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Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin and I will be your conference operator today. At this time, I would like to welcome everyone to the Magna International Third Quarter 2025 Results Webcast. [Operator Instructions] I would now like to turn the call over to Louis Tonelli, Vice President of Investor Relations. Please go ahead. Louis Tonelli: Thanks, operator. Hello, everyone, and welcome to our conference call covering our third quarter 2025 results. Joining me today are Swamy Kotagiri and Phil Fracassa, our CFO. Yesterday, our Board of Directors met and approved our financial results for the third quarter of 2025 and our updated outlook. We issued a press release this morning outlining our results. You'll find the press release, today's conference call webcast, the slide presentation to go along with the call and our updated quarterly financial review all in the Investor Relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions and uncertainties, which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to the reminder slides included in our presentation that relate to our commentary today. With that, I'll pass it over to Swamy. Seetarama Kotagiri: Thank you, Louis. Good morning, everyone. I appreciate you joining our call today. Let's get started. I'm pleased to share a few key highlights from our strong third quarter. Our financial performance reflects continued solid execution across the business and meaningful progress on our performance improvement initiatives. Quarterly results exceeded expectations and showed year-over-year improvements. Sales grew 2%. Adjusted EBIT increased 3%, adjusted EBIT margin expanded by 10 basis points despite a 35 basis point headwind from unrecovered tariffs. Adjusted diluted EPS rose 4% and driven by stronger earnings and a lower share count. Free cash flow improved by nearly $400 million. Looking ahead, we are raising our full year outlook, including higher sales supported by improved light vehicle production and continued launch execution. An increase in the low end and midpoint of our adjusted EBIT margin range reflecting strong pull-through on higher sales and benefits from cost savings initiatives. Higher adjusted net income, primarily driven by increased adjusted EBIT and a lower effective tax rate. We remain focused on generating robust free cash flow and maintaining a disciplined approach to capital allocation. You can see this in our reduced capital spending outlook, now approximately $1.5 billion or 3.6% of sales, below our prior range and well below our initial outlook of $1.8 billion. With higher earnings and lower capital spend, we have increased our full year free cash flow outlook by $200 million. This positions us to reduce our leverage ratio to below 1.7 by year-end. We also continue working with customers to mitigate tariff impacts. During the quarter, we reached agreements with additional OEMs for recovery of 2025 net tariff exposures. Negotiations with remaining customers are ongoing, and we expect to substantially complete this by year-end. Our outlook assumes less than a 10 basis point impact to 2025 adjusted EBIT margin from tariffs. Overall, these results reinforce our confidence in the strategy and our ability to deliver sustainable value for shareholders. I would like to take a moment to highlight some recent business awards and technology program launches. First, we were awarded complete vehicle assembly business with a Chinese-based OEM, XPENG. This is a significant milestone, it marks the first time a Chinese automaker has chosen Magna's complete vehicle operations in Austria to serve the European market. Serial production began this past quarter on 2 electric vehicle models for this customer. In addition, we launched production in the third quarter on a vehicle program for a second China-based OEM with another program for that customer scheduled to start next year. These wins reinforce Magna's strong position in vehicle manufacturing and demonstrate the value of our flexible state-of-the-art production process, which enable fast-to-market high-quality vehicles for the European market. As we have for decades, we continue to launch innovative technologies that support our customers. This past quarter, we began launching a dedicated hybrid drive with a leading China-based OEM. Our 800-volt solution delivers a winning combination of efficiency, versatility and comfort for consumers. Our driveline portfolio spans all powertrain configurations from ICE and mild hybrids to high-voltage hybrids and full battery electric vehicles. This success underscores the strength of our building block strategy in powertrain. And in advanced safety, our mirror integrated driver and occupant monitoring system is meeting growing global demand for DMS technologies. As you may recall, this product earned a 2024 Automotive News PACE Award for its innovation and safety impact. We are launching this system with multiple customers worldwide and volumes are expected to reach several million units annually. Next, let me cover our improved outlook. While the current environment makes forecasting more challenging than usual, we remain focused on what we can control and continue to adapt to evolving conditions. Compared to our previous outlook, we have increased our North American production forecast to 15 million units, up about 300,000 units. Roughly 2/3 of this increase reflects expected outperformance in the second half with the remainder tied to adjustments to first half estimates. We are holding Europe production relatively unchanged. For China, we have raised our estimate to 31.5 million units. About half of this increase reflects second half outperformance and the other half relates to adjustments to first half estimates. We have also updated our foreign exchange assumptions to reflect recent rates, now expecting a slightly stronger euro, Canadian dollar and Chinese RMB for 2025 compared to our prior outlook. We have increased our sales estimate range largely as a result of the expected higher light vehicle production, particularly in North America. We also raised the low end and midpoint of our adjusted EBIT margin range and now expect margins between 5.4% and 5.6%, reflecting our solid Q3 results supported by continued execution in the fourth quarter. Looking sequentially, we expect fourth quarter margins to improve from the third quarter, driven primarily by commercial and net tariff recoveries from customers. And as of today, we are on track to achieve those. We updated our interest outlook due to some expense booked in the third quarter related to a discrete prior year tax settlement. We lowered our assumptions for taxes to approximately 24% from 25%, mainly due to better utilization of tax attributes and a favorable change in equity income. Factoring all that in, we increased adjusted net income to a range of $1.45 billion to $1.55 billion, largely reflecting increases in adjusted EBIT and the lower effective tax rate. We are reducing our capital spending outlook to approximately $1.5 billion, reflecting our continued efforts to optimize investment without compromising growth. As a result of higher earnings and lower capital spending, we have raised our free cash flow range by about $200 million to $1.0 billion to $1.2 billion representing more than 70% of adjusted net income at the midpoint. To summarize, we remain confident in our fourth quarter outlook supported by strong year-to-date execution and ongoing operational discipline despite industry challenges. We are on track to deliver the full year outlook we shared in February. A testament to the resilience of our business and the capability of our global team. Before I turn the call over, I would like to welcome Phil Fracassa, who joined Magna as our new CFO in September. He brings extensive public company CFO, automotive and industrial sector experience as well as a proven track record of driving profitable growth and shareholder value creation through disciplined capital allocation. Phil succeeds Pat McCann, who stepped down from the CFO role and is serving in an advisory capacity until his retirement in February 2026. I would like to thank Pat for his many contributions to Magna over his distinguished 26-year career. With that, I'll pass the call over to Phil. Philip Fracassa: Thanks, Swamy, and good morning, everyone. I'm pleased to be with you today. Magna is a company that I've admired for a long time. For its history of innovation, unmatched capabilities and deep relationships with customers. In my initial time here, I've seen our guiding principles in action and I'm energized by the ownership mentality that our entire team brings to all that we do. We operate in a sector of the economy where the only constant these days has changed, but this creates opportunities and Magna is well positioned to capitalize on them. So I'm excited to partner with Swamy and the team as we work to drive durable shareholder value. Now on to our results. As Swamy indicated, we delivered a strong third quarter, up year-over-year and ahead of our expectations, almost across the board. Comparing our third quarter to the same period last year, Consolidated sales were $10.5 billion, up 2%. This compares to a 3% increase in global light vehicle production. Adjusted EBIT was up 3% to $613 million. Our margin was 5.9%, up 10 basis points from last year, and that's despite the continued headwind from tariffs. Adjusted EPS came in at $1.33, up 4% and free cash flow in the quarter was $572 million, up $398 million from last year and well ahead of our expectations. Now I'll take you through some of the details. Let's start with sales. Looking at the market, North American, European and Chinese light vehicle production were all higher in the quarter, and overall global production increased 3% compared to the third quarter of last year. On a sales-weighted basis for Magna, light vehicle production increased an estimated 5%. Our third quarter sales were up 2% from last year. Excluding currency, organic sales were up modestly, but lagged the market in the quarter as we had expected. The increase in our total sales largely reflects the launch of new programs, including VW, Skoda Elroq, the Ford Expedition, Lincoln Navigator and Cadillac Vistiq, the favorable impact of foreign currency translation and higher global light vehicle production. These were partially offset by lower production on certain programs, including end of production on the Chevy Malibu. The expected decline in complete vehicle assembly volumes including end of production on the Jaguar E and I-PACE in Austria and normal course customer price concessions. Moving next to EBIT. Third quarter adjusted EBIT was $613 million. which was up $19 million or 3% from last year. Adjusted EBIT margin was 5.9%, up 10 basis points. In the quarter, our EBIT margin was impacted positively by 65 basis points from net operational performance improvements. This reflects strong execution on our operational excellence and other cost savings initiatives, partially offset by higher labor and other input costs as well as new facility costs and 30 basis points related to