Slide 7 shows our major equipment progress. We successfully completed 100% of monopile installation 1 month prior to the conclusion of the piling season. very pleased with this tremendous milestone for the project. We've installed 63 transition pieces to date with all 176 transition pieces now fabricated. Turbine fabrication remains on schedule. Earlier this week, we installed the second offshore substation jacket and will place the accompanying topside shortly. The third and final offshore substation is nearly complete and will be installed in the first quarter of next year. Turning to timing on Slide 10. We now expect first turbine installation to occur late next month and continue to expect first power to be delivered to our customers in late first quarter of next year, approximately 5 months from now. As a reminder, we'll be energizing strings of turbines throughout 2026. No change to our current expectation of project completion by the end of '26. But given delays with Charybdis, we have significantly reduced the schedules weather and vessel maintenance contingency, which could push a few of the final turbines into early 2027. We'll continue to refine and update this assumption as we observe actual turbine installation cadence similar to what occurred with monopiles, which went more quickly than expected. Project costs now stands at $11.2 billion, which includes unused contingency of $206 million, down about $15 million from last quarter. Excluding tariff impacts, costs for project components have remained in line with the prior update. The updated cost this quarter reflect the accelerated recognition of steel tariffs through the end of 2026, whereas we were previously recognizing all tariff costs on a quarter-by-quarter basis. Through September, the project has invested approximately $8.2 billion. The remaining project costs attributable to Dominion are expected to be approximately $1.5 billion. On Slide 11, we've continued to provide an update to our potential tariff exposure across discrete tariff categories and illustrative duration. We're showing the impact of country-specific tariffs through project construction at the end of 2026. Please note that changes to tariff policy could impact these estimates. Unfixed costs include project management costs, fuel for vessels and changes to tariffs and network upgrades, if any. Estimated network upgrade costs assigned by PJM to CVOW in the most recent decision point came down modestly. We expect this inaugural process to conclude by year-end and do not expect a material change to network upgrade costs. We'll then execute and submit our generator interconnection agreement at PJM and FERC under the very standard finalization protocol, as is in place for all new generating sources. We expect the process to conclude in March, which will be the final step to First Power. As a result of this project cost increase, we recorded a modest charge this quarter, about $50 million after tax included on Schedule 2 for costs not expected to be recovered from customers in accordance with the cost sharing settlement with Virginia regulators, and our 50% cost sharing partnership agreement with Stonepeak. These cost and risk-sharing arrangements continue to work as intended to protect customers and shareholders. Further on costs, we'll file with our quarterly status report and our 2026 CVOW rider filing with the State Corporation Commission today. As shown on Slide 12, the project's LCOE has been updated to $84 up from last quarter, driven primarily by lower forecasted rec prices. Keep in mind that REC sales are credited against the levelized cost of energy as value delivered to customers and the value of REC will change year-to-year based on market dynamics at the time. However, importantly, the LCOE compares favorably to other generation resources and is well below the statutory amount. It's also in line with the LCOE range provided at the time of the original filing in November 2021. The project is now forecasted to represent an average residential customer monthly bill credit of $0.63 over the life of the project. Under the rider proposal filed today, we're forecasting a revenue requirement for the 2026 rate year, which begins in September '26 of $665 million. This customer beneficial real-time cash recovery provides important financial support for this regulated investment during construction. If approved, the rider proposal filed today would result in residential customers seeing a decline in their monthly bill in September, as the project begins to generate electricity in early 2026. Progress on CVOW continues to go very well, and there's every reason for our customers and policymakers to be excited by the timely delivery of much-needed low-cost electricity from this critical generating resource. Let me pivot to discuss Charybdis, our American Made Jones Act-compliant wind turbine installation vessel which has been a challenge. I'm extremely disappointed that Charybdis has again not met expectations. I recognize the importance of executing consistently against any commitment, and we failed to deliver regarding Charybdis. We built Charybdis to derisk our installation process. We continue to believe that it will represent a strategic advantage, providing enhanced schedule certainty, which ultimately translates into cost certainty. The vessel successfully completed sea trials received sign-offs and arrived in Portsmouth, Virginia in September. Upon arrival, Siemens Gamesa successfully completed all necessary modifications for turbine handling and installation. Simultaneously punch list items were identified that require remediation prior to the vessel being cleared to begin turbine load-out and installation. While all major systems are operating well, there are a variety of quality assurance level items that require addressing and those tasks are currently underway to ensure that the vessel can commence work as quickly as it is safely able to do so. It's become clear that while the ship's design and construction methods are consistent with global best practices, we didn't properly account in our timing estimate for the risk inherent in being the first Jones Act-compliant wind turbine installation vessel to be built and regulated in the United States. The vessel is expected to be cleared to load and install turbines in November. As a reminder, unlike monopile installations, there are no time of year or time of day restrictions on installing turbines. Finally, any modest delay beyond November won't impact first power timing in late first quarter of 2026. One final note on Charybdis. Project costs continue to be approximately $715 million. Moving now to data centers on Slide 14. We continue to see robust demand from data centers. We now have approximately 47 gigawatts in various stages of contracting as of September 2025, which compares to around 40 gigawatts as of December 2024, an increase of 7 gigawatts or 17%. As a reminder, these contracts are broken into substation engineering letters of authorization, construction letters of authorization and electrical service agreements. As customers move from the first to the last, the cost commitment and obligation by the customer increase. We're currently studying over 28 gigawatts of data center demand within the substation engineering letters of authorization stage, which means the customer has requested the company to begin the necessary engineering review for new infrastructure required for service. This compares to approximately 26 gigawatts as of December 2024 and represents a roughly 7% increase. There are also now about 9 gigawatts of data center demand that have executed construction letters of authorization which are contracts that enable construction of the required distribution and substation electric infrastructure to begin. This compares to just over 5 gigawatts in December 2024 and represents an approximately 73% increase. Should a customer in this stage, elect to discontinue a project, they're obligated to reimburse the company for its investment to date. Finally, we now have nearly 10 gigawatts in electric service agreements or ESA, representing contracts for electric service between Dominion Energy and a customer. This has increased by nearly a gigawatt or 12% since December 2024 as well. By signing an ESA, the customer is committing to consume a certain level of electricity annually often with ramp schedules where the contracted usage grows over time. We welcome these customers to our system and recognize the vital contribution data centers make to national state and community success. We're developing resources across distribution, transmission and generation to ensure we meet this critical need on a timely basis, while also taking active steps to safeguard all of our customers from the risk of paying more than their fair share for reliable and affordable electric service. Data center demand should and can be a win-win for our state, our customers and our company. Turning to Slide 15, let me share a few additional business updates. First, on the biannual review proceeding and the proposed large load tariff, post-hearing briefs were filed last week. We anticipate a final order by the end of November. Next, on the transmission side. We submitted project proposals in the latest PJM open window process that closed in August. This year's reliability open window represents the largest proposed investment by Dominion Energy since PJM began its open window process. While final project selections by PJM won't be made until Q1 2026, there is a robust need for new transmission across the region, and we expect this open window to reflect that. Recall that in last year's open window, Dominion was awarded around 100 projects totaling nearly $3 billion. On the generation front, we've announced a number of updates in recent weeks. SCC hearings for the Chesterfield Energy Reliability Center, an approximately 1 gigawatt natural gas-fired electric generating facility concluded in September, and post-hearing briefs were filed this week in line with previous testimony. We expect an order in December. On October 15, we filed our next set of utility scale solar and storage projects with the SEC, representing about $2.9 billion of new investment. The filing included approximately 845 megawatts of utility scale solar and 155 megawatts of storage projects, which will further derisk our growth program. Also on October 15, we filed our 2025 Virginia Integrated Resource Plan, which presented several possible generation build portfolios with additional resource capacity across both renewable and dispatchable generation technologies in response to continued robust load growth in our service territory. The IRP update demonstrates a continuation of our focus on an all-of-the-above approach to ensuring reliability, affordability and increasingly clean generation. On customer affordability, as shown on Slide 16, our current residential electric rates at DEV and DESC are 9% and 11% below the U.S. average, respectively. And based on the build plans proposed in both states latest IRPs, both will maintain customer bill growth rates through the forecast periods below current electricity inflation levels. In conclusion, we've summarized key highlights from today's call on Slide 17. We realize how important it is to meet the commitments we provided at the conclusion of the business review. We are 100% execution focused. We will deliver for our customers, our employees and our shareholders. With that, we're ready to take your questions. Operator: Thank you, Mr. Blue. Ladies and gentlemen, the floor is now open for your questions. [Operator Instructions] We'll go first this morning, Shar Pourreza of Wells Fargo. Shahriar Pourreza: Hey guys, good morning. Thank you. Appreciate it. It's good to be back. So Bob, just on the elections, I mean, there seems -- any source you're looking at. There's obviously a strong possibility the gubernatorial process may flip parties. Governor Youngkin has obviously been really supportive of CVOW, the biannual process. I guess, how do we price in any risk on the construct should we see this flip? I mean are we going to wake up one day and the Trump administration now blocks this project, just given the lack of connection with the Republican governor. Have you spoken to Spanberger? Just any thoughts around the political backdrop would be great. Robert Blue: Yes, Shar, thanks a lot for that question. Let's start with the fact that every statewide candidate running regardless of party supports CVOW and that's consistent with the bipartisan support that this project has gotten at every level, federal, state, local government, including congressional leadership. And if you think about it, there are really good reasons for that. It's the fastest way to get 2.6 gigawatts on the grid that's going to serve AI and technology companies, defense security installations. It's critical to important infrastructure upgrades at the Oceana Naval Air Station. And if you stop it now, it causes energy inflation. So it's not surprising that we're seeing bipartisan support at all levels of government and we expect that to continue after the election. Shahriar Pourreza: Got it. Okay. Perfect. And then just lastly on Charybdis.Can you just give us a little bit of a sense, if you can, on just the nature of the punchlist for the project? And when do you kind of expect the quality assurance items that you obviously highlighted to be completed, which are underway? Robert Blue: Yes. Let me -- that's a great question. Let me give you a little context walk you through where we are. As you know, this is the first Jones Act-compliant wind turbine installation vessel to be built in the U.S. and subject to U.S. regulatory oversight. It's a big ship. It's 472 feet long. It's 184 feet wide, weighs 27,000 tons. It's got some complex systems on it. It's got a 2,200-ton capacity crane. It's got a jacking system that's capable of creating a 40-meter air gap under the hall when the ship is jacked up. And those systems, the crane, the jacking system, the dynamic positioning system, they are all operating very well. So earlier this month, local regulators when it arrived in Portsmith conducted a standard new to zone inspection. And that identified 2 primary areas of concern. The first was the material condition of certain components, primarily within the ships electrical systems. And then second, the need for documentation that confirmed that the systems we built has built met U.S.-approved codes and standards. So that created this punch list of about 200 items that have to be addressed before we can begin loading turbines. So let me talk a little bit about what we're doing. Ships divided into 63 zones, our crews, including qualified marine electricians are doing detailed surveys, and they're either documenting or immediately mitigating discrepancy. So to date, we've done over 4,000 inspections across 69 electrical systems including 1,400 cable inspections. We've got 200 people working around the clock of that original 200 punch list items, we've closed out about 120. So it's important to know not all those items are created equal. Some punchless items are a little more complex and will take longer to resolve. But the progress has been really good. And so based on the pace of work the commitment of the team we've got there, highly confident that we'll work our way through all the punch list items and be ready to start operating in November. Operator: We'll go next now to Nick Campanella at Barclays. Nicholas Campanella: One follow-up on the ship, just after you get this punch list done, I just wanted to confirm, there's no other approvals needed across offshore wind supply chain, the boat or with federal government that would allow you to install turbines that's just really getting past this punch list? Robert Blue: Yes, once we get through the punch list, we're ready to go. Nicholas Campanella: Great. Can I just ask about the capital plan comments then? I know you're going to be updating things in the fourth quarter. I think you talked a little bit about the bias of that capital plan update being more back-end weighted, if I heard you correctly. But on the funding, you did derisk equity for '26 and '27 here. What's the balance sheet capacity to kind of absorb higher CapEx at this point? And should we still expect equity in '26 and '27 on the next pro forma plan? Steven Ridge: Nick, it's Steve. I'll take that. Yes, we talked a little bit about the update we'll provide on the fourth quarter call in probably February of '26. And I fully expect at that time, we're going to see upward revisions to our capital plan across distribution, transmission and generation that effectively reflect what we filed in the IRP, which is some significant increases in the amount of generation. One example is the South Carolina CCGT that we're now authorized and seeking approval to build with our partners, Santee Cooper. None of that capital, for instance, was included in the most recent capital update. And we've identified opportunity for additional generation in Virginia, and much of that's not been included. So we've talked about transmission and the opportunity with the PJM open window. So there's -- we're in a fortunate position to have a lot of really high-quality opportunities to deploy regulated capital to the benefit of our customers. which will provide sort of a full update next -- early next year. With regard to our balance sheet, I'm really pleased with where our balance sheet is. When we came out of the business review, we talked about being at 15% FFO to debt starting in 2025, that's still where we're tracking. That's about 100 basis point cushion relative to our downgrade threshold at Moody's 200 basis points at S&P. We mentioned the time Moody's is going to be slightly lower than that 15% just given the methodology they deploy relative to sort of our more simplified metric for FFO to debt. But we're in a very good position, and we've taken steps, as you noted, to do a lot of derisking for our planned ATM. When we update the capital plan come early next year, we'll, at the same time, give you an updated perspective on our financing needs. We've been very effective at deploying ATM and hybrid equity, very cost competitive. And we'll look at all the tools available to us. As we've always said, we'll look at all the available tools available to us to source capital from the most attractive source. And so I don't want to get out in front of that, but you can assume we're going to finance the growth of our business in a way that maintains that balance sheet conservatism. But in so doing, it should also provide for value to our shareholders. Operator: We'll go next now to Steve Fleishman of Wolfe Research. Steven Fleishman: Yes. Just one other question on the Charybdis. Just want to confirm there's nothing related to the government shutdown or any political stuff that's affecting the timing, it's just this punch list? Robert Blue: That's it, Steve. There is nothing related to the government shutdown or anything else. Steven Fleishman: And then once we start seeing turbines come in. Can you give us a sense of like cadence there? My recollection is maybe the first set a little slower, but then it gets into a cadence. So can you maybe talk a little bit about what we should be looking for on turbine cadence? Robert Blue: I think exactly what you just described. We're going to -- if you think about monopiles, for example, we, at the beginning, we're a little bit slower and then got into a rhythm. So we'll update the installation cadence as we go along. But you should expect that the first few are going to be slower, and then we'll pick up the pace as we move through. But we'll be able to give regular updates on how we're doing on turbine installation cadence. Steven Fleishman: And then off topic, when we get these PJM open window wins or not, like how should we think about how much of that might already be in your plan or additive? Is it all additive? How should we think about that? Steven Ridge: Steve, I'd say we've made a reasonably conservative assumptions in our forward capital plan with regard to wins across PJM open window as well as opportunities to deploy capital that don't go through that PJM wind with sort of organic maintenance capital and growth capital within our -- and what we've seen historically and more recently is upside to what we've assumed I can't tell you sort of specifically what that will look like. But I'd say there's about -- we run rate in our forward projection $2.5 or so billion a year for electric transmission, that's up pretty significantly from what it was just 4 or 5 years ago. To the extent we continue to see opportunities, there could be continued upside to that. Steven Fleishman: Yes. And then last quick one. Just the IRP was interesting on the nuclear, where it looked like at least for now, you actually delayed the SMR new nuclear by 5 years. Could you just like talk to what is driving that? Robert Blue: Yes, Steve. I mean, it's a variety of circumstances. We're taking a look at financing and technology. We're also taking a look at how it fits within everything else that we're projecting to construct. So I mean, we're talking about pretty far out in the first place and now a little farther out with the update. I wouldn't read too much into that. Operator: We'll go next now to Paul Zimbardo with Jefferies. Paul Zimbardo: To follow up on CVOW a little bit. To the extent that some of those final turbines do slip into the following year, are there any supply chain, labor or other kind of constraints to be mindful of? And is there any way to think about what a financial impact of that could be? Robert Blue: There are no supply chain or other issues. And as to financial impact, we're talking about a small number of turbines. So it's not a meaningful financial impact. Steven Ridge: I would just add, as you might suspect, years ago, when we put this plan together, which had us completing all the turbines at the end of 2026, which is actually where we still intend to do. We obviously gave ourselves a little bit of latitude as it relates to what the ultimate timing would be. And in fact, I think we're very pleased that. Here we are some years after that original time line was produced and we're effectively on target for these dates. And so we've made accommodations in advance that gave us some cushion to the extent that anything caused us to go anywhere beyond that end of '26 time frame. So I think we're very well buttoned up on that, quite frankly, with regard to suppliers and vendors and so forth. And as Bob mentioned, I think in the prepared remarks, I think one thing that's really important for our stakeholders to recognize is, we'll be energizing these turbines throughout 2026 and deploying that rate base effectively and beginning to collect depreciation and in our revenue requirement throughout the time period that we're installing through 2026. So the actual impact of a couple of turbines slipping into 2027 is pretty de minimis all things considered, which makes it a little bit different, I think, from something that's a bit more chunky by doing it on a stream, we've effectively dechunkified that revenue stream. And so I think that acts as a fairly significant de-risker or mitigant to the type of risk you might see from standard power plant where you can't collect anything until everything is ready to go. This is 176 individual power plants that we'll be able to collect on in real time through 2026 as we deploy strings of turbines. Paul Zimbardo: I like that phrase, dechunkified. One other I had just you called out that you've had some weather and other headwinds year-to-date, but you still expect to be midpoint or better. Could you just go through what some of the -- those are kind of the positive offsets looks like sales are coming in stronger. If you go through that, it would be helpful. Steven Ridge: Sure, Paul. Yes, I'm really pleased with 2025 financial performance year-to-date. We've had -- we are now in a weather deficit, a $0.02 weather deficit. And really, the biggest driver of that has been sales across 2 primary sources. One is faster and more ramping on our data center customers. That's been pretty consistent through the year. And then over the summer, we saw increased usage per customer on our residential class, which was something we're trying to understand better, but it was a departure from what we've seen in the past. So the 2 of those combined have been a tailwind, as I've mentioned in the past, that's been the most positive driver that gives us that confidence. And we've seen some true-ups on our riders, which allow us as we deploy capital to the extent we deploy it faster. We get some true-ups there. That's been a little bit of a help as well. But primarily, it's been sales. Operator: We'll go next now to Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just on the data center update, just any color that you're able to share on the sort of timing to in-service for the 9.8 gigawatts of load that's now under ESA and just how to think about that cadence looking forward? Robert Blue: Yes. Carly, it's our data center load just continues to grow and the demand continues to grow, which is something considering that we've connected 450 data centers already and we've got more than 25% of our sales going to data centers in Virginia. So we're not seeing any decrease. We're actually seeing the opposite and that's the whole PJM DOM zone is seeing quite a bit of new capacity requests. And they continue to choose us because we've got really good fundamentals. We've got great connectivity to global fiber networks. We've got a very business-friendly environment in Virginia. We've got the largest data center workforce in the U.S. and then we've got reliable and affordable electricity, thanks to us. So we've gotten 370 delivery point requests since 2020, which is over 58 gigawatts of capacity, 17 gigawatts of that just in 2025. That's across our service territory and also the co-ops that we serve from a transmission point of view. So we've now communicated a firm dates for over 100 delivery point requests, which represents over 25 gigawatts of capacity in the DOM zone. And those energization dates stretch through 2031. So sort of match up with everything that we've been saying already. So typically, from the time of a delivery point request until we've got a customer hooked with the meters about 4 to 7 years and then they ramp in over time from the date. So we've got sales growth off that 10 gigawatts of ESAs as they ramp in the current 4 gigs of meter demand just continues to increase steadily just off those ESAs over the coming years. Carly Davenport: Great. That's really helpful. And then maybe just a clarification question on Slide 11. To the extent that costs through the end of '26 on CVOW do trend above that $11.3 billion level and recognize what you're outlining here is not materially at that level. Are you still assuming that Stonepeak will continue to contribute incremental capital there? And if so, just what is your sort of confidence level there? Steven Ridge: Yes. So under the agreement we have with Stonepeak capital between $11.3 billion and $11.8 billion is shared about 2/3 at Dominion and 1/3 with Stonepeak that agreement without getting into too many details, provides incentives for them effectively to do that, to fund that. So that's what we've assumed. And as you mentioned, it's only a very small amount. I think in rounding terms, it's even less than the $400 million