higher equity income as several of our equity method JVs, including China JVs delivered strong performance in the quarter with higher sales and favorable mix, net favorable commercial items and other productivity and cost improvements. These were partially offset by negative 50 basis points from discrete items. This is comprised mainly of lower net favorable commercial items compared to last year and 35 basis points for tariff costs incurred but not yet recovered. This is mainly timing as we continue to pursue recovery from our customers, and we remain on track for tariffs to be only a modest headwind to margins for the full year, less than 10 basis points, as we said before. Note that volume and other items were essentially flat in the quarter as earnings on higher sales and foreign currency gains were substantially offset by the impact of higher compensation expense. Looking below the EBIT line, interest was $11 million higher than last year due mainly to some discrete interest expense in the quarter for the settlement of a prior year tax audit. Our third quarter adjusted tax rate was 26.5%, lower than last year, primarily due to the favorable year-over-year impact of currency adjustments recognized for U.S. GAAP. This was partially offset by an unfavorable change in our jurisdictional mix of earnings, increases in our reserves for uncertain tax positions and a slight decrease in tax benefits related to R&D. Net income was $375 million, $6 million or about 2% higher than last year. mainly reflecting the higher EBIT, partially offset by the higher interest expense. And third quarter adjusted earnings per share was $1.33, up 4% from last year, reflecting the higher net income as well as 2% fewer diluted shares outstanding resulting from share buybacks over the past 12 months. Let's take a brief look at our segment performance for the quarter, which you can see summarized on this slide. Three of our 4 operating segments posted increased sales year-over-year with a notable 10% increase in seating. Exception was complete vehicles, which was down 6%. This was largely expected and reflects the end of production of the Jaguar E and I-PACE at the end of 2024. But as Swamy mentioned earlier, we're excited about our recent new business wins with China-based OEMs, which is a new growth market for our complete vehicle business. In 3 of our 4 segments also posted improved adjusted EBIT margin year-over-year with notable margin expansion and strong incremental margins in body exteriors and structures. The exception was Power & Vision, where margins were down on a tough comp last year. In the quarter, P&V was impacted by lower sales on a local currency basis. Lower net favorable commercial items and higher tariff costs as P&V has relatively more exposure to tariffs than other Magna segments. These were partially offset by continued productivity and efficiency improvements, higher equity income and lower launch costs. Despite being down year-on-year, P&V margins were slightly ahead of our expectations for the quarter, and we have held the low end of our EBIT margin range and our updated outlook for P&V. Our Power & Vision segment has differentiated technologies and a strong market position, and we're confident in the long-term margin outlook for this segment. Turning to a review of our cash flow. In the third quarter, we generated $787 million in cash from operations, for changes in working capital, along with $125 million from favorable working capital movements. Investment activities in the quarter included $267 million for fixed assets and a $100 million increase in investments, other assets and intangibles. Overall, we generated free cash flow of $572 million in the third quarter, higher than we were forecasting and $398 million better than the same period a year ago. The increase was driven mainly by lower capital spending and favorable working capital performance, and we continue to return capital to shareholders, paying dividends of $136 million in the quarter. Our balance sheet and capital structure remained strong with low single A investment-grade ratings from the major credit rating agencies. At the end of September, we had $4.7 billion in total liquidity, including $1.3 billion of cash on hand, which provides ongoing financial flexibility. During the quarter, we repaid $650 million of near-term maturing senior notes. Our refinancing is now complete, and we have no senior note maturities until 2027. Currently, our adjusted debt-to-EBITDA ratio is at 1.88x, a little better than we anticipated coming into the quarter. We have been executing well on delevering throughout 2025. And as Swamy said earlier, we expect to end the year below 1.7x. And lastly, subject to the approval by the Toronto Stock Exchange. Our Board yesterday approved a new normal course issuer bid, or NCIB, authorizing the company to repurchase up to 10% of our public flow or around 25 million shares. We expect the NCIB to be effective in early November and remain in effect for a period of 1 year. Since the initiation of the NCIB approved last year, Magna has repurchased 5.8 million shares or roughly 2% of shares outstanding. This allowed us to return $253 million in cash to shareholders while still reducing leverage and navigating a challenging environment. Our new NCIB reinforces our commitment to share buybacks as a key component of our disciplined capital allocation strategy as we look ahead to 2026. So in summary, we delivered strong financial performance in the third quarter, which exceeded our expectations and showed both top and bottom line improvements versus last year despite the unfavorable impact of tariffs and commercial items in the quarter. We're benefiting from operational excellence initiatives across the company, and we expect these efforts to drive further margin upside over time. We've also increased our outlook to reflect our third quarter performance and expectations for a solid finish to the year. We're planning for higher sales, supported by an increased and expected light vehicle production, particularly in North America, and that's net of the expected fourth quarter impact of potential supply chain disruption. We've raised the low end and midpoint of our adjusted EBIT margin range, and we increased our outlook for adjusted net income, largely due to the higher expected EBIT. We'll continue to focus on free cash flow generation and capital discipline as evidenced by a further reduction in our capital spending outlook. As a result of this and expected higher earnings, we have raised our 2025 free cash flow outlook by about $200 million. And lastly, we continue to mitigate the impact of tariffs. We settled with additional OEMs in the third quarter and we're on track to complete substantially all remaining customer negotiations by year-end. Let me close where I started and reiterate how thrilled I am to be part of the talented and dedicated Magna team. This past quarter was a testament to the resilience of our business and the effectiveness of our strategy, and we're excited about the opportunities that lie ahead. With that, we'd be happy to take your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Etienne Ricard of BMO Capital Markets. Etienne Ricard: Thank you, and good morning. As we think about 2026, can you remind us what improvements to operating margins we should see from efficiency gains and across which segments do you still have lots of potential to expand margins? Seetarama Kotagiri: Good morning, Etienne. I think the best way to look at this is a little bit going back into the previous calls, where we talked about margin improvement from '23, '24 we said we were going to do about 115 basis points, which was done. We talked about an additional 75 basis points split between '25 and '26. I can say the '25 we are well on our way and on track. And we have good visibility for the 35 to 40 basis points going into '26. So if you look at the 5.5%, which is the midpoint of the range we are talking about finishing '25 and add the operational improvements of the 35 to 40 basis points it should give you a good foundation of how we are going into '26. On top of that, there are some programs which we have talked about, which are coming in like launching now into '26 with new economics, compared to what we had from the inflation impacted time frame of '23 to '25. So take all of that in, if you assume volumes to be flattish going from '25 to '26. We see the margins building on top of the exit of the 5.5% in '25. The second part of the question, I think it's a little bit difficult to talk segment by segment. But I can tell you the operational activities are across the company, and that's what is giving us traction, and we are very optimistic about it. Etienne Ricard: Okay. I appreciate the details. And I also want to cover the lower pace of capital expenditures. So this is good for free cash flow over the near term. But could you please remind us why this is not expected to materially affect growth prospects in future years? Seetarama Kotagiri: So Etienne, I think we have always said our long-term average ratio -- CapEx to sales ratio is, I would say, the low to mid 4s. And if you have looked at the CapEx spend in the past years going into '22, '23, '24, we had a higher CapEx spend cycle, and that depends very much on the cycle that the OEMs go through in giving out programs, right? Then we went through a big cycle of EV releases at that point in time. Now with that investment behind us, we have been constantly talking about looking at different -- as part of our continuous improvement in operational activities, looking at efficiencies, looking at consolidations and closing of facilities, looking at optimizing footprint. All of that has given us the opportunity to optimize. But I can very clearly tell you that the team is very focused on not curtailing CapEx at the expense of growth. we are very much focused on organic growth with right profitability. Operator: Your next question comes from the line of Dan Levy of Barclays. Dan Levy: First, maybe you could just talk through what you've embedded in your guidance and what you're seeing as it relates to some of these production disruptions out in the market between Ford, Novelis, JLR and Nexperia, just what's the impact to you? And what's embedded in the guidance and how you're planning around those. Seetarama Kotagiri: Dan, I think the Novelis and the Nexperia situation are still a little bit fluid, but we have taken into account based on the releases that we have and there is visibility. Obviously, there is more color as we have conversations with the customers. We have taken all of that in the Q4. But there is a little bit of indirect impact too, right, because this situation is impacting OEMs and other suppliers. So if that has an impact on the overall production, obviously, that could have an indirect impact. But we have taken to the best of our knowledge, the information that's been provided already in the outlook that we have given. Philip Fracassa: Yes. Dan, if I could maybe just add, this is Phil. So the 15 million unit assumption that we have in for the full year for North America would reflect our estimate of lost