that we're over through 12/31/26 on Slide 11. Operator: We'll go next now to Jeremy Tonet at JPMorgan. Jeremy Tonet: Happy Halloween. Robert Blue: Thank you, Jeremy. Jeremy Tonet: Just one last one, if I could, on CVOW here and recognize a lot of progress and a lot of fronts here. But just wanted to turn to the inter-array cable fabrication not as much progress on that side quarter-over-quarter. I'm just wondering if you could touch on that a little bit the drivers. Robert Blue: It's not necessarily a linear production, Jeremy, but we are totally on track on inter-array cable manufacturing and installation. So I would read nothing into if you're sort of doing the math on how much per month or quarter, anything like that, we are right on track. Jeremy Tonet: Got it. And I just want to come back to the question on nuclear, if I could. And granted, as you said it pretty far off at this point. But we have seen the federal government kind of step up with new efforts to support development here. And just wondering if there's anything out there that you would be looking for that you think could materially, I guess, change views on the potential for nuclear's role going forward? Robert Blue: Well, I mean, our view is we're in the most in Virginia, at least the most nuclear-friendly state in the country. And the policies port here is very strong, the public and policymaker support, whether it's the nuclear Navy or the big parts of the supply chain or the reactors that we've been operating safely here in Virginia since the '70s. But I think as we've described before, as we think about new nuclear cost overrun risk being borne by our customers and our shareholders is a concern. First-of-a-kind costs being borne by our customers as a concern, and the balance sheet that we've worked very hard to get in shape and our business risk profile can't change. So there are ways to work through that, that's the MOU that we entered into with Amazon. They've expressed some interest in helping finance an SMR at North Anna 3. We continue to work our way through that. But fundamentally, as we think about new nuclear, which could be very beneficial for the state, we need to think about first-of-a-kind cost, cost overrun risk and our business risk profile. Jeremy Tonet: Got it. So it sounds like backstops on catastrophic risk and just cost overrun risk would be the key thing to pull forward, I guess, the time line at this point? Robert Blue: They would be incredibly valuable, yes. Jeremy Tonet: Got it. That's very helpful. Last one, if I could. And then as we think about data center development here and clearly, there's been a focus for you, you guys well ahead of others here. But equipment availability that stands right now, transformers, transmission, equipment, everything for CCGT. Just wondering how long the queues at this point? And how do you think about, I guess, winding that up with more data centers, just given how time on are on both sides at this point for demand? Robert Blue: Well, if you think about the sort of time line on components for generation, our IRP that we just filed with the dates that we've got for new gen line up with what we expect time lines for the supply chain. And then more broadly, I think everyone is experiencing. There's more demand for transformers and other equipment. I think we're advantaged because of our size, because of the long relationships that we have with suppliers. We've been doing a lot of transmission work at this company for quite a while. And so I think that puts us in a good place as we try to connect the data center load that we've got. It's a big lift, but we're very much up to the task. Jeremy Tonet: Got it. And just one last one, if I could. Speaking about time line, if anything for CVOW, if anything flips into '27 here, do you think that there would -- that would impact, I guess, the '26 guide at this point? Or is that kind of just small at this point and wouldn't really think of it as much of a headwind when it comes to the '26 guide? Steven Ridge: Jeremy, I feel very, very good about our financial plan. We've constructed it to be appropriately though not unreasonably conservative. So when things -- if something like that were to occur, I feel very good about our ability to maintain our ability to hit the commitments we made to our investors at the conclusion of the business review. Operator: We'll go next now to Anthony Crowdell at Mizuho. Anthony Crowdell: I want to ask -- this is my last one 3 times. Just quickly, is there a cadence of generation needs that you guys look at in 2 to 3 years, whether it's like a gig a year? Like how much generation will you be bringing on to the grid as we look out towards the back end of your plan? Robert Blue: Well, I mean, the best way to look at it, Jeremy, is we outlined it in the IRP. So I'm not going to walk through sort of what comes on each year. But I will say we've got 2.6 gigawatts coming on in offshore wind by end of next year. Chesterfield Energy Reliability Center, which is in front of the commission right now. That's a gig of natural gas peaking that would come on '29 and then we've got a cadence roughly of a gig of solar a year. I mean between us and PPAs coming online plus we've got another, I guess, 0.5 gig-ish 500 megawatts of uprates on our existing gas fleet in Virginia. So it's all in the IRP sort of by year, which is probably the best way to look at it. Anthony Crowdell: Great. No, that's perfect. And then just one follow-up. When Charybdis finally clears to, I guess, begin installation does the company issue a press release or an 8-K just how best can we track that? Robert Blue: Well, we've noticed a lot of people track where Charybdis is on the web on one of these vessel finder sites. So you'll see it. It won't be at the dock anymore. It will be out at a turbine I would not anticipate us issuing an 8-K or a press release when it's done because it's another step in the project, a project that is going extremely well. We didn't issue a press release when we started installing other components. We just moved through this efficiently and effectively as we've been doing throughout our offshore wind project. Operator: And ladies and gentlemen, this will conclude our question-and-answer session for today. Mr. Blue, I'd like to turn the conference back to you, sir, for any closing comments. Robert Blue: Thanks, everybody, for taking the time to join the call today. I hope you enjoy the rest of the day and your Halloween. Operator: Thank you very much, Mr. Blue. Ladies and gentlemen, that will conclude today's Dominion Energy Third Quarter Earnings Call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.
Operator: Good morning, ladies and gentlemen, and welcome to the Cousins Properties Inc. Conference Call. [Operator Instructions]. This call is being recorded on Friday, October 31, 2025. And I would now like to turn the conference over to Ms. Pamela Roper, General Counsel. Thank you. Please go ahead. Pamela Roper: Thank you. Good morning, and welcome to Cousins Properties' Third Quarter Earnings Conference Call. With me today are Colin Connolly, our President and Chief Executive Officer; Richard Hickson, our Executive Vice President of Operations; Kennedy Hicks, our Executive Vice President and Chief Investment Officer; and Gregg Adzema, our Executive Vice President and Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information links on the Investor Relations page of our website, cousins.com. Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal securities laws, and actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors including the risk factors set forth in our annual report on Form 10-K and our other SEC filings. The company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events or otherwise. The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday, and a detailed discussion of the potential risks is contained in our filings with the SEC. With that, I'll turn the call over to Colin Connolly. Michael Connolly: Thank you, Pam, and good morning, everyone. We had a strong third quarter at Cousins. On the earnings front, the team delivered $0.69 a share in FFO and raised the midpoint of our guidance by $0.02 a share to $2.84 a share. The midpoint of our guidance now represents 5.6% growth compared to 2024. Importantly, leasing remained robust. We completed 551,000 square feet of leases during the quarter, which is our second highest quarterly volume over the last 3 years. And for the 46th consecutive quarter, we delivered a positive cash rent roll-up on second-generation leasing. We also acquired the Link for $218 million, which strategically expands our presence in the fast-growing market of Dallas. These are remarkable results all around. I will start with a few observations on the market. Most major companies are phasing out remote work. Office fundamentals are improving. Demand is growing. During the third quarter, net absorption reached a post-pandemic high. Vacancy declined for the first time in 7 years. And with new construction starts at de minimis levels, any meaningful increase in new supply is 4 to 5 years away. Importantly, for Cousins, corporate migration to the Sunbelt has firmly reaccelerated. As a result, our leasing pipeline is robust across all markets. We see a notable pickup in leasing interest from West Coast and New York City-based companies. Financial service and select large-cap technology companies are particularly active. While not necessarily full corporate relocations, they are significant hubs in some cases and highlight growth away from high tax in high regulation states once again. A recent rise in layoff announcements seems to be weighing on investor sentiment around the office sector. However, we have not seen any meaningful impact on demand. I'll explain why. Office using employment growth was historically high during the pandemic. At some companies, headcounts almost doubled. However, because of the pandemic, many of these new hires were remote and associated office space was never leased. Now as return to office mandates have become widespread, many companies lack the space to accommodate their pandemic era headcount growth even after modest recent layoffs. Simply said, the tailwinds from the accelerating return to office remain greater than the impact of corporate layoffs from our vantage point. One more thing I'd like to note on this topic. Given the current exuberance around AI, corporate downsizing is often incorrectly tied to automation. Amazon is the most recent example. However, on last night's earnings call, Andy Jassy confirmed that Amazon's announcement of 14,000 job cuts was aimed at reversing excessive hiring during the pandemic. To put this in perspective, Amazon grew its headcount by almost 750,000 jobs since year-end 2019. To reiterate my previous comments, the return to office is a more powerful lever for office demand than corporate rightsizing and AI is not yet the existential threat that some expect it to be. This is an excellent setup for Cousins to advance our strategic priorities. Our team remains sharply focused on driving occupancy and earnings growth while maintaining our best-in-class balance sheet and enhancing the quality of our portfolio. To do so, we are prioritizing both internal and external growth opportunities. At quarter end, the portfolio was 88.3% occupied, and finally reflects the expiration of Bank of America's lease in Charlotte. Given our robust leasing pipeline and modest lease expirations in 2026, we are confident that we can grow occupancy next year. While the ramp will be heavily weighted towards the back half of the year, we have a goal of achieving occupancy of 90% or higher by year-end 2026. Our creative investment team continues to evaluate several interesting investment opportunities. Our track record highlights our openness to a wide variety of transactions, including property acquisitions, select development, debt, structured transactions and joint ventures. However, our core strategy remains the same, invest in properties that already are or can be positioned into lifestyle office in our target Sunbelt markets. Earnings accretion is a priority. To fund any new investments, we will always consider all options. To be clear, new equity at today's stock price certainly does not make financial sense. Dispositions of noncore assets, settling shares already outstanding on our ATM and/or utilizing the balance sheet are more likely options. While sometimes characterized as conservative, we view our low-levered balance sheet as a distinct offensive tool. At select times in the past, we have modestly flexed up our leverage to take advantage of compelling investment opportunities. Given improving property fundamentals and a scarcity of competitive office capital, this could be one of those moments and Cousins is uniquely positioned to seize it. As I mentioned earlier, the current midpoint of our guidance forecasts 5.6% growth over 2024. This would be our second consecutive year of FFO growth. Cousins would be 1 of 1 in the traditional office sector to accomplish this multiyear growth. Our team's ability to drive both internal and external growth is key. We plan to continue the streak in 2026. We are excited about what is ahead for Cousins. Demand is accelerating, new supplies and historical lows, the office market is rebalancing. We are growing earnings, Bank of America independently ranks our portfolio is the highest quality in the office REIT sector. Our balance sheet is exceptionally strong, and our G&A is highly efficient for our investors. Before turning the call over to Richard, I want to thank our dedicated Cousins employees who provide outstanding service to our customers and each other every day. Richard? Richard Hickson: Thanks, Colin. Good morning, everyone. Our operations team once again delivered exceptional results in the third quarter. This quarter, our total office portfolio end-of-period lease and weighted average occupancy percentages were 90% and 88.3%, respectively. As expected, both were down this quarter, almost exclusively due to the known move out of Bank of America at 201 North Tryon in Charlotte. Without Bank of America's expiration, our occupancy would have been steady this quarter. Like last quarter, I want to reiterate that our near-term occupancy expectations remain generally the same. We still see the third quarter as a bottom. And then expect occupancy to be stable or modestly increase for a couple of quarters and then build higher in the back half of 2026. I would be remiss if I didn't once again point out that a big driver of our occupancy expectations continues to be our best-in-class near-term expirations profile. As of third quarter end, we only had 6.3% of annual contractual rent expiring through the end of 2026. We continue to be laser-focused on proactively managing our expirations. During the third quarter, our team completed 40 office leases totaling an impressive 551,000 square feet with a weighted average lease term of 9.4 years. Total leasing volume was up 65% sequentially and even exceeded our strong first quarter activity. This quarter's volume was also well above our 1-, 3- and 5-year volume run rates. We are very pleased with our year-to-date leasing activity, which stands at 1.4 million square feet. Our leasing pipeline also continues to be very healthy at all stages, has grown nicely throughout the year and as a result, remains at record high levels. As Colin mentioned, our pipeline also reflects a notable increase in large user activity including new-to-market requirements looking to either relocate or build a new talent base in the Sunbelt. With regard to lease economics, second-generation cash rents increased yet again in the third quarter by a healthy 4.2%. Dallas and Tampa posted the largest cash rent roll-ups this quarter, with Austin and Charlotte not far behind. Average net rent this quarter landed at $39.18 which is the third highest quarterly level in our company's history. Average leasing concessions with some of free rent -- tenant improvements were $8.12, which is 13.8% below last quarter and 7.6% below the full year 2024. The result was average net effective rent of $28.37, slightly higher than last quarter and the second highest quarterly level in the company's history. Our net effective rents were solid in every market once again, a testament to the broad strength of our Sunbelt markets and assets. Turning to the markets. JLL reported that transaction volume in Austin totaled 1.3 million square feet in the third quarter, a sequential increase and 16% above the 3-year quarterly average. Across our Austin portfolio, we signed 97,000 square feet of leases in the third quarter, also sequentially higher. Of that activity, 52,000 square feet were new leases at the Terrace in Southwest Austin, where demand continues to be impressive. The Austin team also completed an important 40,000 square foot renewal of a law firm at Colorado Tower in the CBD. Our Austin portfolio ended the quarter at 94.9% leased. Similar to Austin, JLL reported a quarterly leasing activity in Atlanta increase at 15.5% quarter-over-quarter. They also noted that this quarter, new leasing made up a greater share of leasing volume than in recent years, with renewals accounting for just 17% of volume. We signed a strong 125,000 square feet of leasing in our Atlanta portfolio this quarter and on a transaction count basis, 2/3 of our activity was new and expansion leasing. That included a 24,000 square foot headquarters expansion of a customer at North Park in the central perimeter, effectively doubling their footprint. Of particular note is that expansion was driven by a recent decision to bring employees back to the office as soon as possible. Also in North Park, I'm very excited to report that we are in advanced lease negotiations with a Fortune 50 company to lease 166,000 square feet at the property on a long-term basis, which when complete will represent incremental occupancy of nearly 12% for the 1.4 million square foot project. This will clearly be a huge boost for North Park, but also for our occupancy trajectory at the total portfolio level. This quarter, our overall Atlanta portfolio occupancy increased to 83.4%, driven primarily by a handful of new and expansion lease commencements in Buckhead. Turning to Charlotte. Fundamentals for high-quality office remains strong with Class A space representing 70% of all new leasing during the quarter. Further, new development inventory in South End and Uptown is very close to fully leased. As such, we continue to be very excited about our redevelopment projects at both 550 South and 201 North Tryon in Uptown, which we view as the highest quality existing office projects with availability in the market. Consistent with the new supply dynamic I just mentioned, we are pleased to say that in the third quarter, we completed an early long-term renewal with McGuire Woods at 201 North Tryon for 127,000 square feet. This was an important win, and we view this long-term commitment to 201 North Tryon as a validation of the building's quality location and of our ongoing property redevelopment. Same positive market dynamics are in play in Phoenix as well in the past few months have been remarkably active on the leasing front. You may recall that we signed a 39,000 square foot new lease at Hayden Ferry I in the second quarter. Since then, but subsequent to third quarter end, we signed an additional 52,000 square foot new lease at the building with a commencement date before year-end 2025. On top of that, we are in lease negotiations with another new customer for Hayden Ferry I that would bring the building to approximately 95% leased in very short quarter. During the third quarter, the team also completed 2 important renewals at both Hayden Ferry II and Tippy Gateway, totaling 44,000 square feet. We could not be more pleased with the recent performance of our Phoenix portfolio. Last, I'll touch on Dallas. With the addition of the Link, we now own a 3-building, 808,000 square foot portfolio in Dallas with the largest asset being the 319,000 square foot Legacy Union 1 building in the legacy submarket of North Dallas. Ovintiv is the sole customer in the building, so they subleased substantially all of the building years ago. In the third quarter, we proactively entered into an early termination agreement with Ovintiv. And upon Ovintiv's new expiration in mid-2026, all of the subtenants will automatically become direct tenants. Through this agreement, we essentially multi-tenanted the building and can now more effectively engage with the subtenancy about future renewals. This move also greatly improves our flexibility in executing creative strategies to proactively backfill whatever space we may ultimately get back. Encouragingly, interest in the building has been very robust even in the short period of time since we executed this agreement, both with existing subtenants and potential new tenants. It is clear that demand for high-quality office in Dallas is very healthy, and we are excited to capitalize on it. I'll conclude with a brief revisit of our leasing pipeline. Again, our overall pipeline is at record levels for Cousins, and 68% is new and expansion leasing. Further, we have 715,000 square feet of leases either signed fourth quarter year-to-date or in lease negotiations, of which 77% are new and expansion leases. That represents a total of 551,000 square feet of new and expansion leasing in our late-stage pipeline alone. For perspective, that's roughly 2x our year-to-date quarterly new and expansion leasing run rate. This is a very encouraging trend. As always, I want to thank our operations team for all of your hard work. Your talent and excellent customer service continue to position our company exceptionally well. Kennedy? Jane Hicks: Thanks, Richard. Before I discuss the transaction environment, I want to touch on our mixed-use development project, Neuhoff in Nashville. We finished the quarter with the apartment component up to 86% leased and we still expect for this part of the project to be stabilized at the end of the year. On the commercial side, we signed 2 spec suite leases, both of which commenced in 2025 and brought that component up to 53% leased. We've been very encouraged by the recent uptick in tenant demand in the Nashville market with several large office prospects currently considering Neuhoff for both near-term requirements and future expansion needs. As you may recall, as part of the overall project, we have the ability to develop a 280,000 square foot office tower adjacent to the current one. Given the infrastructure that is already in place, we believe we have a competitive advantage in our ability to offer expansion space and an expedited time line upon tenant commitment. As a reminder, Neuhoff is located in the Germantown neighborhood of Nashville, directly across the Cumberland River from Oracle soon-to-be-developed state-of-the-art headquarters campus. Oracle has reportedly hired nearly 1,000 employees in the city to date and is pledged to have at least 8,500 workers in Nashville by the end of 2031. Just this month, the company released rendering showing its extensive plans for the campus. These plans include a pedestrian bridge that the company will build across the river to link its campus to Neuhoff. This multibillion-dollar investment by Oracle as well as the recent tenant activity in the market, is a testament to both Nashville's talented and growing workforce as well as company's desire for high-quality differentiated office environments. We are excited about the response from the market for Neuhoff to date and feel that the momentum is only building for this iconic project. Turning to our acquisition activity. As previously announced, we closed on the Link in Uptown Dallas during the third quarter. The Link is a trophy building that fits squarely into our lifestyle Sunbelt office strategy while expanding our footprint in Dallas. We acquired the 94% leased property for $218 million or $747 per square foot, pricing that represents a discount to replacement cost and has been immediately accretive to earnings. We remain very enthusiastic about the Dallas office market and our ability to continue to expand our presence there. Uptown Dallas is receiving an outsized share of demand, thanks to its appeal as an urban walkable mixed-use district and the ongoing migration of financial and professional service jobs to the region, largely from New York and California. There are very few large blocks of available space remaining in Uptown and we are already witnessing near-term demand exceeds supply. The increasing tenant demand that we are experiencing across all of our markets has led to continued improvement in investor sentiment towards office, which is creating higher transaction volumes. Debt for office assets is now readily available and equity is following, albeit still selectively and generally more oriented towards smaller assets. We continue to seek out acquisition opportunities that meet our criteria. Sunbelt assets that are consistent with or better than the quality of our current portfolio that we can fund in a manner that is accretive to earnings and cash flow. We are mindful of maintaining geographic diversity and will remain laser-focused on asset quality and location. With better debt increasing and buyers becoming more constructive around underwriting, we also intend to selectively explore dispositions as a funding source for new acquisitions and eventually development. Given the quality of our portfolio, we don't have a lot of assets that qualify as noncore and we don't need to sell. But when there are opportunities to accretively rotate into assets that improve our portfolio composition and mitigate higher CapEx needs, we will execute. With that, I'll turn the call over to Gregg. Gregg D. Adzema: Thanks, Kennedy. Good morning, everyone. I'll begin my remarks by providing a brief overview of our results, spending a few minutes on our same-property performance then moving on to our capital markets transactions before closing my remarks, with an update to our 2025 earnings guidance. Overall, as Colin stated upfront, our third quarter results were outstanding. Second-generation cash leasing spreads were positive, same property year-over-year cash NOI increased and leasing velocity was very strong. Focusing on same-property performance for a moment, GAAP NOI grew 1.9% and cash NOI grew 0.3% during the third quarter compared to last year. These numbers were negatively impacted by the Bank of America departure at our 201 North Tryon property that Richard discussed earlier. Despite initiating a significant redevelopment plan at this property, we left it in our same property pool. I also want to take a moment to point out the lumpiness that can sometimes run through our quarterly same-property expense numbers, usually driven by property taxes. Property tax true-ups as we get clarity through the tax assessment and appeal process, can push the quarterly numbers around quite a bit. So it's always best to use longer time frames when looking at these numbers. For example, same-property tax expenses that ran through our P&L were up 21.9% in the fourth quarter of '24, they were down 12.1% in the first quarter of this year, down 22.4% in the second quarter and up 14.7% this quarter. That's a lot of movement, compared to the prior year. However, if you take a step back and look at all of 2025, we currently forecast our net property tax expenses to be essentially flat compared to 