production. So if you compare that number to maybe some of the external forecasted it is a little bit lower, and that's where we would have embedded our assumption. Dan Levy: Okay. And Nexperia, and I know it's a wide range of potential outcomes, but we are a month in and you do have a large electronics business. What's the -- is there any sort of range of outcomes that you might be gauging within the results? Seetarama Kotagiri: Yes, I think it impacts largely the electronics group, but it's not only for the electronics group, Dan, you can imagine there is associated systems in powertrain and other parts of Magna. We have a task force activity that's obviously very active in looking at the supply chain analysis, the runout dates. We have identified and released alternative parts, obviously in conversation with the customers. We're tracking the EMS suppliers. Wherever possible, purchase through brokers. So there's a very constant communication with customers and suppliers. I don't know if we can get into every segment by segment, but I can say we have taken the impact to the extent we have seen, again, just not from the outside forecasters, but also program-by-program customer discussions. Dan Levy: Okay. Got it. And then maybe as a follow-up, if you could just walk through the large implied step-up into margins in the fourth quarter that are within your guide. I mean, pretty much all of the segments have a large step-up in margins. Perhaps you could just talk to the underlying strength in those? Seetarama Kotagiri: So a couple of points, Dan. I think as we look through, obviously, one is the traction of the operational activities that we've been talking about. The second part is we have mentioned the second half of the year being heavy in tariff and commercial recoveries. And obviously, it's heavy ended into the fourth quarter. But we have substantially negotiated with the customers. There is some ongoing discussions, but we feel pretty good with the frameworks that are in place, and we believe the roughly 10 basis points impact due to tariff for the year. I think we feel comfortable at this point in time. I would say those are the key points. And if you remember last time, we talked about, I don't know, 35 basis points of the full year EBIT coming in fourth quarter. That was very relevant, and we are trying to give cadence going from Q3 to Q4. It's been a little bit of a stronger Q3. Now if you look at the math of the midpoint of the sales and the midpoint of the EBIT. I would still say we are in the low 30s as a percent of EBIT for the full year. So all in all, it's on track and looking good. Operator: Your next question comes from the line of James Picariello of BNP Paribas. James Picariello: I wanted to first ask about the latest Ford recalls that happened over the last few months, regarding a rear facing -- the rear-facing camera, which I believe is Magna's. And correct me on the number, but it's well north of 1 million vehicles, I think. I'm just curious what -- how that maybe translates or not to future warranty spend for you guys? Yes. That's my first question. Seetarama Kotagiri: James, yes. We'll disclose the warranty expenses in our quarterly and annual reports, as you know. We are working constructively with our customers to reach resolution. For the more recent announcement, James, I would say the information is still coming through, need a little bit better understanding of the scope of the issue. As you can imagine, there is complexities in the system with various interfaces. We have to assess the overall. It's a little bit early from that standpoint. And as we gain more information, we will definitely be in a better position to come back and give you more granularity. James Picariello: Got it. Understood. And then my follow-up, just can you speak to the new nameplates that are at Magna Steyr and what that could translate to in terms of future volumes, run rate production? And then just latest thoughts on capital allocation with respect to share buybacks? Seetarama Kotagiri: Yes, James, again. I think one of the key things is the flexibility that we have in our Magna Steyr facility to be able to do multiple propulsion systems or multiple models to the same line. So I don't think you'll see a significant -- given the capability and the way it is set up and the business model that we have working with the customers there, we don't expect to see an uptick in capital because of those programs in Steyr. Now with respect to the programs, as I mentioned in my remarks, XPENG, we are doing SKD of 2 models. And there is another Chinese OEM we are working with, which is due to launch a third model in there. So all in all, we are excited about that. If you remember, we have capacity of roughly 150,000 units, I would say. But if you look averaged out over years, long period of time, I would say we do well with about 100,000 to 120,000 units. Typically, that's what has been average. So we are continuing to work launching these programs, but there is additional discussions ongoing to further optimize the facility there. Philip Fracassa: Yes. And maybe to the point on share buybacks. So obviously, share buybacks remain an essential part of our capital allocation strategy at the company. As you know, we've kind of paused this year just given all of the uncertainty that was -- that's been out there. We've shifted and focused instead on delevering, and that's gone very well. It's absolutely trending ahead of schedule. And we did announce, as you saw the new NCIB, which would allow the company to purchase up to 10% of our shares over the next 12 months. So I think that the leverage coming down quicker than we anticipated, the strong free cash flow, which we expect to continue, I think, sets us up really well to lean into buybacks as we're looking ahead to 2026. And I think that it will continue to factor in. Operator: Your next question comes from the line of Joe Spak of UBS. Joseph Spak: Just was wondering if you could help me a little bit here. Like if I track the impact all year long on tariffs and in your comment of less than 10 basis points impact for the year. It seems like you're counting on, I don't know, at least $40 million, maybe a little bit more recoveries in the fourth quarter. Is that math right? I know you said that was one of the drivers of the margin inflection in the fourth quarter. I just want to make sure we're properly calibrated there. And then I know you said you're making progress on negotiations, but is there any risk, do you think, to receiving them given some of the distractions at the customers? Seetarama Kotagiri: Joe, I think if you look at the overall in our last calls, we mentioned roughly an annualized impact of about $200 million. But, as you know, the tariff situation started, Louis, I would say April, March, April time frame. So you can take the $200 million annualized and get the number for the year. I think in the fourth quarter, there's more than $40 million, I would say. But there is frameworks in place, Joe, which gives me the comfort to say we are working through. The framework is there, discussions have been collaborative, which gives me comfort. Is there a risk? Obviously, there could be just as you know, in this industry. But looking at the past history, looking at the status of where we are today, I feel comfortable. And as we talk about 10 basis points, right, which is roughly in the $30 million range that we believe would be the tariff impact for 2025 that's unrecovered or unmitigated Joseph Spak: That's helpful. And then I know you're going to be pretty limited today in sort of talking about next year. But just again, so we think about this now, it does seem right, like maybe you have this positive in the fourth quarter, you're fairly neutral for the year. So if we think about maybe for '26 is -- are things -- are recoveries and headwind sort of better aligned. So the margin variation quarter-to-quarter related to this should be much reduced. So we don't have this like big 1 half, 2 half inflection like you did in '25. Is that a good baseline to think about for next year that it's a little bit more balanced? Seetarama Kotagiri: I think that will be the focus, Joe. But tariffs was a new thing this year, as you know, and we had to come up with the framework. I would say there is good groundwork and framework in place. This being the first year and as we are coming towards the end, that should help going into 2026, if you have to deal with it. I think there is still going to be some amount of cadence topics going from one quarter to the other, just based on continuous improvements, the programs finishing and the new programs coming and so on and so forth. But we are in the process of the business planning now. I think by the time we come to February, we'll get a much better picture to at least give you somewhat of a sense of is there more lumpiness or it's getting back to normalcy. Operator: Your next question comes from the line of Tom Narayan of RBC Capital Markets. Gautam Narayan: Best wishes to Pat. My first question is on the Seating margins just guided for Q4. and I know a lot of the segments are seeing this, but it's especially magnified in Seating, it seems. I know this segment was -- had some challenges in the past due to just some program-specific things. Just curious if you could help us understand how much of the sequential improvement is coming from the tariff and commercial recoveries? And then how much is just underlying kind of business improvement? I know you also called out engineering coming down. I'm not sure if that impacts Q4 as well. But just curious on your thoughts on Seating in Q4 and how we should think about that going forward. Philip Fracassa: Yes. Maybe I'll start Tom. So on Seating, obviously, a really strong third quarter with revenue up and good margin performance. But to your question, the margin improvement Q3 to Q4, the big contributors would be recoveries for tariffs because Seating does have pretty large tariff exposure. So there are the recoveries we've got to get. But there's also continued operational excellence initiatives there, too. But if we had to point to the primary drivers of the margin because we do expect the implied guidance would say volumes would be down a little bit year-on-year and even down a little bit sequentially. So we've got the volume headwind in there, too, but overcoming it with the recoveries, commercial tariffs, and also continued focus on operational excellence. Louis Tonelli: And there's a little bit of engineering that's coming down. It should be a bit of a tailwind for us. Seetarama Kotagiri: And that's for the fourth quarter in general. I think, Tom, just maybe stepping back, I want to say Seating is a good business. In our past couple of years, there was pressure on margins due to program-specific issues like end of production of Ford Edge, there was a cancellation of BV Explorer and Chevy Equinox moved from Ontario. And as you mentioned rightly, I've been talking about a European OEM program in North America which had issues, and that's going to be behind us. The newer version with the right, call it, financial metrics, launches in '26 into '27, and you'll see that additional impact going forward in '27. So I would say structurally, it's a really good business. It's got a strong position in China with China-based OEMs. So all in all, it's -- the team has done -- the Seating team has done a great job taking costs out as part of the operational excellence. So I think we'll continue to see the margin improve going forward. Gautam Narayan: Great. And my follow-up has to do with the Steyr and the Chinese OEM wins. Does this create like a flywheel to sell other Magna products from other segments? And then just curious if there were any kind of frictions from your European OEM customers, legacy ones, given the encroachment of Chinese OEMs into Europe is a very hot topic. And I know some of the OEMs are kind of concerned about it. Seetarama Kotagiri: I think, Tom, we would like to look at each of the business that needs to stand on itself, right? Obviously, if there are opportunities for other parts, other systems of Magna to be there, yes, but we are not going to make one dependent on the other, right? So it's standing on its own merit, that's how we're going to look at it. obviously, there could be opportunities, but we have to look at it. To be honest, no, we have not seen any discussions with other OEMs. This is part of a business for Magna, and we have worked with various OEMs in the past, right, as you know. Then we are following the same business model, same principles. So we have not heard anything. And we are very close to the customers as [indiscernible]. Operator: Your next question comes from the line of Emmanuel Rosner of Wolfe Research. Emmanuel Rosner: So I appreciate your early thoughts on some of the operational performance that could continue into 2026. Another angle I was hoping to get an update on is you've in the past pointed to a large amount of new business that would launch and ramp up into 2026, boosting revenue pretty materially and obviously coming with some operating leverage and helping margins further into next year. So can you maybe talk to us about how those launches are progressing, whether the magnitude of the revenue uptake into next year from those is still broadly similar to what you mentioned in the past? And any other consideration on that launches and revenue uptake, please? Seetarama Kotagiri: Emmanuel, I think for 2025 going into '26, when we talked about launches, we talked about it in the context of new economics, right? The terms of setting labor back, labor rates and labor discussions at the start of production, not when we won the program as an example, and so on. We have specifically always talked about winning programs based on returns. If you just look at all of those, that was the step up, I would say, or inflection in the profitability going with these new programs. As far as the launches and the cadence goes, looking at our team, they're doing very good. We look at it very periodically, right, at high amount of detail. I can say there is nothing that stands out today. All the launches are moving pretty good. Louis Tonelli: Yes. We got to look at what the volumes are going to be on all the programs. It's something we're going to go through as part of our business planning process, what are the revised volume expectations for all the key programs. What does that do to our sales growth, et cetera. So that's still part of our plan process that's coming. Seetarama Kotagiri: Yes. I think we can say we're doing a good job of controlling the controllables in our hand, but the externalities of volumes and so on, we still are going to go through and understand better in the business plan process. Philip Fracassa: Yes, so more to come in February on that. Emmanuel Rosner: Yes. Now, looking forward to that. Just a quick follow-up on this and then I wanted to ask you also about the fourth quarter drivers. But just a quick follow-up on this top line thing. Are we still talking about launches of decent magnitude? So I understand the volume themselves would fluctuate. But we're not -- are you experiencing cancellations or major pushouts or anything like this? Seetarama Kotagiri: I wouldn't say, Emmanuel, anything of significance. We already talked in the past about the big EV programs that everybody knows about. Other than that, we haven't seen anything substantial beyond. Emmanuel Rosner: Okay. And then I guess my second question was, so when -- you've spoken earlier in the year about this big step-up in margin between the first half and the second half, which you're reiterating today. I mean some of this was commercial recoveries. There were some engineering recoveries. There were some tariff recovery in there. All that stuff seems to be on track. I think there was also a piece of the uptick that was supposed to be tied to warranty costs. Is that still also on track and helping towards the fourth quarter? Seetarama Kotagiri: Yes. In terms of looking at my comments from the last time to where we are, you are right, we need to keep our focus on obviously executing operationally. Yes, you mentioned commercial and tariff that is still continuing, as I mentioned in my remarks. Nothing specific about warranty, I think if you're talking about there was one topic on Seating in the first quarter. I would say we are in a good place with respect to that. Nothing -- no surprise there. Philip Fracassa: Yes. I mean, yes, I would agree. I think when you think of the fourth quarter, you've got -- it's really continued execution on the operational excellence initiatives is in there, the recoveries, commercial tariffs. I would say there's nothing material related to warranty baked into the fourth quarter, if you will. It's really mainly volumes holding up, executing well and then continuing to focus on cost controls. Seetarama Kotagiri: And just maybe year-over-year, the warranty in '25 has been higher. So the outlook that we are talking about in performance is despite that increase in warranty. Operator: Your next question comes from the line of Colin Langan of Wells Fargo. Colin Langan: Early, you mentioned sort of you have the 5.5% base for 2025, you have about 35 to 40 basis points of continued sort of performance help that gets you to like 5.9%. And then I think you mentioned some of the launches are coming in at more profits and maybe you could go a bit higher. I believe the last update, I think from Q4 was 6.5 to 7.2 it seems still like a big jump for you kind of walking. Is that just kind of sale at this point? Or should we still think of that as a relevant target as we think about '26? Seetarama Kotagiri: Colin, I think let us finish the business plan process. I think, as you know, one of the big variables is going to be volumes in the market, right? When I talk to you about the 35 to 40 basis points, obviously, that's again controlling what we have in our hands in terms of operations and executing. We feel pretty good about that. Some of it will obviously depend on the volumes. Given all the activities that we have done in setting up the right cost structure and we -- it's a journey. We're not stopping there. We'll continue to look at it with the discipline we have had in capital. We see a good path going into '26. And as volumes come, you'll see, obviously, the flow through to the bottom line to be much better. Louis Tonelli: Yes. And to Swamy's point, if you look at where we said we thought North American volumes would be in February for '26, it was like 15.4%. If you look at where it sits today, it's 14.7%. So maybe by the time we get there, it's higher than that. But I mean, that delta has to be is going to have an [ impact ]. Colin Langan: Got it. And then any update on how the ADAS business is performing? Because if I look at Power & Vision sales seem actually fairly flat. I thought there was supposed to be some ADAS growth driving there. Is that still up? And if it is, what is offsetting some of that weakness in there? Seetarama Kotagiri: As we go through there, that segment has a lot of dynamic factors. As you can imagine, powertrain, EVs and hybrids and ICE mix and program changes. From an ADAS perspective, Colin, I would say there is some, again, industry dynamics there. The OEMs are continuing to still evaluate the architecture. Some decisions have been pushed out from a China strategy in terms of looking at chips and their own perception strategy. And the Western OEMs continue to take a path. So we've been a little bit cautious. I would say the growth that we would have assumed maybe 3 or 4 years ago to what we are looking is a little bit dampened. And the only reason is that we want to be cautious of how many platforms we want to work, right? We have to be focused on picking a platform so that we can engineer once and deploy multiple times. So there is a little bit of more work to do on the ADAS side, again, based on the industry and OEMs and architectures and trends. Operator: Your next question comes from the line of Mark Delaney of Goldman Sachs. Mark Delaney: I'd like to thank Pat for all his help and wish him the best going forward. And Phil, looking forward to working with you going forward. I had a question on the complete vehicles business. And Swamy, you mentioned earlier in the call that 100,000 to 120,000 is a more comfortable level to be operating. I do want to clarify with the award and momentum you've been seeing in that business with some of the Chinese-based OEM programs, do you already have line of sight into volumes, getting the complete vehicle business to that kind of level in Austria? Or do you need to win additional business to get there? And the second part of the question, if you get to those sort of volumes, what should we think about in terms of more normalized EBIT margin within the complete vehicle business? Because you think of time in the past, it was kind of 3%, 4% and I'm wondering if it can get back to at least those sort of levels, if not maybe even higher as you ramp some of this new business. Seetarama Kotagiri: Mark, I think a couple of points to mention. The 100,000 120,000 I mentioned was more a context of what the business has run typically in the past, right? We've been talking over the last 1.5 years where we restructured or the team has done a great job restructuring to the current volumes and the current visibility. So even with the lower volumes running there, they've been able to maintain the margin. So that's one thing to note. The second one, as you know, this business or this segment runs on a different business model. It's a little bit on capacity utilization. So the risk exposure is a little different or lower. And when you talk about margins, as you know, besides complete vehicle assembly, in that segment, we also have engineering revenue, right? Which has a little bit of ups and downs depending upon the seasonality. So that changes the EBIT percentage, depending on how much of what mix, right? We feel pretty comfortable that we have the right cost structure or we have optimized. We are not keeping the cost structure hoping new business will come. We'll continue to look for the right opportunities there. And the engineering continues, it's a good strength of ours, and we'll look at it. So I feel to expect