2024. Moving on to our capital markets activity. Our Neuhoff joint venture, of which we own 50%, proactively approached our lender and amended its existing construction loan during the quarter. Our goal was to lower the SOFR spread and extend the maturity date, which we accomplished by paying down $39 million of the outstanding principal balance. In connection with this amendment, we also loaned our joint venture partner, $19.6 million at an interest rate of SOFR plus 625 basis points, which they used to fund their portion of the repayment. Although we didn't sell any common shares during the third quarter, to date, we've sold 2.9 million shares through our ATM program on a forward basis at an average gross price of $30.44 per share. None of these shares have yet been settled. In addition, we paid off a $250 billion note upon maturity in early July, using proceeds from our most recent $500 million bond offering in June. We also used proceeds from this bond to partially fund our acquisition of the Link property in Dallas that Kennedy just discussed. We continue to assess alternatives to fund the remainder of the Link acquisition and as I discussed in our last earnings call, settling some of the shares we have issued on a forward basis and/or selling some noncore assets are 2 of the alternatives available to us. With our sector-leading balance sheet, we're in a position to be patient on this front. With that, I'll close our prepared remarks by updating our '25 earnings guidance. We currently anticipate full year 2025 FFO between $2.82 and $2.86 per share with the midpoint of $2.84. This is up $0.02 from last quarter. The increase in FFO guidance is driven by higher parking income, higher termination fees, lower SOFR and interest income from the loan to our joint venture partner. Our guidance assumes no additional SOFR cuts for the remainder of '25. Bottom line, our third quarter results are excellent, and we're raising the midpoint of our full year earnings guidance yet again. The current midpoint is $0.06 per share above the midpoint we provided when initiating the guidance in February. And although it's not in our guidance, as Colin said earlier, we anticipate the potential to continue deploying additional capital into compelling and accretive investment opportunities. We look forward to reporting our progress in the coming quarters. With that, I'll turn it back over to the operator. Operator: [Operator Instructions] And your first question comes from the line of Blaine Heck from Wells Fargo. Blaine Heck: Colin, I appreciate your commentary on AI and layoffs, very helpful. Just a follow-up, and I know it was a very recent announcement. But given that Amazon is your largest tenant, have you spoken to them about their space within your portfolio and whether the recent announcement might change their utilization at all? And more broadly, I think there's an idea being brought up in our conversations that the Sunbelt might be a bit more susceptible to AI and displacement given the amount of corporate back-office type jobs housed in those markets. So I'm wondering how you would respond to that and how you think your portfolio is insulated from that potential trend? Michael Connolly: Blaine, I appreciate the question. There's a lot in there. And I think in particular, there's a lot of misconceptions in there. And the first that I would highlight is kind of a narrative of kind of gateway markets are pushing that the Sunbelt is full of back-office jobs. And that is just far from the case. And as we look around the Sunbelt, the migration of technology and financial services companies has been largely driven by moving out of high-tax and high regulation states into markets where there is highly educated workforce and exciting and dynamic markets. So think Austin, think Atlanta, think Charlotte, think Nashville. And again, I could point to a lot of companies that have made those moves and intentionally made this decision to distribute their workforce more broadly around the country so as to not be overly concentrated in markets like San Francisco or Seattle or New York, where there have been some significant challenges. So I think Oracle moving their corporate headquarters to Nashville. Think of the large hubs with Amazon in Austin and Nashville, as well as D.C. Think about Goldman Sachs establishing a new hub, building an 800,000 square foot campus in Uptown Dallas for 5,000 employees, many of whom will be front-of-house bankers. So I think that is very much a misconception. I think in particular, many of those companies are highly engaged in AI. And so while the kind of the start-up AI universe is largely located in San Francisco in time that AI demand will find itself distributed again throughout the country and we are already seeing that today. Amazon, as I touched on in my prepared remarks, we have great conversations with Amazon all the time. Again, I think Andy Jassy dissuaded any fears that those risks were AI-related, it was more about rightsizing the headcount to become more efficient. But as I look at Amazon around the country, I think you're likely to see them be a net expender, not contractor. And so I want to make sure to highlight that, that certainly has been the trend with them as of late, and I don't see that changing. And then just kind of stepping back with a few statistics, the -- with the enthusiasm around San Francisco and New York over the last 12 months, if you actually drill into the data and look at actual leasing activity in growth markets, which would include all of our markets relative to gateway markets, and this is JLL Research, the growth markets are in a 104% of the leasing levels over the last 12 months compared to 2019. The gateway markets, which would include San Francisco, New York, Seattle, Boston, that's at about 65%. So that's just the last 12 months. Despite the exuberance over certain markets, the Sunbelt and growth markets continue to outperform. Blaine Heck: Okay. Great. That's really helpful and all makes sense. Sense from my perspective. And then my second question is your expiration schedule, as you guys have mentioned, is relatively light in the next couple of years, which I think, should help with the occupancy build. But I was hoping you could give some color on whether the expirations in the next couple of years are kind of proportional relative to your market exposure? Or if there are any specific markets that have a high concentration of expirations in '26 or '27? Richard Hickson: Yes. Blaine, this is Richard. So we've talked about in the past, really the only large expiration that we have through end of 2026 is Samsung in Houston at Briar Lake. There are 123,000 square feet. Nothing much has changed in terms of the status of that. A lot of that space has already been sublet. We're engaged with some of the subtenants on going direct or extensions when the subleases expire. We're actually talking with Samsung as well directly for some sort of a renewal. We'll see how that plays out, but it's going well so far, and we feel good about our ability to take care of the vast majority of that space. And so really, there's just not a lot of lumpy big activity right ahead of us. Obviously, we all know that BofA is now in the numbers and behind us. So proportionately, we feel good. I mean we obviously have a lot of wood to chop in Charlotte and feel very good about what we're doing with deploying capital to redevelop both 550 South and 201 North Tryon and we know that this play works in that when we've done these projects in the past, the most recent being Hayden Ferry, once we get these projects done and the redevelopment can be touched and felt by potential customers and existing customers that we've seen has been robust and very encouraging. So we also feel good about our position there. Michael Connolly: Blaine, it's Colin. I'd just add back to your question, I'd say the expirations are pretty evenly distributed throughout the portfolio. There's not kind of any one market that has significantly more than the others. I'd point out Austin probably has some of the, I'd say, the more modest expirations over the next couple of years, and that would be kind of the one market that would stick out for its modest expirations. Operator: And your next question comes from the line of Andrew Berger from Bank of America. Andrew Berger: Great. And thank you for the thorough opening remarks. Just wanted to circle back on the comments around the balance sheet and leverage. I appreciate the current leverage levels are a bit lower than maybe some of your peers. What's sort of the upper bound of how high you would potentially be willing to take leverage at this point? Gregg D. Adzema: Andrew, it's Gregg. So if you go back and look over the last 12 years, our leverages remain, give or take, right around 5x net debt to EBITDA. It's kind of varied between 4.5 and 5.5 generally over that period of time. When it's been at the top of that range, it's been associated with -- as Colin stated earlier, when we've gone into kind of offensive mode. So the 2 biggest pieces, the 2 biggest instances would be the mergers with both TIER and Parkway over the last decade. In both instances, we used the low levered balance sheet. I know it was an offensive weapon to pick those transactions without having to raise any incremental equity and then subsequently brought leverage back down to 5x. We think we're in another period like that right now, we'll be able to use it on an offensive basis. In terms of kind of what the cap is, we'll always maintain an industry-leading balance sheet. But we think we have a little bit of room here. Really, the only hard number that you have out there, is we do have an investment-grade rating for both Moody's and S&P. And if you look at their write-ups, they tell you that 6 and below is consistent with what our current rating would be. So from a rating agencies perspective, there's no problem going up to 6. We haven't gone up to 6 as a company in well over a decade. So that -- I'm not taking that off the table. But that would certainly be the absolute upper bound of the range of what we would do. We've got some capacity here, though. I mean we're at [ 5.38 ] right now. That's a little higher than it's been recently because as I discussed in my opening remarks, we bought the Link, we haven't fully funded it yet. We've got lots of options to do that, whether it's asset sales or settling some of the shares that we've issued on a forward basis under the ATM. We've got some capacity to flex the balance sheet here and drive earnings and drive growth at what we think is a really opportune time to do it. Andrew Berger: Great. And as my follow-up, the parking income has been an area where you've frequently been able to beat over the last several quarters. Can you just talk about how much more upside there is from here, -- what are at a high level, I guess the physical utilization of your buildings and of the parking lots and then also the pricing relative to pre-COVID and also how you forecast this? Gregg D. Adzema: Sure. So -- if you go back at kind of pre-COVID times 2018, 2019, total parking revenues generally represented about 8% of our total revenues. Now the portfolio has changed quite a bit since 2019. But using that as a kind of as a starting point, our current parking revenues as a percentage of total revenues are at just under 7%. So below where they were pre-COVID as a percentage of total revenues, by the way, they bottomed at around 5%. So they've come up significantly since kind of '21, which represented the bottom. But using that prior baseline of 8%, we still think we probably have a little bit of room to push. In terms of kind of what we've seen in that increases and we keep surprising ourselves every quarter, it's about 75% utilization and 25% price, right? You can drive revenues either by using it more or by increasing the price. It's been a 75% to 25% balance as we move forward through this. So yes, we think there's still a little bit of room there. We do a ground-up analysis of this every quarter as we reforecast, and we continue to surprise ourselves every quarter. It's a good surprise though because it really is an indication of better utilization of our decks which is exactly what we want to see. It plays into what Colin had talked about at the top of the call, which is the return to office continues and if anything, is accelerating. And then finally, in terms of a breakdown of parking revenues, our parking revenues are about 75% contractual and about 25% transient or noncontractual. And that relationship, that 75-25 relationship, is that incredibly consistent over the years, it doesn't move much. Operator: And your next question comes from the line of Brendan Lynch from Barclays. Brendan Lynch: It sounds like you're still on track for your previous expectations for occupancy to trough in the third quarter and improve from here kind of be steady and then improve. How should we expect that to kind of flow through to the trajectory for same-store cash NOI growth going forward? Gregg D. Adzema: I'll talk about just the trajectory and Colin can probably add a little granularity. But the increase in occupancy that we've referred to in this call, getting to 90% or better by year-end '26s highly likely to be back-end loaded not completely back-end loaded, but more back-end loaded than front-end loaded. In terms of how that plays through to our same property performance. The one thing that we've got to deal with is this big Bank of America move-out that we just had in July. I mean as you do year-over-year comps, which is how we report these numbers, however we reports these numbers, that's going to sit in the numbers as a prior year comp until we get to July of 2026. So you're going to see kind of lower numbers this next quarter, still positive, we think, but lower this next quarter and probably lower in the first half of next year. But once you get that out of the machine out of the system and you don't get the bad prior year comps, you're going to see some significant acceleration in our same-property performance in the second half of '26. Brendan Lynch: Great. That's helpful. And maybe sticking with Bank of America and the 201 North Tryon asset, it sounds like you're already making progress backfilling some of that space, I understand there's some redevelopment still going on. Maybe talk about the prospect of leasing up the rest of the space that has become available. Richard Hickson: This is Richard. Again, we feel really good. Again, we just started in the past quarter, the redevelopment of 201 North Tryon, but we're well underway. The market can see it. 550 South, I would notice it's further along, but the activity that we're seeing, I'd say, broadly in Charlotte is very encouraging. There are plenty of large users that are looking in Uptown and South End whether kind of figuring out that there's really no space left in South End to lease. And so they're all starting to concentrate almost exclusively on Uptown and big blocks that are available. There's new-to-market activity, as Colin alluded to, that we're seeing that's extremely encouraging. So we feel good about our position relative to supply and demand in the market and think we're going to have success here in the next 12 months or so. Michael Connolly: Yes. And Brendan, it's Colin. I'd just add on. Consistent with my earlier comments about the reacceleration of Sunbelt migration, I think Charlotte, in particular, you're seeing quite a bit of activity at large New York City-based financial services firms looking to do growth and establish large hubs in Charlotte. I can't speak to the specifics of what's driving that, but it's been a noticeable acceleration over the last 3 to 6 months. Operator: And your next question comes from the line of Nick Thillman from Baird. Nicholas Thillman: Maybe, Colin, you mentioned sort of the New York West Coast sort of migration into Sunbelt markets. As you look at the vacancy within the portfolio and these larger requirements, do you think you have the vacancy in the right spots and sell markets to kind of attract these tenants? I guess how are you feeling about the pockets where you do have some vacancy on leasing that space up? Obviously, the new North Park AT&T stuff kind of pending here, but just some other stuff. Michael Connolly: Yes. No, we do feel like -- we said differently, where we do have large blocks of space. Again, you mentioned North Park, Kennedy mentioned Neuhoff, the 201 North Tryon, Hayden Ferry. I mean we -- in each of those instances, we are seeing some interest and larger users taking a look at that space. So that's very much encouraging. The other thing I'd mention in certain areas of our footprint where we don't have space, we're actually starting to have some very preliminary conversations with large users coming out of New York and the West Coast who have potential interest in building -- in new buildings. And so that's been a very encouraging sign and we hope to address some of those needs. Nicholas Thillman: That's helpful. And then, Kennedy, you mentioned some potential dispositions with the capital markets improving. I know you're in the market with 1 asset in Tampa, but are those the type of assets we should be thinking about as disposition targets here near term? Jane Hicks: Yes. I mean, as we've said, we will only look to dispositions when we have exciting acquisition opportunities. So we are -- we're monitoring the market, monitoring our portfolio and assets where we think that match up well with the depth of the buyer pool today, we'll look to transact. So yes, I would say, generally smaller and maybe less tied in to the rest of our portfolio in specific markets. Operator: And your next question comes from the line of Steve Sakwa from Evercore ISI. Steve Sakwa: Richard, I was just wondering if you could provide maybe a little more granularity on that pipeline. It sounds obviously impressive. Can you give us maybe a sense of number and kind of size? I guess I'm just thinking if tenants are somewhat larger getting them into occupancy by end of the year becomes a little bit more of a challenge, if they're smaller in that 25,000, 50,000, 75,000 foot range, they can get in quickly. So I'm just trying to get a sense of number and ultimate size of that pipeline. Richard Hickson: Sure. The pipeline overall is definitely partly being driven by larger activity. And again, new-to-market activity that we're seeing. But to your point, the larger users tend to be slower moving just by the sheer nature of the size and the lift of getting that much space built out and occupied. I think right now, we have roughly 100 total prospects within the pipeline overall. But we've actually had some interesting cases just in the last couple of months. I alluded to one in Phoenix where we had a 50,000 square foot new customer that we signed a lease with a very fast-moving lease negotiation, and they're going to occupy the space that they leased literally within 60 days. So that's unusual, but there are little pockets of activity where we're seeing actually a little faster occupancy. And for a 50,000 square foot customer to do that, that's pretty impressive. So again, it takes time for the bigger users to filter through the system. End of the day, we welcome large user activity. I think it's wonderful to have that engine beginning to fire again on all cylinders and are happy to waive those into our portfolio if we have the opportunity. Michael Connolly: And Steve, it's Colin. And you're right, again, larger users take larger or longer periods of time to lease up and timing of commencements and build-outs are always -- that's a big variable and ultimately being able to meet our goals. But I would, I guess, characterize that 90% plus goal at year-end 2026 is largely being driven by the leases that we have already signed and not yet commenced or perhaps leases that we think we're going to do over the fourth quarter. But again, those won't have that large of an impact. And so the timing of the commencement in that pipeline, all of those dates are factored into our projections, and we're optimistic about achieving our goal. Steve Sakwa: Great. That's good color. And then I don't know if Kennedy or Richard, maybe just on the Neuhoff project. Obviously, that's been a little bit slower to lease. But I guess I'm just curious with Oracle making a bigger push. One, have they kind of looked at the project as maybe temporary space for the employees that are coming into the market? And if not, are there maybe companies that are feeding off of Oracle's move into the market and trying to be adjacent to their new campus. Is that a source of demand that's looking at the project? Jane Hicks: Yes. I think certainly, the Oracle being across the river and just their plans in a variety of industries and for the campus and growth is all great for the follow-on demand. So we are starting to see some of that and are excited about the larger users that are showing up again just recently here. Michael Connolly: And Steve, to kind of directly answer your question, all of those are possibilities. And again, I think Oracle, a company of that size is obviously heavily involved. Again, in AI not just in San Francisco but here in Nashville, in the derivatives off of that and companies that work with Oracle, it's going to be fantastic for Neuhoff. And we've certainly seen an acceleration of interest in our space since Oracle has made in their grand reveal recently of their project in a specific time line. But it's all very positive. Operator: And your next question comes from the line of Upal Rana from KeyBanc Capital Markets. Upal Rana: Richard, I appreciate the details on the leasing pipeline. Given the stronger pipeline, are you seeing any shift in lease economics as it related to rents or concessions or TIs in there? Richard Hickson: No, not at this point. I think it's actually been relatively stable. I mean our concessions came down a little bit this quarter. I'm really pleased with the fact that our net effective rents, though are hanging in there and been very steady. I think we're right on top of the second quarter for net effective rents. So if anything, I'd say, we're feeling while TIs continue to be large, we're feeling like we're able to hold the line on rate and get net effective rents and produce stability there, yes. Michael Connolly: It's Colin. I would just add. We do think we're relatively close to an inflection point where it is likely to become a landlord's market. With no new construction having started really over the last couple of years and not expected to have any meaningful uptick there and now demand accelerating a shortage of what I would characterize as lifestyle office in some of our markets is absolutely coming and in some cases, almost here. And if you talk to the major tenant reps across our markets, whether it's in Atlanta or Austin or Charlotte, those large tenant reps are looking out to their '27, '28, '29 expirations and starting to have some real concern that they won't have the options to accommodate growth for their customers. And so hopefully, that ultimately translate into us driving net effective rents, whether it's face rents or ultimately bringing concessions down. Upal Rana: Okay. Great. That was helpful. And then with the Ovintiv termination, could you provide any lease economics or rent changes that you may have had with the new subtenants relative to what Ovintiv was paying? If there were none, where is market rent today relative to what Ovintiv was historically paying? Richard Hickson: Sure. So there are some changes that will happen as Ovintiv rolls out of the stack in mid-'26. It's not material, it won't move the needle from an NOI perspective. And we're definitely going to be able to push and roll up rents to the extent we backfill or renew any of that space. We're in the market, if you will, with kind of mid-40s net right now for the building, which is meaningfully higher than where employee rents are. Operator: And your next question comes from the line of Ray Zhong from JPMorgan. Zhuorui Zhong: Thanks for the color on looking out in -- on the occupancy guidance. Just curious, it sounds like 201 North Tryon is part of that 90% occupancy comment as well. Just want to confirm that. That's number one. And number 2 is, can you remind us the redevelopment timing? And how much you're going to spend there -- and when can we expect the backfilling to take place in terms of commencing. Michael Connolly: Ray, just to clarify your question, you -- as it relates to 201 North Tryon, your question is, will it be 90%? Or is it in the 90% guidance. Is that your question? Zhuorui Zhong: Yes, the second one. Yes, you mentioned the 90% comment towards year-end '26. Curious if that includes 201 North Tryon in the occupancy pool? And I'm guessing is yes, but I just want to confirm. Michael Connolly: It absolutely does. And again, as we've just gotten that space back and we're that are under construction on our redevelopment, that forecast does not include a significant amount of commencements new leasing at 201 North Tryon by year-end 2026. We certainly hope to outperform that, but I'd say largely the re-leasing and the commencement of those leases at 201 North Tryon are more geared towards 2027. Zhuorui Zhong: Got it. Yes, that's what I was trying to get to. And the second part of that question would be, can you remind us the spending amount on there. And I think you guys also mentioned it's not going to be capitalized like on the Golden dark space, right? Gregg D. Adzema: I'll tackle the gap of it and then Colin to put the total number in there. Yes, since we're not taking this out of the portfolio, we were not capitalizing interest against the basis of the existing building. We'll just capital interest on the new spend. So not a big movement there in terms of capitalized interest. And then in terms of total spending. Michael Connolly: It's approximately $40 million with an anticipated completion in the first quarter of 2027. It's very much consistent with the spending and the type of redevelopment we did at the Promenade tower, Promenade central building here in Atlanta or the Hayden Ferry project out in Phoenix that have all been really well received. And so I'd say it's a very similar project, slightly higher nominal dollars because it's just a larger tower. Operator: And your next question comes from the line of John Kim from BMO Capital Markets. John Kim: This quarter other than the Neuhoff loan, you didn't make any investments either on the assets or debt mezz side. I was wondering if you could talk about cap rate or yield compression you've seen just given the increased competition. And if I could focus on Dallas, there was recently a hardware portfolio sale, which included Saint Ann Court that recently traded. I was wondering if you could discuss how close you were to acquiring that portfolio? And any commentary you have on pricing? Michael Connolly: John, on Harwood we were kind of [ 6.7% ] on it. We appreciate it -- I'll go back to the beginning in terms of cap rates. As Kennedy alluded to, you're certainly seeing more investors focus and become interested in office and debt certainly readily available. So I would say cap rates, we think, are likely to compress. We haven't seen a lot of that compression just yet, but as more equity investors got to make the decision to pull the trigger in office, we think that, that will -- that is likely to come specifically to Harwood. Obviously, we had some involvement