somewhere in the mid-2s to 3% range would be normal. Mark Delaney: Okay. That's helpful on the margin. I guess just in terms of the volumes, maybe it's not quite at those sorts of volumes as it was historically, but the business has operated to be profitable at lower levels. Is that the right understanding? Seetarama Kotagiri: Exactly. Mark Delaney: Okay. And then the other point -- the other question I had was also on the complete vehicle business. And with some of the AV upfitting work that Magna is doing. I wanted to talk, is that reported within complete vehicles or another part of the business? I realize that the volume of AVs are still small, but I imagine that might be an opportunity for some engineering collaboration and just want to understand how impactful some of the AV announcements where Magna's doing AV upfitting? Just kind of how big that might be for your business today? Seetarama Kotagiri: Yes, Mark, you're right. The operating of the full autonomous vehicles is in this segment. It's an interesting one, but continue to look at it, look at the business model and work with them. We are very -- we are at the table is the best way to put it, and we have an advantage of being at the table. But we're also looking what's the value that we can bring and we do, I think from an engineering perspective and the expertise of integrating vehicles. So there is a possible opportunity there, but too early to quantify. Operator: The next question comes from the line of Jonathan Goldman of Scotiabank. Jonathan Goldman: Maybe we can circle back to 2026, and I respect you're still in the planning stages. But Swamy, you alluded to maybe flat next year in terms of volumes and rather than put a fine point on any number, what's your expectation in terms of production being aligned with sales? Seetarama Kotagiri: Good question, Jonathan. And I think you're asking me to look at the crystal ball a little bit. I think our assumption has been always to look at bottoms-up what we get from our customers, the releases and our own information that's available at Magna and then triangulate with the external forecasters, right. If the tariffs and the price continues the way it is versus being passed on to the consumers. There might be a pressure on the sales side of things, don't know. That is something we have to see. At this point of time, and this is just me personally looking at it, and we are looking -- it could be flattish. But like Louis mentioned a few minutes ago, in the next few months, we'll get a little bit more visibility on that. Louis Tonelli: And I mean, inventory levels in North America in particular, are pretty healthy levels. [indiscernible] reason to believe that they're going to bring those numbers -- that they're going to work off inventory. I don't think that's an issue, whether they decide to build more than they sell, that's -- yes, it's really up to the OEMs, we can't really determine that. Jonathan Goldman: Yes, that's a fair comment. And I guess my second question then is on CapEx, thinking about it maybe going forward. I think you've cut CapEx guidance 4 times in a row, just pretty impressive. I think this year, you're going to be at the mid-3s. Should that be the appropriate rate going forward if we're thinking about modeling CapEx in '26 and beyond? . Seetarama Kotagiri: No, Jonathan. Like I said, I would look at the 4 to 4.5 or low 4s to mid 4s being the long-term average. That's kind of how we look at business. Like I said, it's important for us, the organic growth, free cash flow, it's a good balance. Given we had 2 or 3 years of high CapEx, we have been super focused on looking at everything which programs and how there is enough uncertainty in the market, too. So that discipline will stay on. But I think the best way to look at it is over a longer period of time to be averaged the 4 to 4.5. But with that said, going into '26, I would look at the low 4s as a good way to start, which doesn't mean we are not going to stop further optimizing it, but I would say that's a good starting point. Operator: Your next question comes from the line of Michael Glen of Raymond James. Michael Glen: Swamy, can you provide an update in terms of how your customers are viewing the cross-border supply chains in North America right now? Is the approach to auto parts moving to the U.S. to become more U.S.-centric, something you're hearing more about and how Magna is positioned in the U.S. right now from a capacity perspective? Seetarama Kotagiri: Michael, I think the customers are, I would say, taking a very calm approach of figuring out, as you know, our industry is a long cycle. What we are producing today has been decided 3 or 4 years ago. I think the big topic has been how to mitigate what we have in our control, like increasing the USMCA content, looking at the supply base, looking at vertical integration and so on and so forth. That's where the focus is. I haven't seen any substantive changes that will impact right away. But are they looking at scenarios 2 or 3 years down the road as they contemplate new models and new vehicles? Yes. The good thing is, as Magna, we have a footprint in U.S. and we'll look at how we can optimize working with the customers. So -- but this is a long-term thinking process rather than a reaction to what's happening now and today. Michael Glen: Okay. And just a follow-up on that. Are you able to give some thoughts into the pluses and minus to Magna redomiciling into the U.S. Seetarama Kotagiri: That's not on the table and we have not considered it. Magna is a Canadian company, has been headquartered there. We are a global company. We have a great footprint and a great employee base. Like I said, our focus is right now on grinding through and being as flexible as possible. So thanks, everyone, for listening in today. We continue to execute, and we remain focused on the initiatives that are driving value for our customers and shareholders, including operational excellence is a big focus, new launches, capital discipline and free cash flow generation. We plan to both get back within our target leverage ratio and are committed to our capital allocation strategy, including share buybacks. And we remain highly confident in Magna's future. Thank you for listening, and have a great day. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Employers Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Lori Brown. Please go ahead. Lori Brown: Thank you, Lisa. Good morning, and welcome, everyone, to the Third Quarter 2025 Earnings Call for Employers. Today's call is being recorded and webcast from the Investors section of our website, where a replay will be available following the call. Statements made during this conference call that are not based on historical facts are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission. All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments. The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligations under the SEC's Regulation FD. Such disclosures will be included in the Investors section of our website. Accordingly, investors should monitor that portion of our website in addition to following our press releases, SEC filings, public conference calls and webcast. In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial measures. Reconciliations of these non-GAAP measures to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation and any other materials available in the Investors section on our website. And now I'll turn the call over to Kathy Antonello, our Chief Executive Officer. Katherine Antonello: Thank you, Lori, and good morning, everyone. And again, welcome to our third quarter 2025 earnings call. Joining me today is Mike Pedraja, our Chief Financial Officer. During today's call, I'll begin by providing highlights of our third quarter 2025 results, and then I'll hand it over to Mike for more details on our financials. Prior to our Q&A, I'll come back to you with some additional thoughts. I want to begin by discussing the decisive actions we took during the quarter to strengthen our loss in LAE reserves. When we spoke last quarter, I mentioned we had identified significant loss in LAE reserve redundancies in older years, and utilized this favorable development from accident years 2021 and prior to strengthen reserves for accident years 2023 and 2024. We also provided our preliminary view of accident year 2025 and shared that the underlying driver of the need for an off-cycle third quarter reserve review was the increased frequency of California cumulative trauma claims in recent accident years. During the third quarter, we completed a thorough reserve analysis, which included a detailed review of our complete book of business, and we compared our internal selections to those of an external actuarial review performed midyear. Our comprehensive and rigorous analysis indicated the need to increase prior year reserves by $38.2 million or 2.8% of net unpaid loss in LAE. Accident years 2023 and 2024 were the primary contributors of the increase with AY 2024 increasing by $40.5 million, AY 2023 increasing by $16.1 million and accident years 2022 and prior decreasing by $18.4 million in total. In addition, we increased our AY 2025 loss and LAE ratio from 69% to 72%. We strongly believe these adjustments fully address the recent trends we and the industry have seen in California and want to emphasize that these adjustments are not a sign of broad deterioration in our book of business. With the increased frequency of California CT claims, our third -- without the increased frequency of California CT claims, our third quarter 2025 overall reserve position would have developed favorably. As we have discussed, the increased frequency in CT claims is a California-only issue. Frequency in other states continues to show a decreasing trend. I now want to speak to why California CT claims for accident years 2023 and 2024 are impacting our reserves this quarter. In California, older years continue to develop favorably, but more recent years have experienced a meaningful uptick in CT claim frequency. As there is typically a significant delay in CT claim reporting, the increased CT claim frequency trend did not fully emerge until well after the first 12 months of each accident year, making it more challenging to predict or detect the trend in real time through traditional reserving and pricing analysis. In addition, the continued declining frequency trend of non-CT claims in California initially masked the increasing trend in CT claims and further delayed visibility. Given the uncertainty in the California CT environment and more generally, our desire to utilize a more conservative approach across our complete book of business, this quarter, we implemented refinements to our analysis of prior years. These refinements, which strengthened our reserves across all states were designed to build additional resilience on our balance sheet and significantly reduce future uncertainty. A comparison of our third quarter 2025 reserve selections to reserve estimates prepared midyear by an independent external actuarial firm reinforced our conservative reserve position. Now let's focus on accident year 2025. The