in the Saint Ann's asset, and they now have subsequently brought the entirety of the portfolio out to the market. I think you've seen some recent announcements as to how that is playing out. Certainly something that we looked at, and we're obviously strategically very focused on growing our presence in Dallas. But I think ultimately, we've made a decision to focus our efforts elsewhere. John Kim: Okay. And then on the leasing success that you had at Hayden Ferry 1, can you just provide some commentary on either the tenant or industry that signed there? You can give on redevelopment yields or return on invested capital on the redevelopments? And maybe for Gregg, can you remind us when you plan to place that asset back into the same-store pool? Richard Hickson: Sure. I'll start. The leasing has been pretty broad-based, the 50,000-ish square foot customer that we signed subsequent to quarter end was a regional engineering firm that actually has a very nice high-growth data center component to their business. We have previously signed a regional headquarters lease with a financial -- regional bank financial services company. The company that is in lease negotiations right now is a corporate headquarters. It's not new to market. And I'd characterize it as a health care/consumer goods-focused company. So it's very diverse. Actually, the new tenants that we're bringing into the project. And again, we've been very pleased with the profile of all of these customers, their headquarters, their high-end uses, not back office. So very excited about the new tenancy at Hayden Ferry 1 and elsewhere in the project. Gregg D. Adzema: And then in terms of when we bring it back in our same-property pool, likely Jan 1, '28. We only changed our same-property pool one time a year, January 1 of each year. And so in Jan 1, '27, which would be the next logical time to do it, we won't have a good year-over-year comp because it's not going to stabilize to later in '26. So to be Jan 1, '28. Operator: And your last question comes from the line of Dylan Burzinski from Green Street. Dylan Burzinski: I guess maybe following up on one of John's questions. Given that bidding tenant are growing, and I think in the past, you guys have focused most of your acquisition efforts towards what you could describe as sort of mispriced core assets. given it seems like cap rates are compressing in the subset of investment opportunities, is it your expectation that most of what you guys are going to be looking at going forward will sort of be more closer to the risk profile, say, Proscenium versus Sail Tower Vantage in the Link? Michael Connolly: No, it's Colin. I think, as I said, we expect them to likely compress, but we still have not seen that compression yet. And so I do think that there is more opportunity consistent with what we have been doing. And certainly, those type of assets fit our quality profile. We're not opposed to looking at high-quality assets that have vacancy and taking lease-up risk. But I would just kind of point out that in our Sunbelt and urban markets where Cousins operates, just given how robust the leasing has been, there are not that many high-quality buildings that have significant vacancy. And so those like Prosenium can arise from time to time, and we would absolutely look to capitalize on those opportunities. But I do think there's more of the recently developed, stabilized, immediately accretive to earnings type opportunities that we're pursuing. And then lastly, as I mentioned before, we are starting to see some large users who are migrating from the West Coast to New York City, very much open to got a new development with deliveries out, call it in 2029. And so we are also spending time on those type of situations as well that I think would come with a significant amount of pre-leasing and very, very attractive return on cost. Dylan Burzinski: That's helpful. I appreciate that color. And then I guess just 1 more. You mentioned RTO was outweighing sort of the weak job growth prospects. But at a certain point in time, this tailwind should naturally wear off and the important driver of office demand will once again be job growth. So just curious to give any thoughts on sort of how long or how much use is left related specifically to some of this RTO demand that we're seeing? Michael Connolly: Yes, I think there's still some runway there, again, highlighting Amazon who grew their headcount over the last 5 years by 750,000 people and had not signed a significant amount of leasing along the way. And that's representative of what we're seeing from a lot of different companies. So I do think that there's some runway there. At some point, as you indicated, that will run off. But nothing else is static either, and we would anticipate over time while, we're in a bit of a softer patch now at some point, hopefully, the economy begins to grow and job reductions become job growth once again. And so again, that has us very bullish on what's in front of us. I think it's important to continue to highlight the lack of new supply that gives us really positive runway over the next 4 to 5 years. And the economy will cycle, but without new supply, the market will tighten, and I think it's a good time to be an owner of existing lifestyle office buildings in the Sunbelt. Operator: And that ends our question-and-answer session. I will now hand the call back to Mr. Colin Connolly for any closing remarks. Michael Connolly: We appreciate your time and interest in Cousins Properties. I want to wish everybody a happy Halloween. If you have any follow-up questions, please feel free to reach out to Gregg Adzema or Roni Imbeaux and we hope to see many of you at the NAREIT Conference in Dallas in December. Have a good weekend. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good day, everyone, and welcome to the Standard Motor Products Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, today's call will be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Tony Cristello, Vice President of Investor Relations. Please go ahead. Anthony Cristello: Thank you, Nicky. Good morning, everyone, and thank you for joining us on Standard Motor Products third quarter 2025 earnings conference call. With me today are Larry Sills, Chairman Emeritus, Eric Sills, Chairman and Chief Executive Officer; Jim Burke, Chief Operating Officer; and Nathan Iles, Chief Financial Officer. On our call today, Eric will give an overview of our performance in the quarter, and Nathan will then discuss our financial results. Eric will then provide some concluding remarks and open the call up for Q&A. Before we begin this morning, I'd like to remind you that some of the material that we'll be discussing today may include forward-looking statements regarding our business and expected financial results. When we use words like anticipate, believe, estimate or expect, these are generally forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they are based on information currently available to us and certain assumptions made by us, and we cannot assure you that they will prove correct. You should also read our filings with the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward-looking statements. I'll now turn the call over to Eric Sills, our CEO. Eric Sills: Well, thank you, Tony, and good morning, everyone, and welcome to our third quarter earnings call. Overall, we are quite pleased with our results as the strong momentum from the first half has largely continued. From a top-line perspective, we posted growth of nearly 25%. And while the majority of this growth was from the addition of our newly acquired Nissens business, the legacy business was up nearly 4%. Due to the strength of our first 3 quarters, we have decided to increase our top line expectations as well as to tighten our EBITDA guidance to the upper end of our previous range, and Nathan will provide the details. I'll now review each business separately, starting with the North American aftermarket, which is comprised of 2 operating segments, Vehicle Control and Temperature Control. Vehicle Control sales were down 1.6% against a difficult comparison as last year's third quarter increased 5%. Looking closer, 2 of the 3 product lines were essentially flat, while all of the back slide was in our wire set business, which is a product category in secular decline. Generally speaking, there will always be some volatility quarter-to-quarter based on customer order patterns, timing of pipelines and so on. And so we believe a key metric is customer POS as it reflects true market demand for our products. POS for vehicle control continued the positive trend that has shown all year and was up mid-single digits in the quarter for our large accounts. This reflects the nondiscretionary and heavily DIFM nature of our categories and the brand acceptance by the professional shops making the purchasing decisions. Turning to our Temperature Control division. Robust sales continued up nearly 15% over last year. Year-to-date, the segment is now up more than 13% against 1 of the hottest on record. The air conditioning season seems to be elongating starting earlier and ending later. This year, several of our customers anticipated this and got their preseason orders on their shelves ahead of the season and this began their replenishment cycle sooner and they never lost a beat. I do also believe that our customers are gaining share as they do well with our recognized brands. And generally speaking, across both of our aftermarket segments, we continue to enjoy strong partnerships with our customers and strong brand penetration with the professional installers. Next, I'll speak about our newest aftermarket segment, Nissens Automotive, which has been a part of SMP since last November. Sales remained strong in the quarter, contributing nearly $85 million in revenue as they continue to outperform in their markets. We believe their ongoing success is based on many of the same reasons, why we do well here. First, they share many of the same nondiscretionary categories, which tend to remain stable in difficult economic times, but moreover, their strong brand recognition, well-received go-to-market strategy and consistent execution has allowed them to grow market share and expand into new categories. On the integration front, we continue to work together in developing meaningful synergies. We began our efforts focused on cost savings and are on track to achieve our previously stated targets and we are now seeking growth opportunities through cross-selling our complementary categories on both sides of the ocean. And while we are just getting started, we see a lot of potential. Next, I'll address our non-aftermarket segment, Engineered Solutions. After a few quarters of sagging sales, demand has flattened out, and we ended our quarter down a modest 0.3%. We have always known and discussed that this business has grown to more cyclicality than the aftermarket and while we can expect some volatility period to period, we believe that the longer-term trends are favorable as we continue to see a robust pipeline of new business opportunities, and we believe that it provides a nice complement to our aftermarket business, with valuable synergies. Lastly, let me speak briefly about the current tariff landscape. And while difficult to fully project, we believe that we have entered a more stable environment. In the third quarter, our tariff-related expenses were largely offset by pricing and go forward, we expect this to continue. While we are still awaiting certain trade agreements to be finalized, we believe that our diverse global footprint will continue to provide us with a competitive advantage. As previously stated, about half of what we sell in the U.S. is produced in North America and is largely tariff free. The balance is roughly split between China and lower tariffed regions such as Europe. We, therefore, believe our exposure is less than many with tariff inflation in the quarter in the low single digits. It's worth reiterating that as most of our products are nondiscretionary and as product decisions are typically made by professional repair facilities, they are relatively priced inelastic at the end consumer as our sell-through confirms. So when you put all these moving pieces together, we are very pleased with the quarter's financial results and with our ability to execute on our initiatives during complex times. Let me hand this over to Nathan, who will provide the details. Nathan Iles: All right. Thank you, Eric. Good morning, everyone. As we go through the numbers, I'll first give some color on the results for the quarter by segment and then look at the consolidated results for both the quarter and year so far. I'll then cover some key cash flow metrics and finish with an update on our financial outlook for the full year of 2025. First, looking at our Vehicle Control segment, you can see on the slide that net sales of $197.7 million in Q3 were down 1.6%, while being up against a difficult comparison from a year ago, when the segment grew 5.2%. That said, the decline was driven by wire products, which remain in secular decline, and we were pleased to see the engine category, in particular, hold up well against 7.3% growth last year. While the quarter showed a decline in sales, it's important to note that our sales were up 2.9% for the first 9 months in this segment. Vehicle Controls adjusted EBITDA in the third quarter was lower than last year at 10.3%. Adjusted EBITDA was driven by lower sales volumes and gross margin rate compression from passing through tariffs at cost as well as some higher distribution expenses as we transition into our new warehouse. While there was some timing that impacted sales and expenses in the quarter, it's important to note that adjusted EBITDA for the first 9 months is 10.9%, and right in line with last year, when allowing for the rate compression impact of tariffs. Turning to Temperature Control. Net sales in the quarter for that segment of $144.7 million were up 14.8% for the reasons Eric noted before. Temperature Controls adjusted EBITDA increased in Q3 to 19.7% due to higher sales volumes that led to a higher gross margin rate, which more than offset pressure from tariff costs as well as improved operating expenses as a percent of sales for the quarter. Next, I'll touch on Nissens. In our third full quarter of ownership, Nissens added $84.5 million of net sales and $14.2 million of adjusted EBITDA. The business is performing well and again, was in line with our earlier estimate of mid-teens EBITDA percent coming in at 16.8% for the quarter. Nissens continues to grow its sales across Europe and has also benefited from some favorable currency translation movements. Sales for our Engineered Solutions segment in the quarter were down 0.3%, but we were pleased to see declines level off as we lap market softness that began in Q3 of last year. Adjusted EBITDA for Engineered Solutions in the quarter of 10.2% was down from last year, but continues to be in a steady and consistent range. This was the result of lower sales volume, unfavorable mix and some impact from tariff costs that lowered the gross margin rate. To summarize and put it all together across the 4 segments for Q3, consolidated sales increased 24.9% and adjusted EBITDA increased to 12.4% of net sales and non-GAAP diluted earnings per share were up 6.3%, with all metrics being helped by our acquisition of Nissens, among the other things I already noted. For the first 9 months, our sales have increased 25.5% over last year and 4% excluding Nissens, helped by strong sales in both our North America and aftermarket segments. After 3 strong quarters of performance, our adjusted EBITDA is up 170 basis points, and our non-GAAP diluted earnings per share increased 27.8%. Turning now to cash flows. Cash generated from operations for the first 9 months of $85.7 million was up $7.5 million from last year. As always, the third quarter is when we generate much of our cash given the seasonality in the business, and it was nice to see higher earnings and good working capital management resulted in an increase despite paying higher cash cost per payers. Investing activities show capital expenditures of $29.3 million, which includes $9.6 million of investment related to our new distribution center. CapEx was slightly lower than last year as capital spending related to the new DC is nearing completion. Financing activities show payments of $20.4 million of dividends as well as a repayment of debt. Now we repaid $47 million on our credit agreement during the third quarter. And with that, our net debt stood at $502.3 million. We finished the quarter with a leverage ratio of 2.6x adjusted EBITDA and are on track to get to our target of 2x by the end of 2026. Before I finish, I want to give an update on our sales and profit expectations for the full year of 2025. As we noted in our release this morning, our updated outlook includes higher tariff costs and offsetting impacts as they stand today. We are raising our sales guidance for the full year to be an increase over last year in the low to mid-20% range, which is above our prior range of low 20% increases. We're also pleased to update our outlook for the adjusted EBITDA margin and tighten it to be in a range of 10.5% to 11% of net sales. Note this guidance updates. This updated guidance reflects the robust sales performance we've seen for the first 9 months of the year and higher overall margins. To wrap-up, we're very pleased with our sales and earnings growth in the first 9 months of 2025 allowing us to raise our outlook for the full year. We continue to execute on many initiatives, including the integration of Nissens and expect to realize increasing benefits from that initiative in 2026. Thank you for your time. I'll turn the call back to Eric for some final comments. Eric Sills: Well, thank you, Nathan. And in closing, let me just spend a moment discussing how we're dealing fix. Even in the face of a challenging economic environment, we have enjoyed several consecutive quarters of strong performance. The largest part of our business, the North American aftermarket continues to demonstrate this resilience. It's a highly stable market with solid foundations, the addressable market expands with a growing and aging car park. Within this attractive space, nondiscretionary product lines tend to do better as motorist are unable to defer repairs, and that's even more pronounced in DIFM categories like ours, and our value proposition continues to resonate. We provide full-line coverage of professional grade products and brands that technicians trust and our relationship with our trading partners is strong. Our recent geographic expansion with the acquisition of Nissens is exceeding our expectation. They enjoy many of the same benefits I just described for us here, both in terms of market dynamics and their place in it. And the more we work together, the more impressed we are with their team, with their capabilities and with our ability to identify opportunities. And so we remain very bullish about the future. And that concludes our prepared remarks. With this, we'll turn it over to the moderator and open it up for questions. Operator: [Operator Instructions] We'll take our first question from Scott Stember with ROTH Capital. Scott Stember: Some of your customers have been giving the indication that they're seeing some elasticity issues mainly in the DIY side of the business, I guess, just given the inflation and tariffs and so forth. It doesn't sound at least that you're seeing that at this point? Just wanted to confirm that. Eric Sills: Yes, that's a fair statement, Scott. And as I said in the prepared remarks, we're seeing our sell-through at these customers continuing in a positive range and within Vehicle Control, we are in the mid-single digits in the quarter and Temperature Control was even higher than that. So to your point, where I think we're seeing the impact of tougher economic times is in the product categories that consumers have the ability to defer or forgo altogether. And our categories for the most part, are not like that, the break fix, the car is down and the repairs required. So it's a fair statement if that is what we're seeing. Scott Stember: Got it. And then moving over to Europe, Nissens sounds like pro forma they had very nice growth in the quarter. It also has been some commentary about some weakness in Europe from some competitors and customers. Just trying to get a sense of the European market and also how well Nissens did in the quarter? Eric Sills: And very similar story over there, which is that its product category by product category and ours being similar to here being nondiscretionary are outperforming in general. And we very much believe that we have been able to gain share over there through a combination of executing on existing product categories, but also to -- as they continue to expand into newer ones and getting penetration in some of the newer categories. I do think it is perhaps worth pointing out to a degree some differences in regions within Europe, where we tend to have more of our volume focused. I mean, we're paying Europe for sure, but we do have some more of our volume more towards the east and southeast of the continent, where demand has really continued to be quite robust. Scott Stember: Got it. And then last question before I jump back in the queue. The OpEx numbers were a little higher. And I think that the mentioned sounds as if the transition over to Shawnee in Kansas, might have had a little bit to do with that. Just trying to get a sense of what we should be looking at for in SG&A or an OpEx number going forward for the next few quarters? Nathan Iles: Yes. Yes. Thanks, Scott. So I think there are 2 ways. 1, looking at the consolidated operating expenses. This is really the kind of the last full quarter, where we're going to have Nissens coming in with really no comparison against last year. So Nissens business added about $24 million of OpEx. And so just as you think about modeling, need to include their expenses going forward. And then there were some higher expenses in the Vehicle Control segment. I think as you pointed out, some of that, as I mentioned, was just due to transition and timing of transition to the new warehouse in Shawnee, Kansas. Just note that on a 9-month basis, the operating expenditures are a little bit more in line. So that kind of points out the timing aspect of some of those moves. Operator: [Operator Instructions] We will move next with Bret Jordan with Jefferies. Bret Jordan: On that growth in Temperature Control, is that market share gain where customers are opting for your North American product over what they might have been buying previously? Eric Sills: We see a bunch of different tailwinds really combining because certainly, having this sort of a sales lift over 2024, which was such a strong year from a temperature standpoint, it was a very -- it was less hot this summer than last summer, we're led to believe that there are several things going on. 1 is, and as I mentioned in the prepared remarks, the season started earlier. It's ending later. And so it's just we're seeing sales penetration lasting that many more months than it used to. But we very much do believe that we're gaining share. And it's partly because we think our customers have been able to maintain in-stocks because of our ability to keep them at that level. And our brands continue to be well received and requested within the repair base and so we do believe and we see this in some of the industry data that we have been able to gain share. Bret Jordan: Okay. And then 1 more question around this elasticity or inelasticity in the segment. Did you see any shift in POS cadence as the quarter progressed? I mean some of your large customers have called out the end of the third quarter being weaker for them. Did you see that in your POS? Or is your category relatively more immune? Eric Sills: Within Temp Control, it was -- no, there's a little bit of movement. I'm just looking at it now, Bret. There's a little bit of movement month-to-month, but nothing substantially whiplashing things around Vehicle Control is actually pretty stable. Temp Control, which is going to have a little bit of a weather-related impact. August was the strongest, but really throughout the entire quarter, it was in the mid to upper single. So nothing dramatic across the quarter. Operator: [Operator Instructions] We do have a follow-up from Scott Stember with ROTH Capital. Scott Stember: Back to Nissens questions about the synergies or cross pollination or top line opportunities. Maybe just give us an update on some of the bigger ones like with NAPA being able to translate some business over there for Nissens? And then are there any other synergies or sales opportunities that have popped up that you didn't realize previously. Eric Sills: Well, first, I will speak to what the opportunity is related to product line expansion. As we've been saying, while we both play in a lot of the same product categories. We do have some that 1 is stronger than the other or perhaps that 1 doesn't have at all and the other does. So those are the areas that we're looking at now is how do we expand each other's product offerings. Sometimes it's as simple as filling holes. We have compressors that they don't have. They have compressors that we don't have. But the more exciting area is to say here's an entire subcategory that we think we can accelerate the other company launching. That's what we've been working on towards the second half of this year is preparing more specifically in Europe, a couple of product categories to get launched over there. And so, it will take a little while before you start to see any revenue impact because there's a lot of work that goes into the launch and then it's about getting any customer traction. But we do see some very nice potential similarly here in the U.S., they are in some thermal categories that we think we should be able to do well in, and we're in the process now of building some of those lines out. In terms of customer penetration, I'm not going to go into any specifics on the cross-selling to each other's customers. But we do enjoy some ability to do that, where we do have customers to introduce each other to and that's really both sides of the ocean. So we feel good about that. We see some of the global distributors interested in having global suppliers, and now we can fulfill that objective of theirs. So again, early days on any of these things, Scott, but we do see that there's some nice potential. Operator: Thank you. And this will conclude our Q&A session. I will now turn the call back to Tony Cristello for closing remarks. Anthony Cristello: We want to thank everyone for participating in our conference call today. We understand there was a lot of information presented, and we'll be happy to answer any follow-up questions you may have. Our contact information is available on our press release or Investor Relations website. We hope you have a great day. Thank you. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Ladies and gentlemen, welcome to the Erste Group Third Quarter 2025 Results Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Thomas Sommerauer, our Head, Group Investor Relations. Please go ahead, sir. Thomas Sommerauer: Thank you very much, Sandra, for the kind introduction and also a warm welcome from my end to this third quarter conference call of Erste Group. We follow our usual procedure according to which Peter Bosek, our Chief Executive Officer; Stefan Dorfler, our Chief Financial Officer; and Alexandra Habeler-Drabek, our Chief Risk Officer, will lead you through a brief presentation highlighting the financial achievements of the third quarter and year-to-date. After which time, we will be ready to take your questions. Before I hand over to Peter Bosek, the usual highlighting of the disclaimer on Page 2 in regard to forward-looking statements. And with this, I hand over to Peter. Peter Bosek: Good morning, ladies and gentlemen. Welcome again to our third quarter 2025 conference call. Let me place 2 messages right at the start. First, we are progressing well towards first-time consolidation of Santander Polska around year-end 2025. We received all competition authority approvals, and it's our current expectation that we will get the nod of the Polish regulator KNF by year-end. The integration work streams with our future colleagues are also right on track as is our capital build. Actually, it's progressing even better than we have planned. And this brings me right to my second message, and this is our existing business is doing exceptionally well. We benefit from strong volume growth dynamics across our region, which translates into healthy top line performance and good bottom line profitability. And if you add these 2 things up, the strength of our existing business and the integration of a leading bank in the largest CEE market, Erste will become a real powerhouse in CEE banking with an unrivaled profitability and growth profile. And while it's unlikely that we hit the EUR 4 billion profit mark in 2026 on a reported basis due to the booking of customary onetime items that have to be absorbed with first-time consolidation of such transaction, this doesn't change anything in our ambition to get there on a clean basis already in 2026. Such onetime items include purely technical and overtime P&L-neutral IFRS effects such as the measurement of acquired assets at fair value and the resulting immediate recognition of expected credit losses on the newly acquired portfolio and certainly, also one-off integration costs, which we still see around EUR 200 million. With this, let me highlight a couple of points of our third quarter performance. For the first time ever, we posted quarterly revenues north of EUR 2.9 billion. This resulted from a record net interest income of close to EUR 2 billion, supported by strong loan growth, a stable interest rate environment and continued deposit pricing strengths. In addition, we printed fees of almost EUR 800 million, also a quarterly record. On the cost side, we probably could have done a touch better, but this is definitely an area where we still have a potential going into the fourth quarter. But despite elevated costs, quarterly operating profit was also in record territory by a comfortable margin. Risk costs remained moderate, and we are fully in line with our guidance. And we again benefited from a positive one-off in the other operating result despite higher banking taxes. Altogether, we achieved an excellent return on tangible equity of 18% flat in the third quarter. Based on these numbers, we slightly tweaked our 2025 guidance. We now see net interest income growing by more than 2% instead of more than 0%. And consequently, we rather see the cost/income ratio at around 48% instead of below 50%. Furthermore, we are raising our year-end CET1 ratio projection to higher than 18.5% due to continued strong capital build in the case first-time consolidation has not happened by this time. All other '25 guidance items, most of which we already upgraded a quarter ago, are hereby confirmed. When analyzing our P&L metrics, I'm on Page 5. In the meantime, we see continued net interest margin recovery. This was not necessarily driven by an expansion of product spreads, but rather by the factors I already mentioned like higher NII on the back of loan growth and strong deposit pricing power in addition to still muted interest-bearing asset inflation. The latter was supported by limited growth in financial assets and interbank assets in the past quarter. Operating efficiency also remained at a sound level, just shy of 47% as did risk costs at somewhat above 20 basis points. Banking taxes went up in the past quarter due to doubling of the tax rate in Romania starting in July. Quarterly earnings per share also rose despite reported net profit being down slightly quarter-on-quarter due to the nondeduction of AT1 dividends in the third quarter. The same effects also explain the rise of the return on tangible equity to 8%. I don't want to sound repetitive, but clearly, what the positive effect in our P&L is also reflected in the year-to-date balance sheet development. On Page 6, you can see the main driver of asset side growth was higher customer loan volumes. In fact, since the start of the year, added almost EUR 10 billion to our loan stock. Stefan will tell you more where it exactly came from later. So for now, I will only say that the positive trends of the previous quarters, good growth across Central and Eastern Europe and solid growth in Austria and better growth in retail and corporate business continued in the third quarter. Total customer deposits grew by 2.5% year-to-date, while core retail and SME deposits, which includes deposits held in the savings banks increased by 2.4% over the same time frame. The Retail segment on its own saw deposit growth by 3.5% since the start of the year. All in all, we are seeing healthy volume growth for the past couple of quarters now and the third quarter was no exception. So this increasingly looks like a sustainable trend. This makes us confident that we will comfortably deliver our full year guidance of growing customer loans by more than 5%. Looking at the same key balance sheet metrics on Slide 7. My key message to you is that all of them are pretty much in a sweet spot territory. The loan-to-deposit ratio stands at 92%. Here, we saw a little bit of an uptick since the start of the year due to strong loan growth dynamics and compared to that somewhat slower growth in deposits. The asset quality backdrop remained excellent in the third quarter with a stable NPL ratio of 2.5% and unchanged coverage versus the previous quarter of about 74%. Importantly, the asset quality situation in Austria remained stable despite the weak economic backdrop. Asset quality across Central and Eastern Europe remained very strong and the Czech Republic and Hungary doing particularly well. As usual, Alexandra will provide you further details on credit risk later. Our capital position continued to expand in the run-up for the first time consolidation of our Polish acquisition expected for around year-end of 2025. On a pro forma basis, we added another 74 basis points to our CET1 ratio in the third quarter, which now stands at 18.2%. Quarterly profit inclusion, the lack of any dividend accrual and the first positive impact from securitization were key drivers of this strong print. While the lower left-hand chart on the slide shows the reported CET1 number where third quarter profit is not included due to not being audited -- reviewed. And with this, let's now examine the macroeconomic environment and in particular, the outlook for 2026. I'm on Slide 9 now. In the past quarter, we saw a continuation of geopolitical and trade tensions, which prolonged the weakness of German industry. The fiscal spending plans announced in spring of this year didn't yet show any noticeable positive effect to date other than a slight improvement in sentiment. Accordingly, the German economy is expected to flatline in 2025. Due to this and necessary fiscal consolidation measures, the Austrian economy also struggled to produce growth. The situation was different in Central and Eastern Europe, where moderate growth in the range of 1% to 3% is expected in 2025. And I would like to highlight the good economic performance of the Czech Republic in this context, which is still our most important CEE market. A key pillar of strength was the healthy labor market across our region, and that includes Austria. Consumer price inflation remained relatively elevated in our region, impacted by high energy prices, but also good domestic demand. Fiscal and external balances were mixed with once again the Czech Republic standing out in terms of fiscal prudence and a positive external balance. When looking forward to 2026, current forecast project higher growth rates in most of our markets and adverse a stable growth performance. Consumer price inflation should ease somewhat and the labor markets are expected to remain in good shape. Fiscal deficit should improve, especially in Romania and overall indebtedness should also remain at sustainable levels. This is an environment that works well for us and should ensure that we will continue to grow profitably in 2026 despite all uncertainties that unfortunately more than ever are a feature of doing business. Despite the mixed macro backdrop, retail business continued to do very well in the third quarter. I'm on Page 10 now. We saw balanced growth in retail loans with housing and consumer finance contributing to growth in equal measure, both rising in high single digits year-on-year. Asset quality remained stable at low levels. When it comes to retail liabilities, deposits also grew by a significant 6.4% year-on-year, mainly due to the increase in current account and saving deposits, while term deposits were down year-on-year as well as quarter-on-quarter, in line with trends we have already observed for a couple of quarters now. From the bank's point of view, this trend is positive as the shift towards lower-priced deposits decreased funding costs and supports net interest income. But the good news don't stop here. We also saw continuous growth in our balance sheet -- in off-balance sheet customer funds, security savings plans that enable customers to build long-term wealth in an easy-to-manage digital format topped EUR 1.9 million at the end of the third quarter, and they have generated gross fund sales in excess of EUR 1.1 billion year-to-date. George, our digital platform for retail clients, continued on its growth path. The number of onboarded users reached 11.2 million in the third quarter and the digital sales ratio in the retail business equaled 65.8%. Going forward, our ambition is unchanged to develop George into a fully fledged financial adviser in order to give even larger parts of our client population access to high-quality financial advice. In the Corporate segment, I'm on Page 11 already. Loans were up 6.9% year-on-year and 1.3% quarter-on-quarter. Growth was well distributed among all 4 business lines in the third quarter, while year-on-year, the large corporate business made the best contribution, expanding by 10.4%. In terms of products, there was definitely more demand for investment loans than in the third quarter. While year-on-year, there was a good balance between investments and working capital loans. The markets business built on its strong start in 2025 with our ECM and DCM teams successfully executing 236 transactions with an issuance volume of EUR 173 billion year-to-date. In Asset Management business, we reached a historical milestone in the third quarter with assets under management topping EUR 100 billion for the first time ever. This achievement will support future fee growth. And with that, I hand over to Stefan for the presentation of the quarterly operating trends. Stefan Dörfler: Thanks very much, Peter, and also a warm welcome to this call from my side. Please follow me to Page 13. When analyzing the loan volume performance by country, I would also single out the Czech business in the same way as Peter did in the context of macro. Not only is it our largest and most profitable market in Central Eastern Europe, but it's also the most consistent performer when it comes to loan growth. In the third quarter, we continued to see growth across the board there. Demand was strong across all product categories with good balance between investment loans and working capital facilities in the corporate business, while mortgages continued to lead the way in the retail space with annual growth in the mid-teens. Mortgages were also the key growth driver in Slovakia, increasing by almost 10% year-on-year. Corporate loan demand was heavily tilted towards working capital facilities there. In Hungary, the retail business clearly outperformed the corporate business with both mortgages and consumer loans growing in the mid-teens year-on-year. Please bear in mind that euro growth rates are somewhat flattered by the strong appreciation of Hungarian forint over the past months. But even when adjusting for this, retail growth was really strong. In Croatia, the development was similar to that in Hungary with growth being better in retail and in corporate business. And within retail, mortgages were ahead. So when we said in July that mortgage lending in Central Eastern Europe is back, third quarter data provides further evidence that this trend is strong and has legs. In our Austrian retail and SME operations, Erste Bank Österreichs and the savings banks, volume growth is slowly but surely approaching the mid-single digits, actually not bad given the lackluster economic backdrop. Interestingly, growth was somewhat better in the corporate business than in retail with especially good demand for investment loans. Given the strong loan growth year-to-date, we feel very comfortable with our greater than 5% guidance for 2025. On the liability side, see Page 14, the trends we have observed for the past couple of quarters also continued in the third quarter of 2025. Importantly, the favorable structural shift in our West retail deposit base of almost EUR 170 billion from term deposits back to current account deposits and savings accounts or put differently, from the most expensive to cheaper retail deposits showed no signs of slowing. A similar trend was visible in the corporate business with overnight deposits increasing, while term deposits declined year-on-year. Consequently, the cost of deposits has declined to the lowest level in almost 3 years with corresponding positive read across to net interest income, as we will see shortly. In terms of total deposit volumes, we are up 3.4% year-on-year and flat compared to the second quarter. Growth was driven by core retail, SME and savings banks deposits, up 5.2% over the past 12 months, while deposits in the Corporate segment flatlined over the same period, due in particular to offsetting volatility in the large corporate and public sector subsegments. In terms of geographic segment highlights, annual growth was satisfactory across the retail and SME businesses in Austria and Central and Eastern Europe, while the year-on-year decline in the other Austria segment was entirely attributable to lower noncore financial institution deposits. Let me now move to net interest income on Page 15. We have already talked about many NII drivers, be it strong loan growth, lower cost of deposits or a stabilization in the interest rate environment. Add to that, a steepening of yield curves, allowing for better reinvestment opportunities and tighter funding spreads. And you have all ingredients for posting record quarterly net interest income. Record NII of close to EUR 2 billion, in fact, up 3.7% year-on-year and also up 3.1% quarter-on-quarter. Net interest margin also edged up quarter-on-quarter, thanks to a muted increase in interest-bearing assets on the back of lower interbank business volumes. In terms of geographic highlights, net interest income at the Austrian retail and SME business continued to stabilize on the back of significant downward repricing of deposits, while downward repricing of variable rate loans came almost to a standstill. In Czech Republic and Slovakia, continued deposit repricing also had a positive impact year-on-year compounded by the continued upward repricing of mortgage loans due to refixations at higher levels. The Other segment, which includes holding asset liability management operations benefited from higher income mainly from government bond investments. And a final comment on NII. Our sensitivity to rate cuts is more or less unchanged at about or even slightly below EUR 200 million for a 100 basis point instant downward rate shock with the bulk of the impact expected at the minority-owned savings bank, so no big deal for shareholders. As a result of all of this, we are upgrading again our 2025 outlook for net interest income from previously growth at higher than 0% to growth of higher than 2%. Flipping to fees on Page 16 and on to a blockbuster, sorry, fee quarter. Net fee income rose by a massive 8.6% year-on-year and increased by 4.8% quarter-on-quarter. With this, we set a new quarterly record of almost EUR 800 million. In terms of growth drivers, the story is by and large unchanged. Year-on-year fees generated by payment services and securities business led the way, even though the increase in payment fees is understated by the shift of loan account fees from payment to lending as of first quarter 2025. I would not like to highlight individual countries in this context as we saw encouraging trends across the board, but rather add a comment to the other Austria segment. In addition to good asset management sales, the year-on-year jump there is also explained by the integration of new asset management companies, so bolt-on acquisitions have worked very well there. Quarter-on-quarter, the drivers were pretty much the same as year-on-year with excellent performances registered in Payment Services as well as Securities business. Based on the strong year-to-date performance, we confirm our full year guidance of growth comfortably exceeding 5% in 2025. Let me turn to operating expenses on Slide 17. Quarter-on-quarter costs were unchanged, both in terms of absolute amount and structure. Somewhat higher IT expenses were offset by lower personnel costs. Other than that, there were no major developments. Year-on-year cost inflation remained elevated at 8% compared to the third quarters of 2024 and 2025 and at 6.8% looking at the first 3 quarters, respectively. The reasons are well known, ranging from higher staff costs to higher IT and consulting expenses. Very importantly, we do believe that with this, we have seen the peak of cost inflation. And in the fourth quarter of 2025, the year-on-year cost uplift will decline significantly. Consequently, it is still our ambition to get as close to the 5% guidance in 2025 as possible. Actually, the only moving target in this context is the size and timing of the booking of integration costs related to the Santander Polska acquisition. Looking further out and limiting my comments to existing Erste operations, we do believe that cost growth will decline materially from 2025 levels in 2026, which bodes well for positive operating leverage given that we also have a strong top line momentum. Talking about operating performance, we move to Page 18 and can conclude that the top line performance is the story of the third quarter. We posted record quarterly revenues, which fully offset elevated costs, resulting in record operating profit. The cost/income ratio also improved to 46.7% for the quarter. Based on the strong year-to-date operating performance, we are upgrading the full year cost/income ratio guidance for 2025 to about 48%. And as I mentioned before, we have a constructive stance when it comes to the 2026 operating result outlook of our existing Erste operations due to strong top line momentum and moderating cost inflation in 2026. And with this, over to you, Alexandra, for more details on credit risk. Alexandra Habeler-Drabek: Thank you, Stefan, and good morning, and welcome to this call also from my end. I'm on Page 19. In the third quarter of 2025, we booked risk costs of EUR 136 million or 24 basis points. A year ago, risk costs were lower, but back then, we benefited from FLI and overlay releases in the amount of EUR 101 million as opposed to only EUR 19 million this quarter. So net-net, we actually saw an improvement year-on-year. As is visible on the left-hand chart, we continue to book risk costs in our Austrian retail and SME operations, but the asset quality situation in Austria has definitely stabilized, thanks to lower NPL inflows year-to-date. The third quarter bookings in Romania and Slovakia were mostly attributable to the retail business. And like Stefan and Peter, I also would like to explicitly mention the Czech Republic, which continued to excel also in terms of risk performance. As far as FLI and industry overlay provisions are concerned, we now hold the stock of about EUR 460 million, slightly down compared to the second quarter on the back of the already mentioned only minor FLI releases. Accordingly, we are again adjusting our forecast of such provision release in the remainder of 2025 to about EUR 70 million. Let me also come back to a point that Peter mentioned in his comments on onetime effects related to the first-time consolidation of Santander Polska. According to IFRS 3 and IFRS 9, we are required to measure all acquired assets at fair value on the date of acquisition and immediately provide for performing ECL of the acquired portfolio on parent company level. Purely technical IFRS bookings that will make our risk cost line look worse by up to EUR 300 million in 2026, but are P&L neutral over time. And importantly, this is not a reflection of any underlying portfolio deterioration of the acquired assets. Moving back to 2025 and given our strong year-to-date credit risk performance, which, as said, benefited much less from FLI and overlay releases than in previous years, we confirm our full year risk cost outlook of about 20 basis points. Let's now turn to asset quality on Page 20. With a consolidated NPL ratio of 2.5% and an NPL coverage ratio, excluding collateral, as always, of 74%, asset quality metrics remain strong and this across our footprint. Overall, the NPL ratio benefited from somewhat lower NPL inflows and significantly higher recoveries year-to-date. Central and Eastern Europe and again, especially the Czech Republic, continued to do very well with only Romania and Slovakia showing a small deterioration. In Romania, NPL inflows were registered in the third quarter in retail as well as in the corporate business, while in Slovakia, this was due to some inflows in the retail space. In Austria, the situation was broadly stable with most of the NPL inflows being tied to the real estate segment as we have already observed over the past couple of quarters. Nonetheless, and let me stress this once again, the asset quality situation in this segment has definitely not deteriorated, but rather continues to consolidate at somewhat elevated levels. So I still maintain my comments from the second quarter that we have seen the peak in defaults in Austria, but that at the same time, you should not overestimate the speed of recovery given the still challenging economic environment. In terms of projections for year-end 2025, we expect the group NPL ratio to stay more or less at current levels. Similarly, coverage is expected to remain broadly unchanged, subject to the structure of new defaults and the magnitude of further FLI and overlay releases. And with this, I already hand back to Stefan. Stefan Dörfler: Thanks, Alexandra. Let's briefly look at how the other result performed this quarter on Page 21. In short, other result once again benefited from a positive one-off. After posting a positive one-off of EUR 88 million in the second quarter, the third quarter saw a positive one-off in the form of a provision release related to a legal case in Romania in the amount of EUR 77 million, which also explains the quarter-on-quarter deterioration to which the increased banking tax in Romania from July also contributed. Year-on-year, the comparison looks more favorable, even though the tripling of the Austrian banking tax since the start of 2025 did not help in this context. In terms of guidance for the fourth quarter of 2025, we would definitely expect to come in significantly better than for the last quarter a year ago. On Page 22 and summing up the P&L for third quarter of 2025. The record operating performance, combined with moderate, however, year-on-year and quarter-on-quarter slightly higher risk costs resulted in a quarterly net profit of EUR 901 million, earnings per share of EUR 2.2 and a return on tangible equity of 18%. As Peter mentioned already, the reason why earnings per share and return on tangible equity both improved quarter-on-quarter despite reported net profit trailing the second quarter figure has exclusively to do with the timing of AT1 dividend payments. In the second quarter, we had some deductions due to this, while in the third quarter, there were no such payments. Overall, we are fully on track to deliver a return on tangible equity of greater than 15% in 2025. With this, let's spend a few minutes on wholesale funding and capital. Page 24 shows that our highly granular and well-diversified retail and SME deposit base, of course, remains the key source of long-term funding. Wholesale funding volumes decreased year-to-date as higher stock of debt securities was more than offset by decline in interbank deposits, mainly repos. The stock of debt securities was pushed up primarily by issuance of covered bonds and senior preferred bonds, characterizing a very successful issuance year for Erste Group, resulting in the updated maturity profile on Page 25. My very short summary would be that we successfully completed our 2025 funding plan well ahead of time. Third quarter issuance highlights included a EUR 750 million Tier 2 note on holding level as well as senior nonpreferred paper and a covered bond in the amount of EUR 500 million each issued by our Czech and Slovak subsidiaries, respectively. And finally, for my part, let's look at capital, starting on Page 26. Our first half 2025 performance when it comes to regulatory capital and risk-weighted assets was exceptional, and the third quarter was no different. While this is not visible in reported CET1 capital, which is almost entirely attributable to the noninclusion of third quarter profit, it's all the more visible in risk-weighted assets on the right-hand chart on this slide. The increase in risk-weighted assets from strong business growth was more than offset by asset quality-related portfolio effects as well as the successful execution of optimization measures such as securitizations. The former cover such factors as rating upgrades and downgrades, migrations to default and parameter updates. The later, thanks to small securitization transactions in Slovakia and Hungary, also reduced risk-weighted assets by almost EUR 1 billion. And consequently, risk-weighted assets overall declined by another EUR 1.5 billion in the third quarter. Let's now turn to the important pro forma view of our CET1 ratio on Page 27. If we focus on pro forma, we can see that we are pretty much where we targeted to be at year-end already now after the third quarter. At 18.2%, we could have closed the Polish transaction already in September without falling below our minimum threshold of 13.5% announced at the time of acquisition or signing of the SPA in May. Now the fourth quarter profit and most of the balance sheet optimization are still to come. So far, securitizations contributed only 12 basis points and asset sales another 11 basis points roundabout. All the rest came from organic capital generation, obviously supported by the temporarily reduced shareholder distributions. Consequently, we now project the year-end 2025 CET1 ratios of higher than 18.5% should the Santander Bank Polska acquisition close in early 2026 or alternatively of higher than 14% should the transaction be completed inside this year. And with the assumption of RWA drawdown unchanged at about 460 basis points as a result of first-time consolidation of Santander Bank Polska, we should be well on our way to exceed our post-consolidation CET1 ratio target of 14.25% during the course of 2026. And at the same time, return to our dividend payout policy of 40% to 50%. And with this, over to you, Peter, for the outlook. Peter Bosek: Thank you, Stefan. Thank you, Alexandra. I'm concluding the presentation with our detailed financial outlook for 2025 on Page 29. In addition, I will sketch out how I see 2026 shaping up, but let's start with 2025. As is evident from the numbers presented today, 2025 is already a strong year, and we have no reason to believe that the fourth quarter will be any different. We have healthy customer volume growth. We have a reasonable favorable interest rate environment. And as market leader, we have a pricing power, all of which support an upgrade in our NII outlook for 2025. We now expect growth of more than 2%. Fees continue to do very well for us. So the guidance of greater than 5% is probably on the conservative end. With this, our top line should grow nicely in 2025. On the cost side, we stick to our guidance of roughly 5% increase in 2025, even though we do realize that the year-end-to-date performance and the possible front-loading of some integration costs related to Poland might push this figure slightly higher. Even factoring some cost volatility in, we believe that we have a good shot of printing a 48% handle when it comes to the 2025 cost/income ratio, supported by a strong top line. Risk costs should be in line with our existing guidance of about 20 basis points and return on tangible equity should be comfortably above 15%, also fully in line with guidance. Let's now to the more interesting part in this 2026. First of all, we entered 2026 from a position of strength. Erste, as we know it today, enjoys strong growth dynamics. Add to that, that 2026 economic outlook for our region is somewhat better than it was for 2025. So volume growth should continue to be healthy. And if we don't see big shifts in the interest rate environment, which is the current expectation, then our top line in 2026 should grow faster than it did in 2025. At the same time, cost inflation should definitely come down next year. So positive operating leverage is not unrealistic for 2026. And with a continued solid credit risk backdrop, we would expect to print a return on tangible equity north of 15%. That's the existing Erste business. We are talking about a business that even prior to the acquisition of Santander Polska is in excellent shape in terms of growth and profitability. If we now add Poland to the 2026 equation and leave one-offs aside, our profit and capital generation capacity will only improve from here. In terms of level 2026 guidance for the combined entity, we, therefore, feel comfortable with confirming our targets made at the time of transaction announcement, and that's a return on tangible equity of about 19% and EPS uplift of higher than 20% based on current market consensus expectations for 2025. And to be absolutely clear about it, the guidance relates to reported figures rather than figures adjusted for onetime items. And this, ladies and gentlemen, concludes our presentation remarks. Thank you for your attention. We are now ready to take your questions. Operator: [Operator Instructions] Our first question comes from Gulnara Saitkulova from Morgan Stanley. Gulnara Saitkulova: So a question on costs. You noted that the cost growth is expected to decline materially in 2026. Could you provide additional color on the cost outlook for the coming year and the key factors influencing the cost dynamics across your various markets? Where do you see and expect the most significant cost savings to come from and maybe potential areas of pressure? And how are you planning to manage these developments? Stefan Dörfler: All right. That's it. Okay. Very good. Thank you very much for the question. Now look, let's start with the environment. I think what we have seen was -- and that's, of course, the flip side of the coin of stable rate environment. We have seen that the inflation while coming down from the super elevated levels over the cycle, has still been at quite elevated level above the average of Euroland. And equally so, we have a couple of high inflation countries, to name Hungary or Romania. This, combined with the very tight labor markets, definitely has been keeping the pressure on wage inflation up. On the flip side of that is, of course, a very, very strong retail business, strong [indiscernible] business, very good asset quality. So that all, of course, is connected to each other. So that much to the overall backdrop. On the internal, so to say, view, we have always been pointing out that the investments that we started in the second half of 2024 and have been ramping up throughout 2025 in order to improve our process efficiency, are clearly seen in our cost line. So we always have been flagging that as around 1.5 percentage points. And that is, of course, now also part of the slightly elevated cost numbers in 2025. What of this will come down in 2026? First of all, we see significantly reducing wage inflation pressure all across countries. Actually, I don't need to be specific anywhere. Of course, the absolute levels are different. But all of them have been coming down by, let's say, 1 to 3 percentage points from what we saw in '24 and '25. That's point number one. Point number two, the index adjustments of, let's say, the broad IT spending and so on are hopefully mostly finalized, and there definitely is an easing effect. And thirdly, and that's, of course, most important for you to see how we work on the matters. We will already and we have seen already significant achievements in the process efficiency and the automation. That means that especially in the operations area and the typical mid- to back office areas, you will see reduction of staff here and there, not a huge reduction, but a significant one in order to bring down the cost inflation substantially, i.e., as Peter, Alexandra and myself have described, we see a very good chance to come up with a positive operating jaws in 2026 altogether. Operator: The next question comes from Amit Ranjan from JPMorgan. Amit Ranjan: The first one is on capital. Can you please talk about how much of the 40 bps optimization measures are now in the numbers? I think, Stefan, you mentioned around 12 basis points. If you could confirm that, please? And what's the outlook for these benefits in the fourth quarter, please? And the second one is on capital return outlook from 2026 onwards. The 40% to 50% dividend payout range, could there be upside to this range given the pace of capital build so far? Would it be dividends, more share -- could there be share buybacks part of the equation as well, please? And the payout, would it be based on stated net income? Or would it exclude the one-off from its list? Stefan Dörfler: All right. So one after the other. First question, how much is in? Less than half of the 40 bps. However, given the very successful progress all across the measures we are taking, let's not forget, the market was quite supportive, very tight spreads. So we could do a little bit more of asset sales. Securitizations are on a very good track, as you saw also in one or the other, let me say, statement reported around it. we believe it's going to be above 40 bps at the end of the year and some of the measures might still happen in Q1. So in other words, so far, only around about half of the 30 basis points of particular measures are in. But towards the end of the year, it will be more than 40 bps. That's why we are overall, in general, on better track with CET1 ratio. So that's point number one. I think you were asking about dividend EUR 0.25 -- so EUR 0.25 very simply put. We will not change anything here. It's going to be 10% of the net profit. Obviously, with the net profit, there is certain fluctuations. So if you put the numbers together, the best guess is somewhere between EUR 0.50 and EUR 0.75 to the euro. But that's just, so to say, simply calculated, nothing to be changed there because our clear commitment and goal is that in 2026, shareholder returns on dividend payouts should be very much in the focus. I said it in the presentation that 40% to 50% net profit after AT1 deduction is our dividend policy. I think if we get back to that, given good profitability expectations for '26, a very interesting and attractive dividend for '26 should be expected. Operator: The next question comes from Máté Nemes from UBS. Mate Nemes: I have three of them. The first one would be on the Czech Republic. You're showing really strong 5% sequential NII growth. It seems like you are outperforming this sector, both in retail lending and in corporate lending. Could you talk a little bit about the drivers of that? What's behind this? And how sustainable do you see this double-digit retail loan growth in the country? How long this could continue? The second question would be on the NII guidance north of 2% for this year. If I look at the quarterly developments and only assume a flattish sequential development in Q4, you already are at 2.8% up year-on-year. And again, you are showing really good growth in a number of markets, NII or net interest margin showing a trough perhaps in Austria and a clear expansion in a number of other markets. What prevents you actually to become more positive? What are the potential one-offs or other risks to that guidance? And the last question would be on Q4 costs. In the first 9 months, you are 6.8% up year-on-year. Can you comment on what exactly in Q4 will help you to get to around about 5% or 5%-ish level on a full year basis? Any specific one-offs that you booked in the second half of '24 or any potential relief you're getting specifically this quarter? Peter Bosek: Okay. Let me start to answer your first question about Czech Republic and our mortgage lending, consumer lending and corporate lending. Point number one, this trend is going on since more than 80 months -- 18 months, right? There was a kind of hangover from COVID times in terms of demand. Now it seems to us that this demand looks like quite sustainable. And we are just taking out advantage of being market leader there. So we are very well positioned in mortgage lending. And that's also true for consumer lending, but demand in mortgage lending is bigger than in consumer lending. And on the other hand, I think it's fair to say that we have a very balanced loan growth in the Czech Republic. It's not only about retail, it's also about corporate banking. We're doing very well in SME lending in corporate banking in the Czech Republic. So we are quite happy with what we have achieved so far, and we are deeply convinced that the demand in corporate and retail lending is a sustainable one. Stefan Dörfler: On NII guidance, look, I can keep it very short. We don't have any whatsoever one-offs or so in mind. And greater than 2% can also be greater than 3%, right? But we simply wanted to leave a certain room of, so to say, caution in. That's all I can say. We are super confident to beat the 2%. We are reasonably confident to beat the 3%, but that's pretty much it. Nothing more to say here. Q4 costs, very interesting point. Please have a -- if you look at the quarterly cost chart in the presentation, you will very clearly see that the '24 Q4 was elevated even more than usually the Q4 bookings are elevated. There are various reasons for that. Some of these effects will repeat, to be very honest with you. For example, we have a component for our employees and managers in the bonus payments, which is tied to share performance, and that obviously has to be provisioned in the cost. So that's one element which we repeat. I was already mentioning in my presentation that there is a small but not completely immaterial part of the Polish integration costs that we will book. So we will see some effects in Q4, but certainly not such a jump up like in 2024. That's why the year-on-year quarter 4 comparison will come down quite substantially, and that helps us come much closer to the 5% than we are in so far in the first 3 quarters. I think that's the explanation for Q4. But let me -- allow me please also to make a statement for '26. As I already answered in the former question, that's really critical that we bring down the cost inflation in 2026. Even if we have fantastic top line, it's important for us to come to, let me say, at or even below inflation levels in order to support the overall operating performance and that we definitely have in the cards for 2026. Operator: The next question comes from Benoit Petrarque from Kepler Cheuvreux. Benoit Petrarque: So the first question on my side is on the earnings power for Poland. Just wondering what you see operationally in Poland and also looking at several factors like rate outlook and bank tax, if you could refresh us on your guidance for Poland for '26. Then second question is, again, on NII. Yes, what can stop NII to further increase in the coming quarters, basically? I mean you have NIM stabilization, a very strong loan growth across the board, positive mix effect. So I think in your slide, you mentioned potentially flattening of the curve or ECB rate cuts, but it sounds like NII momentum will remain strong in the coming quarters. And just wanted to confirm again that with NIM stabilization, it's going to be a function of loan growth as far as NII is concerned. And then last one, just on the loan-to-deposit ratio, which is deteriorating a bit for several quarters. Do you plan any specific steering actions to, well, rebalance deposit growth versus loan growth because loan growth will probably stay strong next year. So any planned actions there? Peter Bosek: If I may start to answer your question. So the first part about Poland, I think yesterday or the day before yesterday, hopefully, future colleagues in Poland announced their third quarter results. So you can see they are still going very, very strong. And also the forecast for next year when it comes to economic development is the highest in the whole region, will be definitely above 3%. When it comes to NII, in general, before I hand over to Stefan, this is exactly what we tried to explain that when we assume that interest rates will more or less stay at the same level as they are today, where this is also our forecast, then there should be much more correlation between volume growth and NII growth compared to this year because we are quite happy that we succeeded to increase NII this year. And we should not forget that this year, we have seen a decrease in interest rate environment. So it's just given the demand in our region. And again, this is the only region in Europe which is still growing. So the demand in loan growth and our capability to fulfill this demand led to a situation that our NII is growing, although interest rates are coming down. If you put this in perspective for next year, and let's assume again that interest rate level will stay where it is, then our loan growth should be even further -- NII growth should be even better. Stefan Dörfler: I completely agree. That's exactly how we explain the situation. And I have absolutely no disagreement with your statement that further on in the upcoming quarters, we could also see a further growth in NII. There is nothing in our statements that would contradict that. It was only the discussion about Q4, and you know exactly that there can always be a couple of effects that drive it a little bit more up and down. I think our guidance for Q4 is also open on the upper side. So no problem with that. One reminder, just not to get too overly excited. Of course, certain measures that we took very successfully also have a certain limit. So in other words, deposit repricing doesn't go on forever, and we have been very successful in that across the markets, as we explained. Also, let's not forget that the funding -- so for example, wholesale funding levels, which we were perfectly making use of in 2025, there is no guarantee that those funding spreads remain at tight levels. So I mean, we are super optimistic, but we also should remain realistic and not expect that things go through the roof. On your loan-to-deposit statement, I have a completely different opinion here, very simply put, I think we are in a perfect sweet spot. We're in a perfect sweet spot, anything around this 90% loan-to-deposit ratio across the group, I feel super comfortable with. Of course, there are big differences between the markets. I'm happy to go in a different session into the details market by market. But overall, the loan-to-deposit ratio is exactly where we like it to be in this rate environment. And we will, of course, very closely watch all the indicators on the liquidity and deposit front. But so far, could hardly be better. Operator: The next question comes from Gabor Kemeny from Autonomous Research. Gabor Kemeny: One question on Poland, please, on the bank tax, in particular, the bank tax proposal, I believe this is still a proposal. If this gets implemented, how would that impact the operations of Santander Polska? I believe you are expecting to create significant goodwill with the deal. Could the bank tax impact the valuation and with that, the capital impact from this acquisition? That was the first question. Secondly, on the NII outlook, thank you for all the clarifications. Just numbers-wise, I believe you are annualizing close to the EUR 8 billion mark in Q3 or perhaps H2. And then I believe you guided around EUR 3 billion from Santander Polska, which together gets us to EUR 11 billion before considering growth. Are there any trends, any deviations you would like to highlight for our modeling the 2026 NII outlook, please? And the final one would be, Czechia is about to, let's say, getting a new government or forming a new government. Do you have any views on the likelihood of the new government introducing another bank tax? Peter Bosek: Gabor, let me start with the last part of your question about Czech Republic. So far and also not during the election campaigns, there was anything mentioned when it comes to banking tax. Of course, we know that all over Europe, banking taxes are an issue because a lot of countries have an issue with the public debt levels, which is not so much the case for the Czech Republic. I think therefore, this is not such a hot topic in Czech Republic. So from today's perspective, we don't expect the banking tax in Czech Republic. But of course, I need a political disclaimer, you never know when it comes to politics. Stefan Dörfler: On NII, Gabor, very briefly. I mean, I think your statement on the existing parameter of Erste Group can only be signed off, if that's correct. That's all fine. I'm not in a position to comment yet on detailed outlook for our future Polish subsidiaries. First of all, we don't know the detailed internal drivers, the hedges, all of that. So please ask you for understanding that we can only talk about that really after closing. And certainly, you can read a lot out of this from the reporting of future Polish colleagues. On the banking tax, look, I completely agree. It's still in the political decision process. There are all kinds of discussions around that. I don't want to, and I cannot comment on that in more detail. What is very important to understand, even if the government proposal goes through one-to-one, we are talking about a onetime lift up to 31% in 2026, then 26% and then 23% as, so to say, the new level, which, of course, eases substantially your assumption in terms of the terminal value and stuff like impairment tests and goodwill assumptions. So we have been doing the numbers, obviously, and we don't see any whatsoever reason to adjust them now. But of course, we will do this ongoingly. We are in constant contact, of course, already today with our auditors in assessing the situation. But so far, we don't see any changes on that. Adding to this, of course, and Peter said it in a couple of statements also publicly, the strategic rationale as well as the overall, so to say, profitability, long-term outlook doesn't change at all. We are used to those kind of measures. Do we like them? Obviously not. Do we have to live with them? Certainly, yes. Operator: The next question comes from Ben Maher from KBW. Benjamin Maher: Two quick ones. First one is just on the cost growth we're seeing in Czechia. That's obviously accelerated a fair bit in the quarter, but inflation has been quite low there for a while. So just interested to see what the main driver of that is. And then my second question is just on the overlay releases. I think you did mention it before that you're guiding to, I guess, fewer releases than what you were guiding to last quarter. I was wondering if you could give any color on the potential releases for next year? And do you have a view on the terminal stock that you're targeting? Or is this something that you don't really target? Alexandra Habeler-Drabek: I'll start with your question on the releases of FLI overlays. So as I said, for this year -- for the remainder of this year, it's roughly EUR 70 million, which we expect and going forward with even somewhat lower levels, yes. So maybe around EUR 50 million releases next year, and then we would rather expect to have come to a certain stock of FLI, which we would also then carry forward. So this is the current expectation. So no huge releases, but some... Stefan Dörfler: Okay. I think your question -- we had a bad line at this moment, but I think your question was around Czech costs, right? Benjamin Maher: Just the acceleration in the cost growth in Czechia during the quarter. Stefan Dörfler: No, I think -- I mean, look, I just looked up a couple of numbers with my colleagues. I don't see any specific -- look, the wage inflation level around about is in the mid-single digits. So we had adjustments of salaries around 5%. We had a couple of very good and forward-looking initiatives on IT side, AI and so on in Czech Republic, which also played to it. But maybe if you can be more specific, I don't see any outlier whatsoever in Czech Republic, by no means on the cost side. So it's business as usual, I would say. And comparing to the market, I think we are at average. But maybe you spotted something, then let us know. Operator: The next question comes from Krishnendra Dubey from Barclays. Krishnendra Dubey: I just wanted to check on the fee guidance actually. So as of -- till 9 months, you're trading at 8% y-o-y, I know you say more than 5%, so it could be 5%, 6%, 7%, consensus at 6.5%. How do you see that trend developing? And the second question was on the 2026 net profit guidance. When you talk about adjusted EUR 4 billion, is it pre-AT1? Or is it post-AT1? And lastly, you talked about EUR 200 million of one-offs. Are those tax deductible or those are not tax deductible? Stefan Dörfler: Okay. The second one is easy. Everything that we talk about is pre-AT1. So if you do, so to say, your math around, for example, dividend calculation or the like, and we can provide you with the AT1 payments, absolutely no problem. So that's all the numbers that Peter and myself were using are pre-AT1 dividend or, so to say, AT1 costs. On the fee trends, look, yes, you're perfectly right that we had these discussions, as you can imagine. Given the Q3 or year-to-date numbers, the greater than 5% looks a bit conservative. On the other hand, we all know that on fees, 1 percentage point is something around EUR 25 million, EUR 30 million. So that can easily jump up and down. So what value is there if you go to mid-single upper-digit [indiscernible]. So in that sense, there is no break in whatsoever. Q4 usually is very strong, always subject to, for example, capital markets and so on in terms of asset management fees and so on. But there is no whatsoever slowdown, as I said in the presentation, already visible. What will be interesting, of course, to see on the back of [indiscernible], again, the similar effect in the other direction. If inflation constantly comes down and slows down and obviously, some of the fee drivers might slow. But nonetheless, with our strategic focus, we are super optimistic, by the way, also for Poland that we can improve some of the fee-generating activities substantially. Peter Bosek: And maybe if I may add some kind of sentiment from a business point of view. As Stefan absolutely rightly mentioned, I mean, inflation was already coming down this year. So what we have expected for this year was a little bit more decrease in the related payments, which didn't happen so far. So I think our capability to generate new clients is supporting us there to compensate the decrease in inflation and the potential impact on the payment fees. When it comes to asset management, it's clear that the volatility can increase, of course, in the upcoming months, which will be mainly reflected in the volume of our assets under management in Asset Management. When it comes to fee income generation, the way how we have built up or continue to build up our asset management proposition in most of our countries is this monthly regular investments in asset management products, which makes us not so much dependent on volatility in the market because it's kind of cost average principle which is supporting our clients to build up wheels in a very stable way. And last but not least, also coming back to Stefan's remarks, we see a huge potential in terms of fee income in the Asset Management in Poland because we believe that this market is somehow underpenetrated when it comes to asset management, which is not a surprise because there was a different history in interest rates compared to other countries we are operating in. So if I remember correctly, we have never seen negative interest rates in Poland. So the engagement or the love to term deposits is a little bit higher compared to other countries. But when you look at the volumes of asset management and given the size of the market and given the proposition of our bank, we see a lot of opportunities. Stefan Dörfler: And we were -- thanks, Peter. We were speculating. I think you asked about the tax deductibility and integration costs and so on. This is a very important information. The lion's share of it certainly is tax deductible. That's absolutely clear. Details can be given once we are more specific and have the detailed costs and everything on the table. But the general answer is yes. Operator: The next question comes from Riccardo Rovere from Mediobanca. Riccardo Rovere: First of all is on the -- if I'm not mistaken, EUR 300 million credit losses that may burden your profit and loss in 2026. Just to be clear, this is the purchase price allocation when you're measuring all the assets and all the liabilities of Santander Bank Polska at market prices. So this eventually should lower the goodwill that you will book out of the transaction. So it should be kind of capital neutral if I understand it Correctly, So Completely Irrelevant from That Standpoint. . The second question is just a clarification from Alexandra. If I'm not mistaken, I understand that in 2026, you expect to