increase in our AY 2025 loss and LAE ratio is due solely to the increasing frequency of California CT claims as frequency in the rest of our book continues to decline. Comparing AY 2025 to AY 2024, at 3 months, AY 2025's incurred loss ratio was higher than 2024. But at both 6 and 9 months, AY 2025's loss ratio was lower than 2024s at the same ages of maturity. Other data points on both an accident year and a policy year basis point towards AY 2025 performing better than both 2024 and 2023. This suggests the underwriting and pricing actions we've implemented are having a positive impact. While we could have held the AY 2025 loss ratio steady at our second quarter selection, given the more conservative reserving approach mentioned earlier and recognizing the increased frequency in California CT claims, we decided to increase the accident year 2025 loss ratio. We have implemented a 4-pronged approach in California to help mitigate the impact that CT claims may have on our book of business going forward. This includes targeted pricing actions, more aggressive claims handling and litigation management, underwriting refinements and continued geographic diversification. We are also actively engaged in California's efforts to pursue meaningful legislative reforms to better align California's CT rules to those throughout the country. Having said that, our commitment to providing best-in-class care to all injured workers, whether their claim arose from cumulative trauma or not, is unwavering. We are confident that the actions we have made are timely, appropriate and prudent and will better position the more recent accident years for the future. We believe that our current reserves are more than adequate. I'll now turn to discuss other highlights from the quarter. Our third quarter gross written premium increased by 1.4% compared to 2024 due to increases in renewal business premiums. As I stated in previous quarters, in this sustained soft workers' compensation market, we are prioritizing underwriting margin over growth, and we've continued to undertake targeted pricing actions and implement enhanced risk selection to maintain underwriting margin. While competitive pressures have impacted our desire to grow at the same pace in certain classes, jurisdictions and policy sizes, we remain pleased with the continued growth in our Small Commercial business and our strong policy retention as evidenced by our 4% growth in policies in force this quarter. We view the small commercial growth as validation that our clients value the investments we've made in automation and ease of use. Over the last 10 years, we've considerably increased our diversification by expanding geographically into a national carrier and into new distribution channels, while also expanding our appetite into new industries and classes. These initiatives are ongoing. To further that diversification, we're excited to announce our first expansion into a new product. We have commenced the build-out of a new excess workers' compensation offering by hiring a talented experienced underwriting -- underwriter and developing the infrastructure to distribute and manage this new product. We plan to start accepting submissions in early 2026. Our entry into the excess workers' compensation market leverages our existing expertise and systems, capabilities and customer base and will strengthen our relationships and offerings with our distribution partners. We earned $26.1 million of net investment income during the quarter, which was slightly lower than the third quarter of 2024. Our net realized and unrealized gains on investments increased to $21.2 million for the quarter compared to $10.9 million for the prior quarter. We continue to be committed to delivering operational efficiencies and automation of the entire customer journey. In August, we made the difficult decision to undergo a reorganization, which was designed to better align our resources with our current and future business needs and objectives. As a result of this action and broader expense reduction efforts, we reduced our third quarter underwriting expense ratio significantly compared to the third quarter of 2024. Despite the tremendous progress we've already achieved, we now see further improvement potential as we implement our well-designed AI road map. As part of our relentless focus on value creation for our shareholders, yesterday, we announced a $125 million debt-funded recapitalization plan and an associated $125 million increase to our existing share repurchase authorization. This expands our existing share repurchase authority to $250 million. In addition to a meaningful return on investment, we believe the recapitalization plan will reduce our cost of capital, improve our return on equity and expand our earnings per share and adjusted book value per share. The recapitalization plan highlights our belief that our stock price is undervalued and our confidence in our balance sheet and future prospects. With that, Mike will now provide a deeper dive into our financial results, and then I will return to provide my closing remarks. Mike? Michael Pedraja: Thank you, Kathy. Gross premiums written were $183.9 million compared to $181.2 million for the prior year, an increase of 1.4% due primarily to renewal business premium growth. Net premiums earned were $192.1 million compared to $186.6 million for the prior year, an increase of 3% due primarily to larger levels of 2024 written premium earning in 2025. During the period, our losses and loss adjustment expenses were $186.6 million versus $117.7 million a year ago. As Kathy just summarized, we increased our current accident year loss and LAE estimates in response to the rapid rise in cumulative trauma claim frequency in California. The current quarter loss in LAE includes a cumulative catch-up adjustment of $11.4 million to the [ carried ] 2025 accident year loss and LAE reserves at June 30, 2025, to reflect the 72% current accident year loss and LAE ratio. As a result, the 2025 accident year loss ratio for the quarter was 78.1%. In addition, we strengthened our reserves related to prior accident years by $38.2 million due to the increased frequency of California CT claims and our desire to utilize an even more conservative approach across our complete book of business. Commission expense was $23 million for the quarter versus $25.8 million for the prior year. Our commission expense ratio for the corresponding quarters was 12% and 13.8%, respectively. The commission expense and ratio decreases were primarily related to the increased proportion of renewal business, which has a lower commission rate compared to new business and lower agency incentive accruals. Underwriting expenses were $39.6 million for the quarter versus $43.8 million for the prior year. Our underwriting expense ratios for the corresponding quarters were 20.6% and 23.5%, respectively. The underwriting expense decrease was primarily a result of lower compensation-related expenses, including reductions associated with the August reorganization Kathy mentioned, along with year-over-year declines in policyholder dividends and bad debt expense. Higher net premiums earned also contributed to the lower underwriting expense ratio. Net investment income of $26.1 million for the quarter was relatively flat compared to the prior year despite a lower yield environment. The current quarter net income results included after-tax realized and unrealized gains from our investments in equity securities and other invested assets of $17.8 million, and $6.3 million, respectively. The market value of our fixed maturity holdings has benefited from the lower interest rate environment, reducing our accumulated other comprehensive loss included in our shareholders' equity by $16.6 million. Our fixed maturities currently have a modified duration of 4.4 and an average credit quality of A+. Our weighted average book yield was 4.6% at quarter end compared to 4.4% for the prior year. During the quarter, our average new money investment yield was 5.5% versus 5.7% a year ago. Our adjusted net loss, which excludes net realized and unrealized investment gains and losses and the benefit of our LPT deferred gain amortization was $25.5 million compared to adjusted net income of $20.2 million a year ago. Our 9-month year-to-date adjusted net income was $34 million versus $90 million last year. Due to market opportunities, we increased our level of common stock repurchases to $45.2 million in the quarter. We achieved the repurchases at an average price of $43.09 per share, which represents a 17% and 13% discount for our June 30, 2025, adjusted book value per share and our book value per share plus the LPT gain, respectively. Since September 30, we have repurchased an additional 243,000 shares of our common stock at an average price of $41.77 per share for a total of $10.2 million. As Kathy highlighted, we announced the Board's approval of a recapitalization plan authorizing a $125 million increase to the existing 2025 share repurchase program. Initially, we will utilize a combination of 3-year debt funding sources, including our existing borrowing facility at the Federal Home Loan Bank. We ultimately plan to fund the recapitalization with long-term debt. With that, I'll turn the call back to Kathy. Katherine Antonello: Thank you, Mike. Yesterday, our Board of Directors declared a fourth quarter 2025 quarterly dividend of $0.32 per share. The dividend is payable on November 26 to stockholders of record on November 12. As evidenced by the recapitalization plan Mike just discussed, we remain confident in Employer's financial strength and prospects, and we'll continue to manage our capital strategically. After considering dividends declared, our book value per share, including the deferred gain, increased 6.1% to $49.70, and our adjusted book value per share increased by 5.5% to $51.31 over the last 12 months. We returned $52.7 million to our stockholders this quarter through a combination of regular quarterly dividends and share repurchases at an average price that was highly accretive to our book value per share. While our third quarter results were heavily impacted by the California CT claims trends, we believe our current loss and LAE reserves reflect the level of conservatism to which we are accustomed. We are relentlessly pursuing refinements in our underwriting and pricing approaches and seeking new opportunities like excess workers' compensation that will enable us to generate profitable growth in both new and renewal business. I am confident that the steps we've taken this quarter will position employers well into the future. And with that, Lisa, we will now take questions. Operator: [Operator Instructions] The first question today will be coming from the line of Mark Hughes of Truist. Mark Hughes: You mentioned one of your strategies would be to perhaps be more assertive on the litigation front. Is this something you can make yourself a harder target. And so the plaintiff's attorneys are not as enthusiastic about pursuing you as opposed to others? Or is that -- is it more of an administrative process that you can really control, so to speak? Katherine Antonello: Yes. It's