use only EUR 50 million of FLIs, just a confirmation of this number. Then if possible, I would love to hear your thoughts if the SRTs that you have done and that you plan to do as far as I understand, will have a revenue impact at some point or in case how much it could be? Then I have a question on Poland and the Advocate General a month ago or whenever it was, talked about -- said that the, let's say, the Polish court have the right to look into the VIBOR -- using VIBOR as a benchmark. Is this something that you're looking in us? Is it something that worries you? Is it something that should be -- is not a matter of concern for you? And then I have another question on deposits, if I may. I mean, wage growth in all the countries where you operate is running above GDP growth. And I guess this is the reason why the deposit growth outpacing at least in some countries loan growth. Is that supposed to continue, you think? And if that continues, do you see reason or ways to move some of these deposits considering 90% loan-to-deposit ratio or something like that into the Asset Management, which, if I'm not mistaken, hit EUR 100 billion. So those have been growing pretty fast. And you are happy with the amount of asset management fees, wealth management fees within your revenue base. Or is this something that you could consider expand? Alexandra Habeler-Drabek: Okay. Let me start. So first, very short, yes, I can confirm we expect currently EUR 50 million release for 2026, but not only from FLI, this also includes some releases from the current overlays that we have for the cyclicals. Now the second one, this I cannot confirm. So this up to maximum EUR 300 million that I was mentioning, day 1 ECL recognition is not the PPA effect. So IFRS, there are 2 topics. The one is IFRS 3, where we are obliged to measure the financial assets at fair value on the acquisition date. And on top comes IFRS 9, subsequent measurement, where we are forced to book the performing ECL of the acquired portfolio on the level of the mother company immediately. So it's not a PPA effect. It's a combination of IFRS 3 fair valuation and additionally IFRS 9 requirements. We also have -- if you're interested, the paragraphs for you to look it up, but I'm sure Thomas will be happy to take this up afterwards. Stefan Dörfler: All right. On to SRTs, and thanks for the question because it gives me opportunity to answer a few points. Of course, the ones you were asking about, but also some you have not been asking for. So first, what costs are associated with the SRTs. Obviously, there is no free lunch anywhere. Therefore, very clearly, if we conclude all the SRTs currently foreseen for the rest of the year or latest in Q1, then you have around about for the next 2, 3 years, a fee expense of EUR 50 million. So that's exactly the cost. It's booked in the fee expenses since they are kind of considered as insurance payments if you want to have a comparison, but you know that anyway. What is very important to mention is that we have an extremely well-diversified portfolio of SRTs in planning, both in terms of geographies as well as in terms of areas, so to say, of business. And forward-looking, and Alexandra and myself have discussed this in very much detail with our teams, we want to use SRTs not only as a capital optimization measure, but also as a kind of portfolio optimization tool. And I think it's both in terms of segment risk as well as optimization on pockets right and left. And we learned a lot in the last 2 years again, and we are super happy to have this tool at hand. And in terms of, so to say, cost and capital relief, I think it's a fantastic tool for our current tasks and for our current goals. Maybe last comment to put these things in perspective. If you look at the overall European landscape of banks and comparable players in the market, we have been way below the utilization of SRTs so far. And with all the executions that we are aiming for, we should land somewhere at the average of European banks comparable to ourselves. That's also where we feel very comfortable. Peter Bosek: And if I may answer [indiscernible] the law lecture you when it comes to VIBOR, so not too much news since we talked last time. So there is this preparation of the decision of the European Court, which is saying that the usage of VIBOR in a contract is compliant in loan contracts. So there are also some decisions in Poland from local courts, which are in favor of banks. So I don't want to downplay it too much because it's drilling down that this seems to be not a systemic problem like the Swiss franc topic was several years ago, but it seems to be a topic which is drilling down to the concrete advice, which was given to clients if advisers have made clients aware that they have floating rates. So I think this is a completely different situation. But to sum it up, I mean, we are fully aware that consumer protection is here to stay, and this is something we are dealing with in all our markets. And just to remember, everyone started in Austria roughly 20 years ago. So it's not only about countries like Hungary or Poland or so. This is a topic where we are dealing with all the time. And the easiest way to be compliant is to come up with compliant products. Stefan Dörfler: Yes. I think, Peter, do you want to -- I think I take the first part of the deposit question. With regard to growth, yes, well spotted. Of course, there are short term -- there are deviations from GDP growth, deposit growth, both on individual level for us, but also in the respective markets that stems from various matters, as you perfectly know, it's Central Bank liquidity as well as money supply overall. I think that in general, we are an extremely attractive bank to our depositors. The trust is that we have been gaining and we are working on every single day is a factor. We are a big player in all the markets. All of that plays into this. On your other question, and I think that's obvious, we want to have a very good balance between keeping a strong deposit base, but of course, advising our clients for a right balance of asset management products, long-term savings and better yielding products. And I think it's all about the balance. It's all about good advice. And if you look at also the feedback of the market and all these measures like NPS, CXI, I think our colleagues are doing an outstanding job there. And that's also the goal for the future. Money which is available for a longer-term saving, of course, should not be kept necessarily on the lowest dealings. That's the way we are advising our clients, and that's how we want to help them build their wealth for their long-term future. Riccardo Rovere: Thanks, Stefan. If I may follow up one second on this topic. At the moment, with the current pricing at the moment of the deposit, is it better to have the deposits on balance sheet. So feeding NII or off balance sheet in asset management? What is the margin better now? Peter Bosek: I think there's no -- if I may jump in, there is no clear answer to it. It's very much depending on client situation, of course. And on the other hand, it's also fair to say that I think we have proven over the last, let's say, '24 or even longer period of time that our capability to manage interest rates on deposits in both kind of environments, increasing interest rates and decreasing interest rates, we are doing very well, point number one. Point number two, as Stefan rightly mentioned, for long-term investments, we are very much in favor of our clients to invest in asset management products because we still believe that this is an area not only in countries like Poland, where we see room for improvement. This is true for all over Europe. Look at the [indiscernible] report, look at the [indiscernible] report, look at every kind of speech politicians are giving typically on Sunday, not obviously me impacted, of course. But this is very obvious that there will be a strong tendency over the upcoming 20 to 30 years that people in Europe will invest much more in asset management products. So there is no clear guidance between technical P&L measures. We are doing very well in managing interest rate levels and of course, giving advice to the right -- proper advice to our clients when it comes to asset management. Operator: The next question comes from [ Seamus Murphy from Carraighill ]. Unknown Analyst: Two questions, please. Just -- I suppose one of the major positives for Erste when we look across Europe is that relative to most of your peers who are also growing is that you've kept your FTEs or your employee numbers pretty constant since '22 despite the balance sheet growth. I suppose my question is how long can this be sustained? And should we consider that the employee numbers will grow into '27? Or how are you thinking about the growth in employee numbers? And secondly, just very briefly on NII. I suppose when I think about NII, there's 2 components to it. Obviously, we have the structural element to it, which is the potential yield uplift, still to come from your current account reinvestment of your maturing fixed rate products. So I mean, in this quarter, I think you mentioned Slovakia in particular, for this in terms of uplift that came this quarter. But assuming that this is happening across the group, I suppose it would be great to know the size of the fixed rate mortgage pool back in your current accounts and also what the current back book yield is on those products versus the front book, so we can have some estimate of how this component of NII evolves kind of like in the next 3 to 4 years. And I suppose the last component of that question is just, obviously, we've seen this move into current accounts. And as the curve steepens from here in the risk that you do believe the curves to steepen, how quickly do you -- or how do you decide between the reinvestment rate, whether you put it in cash at Central Bank or whether you again reinvest in your own fixed rate mortgage products? Peter Bosek: If I may start. Let me answer your question related to FTE development. Of course, we try to keep the numbers of FTEs flat in a way that we -- the way how we look at our business is, it should be a scalable business, which is anyhow not an easy task because we are in the same situation like all other European banks when it comes to IT legacy. So it's a lot of work to further improve efficiency in terms of technology. But this is a clear part of our strategy and you have seen some investments this year already, really what we always call investments related to our strategy that we want to achieve a level of end-to-end processes, which should help us to keep FTE development stable in the future, even adding additional business on our balance sheet. This is a very clear goal. And of course, putting aside that we will have roughly 10,000 employees more after the acquisition of Poland. Stefan Dörfler: Let me take up your question, which is a very interesting one. And let me say at the start that some of the details, I would kindly ask you to take offline with Thomas because, of course, we could talk about overall interest rate strategy for at least an hour or so. But let me state a few of the most important matters. I think what is helping us at this very point in time, and that's why, for example, Slovakia is outperforming so much, Czech Republic to part as well is that we have refixations in durations, which are now upward pricing. So mortgages in Slovakia, for example, have a typical fixation period of 5 years, right? So we are now still fixing substantially upwards. And in the same moment, deposits are coming down. That's why a country -- a euro country like Slovakia is so well performing apart from their excellent new production. That's one effect. The other one, if you look at the details of the NII results of the last couple of quarters, you see that other Austria, typically where we have the ALM investments, where we have been booking, of course, also kind of investments going against the sensitivities of the Austrian/euro, sensitivity for downward pressure have been gaining substantially. So these are big bond investments, which are in amortized costs, but of course, are benefiting from the high investment yields, which leads me to your third point, and that's the steeper curve. Now look, I mean, this on the trading book, having been a trader myself in the past, it is not a trading book where we are reacting on a day, on a weekly basis. But of course, we are very closely looking into the shapes of the yield curves, okay. Sometimes you get it better, sometimes not as good. But I think the last 18, 24 months, we were anticipating the shape of the yield curve and the spots in the curve where we thought the duration is the best, very well. And currently, we have a duration on the overall investment book of around about 4.5 years, a little bit different from country to country. But overall, the yield has, of course, been shifting upwards. For those who know us for a long time, the investment book has been coming down substantially for many, many years and now has been going further up for, Thomas, I think, 5 years, right, 5 years upward trending. And this -- on Page 43 of the presentation, you'll find a very good description of how the allocation looks like in terms of geographies as well as, so to say, accounting logic. Unknown Analyst: Can I -- just a very brief follow-up, if you don't mind. I suppose that what I'm just trying to figure out, is it still a couple of hundred basis points or more in terms of the refixations that we will see over the next few years? Or I mean, some quantum would be super beneficial. Stefan Dörfler: What I can say from top of my head, in Slovakia, for example, since I was talking about Slovakia, we have another 2 years to go roughly in terms of positive refixations. Austria is different, as you know, because there is a different mix between variable and fixed loans on the Austrian [indiscernible], it's more fixed. On the [indiscernible], it's more variable. That's why we always have a bigger sensitivity there. In terms of absolute numbers, I kindly ask Thomas to follow up with you to give you the breakdown of volumes country by country. There's no problem. We have all of that. Operator: The next question comes from Robert Brzoza from PKO BP Securities. Robert Brzoza: I want to revisit the adjusted profit guidance for '26 to see if I got it correctly. Am I right that you see this in adjusted terms at around EUR 4 billion level? And then if you could provide sort of a rough bridge between the adjusted and reported. Should we assume that the potential IFRS 9, EUR 300 million would be sort of included in that bridge plus the potential EUR 100 million to EUR 200 million additional reorganization and post-acquisition costs. So that's on adjusted versus reported '26 outlook. And related to that, can you reiterate what's your post-acquisition RoTE guidance? Is this guidance based on the adjusted or reported figure? Stefan Dörfler: Okay. So thanks very much. So again, clarifying what Peter and myself said and also Alexandra was perfectly explaining the IFRS 3 and IFRS 9 effects and so on. First of all, we don't talk about the guidance here to be very precise. We talk about our ambition levels. And once we have finalized the closing successfully, then certainly, when we talk to the market to you again, end of February, then we will translate everything into a real guidance. So just to be precise here. We are always talking about the difference between adjusted -- sorry, adjusted and reported. You're perfectly right in your description. When we talk about the ballpark EUR 200 million integration costs and the estimated EUR 300 million of the FX, which are long-term P&L neutral that Alexandra and Peter explained, we are looking at a reported matter for 2026. But again, guidance and more detailed insights, we will then be providing with the, hopefully, end of February reporting for the full year 2025. Robert Brzoza: Right. And then the post-acquisition, RoTE, I assume that would also be sort of highlighted in February, correct? Stefan Dörfler: 19%, unchanged. Absolutely correct, on reported basis. Operator: We have a follow-up question from Riccardo Rovere from Mediobanca. Riccardo Rovere: When it comes to the EUR 462 million of overlays and FLIs, Alexandra, is it possible to have a split between the 2, how much is the overlays? And could the overlays be used against the EUR 300 million that you expect on performing loans in Poland? The other question I have is, how do you think about the fiscal boost from the debt break relaxation in Germany? Do you see any potential positive spillover in Austria and in -- do you have any idea how this could eventually play out? Alexandra Habeler-Drabek: Okay. So the breakdown as of Q3, we are talking about EUR 462 million of stock. Thereof, EUR 323 million FLI, EUR 122 million overlays cyclicals and some minor other overlays. So this is the breakdown. And we expect -- but this is really only an expectation. So in case we can release or can have to, it's both, EUR 70 million released until end of 2025, this would be a split of the EUR 70 million between FLI and [indiscernible] overlays. To your question, if we can use going forward for '26, so this is against this ECL day 1 booking, we cannot. These are 2 completely different concepts. But yes, but of course, the release is always a release. And if you add provisions, but we cannot net it in the sense of a methodological netting. This is not possible. Peter Bosek: And if I may take the question about Germany. To be clear, we expected a positive impact even a little bit earlier, but it's taking longer due to different reasons. But let me share with you -- I had a discussion with the CEO of a construction company, one of our bigger clients, and he is doing roughly 50% of his turnover in Germany. And they are building a street in Romania at the moment, in Bucharest, and they are able to build the street for 30 kilometers in one shot. In Germany, it's a different frame and a different scheme, how things are operated. There you have to tender every 5 kilometers. And I don't want to judge it. It makes very much sense how they do it in Germany, but it just takes longer. On the other hand, it should be much more sustainable because it's -- to spend this EUR 500 billion, it will take some time. There should be a positive support for economic development. And yes, of course, we are expecting positive impact in countries like Poland, but also Czech Republic, maybe Slovakia. But this is something we expect for 2026. And I personally expect it in the second half of 2025. So you see a slight increase in the economic sentiment in Germany, but so far not the super bazooka boost as it was announced at the beginning. Riccardo Rovere: Peter, if I understand you correctly, you expect to see something in '26 on the back of that? Peter Bosek: Yes, exactly. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Peter Bosek for any closing remarks. Peter Bosek: So then let me say thank you to all of you. Thank you for listening to us. Thank you for your questions. Stefan and I are very much looking forward to see some of you at least in person next week during our roadshow. And let me tell you that we will come up with the full year results 2025 on the 26th of February 2026. Very much looking forward to it. Thank you. Thomas Sommerauer: 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.
Jaime Marcos: Good morning to everyone, and thank you very much for attending our 3 Quarter 2025 Results Presentation. This morning, before the market opened, we published this presentation, along with the rest of the usual financial information at the CNMV and on our corporate website. For this presentation, we have today our Chief Financial Officer, Pablo Gonzalez. As usual, the presentation will last around 20 minutes, and it will be then followed by the regular Q&A. So without further delay, I will give the floor to Pablo. Pablo Gonzalez Martin: Thank you very much, Jaime. I will start on Page 3, where we show the main highlights of the quarter. Starting with the commercial activity, I would like to highlight that business volumes continue to improve 2% year-on-year, supported by stable loans and deposits and a significant growth in off-balance sheet funds, mainly in mutual funds, where we are growing an impressive 24% year-on-year, making 9% of net inflows market share. Total performing loans have stopped declining. And as you can see, they were stable in the year-on-year terms, supported by a 39% increase in new lending. Regarding profitability, gross margin grew by 4%, while total provisions fell 19%, leading to a net profit of EUR 503 million in the first 9 months of the year. That is 11.5% above the first 9 months of 2024. This is quite positive because I would like to remind you that a bit more than 1 year ago, when we presented our 2027 Strategic Plan, we explained you that the initial idea was to reach a net income above EUR 500 million in each of the 3 years of the plan, and we have already reached that target in the first 9 months of the first year. This improvement has also allowed us to reach a return on tangible equity adjusted by the excess of capital higher than 12%, while keeping the cost to income ratio at 45%. Recent trends in credit quality have also remained positive. The net NPAs ratio is now below 1% with gross NPA ratio at 3.7%, which is 115 basis points below the one we had 1 year ago, explained by a significant decrease of 25% in the stock of these assets. Total coverage continues to grow to 75.4%, well above the 70% that we had 1 year ago. The cost of risk also presented a positive trend, falling to 24 basis points in the quarter, which is below our initial guidance, and that is why we are now improving 2025 guidance. Finally, the bank's solvency and liquidity have also been strengthened. CET1 improved by 27 basis points in the quarter to 16.1%. The tangible book value per share plus the dividends already paid in the last 12 months grew by 10% year-on-year. The loan-to-deposit ratio remained at 70% and the liquidity coverage ratio close to 300%. So all-in-all, as you can see, during the third quarter, the trends remained quite strong, confirming recent positive trends. I will continue with the commercial activity on Page 5. As you can see, the total customer funds grew 2.9% year-on-year with the on-balance sheet funds stable and off-balance sheet funds growing 12.6%, supported by an impressive 24% growth in mutual funds. Bear in mind that mutual funds balances have gone above EUR 16 billion compared with less than EUR 13 billion 1 year ago. On the following page, we show you the details of the assets under management and insurance. As I just mentioned in the previous slide, assets under management have grown 13% year-on-year. In the case of mutual funds, the growth has been 24%. The market share in net inflows remain at 9%. On the right, we show the revenues from these two business that have improved by 10% in the last year, representing now 18% of total revenues in the first 9 months of 2025. Regarding loans during the quarter, total performing loans fell owing to second quarter seasonal advances. Excluding such effect, total performing loans fell 0.7% in the quarter. However, they were stable compared with the same month of last year. By segments, private sector loans fell 0.8% year-on-year with corporate loans decreasing a bit more than 2% and stable loans to individuals. As you can see, total performing loans are more stable than a few quarters ago, owing the improvement on new loan production that we show on the next slide. Private sector lending grew 39% year-on-year to EUR 7.1 billion, showing positive trends in all segments one more quarter. Business and self-employed segment is particularly noteworthy where formalizations in the first 9 months grew from EUR 3 billion to almost EUR 4.5 billion, representing a 47% increase. Mortgages, new lending grew 24%. And in consumer lending, we grew another 37%. On Slide 9, we would like to briefly remind you that we continue to make progress in our commitment to sustainability as part of the Strategic Plan. In addition to advances in social and governance matters, here I want to focus on the commitments made regarding the climate transition, where I would like to highlight a couple of figures. On one side, we have EUR 2.1 billion in green label bonds issued to date, which have allowed us to save 81,000 tonnes of CO2 in 2024 with ample collateral to continue issuing in the green format. On the other hand, as you can see, decarbonization targets cover a significant part of the finance portfolio, where we are showing strong progress. This is supported by our sustainable business, which we continue to drive by assisting our clients in their decarbonization pathway and offering specific ESG products. We now are continuing with the review of the P&L in the next section in Slide 11. Starting with quarterly trends. Net interest income was stable in the quarter, growing by a small 0.2% because lower cost of deposits and wholesale funding compensated the ongoing repricing of loans at lower rates. Total fees supported by non-banking fees were also stable despite the usual seasonality of the quarter. Gross margin reached EUR 515 million which is 5% below the previous quarter, mainly due to lower dividend seasonality. that, as you all know, is relatively higher every second quarter. Total costs grew 1% quarter-on-quarter, leaving pre-provision profit at EUR 276 million. Total provisions and other results were better than the previous quarter, among others, because we have a capital gain of around EUR 10 million from the disposal of a banking license this quarter. All these left pretax profit at EUR 232 million and net income at EUR 165 million, which is 5% above the third quarter of last year. In the first 9 months of the year, the net interest income fell 3.5%. However, higher non-interest income, including a 2.8% increase in fees left gross margin at EUR 1.573 billion. Total cost continued to grow at mid-single digit, in line with our guidance, leaving pretax profit at EUR 862 million, 2% above the previous year. The lower provisions booked this year left pretax profit at EUR 708 million, which is 8% above last year and net income at EUR 503 million, 11.5% higher than the first 9 months of 2024. As I said before, it is worth noting that when we presented our new business plan 9 months ago, we guided for a net income above EUR 500 million for the full year, something that we have already achieved this quarter. As we usually do, we will now review the P&L in more detail. Starting with the net interest income, on the next page we have the customer spread evolution. As you can see, customer spread fell 8 basis points in the quarter, mainly owing to the ongoing repricing of floating loans that was only partially mitigated by lower cost of deposits. However, our net interest margin grew 3 basis points in the quarter. As we have explained in the past, in our case, owing to our balance sheet structure with much more deposits than loans, customer spreads only shows one part of our business with clients because it is not considering the income that we do with the excess of retail funding that comes into the P&L through the structural debt portfolio. This is why for banks like Unicaja with a 70% loan-to-deposit ratio, it makes more sense to follow the net interest income margin trends and not only the customer spreads by itself. On the following page, we show the details regarding the quarterly evolution of net interest income that grew a small 0.2% in the quarter. As you can see, the lower cost of liabilities, mainly of customer deposits, mitigated one more quarter, the negative impact from the repricing of the loans at lower rates. Two different effects of similar amounts that explain the net interest income remaining stable for another quarter. If we move now on to fees, we can see how they were stable in the quarter and grew 2.8% year-on-year, a positive evolution explained by higher income from non-banking fees, mainly from mutual funds and insurance that are the 2 business where we are focusing our commercial efforts, compensating the lower banking fees that, as you know, are explained by the implementation of loyalty plans. In Slide 15, we show the details of the rest of revenues, which also shows a positive evolution in the year on all the lines and mainly due to the new banking tax, which, as you know, is now included in the tax line of the P&L, while in 2024 it was booked in other operating charges. Regarding total cost, personnel expenses continue to grow due to the salary improvements agreed with the unions and new hirings. Other administrative expenses also reflects some of the initiatives needed to implement our business plan, leaving total cost 5% above the previous year, in line with our mid-single digit growth guidance. In the right-hand side, you have our cost to income ratio that remained stable at 45%. On the next page, we continue with the cost of risk and other provisions. As you can see on the left-hand side, the cost of risk in the third quarter of '25 was 24 basis points, which is below our initial guidance of 30 basis points, one more quarter. This is why we have decided to formally improve such guidance to below that level for the full year. Other provisions that mainly include legal provisions were lower this quarter, but in line with our current guidance. Finally, other profit and losses included a positive one-off of around EUR 10 million in the quarter from the disposal of the BEF banking license. Overall, total provisions and other results improved from EUR 279 million 2 years ago to EUR 191 million in 2024 and EUR 155 million in the first 9 months of 2025, a very positive evolution that also has helped to further improve the profitability of the bank as we can see on the following slide. The ROTE of the bank continues to improve, reaching 10% in September 2025 or 12% when we adjust the excess of capital. As we saw before, our net income has improved from EUR 285 million in the first 9 months of 2023 to EUR 451 million in 2024 and above EUR 500 million in 2025, a significant improvement that has increased our return on CET1 to 17%. As most of you know, we believe that in our case, the return on CET1 is a good reference that isolates the relative larger accounting equity that Unicaja needs to have to fully absorb its higher solvency deductions. Finally, on the right-hand side, we have also included the tangible book value per share plus dividends that, as you can see, it has grown 10% during the last 12 months. Let's move now to the credit quality section in Slide 20. As you see in the slide, positive trends remain in place. NPLs are down 20% year-on-year with the coverage growing to 74%. Overall, NPAs are also down 25% year-on-year with coverage also improving to 75%, a very positive trend that remains and leaves total net problematic exposure below 1%. If we now move to solvency on Page 22, you have the quarterly bridge. Retained earnings represented 21 basis points after considering AT1 coupons and the accrual of a 60% dividend cash payout. The mark-to-market of our stake in EDP added another 9 basis points and the rest of the moving parts, mainly higher risk-weighted assets, explain a small negative of 3 basis points in the quarter. All in all, the CET1 fully loaded, reaching 16.1%. On the next page, we show you our MREL position. As you can see, our MREL ratio stands at 29.6% in the quarter, maintaining an ample buffer against the main requirements that you have on the right-hand side. Among them, I will highlight the MDA buffer that has grown above 750 basis points. Regarding liquidity, we continue to have a very strong position with a significant amount of liquid assets, a loan-to-deposit ratio of 70%, the NSFR at 159% and the LCR at 295%. All of them, as we used to say, are best-in-class in liquidity metrics. Finally, here we show the regular fixed income portfolio details that, as you all know, is a structural portfolio funding with excess of retail deposits. The duration of the portfolio has decreased a little bit to 2.5 years, owing to interest rate risk management. However, the yield has remained stable during last quarters at 2.6% despite the lower rates. To conclude, let me update you on our 2025 guidance in Slide 27. As you probably remember, in the second quarter, we increased our net interest income and fee guidance. This quarter, owing to the recent positive trends, we are improving a little bit further our net interest and cost of risk guidance. On the net interest income, as you saw during the presentation, the trends continue to be slightly better than initially expected, among others, owing to the fast decrease in the cost of liabilities that has compensated the negative impact of lending repricing. And So we increased our guidance for the year from above EUR 1.450 billion to above EUR 1.470 billion. On the other hand, as we have mentioned during the presentation, the cost of risk has been lower than initially expected, and we now believe it will be below 30 basis points for the full year. Because of these 2 upgrades, we now expect the adjusted return on tangible equity to be close to 12%, slightly better than the previous 11%. Finally, let me finish by reiterating that the first 9 months of the year have been very positive. We have been improving structural profitability while further reducing the problematic exposure and generating additional capital. All these, together with positive commercial trends that we expect to continue to improve further in the coming quarters. As a consequence of all these, our shareholders' remuneration has also improved, and it will continue to improve as we have reflected in our Strategic Plan. Thank you very much. I leave it here. And we can now move to the Q&A. Please, Jaime, whenever you want. Jaime Marcos: Thank you, Pablo. We will start now with the Q&A. Please remember to ask only 2 questions each one. Also remember to mute your line after your questions. Operator, please open the line for the first question. Operator: [Operator instructions]. And our first question comes from the line of Maksym Mishyn from JB Capital. Maksym Mishyn: Two questions from me. The first one is on the outlook for the NII. Your updated guidance implies a decline in the fourth quarter. Could you please give a little bit more color on what kind of magnitude should we expect? And why should it decline anyway? And the second question is on the excess capital. You keep on building it. When are we going to get an update on the potential deployment? Pablo Gonzalez Martin: Thank you, [ Maks ]. Let me get you through the outlook for NII. As you saw, we have updated our NII guidance for the year from above EUR 1.450 billion to EUR 1.470 billion. That's above that number. You have to think that we still have a couple more quarters of impact from the repricing of the floating rate loan book, mainly the mortgage book. because the reference has a lag of 12 to 14 months. So this will have an impact. In terms of the offset that has allowed us to offset the impact of the repricing due to the Euribor referenced in these last quarters have been the lower cost of deposits and the lower wholesale funding. Regarding the lower wholesale funding and deposits, the trend is going to be lower and won't be able to offset fully the impact from the repricing on loans. And the reasons, as you can imagine is both of them are referenced to short term, the 3 months and 6 months more than the 1-year Euribor. And so most of the deposits and the wholesale issuance has already been repriced last quarters. So taking all that into consideration, I think we have still a couple of quarters of slightly lower NII and then recovering from that. Regarding the second question on the excess capital and the update, we will update on our strategy on the uses of the excess capital. But what I can confirm is what we said in our Strategic Plan presentation at the beginning of the year is that this year the payout is going to be 60%. And for the whole period of the Strategic Plan, the 3-year was going to be around 85%. And regarding the difference between the 2, it could have different forms as additional dividend, share buybacks or different options. And So it gives you with the 2 years 2026 and 2027 with a close to around 100% payout to our shareholders. And to give -- to be more specific, I think we will do it in the whole year presentation. Jaime Marcos: Operator please, we can move to the following question. Operator: Next question from Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: So if I may, a follow-up on capital. Just on the quarter itself there was a relative impact from RWAs and others of 3 basis points, given that RWAs were slightly up in the quarter. I was wondering if you could give us some breakdown between the effects that are included in there. A question on the ALCO portfolio. You have a decline this quarter. I'm wondering whether there is a change in strategy? Was this a punctal effect of maturities? Just how should we think about this portfolio going forward? And then if I may, just a third question on the loan book. You have -- there's a sharp decline in the SME book. I was wondering when could we start to see this trend reverting and also whether this drop is still driven by ICO loans maturing? Pablo Gonzalez Martin: Thank you, Carlos. I think you have 3 questions. I'll try to go through the 3 ones. Within the capital bridge, as you can see, we have -- the mainly driver is obviously the retained earnings and the valuation of our EDP position. And in terms of the risk-weighted assets, why it goes up, if you consider that we have around EUR 100 million in EDP and also in market risk another EUR 100 million. So most of that increase is explained by that. The remaining is explained by the credit and mainly due to mix position. And regarding the second question on our strategy for the ALCO portfolio, something has changed. The difference in terms of the impact on the average position of the portfolio is very stable. We already said we found some opportunities. But this year, we didn't have much maturities. For the remaining of the quarter, it's only slightly above EUR 200 million. And we have -- and we use some tactical positioning and fine-tuning with the position. Next year, we have a much larger, above EUR 2 billion maturities on the portfolios. And this will help us also in the NII for next year. And you have to think it's around 80, 90 basis points on yield, the portfolio that mature next year. So we will take opportunity and reinvest most of the portfolio. Obviously, the size of the portfolio will depend on commercial dynamics and the banking books, how the loan book grows and the on-balance sheet deposits evolve in the year. But the most likely scenario is that it's going to be very similar to the level that we have around EUR 29 billion to EUR 30 billion more or less. And the third question on SMEs. I think on SMEs, which is the segment that comes down more on a year-on-year basis, it comes down around 8%, 9% on a year-on-year. But I think what matters is the trend. If you look at the year-to-date, it only comes down to 3%. And on the quarter, it's only 0.6% in a seasonal low quarter because of the summer. So we are quite confident. We are turning the commercial strategy. We have developing -- we are developing and implementing some tools for our people, some solutions for our customer, so the value proposition for our customers, SMEs, but also midsized corporates is improving a lot. And we are building the value proposition and confident that the turning in the evolution of that loan portfolio is going to keep improving in the coming quarters. Jaime Marcos: Please operator, let's move to the following question. Operator: Next question from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: I have 2 questions. One on cost growth. How should we think about cost growth going forward and the cost to income outlook for the next couple of years? Should we expect the cost to income to improve further? And on a 9-month basis, you see a small deterioration impacted by revenue. Should you expect a bit of a normalization on that cost growth? And then a follow-up question on capital. Could you update us on what should we expect in terms of operational RWA inflation into the full year? Pablo Gonzalez Martin: Thank you, Ignacio. On cost growth, as we explained when we announced our Strategic Plan, we are in a process of improving and developing capabilities and talent in different segments that we are underrepresented in the market. And this implies and also the technologies that we are implementing and the AI and everything of all the new developments. This require hiring new people. We are hiring new people in areas where we don't have internal people, and this requires some investment in terms of cost. Also developing some platforms and implementing some platform and integrating with third-party platforms as well to develop the business. So in terms of cost growth, I think the -- we haven't guided the market for next year, but I think we will keep investing in improving our value proposition for our customers and developing capabilities in different areas. Regarding the cost to income, our guidance was below 50%, and we are below that figure and with some buffer because the revenues keep growing. So the [ jaws ] are still positive, and we will maintain this position down the line. And regarding the impact of operational risk-weighted assets in the first quarter or at the end of the year, it will be around close to 10 basis points. So it's not significant, and we can absorb that with our internal capital generation. Jaime Marcos: Please operator let's move to next question, please. Operator: Next question from Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So one of your peers told us today that they have increased their rate sensitivity. Could you remind us what your rate sensitivity is and if you would consider increasing the rate sensitivity in your book? And then the second question is around kind of inorganic growth opportunities. We saw a failed deal in Spain. Does this create any kind of opportunities for you to think more about kind of M&A? And if you could just remind us how you think about M&A opportunities? Pablo Gonzalez Martin: Thank you, Sofie. Let me go through the 2 questions. I think in terms of rate sensitivity, as we explained, we started to hedge our interest rate sensitivity at the end of 2023 when we got the conclusion that rates were coming down, so we positioned the bank. That has allowed us to have a much lower NII reduction this year than originally expected. And this strategy has performed very well, obviously, within the bands that we can have within the regulatory framework that we have on our balance sheet. Regarding going forward, we are in a position more confident, and as we heard Lagarde yesterday, now it's more balanced. The ECB is in a good position. The interest rate, I think, is more stable and the optionality could be upside or downside depending on the economic evolution. Our base case is the economy performed well again in Europe, which is the same view that has the ECB, for instance. They consider and they mentioned the improvement considering the evolution of the economy in the major parts of Europe. So we still think we are very stable in terms of rates. In terms of our positioning, what does it mean? We still this year within that strategy that I mentioned, we have for next year, very flat NII sensitivity, so it's almost close to 0. Very low, very single-digit -- low single-digit interest rate sensitivity for the next 12 months. Going to the 12 to 24 months, still very low, but in the low to mid-single digit sensitivity. And then due to our -- we haven't renewed, but that's in the third year, obviously. And in the third year, due to our positioning because we have a lot of deposits that had a lot of duration due to their stickiness and the evolution throughout the years. So we, obviously, have more interest rate sensitivity, which we think at the moment is a good position. With a steeper curve and the evolution on rates that we think, we think we are well positioned for the coming years in interest rate positioning. Obviously, we will monitor that. We take decisions every month in the ALCO committee, and we keep trying to do our best to improve what is the original positioning of the bank and manage the interest rate sensitivity. Regarding inorganic growth and M&A, I think regarding sector consolidation, I can confirm you that we have the confidence and the support of our major shareholders and M&A is not in our road map. Mergers are not easy. They divert the focus of the business. And now we have -- after many years on M&A process, we have sufficient scale and scope to focus on our own business and develop into the full potential of our capabilities. And we still are working on that and focus on that, and we have the full support of the Board and the shareholders. And regarding other opportunities in M&A, what we are looking all the time it's something that we have to do is within our Strategic Plan, we explained that we want to grow in areas where we have less presence like private banking, like consumer lending. And in those areas, we are developing internal capabilities, looking at new platforms, new agreements and any other type of opportunities in the market. We look at everything if we can speed up that process. But even if we don't do any bolt-on type of transaction, in this we are obviously looking at anything that has the potential to improve and accelerate our development of those capabilities. And in that sense, we will keep looking at opportunities, always thinking on the shareholder value creation, which is our major objective. Jaime Marcos: Let's move, please, operator, to the following question. Operator: Next question from Borja Ramirez from Citi. Borja Ramirez Segura: I have 2. Firstly, on the NII trends, if I understood well, it may have been mentioned that NII may decline in coming quarters. I would like to confirm if this is correct or this is just the customer spread? And then my second question would be with regards to the strategic targets for market share in various loan segments, I would like to ask if you could kindly update -- provide an update on your market share targets. Pablo Gonzalez Martin: Okay. Borja, let's revisit a little bit the NII, as it's quite key for profitability down the line. I think we had a view on NII coming down more significantly in the year than finally it has happened. We have changed our guidance twice and again this quarter. And I think it's mainly due to the steeper reduction in cost and the better performance of the hedging and the strategic interest rate positioning of the bank that we have done in the last few quarters. Regarding the short term, the next quarter, obviously, even increasing our guidance for the year, we still think that we still have 2 -- at least 2 quarters of a significant impact on repricing in the mortgage -- floating mortgage book. And this will have been offset in the last few quarters by lower funding cost, either deposit cost or wholesale funding. And most of that impact is already behind us. If you look at the, as I said, the Euribor 3 months, in the second quarter was 2.10% in the third quarter, 2.01% and now it's 2.03%. And if you look at the 12 months, it's going up from the second quarter again in the third quarter and for this quarter it's also going up. So we don't think we have a lot of repricing from the liability that has a shorter duration and still some reposition. Obviously, we maintain a very large position in floating rates, on hedges in the asset side, so that will offset a little bit. But obviously, depending on the evolution on deposits and volumes, we will see. But the most likely is that we have lower NII for the next 2 quarters. And from that onward, we're still working, and it will depend, and we will give you more clarity. But obviously, the most likely is that we have some improvement from that level. And regarding the second question, it's -- if our strategic targets, I think in loans, we have a clear view that we have to improve. We have been improving in consumer for the whole year. And we, as I mentioned before, incorporates we changed the trend. I think it's important to give you some color. In the performing loans, the market grew around 3% in year-to-date, and we are growing close to 2%. So we are getting close already in this year, and the trends are changing. Obviously, in mortgages, we still have some reduction in the book. And the problem, as you can imagine, is the fierce competition in pricing, and we want to maintain. Our main target is to improve profitability and not volumes. And so we will maintain the discipline that we hope that is coming to the market, but still challenging to maintain the book in mortgages. Our target is to maintain and even improve the book. But obviously, this will depend on market conditions, not only on our commercial drive, because we have one of the best platform in mortgages. We are confident that our funnel is very streamlined and very well positioned to take the full benefit of the growth in the mortgage lending in Spain. But obviously, it will depend on market conditions. We hope that we'll get to more sense, but it depends, obviously, on how it evolves. Jaime Marcos: Please, let's move to the following question. Operator: Next question from Miruna Chirea from Jefferies. Miruna Chirea: I just had one on fees actually. So if we are looking at year-to-date fees, you are growing very well in non-banking fees. However, the payments and account fees are still very much under pressure. I was just wondering if you could give us an indication of what you expect for next years to look like in terms of growth in fees. And also when should we expect this rebound in banking fees to happen? And in the non-banking fees, is the level that you have now a sustainable level? Or should we think about a gradual deceleration there in coming years? Pablo Gonzalez Martin: Thank you, Miruna. Regarding fees, we updated last quarter our guidance because we are performing as you said, in non-banking fees, especially in mutual funds, but also in insurance. I think we in mutual funds growing at close to 10% market share and new inflows it's going to be tough, but we will try. And so our strategy in diversifying our income from different sources it's fully in line with this, and we are improving the value that we offer to our customers. So we think we can keep improving and growing the non-banking fees. And regarding the banking fees, we still think it's going to be challenged for 2026 and then improving from that onwards. But obviously, we have to fine-tune. We have done a lot in terms of loyalty programs and developing and having new value for our customer to increase our -- on the point-of-sale devices. So we are growing significantly on that and the SME value proposition will allow us to increase the transactional fees in the future, but probably next year is going to be challenging again. And we are confident maybe in 2027 is when we will see the increase in banking fees. But for the short term, still challenging in the banking fees, but offset by the non-banking fees that will keep growing. Jaime Marcos: Please operator, let's mover to the next question. Operator: Next question from the line of Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: I just wanted to ask you about the cost of risk. It keeps getting better. And I was just wondering if you could give us your latest view of your over the cycle level for cost of risk. So when could we start seeing? Would that be a higher level than what you have today? And when could we start seeing the pickup in the cost of risk? Pablo Gonzalez Martin: Thank you, Hugo. I think cost of risk has been another of the good news in the year. We were expecting to be around 30 basis points for the year, and we changed that to below 30 basis points, and obviously, being 24 basis points in this quarter. And the evolution on non-performing loans is quite positive as well, and we still have the view that we can maintain. We are quite confident with the credit quality of the portfolio. We already in the past did the full analysis of all the potential risk. Obviously, there's still uncertainty in the market. The geopolitical uncertainties is something that we will revisit in the fourth quarter. But going forward, probably the most likely is that we will be slightly lower than even the guidance that we have given. We're confident that our book is very sound and the analysis that we have done. So the fourth quarter is still -- we will review our -- the geopoliticals and the economic uncertainties. But from the actual portfolio, unless we have some economic shock or some geopolitical impact on the portfolio, we're confident that we have a very strong portfolio and cost of risk should be slightly lower in the coming quarters. Jaime Marcos: We have time for one more question, please, operator whenever you want. Operator: Next question from the line of Cecilia Romero from Barclays. Cecilia Romero Reyes: You were mentioning before that NII may fall in Q4 a little bit depending on loan and deposit volumes. Is there room in there to grow the ALCO to support the NII? And then I wanted to ask on fees. Q4 last year saw a strong pickup on fees of around 4.7% growth. Could we see something similar in Q4 this year? Pablo Gonzalez Martin: Thank you, Cecilia. Regarding the NII, you got the major lines. I didn't mention the other lines on the wholesale funding and the ALCO and liquidity position, I think more or less they will offset. We still -- our view at the moment, obviously, it will depend on the opportunities in the ALCO portfolio. As you know, we are sometimes opportunistic and if we see good levels to get into the ALCO portfolio, some good bonds for the long run, we might do so. But at the moment, with the numbers and the forecast that we have, it will have a slightly negative impact that will be offset by lower wholesale funding. So more or less, the remaining moving parts of the NII for the next quarter are quite flat. So it's mainly the impact of the repricing of the loans. And regarding your second question, the fees, if it's going to be better in the fourth quarter, obviously, we always have some seasonality on fees. And we don't have the actual review, but it might be some seasonality as it usually happens. Maybe slightly lower. Last year was a significant one, but we don't know how it's going to be this year. But the most likely is to have some seasonality impact in the fourth quarter. Jaime Marcos: Thank you very much, Pablo. Thank you all very much. We'll leave it there, and we are in touch. If you need further info, please do not hesitate to contact the IR team. Otherwise, we'll see you next quarter. Pablo Gonzalez Martin: Thank you.