a good question, Mark. When -- when I talk about our targeted litigation strategies, it's internal. We're using analytics to determine the best course of action -- and those analytics are based on individual claim back. So we have a multi-disciplined team that we've developed internally that's focused solely on managing the CT exposure. We've established some really aggressive targets to reduce the defense and cost containment portion of the claim to also reduce it possible the litigation because CT claims are more highly litigated than other claims. In fact, about 90% of them are litigated. And then also just to focus on the average cost per claim and bringing that down, if possible. We've identified and we've developed several defense tactics that are targeting specific firms that represent numerous hundreds and hundreds of CT claims, thousands across the industry that have no medical associated with them. And then as I've said in the past, we're taking a leadership role in pursuing some legislative reform, working with different industry groups and so forth to really present some meaningful language to legislative committees that would bring California's CT legislation in line with other states across the country. So we really are sort of trying to attack this from a lot of different angles when you talk about the claim perspective. But as I said in my prepared remarks, we also want the industry to know that we're committed to paying cumulative trauma claims. There are legitimate cumulative trauma claims out there, and it's something that's very important to us to provide the best service to injured workers. Mark Hughes: Yes. The trend in terms of those claims, I think you talked about how you're taking underwriting pricing actions and that has helped the improvement or help for the 2025 accident year. How do we think about, say, going into 2026 and loss picks -- do you feel like you have enough of a handle on the trend that the trend is predictable at this point? . I'm kind of mixing different ideas in this question. So I apologize for that, but I'm just trying to figure out whether -- is the trend stable enough? Have you taken enough actions, pricing, underwriting that you can get to a more predictable loss pick or what kind of loss pick can we expect -- is it going to be 72% from here? So like I said, I'm growing a little bit, but pick and choose among those topics and would be -- would appreciate your feedback. Katherine Antonello: Sure. So -- on the pricing side, we have -- we took action earlier than the California filing that went in was effective 9/1 -- so we were ahead of the curve on that, and then we've taken a couple of targeted actions after that. We feel like we're in a nice position on the pricing side and have taken more rate than what the WCIRB filed with the bureau. So that's what we saw on the pricing side. On the underwriting side, we have more underwriters looking at risks that are flowing through as submissions and putting eyes on these risks to determine whether they have a higher exposure to CT claims. So we've lowered -- we typically -- we have a straight through quote processing system where our underwriters really only touch the more complex risk, but we've lowered that threshold for California. So we have more eyes on it from an underwriter standpoint. From a trend perspective, I feel like -- the trend is settling. It is very difficult to know what will happen in the future. I don't expect our accident year pick to be much changed from what it is this year until we see these results flow through. So when I say these results, I mean, the pricing actions, the underwriting actions, any changes that are made within California and so forth. We're going to continue to be conservative and hopefully be ahead of that trend. Mark Hughes: On the -- Mike, on the buyback, what is the interest rate that you expect on the borrowings, I think, of the Federal Home Loan line that you've got. What is the rate on it. Michael Pedraja: Yes, Mark, so that's why it's very exciting. The current rate is 3.7%. Mark Hughes: Okay. And is that float or is it... Michael Pedraja: No, that number is fixed. Mark Hughes: Okay. And then the -- how much capital do you have at the holding company at this point? Michael Pedraja: So very several times, as you can imagine, we manage the capital effectively through the dividends from our insurance companies, but we have a sufficient level of capital at the holding company. We don't publish that number, but it's plenty to cover a decent portion of our expenses, including repurchases and dividends at the holding company. Mark Hughes: Okay. The -- how much is available under the share repurchases, $250 million in total? How much of that has been used of? Michael Pedraja: So to date, on the existing plan, we used $65 million. Mark Hughes: Was that $65 million. . Michael Pedraja: 6-5. Yes. Mark Hughes: 6-5. Okay. And then what would you anticipate in terms of the pacing on the $125 million was the $45 million this quarter? Is that a preview of things to come until you use the $125 million? Or how would you characterize it? Michael Pedraja: I think I mentioned on the previous calls, we really look at the repurchases on a return on investment basis. And so we're going to be very disciplined -- and when -- if the stock goes down below and creates further opportunity will increase that activity. And so we will -- we're very focused on affecting this $125 million recapitalization plan. So it's going to be market dependent, but we're disciplined and intend to affect it as soon as we can. Mark Hughes: Yes. And then one final question. The top line growth here kind of steady some puts and takes, obviously, some expansion in excess, but the tighter underwriting your rate increases. Is this kind of steady state for top line dynamics. I mean would we assume maybe flat to up slightly? Would that be consistent with where you were at in terms of taking these actions to help control the loss trajectory here? Katherine Antonello: Yes. I mean I think you categorized it well by saying puts and takes. There are areas in which we are wanting to grow. And then there are areas in which we're perfectly fine turning down business, and that varies by state. It varies by policy size. We are having a lot of success on the smaller policy side, and that's why size is, and that's why you're continuing to see the growth and policy count, but it's putting pressure on the top line because of the average policy size that we're writing is lower. So I would not expect tremendous growth over the next 12 months, because, as I said in my prepared remarks, underwriting margin is what we are focusing on right now. Operator: And the next question will be coming from the line of Karol Chmiel of Citizens. Karol Chmiel: I've got 2 questions. The first one is really just regarding the cumulative trauma claims, statute of limitations and date of injury that is kind of part of the legal issue here. Can you comment on that? Katherine Antonello: Yes. So the real issue underlying CT, and this is my opinion, in California is the fact that an injured worker can file a cumulative trauma claim post termination -- and the claim itself can stretch over multiple years and multiple carriers can be involved in that claim. So it's -- what we're seeing is a lot of these claims are being filed post termination now. They have much more indemnity on them than they used to. It used to be more of a medical phenomenon. That's the real issue in terms of what's going on with California CT. Karol Chmiel: And then just a follow-up question in regard to the buybacks. I'm just looking at the model. And I'm just curious, will your investment leverage technically go up and maintain the investment balance as you buy back the shares? Michael Pedraja: Well, because our investment balance should not be impacted, right? Because we're going to fund the repurchases through debt. So the investment leverage will stay. So investments compared to equity will increase. So if that's what you're asking, yes, the investment leverage will increase. Operator: [Operator Instructions] Our next question will be coming from the line of Bob Farman of Janney Montgomery Scott. Robert Farnam: So what happens with the -- are you going to have a traditional fourth quarter reserve review as well, like internal and external? Or is this third quarter review kind of taking your annual look fee? Katherine Antonello: Yes. And that's a good question, Bob. We are going to have a full fourth quarter review and get back on track. Third quarter was off cycle. We usually just look at actual versus expected then, but we wanted to, definitively come out with something and look at it with a fresh eye -- and -- but we'll get back on track in fourth quarter, we'll have an internal review. It will also -- because this is the year that we've hired an external actuarial firm -- to review our reserves, they will also do a fourth quarter review, but we do not expect an impact from that fourth quarter review. . Robert Farnam: Right. Is the external firm that's looking at the fourth quarter, are they the same one that looked at them at midyear? Katherine Antonello: Yes. Robert Farnam: Okay. And was there -- I know you've had to discuss this thing, these types of things with AmTrust. Like what kind of commentary have you gotten from rating agencies in regards to the the whole situation with the cumulative trauma in California? Michael Pedraja: Yes. Thanks, Bob. So we're very active and engaged with our rating agency partners and we've discussed and keep them posted as far as the process, what -- from an operating perspective as well as a capital perspective and they all continue to be quite supportive of where we're at, the actions we're taking, both from an operation perspective as well as from a capital perspective. Robert Farnam: Okay. All right. Good. Have you seen any change in medical cost trends? I know you probably asked every quarter about it, but what's going on with medical costs. I know we've been talking a lot about claim frequency, but how about the severity side. Katherine Antonello: Yes. The severity side, what we're seeing, our overall claims severity values have generally held steady in the most recent years. There -- they continue to be, generally speaking, below pre-pandemic levels, and that's both indemnity and medical severity in that number that are in that severity that I'm speaking to, but it's driven by lower medical severity. I've talked about in several calls that we monitor our own prescription drug costs. We've seen slight increases in drug costs versus those that were in place pre-pandemic, but nothing that is really alarming on the pharmaceuticals. So severity is not something that we are currently concerned about. We did have some large losses in 2024. Those are more than adequately reserved for. But we're not seeing anything that is concerning to us right now. Robert Farnam: Okay. So if in a recessionary environment, with the increase in unemployment or terminations and stuff, I understand they can file claims in California. But you see some similar issues in other states if unemployment starts to become -- it starts to go up? Katherine Antonello: It's something that has been researched in the past, and there have been studies that show that, that could and has happened. The most prominent one was the study research that was done after the great recession. Of course, that was a huge impact to the economy and unemployment and so forth. So I don't -- I wouldn't expect anything like that. Recessions are just very specific in terms of the industries and jobs that they tend to impact. So it's very difficult to answer your question other than generally. But the answer is it could, It just depends on the type of recession. Robert Farnam: Yes. I didn't expect an exact detailed answer for you on that one. It was just more of a broad question. So I -- I'm sorry to kind of monopolize the questions here. But I guess one last thing I want. Just can you talk a little bit more about the excess workers' comp product what size market is that? Who competes in that market and where you can add value? Katherine Antonello: Sure. So -- the -- our entry into excess workers' compensation is part of our diversification effort. And as I said earlier, it's our first new product expansion. We've been researching new products for about a year now in excess was the right place to start for us. Given our expertise in workers' compensation, it's just a natural extension of what we do now and leverages the talent and the systems capabilities and so forth that we already have in place. So we're spinning this up in a very efficient way by hiring a team of underwriters and then we're utilizing Agentic AI to build out the underwriting platform and the CRM platform. We don't -- we're going to go slow here. We don't expect -- we're not expecting something huge in 2026, because we're going to learn as we go -- but we do expect to get submissions in the door in early second quarter and binding by July 1, 2026. There aren't a lot of excess workers' compensation providers that are large and have an extensive book of business. So we feel like this is a good place for us to enter. It's a good time in the market for us to enter it, and we're really excited about it. Robert Farnam: And you're saying your producers are basically saying this would be a nice add-on just because placing that type of risk to others. Is that kind of... Katherine Antonello: Yes. We feel like there's just an opportunity for another entrant in the market and that we can provide some services that potentially don't exist right now. And we can absolutely leverage our extensive agency plant that we have in place. So there's not a lot of friction there for us to enter the market. Operator: [Operator Instructions] And at this time, I'm not seeing any more questions in the queue. I would like to go ahead and turn the call back over to Kathy Antonello, please go ahead. . Katherine Antonello: Okay. Thank you, Lisa. Thank you all for joining us this morning, and I look forward to meeting with you again in February. Have a good weekend. Operator: This concludes today's program. You may all disconnect.
Unknown Attendee: Hi. Good afternoon, and good morning to everyone, depending where you are located. We are very proud here to be today to present our strategic plan to 2031. I'm joined today by our Chairman, Mr. Paolo Ciocca; Mr. Paolo Gallo, our CEO; Pier Lorenzo Dell’Orco, CEO of Italgas Reti and Gianfranco Amoroso that you all know, our CFO. I leave now the floor to the Chairman. Paolo Ciocca: So good morning and good afternoon, ladies and gentlemen, and thank you for attending today's presentation of Italgas 2025-2031 strategic plan. There are moments in our company's history when progress isn't just represented by financial or industrial results, but rather by recognition of its deepest identity. And by the way, Italgas' history is not at all a short one. This said by, as you well know, a young newcomer to the company. Italgas identity is the cornerstone around which the group has developed in recent years, the cornerstone of an exciting journey that has seen the group establish itself as a global benchmark for innovation, model transformation, anticipation of the future. Today, 1 year after the previous strategic plan, we can say that our future mapping worked out well and ahead of schedule. The group is further strengthened by its international leadership and has established itself also in terms of size as the leader in gas distribution in Europe. But it is not just a question of numbers. It is a question of vision and responsibility and the ability to drive energy transformation as enablers of decarbonization. Our commitment is clear. We want industrial innovation with energy transition. We create networks that don't just distribute energy, but also enable molecules to change their nature from fossil fuel to renewables, from natural gas to biomethane, hydrogen and synthetic methane. We believe in technological neutrality as a guiding principle. This means evaluating all available solutions, building a resilient, competitive energy system that is ready to meet the needs of family, businesses and institutions. In these recent years, we have demonstrated that the energy transition can be substantive, a substantive project. We have done so by extending and digitizing our networks, developing a market around the various areas, let's say, uses of hydrogen in the network and focusing on research and development. Our aim is to make things happen. The plan we are about to present to you today is at the heart of this new phase and outlines how we intend to remain true to our nature, continuously evolving, faithful that our vision of the future of energy and our values because Italgas is changing, growing and expanding, at the same time, it keeps its 188 years old distinction in Italy, a force that builds a real progress and generates value at the service of communities and territories. Now let's go to the [indiscernible] and let me welcome Paolo and its leadership team. Thank you. [Presentation] Paolo Gallo: Good afternoon, everyone, and good morning for the person that are connected from abroad. It is for me a great pleasure to be here to present this strategic plan that represent the first strategic plan after the acquisition of 2i Rete Gas. In this plan, we are setting a commitment that has never taken in the whole history of Italgas, a clear sign of confidence that we have for the future and the vision that we have for the future about our infrastructure. And we feel that today, we are going to share the vision with you, the investment, the technology and the people that will make this plan happen, shaping the energy of the future. But let me start with the where we stand today. One year ago, we announced the acquisition of 2i Rete Gas, the largest -- the second largest gas DSO in Italy. And we have created with such acquisition, the largest European DSO. As you can see, those are the numbers. We serve nearly 13 million customers in the gas distribution. We serve directly and indirectly 6.3 million customers in Italy and Greece. We manage nearly 160,000 kilometers of network. But moreover than that, we do all this activity, thanks to an incredible 6,400 employees that is the result of the combining of the 2 company. 7 months ago, we closed the deal, and now we wanted to show you the progress that we have made in such a short period of time. At the same time, we want to show you and share with you our vision for the next 7 years. Let's take -- show you about our strategic vision. We want to maintain our leadership in innovation, in technology, in digital transformation, maximizing the value for all our stakeholders. The vision is built around, as I said, innovation, AI transformation, energy transition and with a focus, a never-ending focus on operational efficiency. Three business area, you know very well that they are gas distribution in Italy and Greece, which remain in our core business. Water service, a sector where our digital capability that we can apply from our experience in gas distribution can make a difference. Energy efficiency that we feel it has been a little bit forgotten, but it's a key element for the energy transition, and we strongly believe on that. And on top of that, we think we can take a great advantage from unlocking all the possibilities and opportunities coming from the massive application of [ AI ] to our processes, our assets and our way in which we manage the company. But before going on, let me take for a few moments, a look at the past. I think the past 9 years at Italgas has been extremely exciting and successful. And I think it is worth spending a few words about what we have achieved, where we stand today and which is our ambition. We have invested up to the end of 2024, nearly EUR 7.5 billion growing the RAB up to EUR 10 billion before the acquisition of 2i Rete Gas. We delivered an impressive OpEx reduction, minus 40% since 2018. We distributed more than EUR 2 billion dividends to our shareholders. At the same time, we were able to maintain a solid financial structure. And we have done all of that reducing our carbon footprint, reducing our energy consumption. Then 2025 make the difference. We acquired the second largest DSO in Italy, and we become the first DSO in Europe. We were already the first DSO in terms of innovation and technology, not in terms of size. Now we cover also the size parts. And we achieved in Italy a market share of 55% -- now we are planning that is the ambition to invest in the next 7 years, EUR 16.5 billion, including the acquisition. That includes, of course, the acquisition of 2i Rete Gas. And we expect that our EBITDA and our EPS will grow at double-digit numbers, starting from 2024 based. And the financial structure, as Gianfranco will show you later, is very strong, very robust, and we start deleveraging already in 2028. But let me move more on the -- what we see the scenario of the gas for the future. I remember that in the industry, I was probably one of the first person to talk about the energy trilemma. And I remember that I was talking about that in London a few years ago during an interview that I had with Bloomberg. At the time, nobody were talking about the energy trilemma. Since then, as you can see from the trilemma today, something has changed, has shifted. After the Ukraine invasion, the focus was to guarantee the energy supply, security of supply was at the top. And since then, since 2022, I think the situation in Europe has significantly changed. Most of the country have been able to get rid of the Russian gas and be able to build a different supplier, different supply flow. Today, the focus has shifted to the cost of energy. And the cost of energy has become get the major attention of all the European countries, not only for industry because industry means competition, being able to compete at the world level, but also for the end customers, for the residential. And I think one of the solution is the use of the gas infrastructure. DSO is part, is the heart of the solution. And there is a growing recognition that the trilemma cannot be solved just using ideological position, but a more pragmatic, a more neutral approach from a technological point of view will bring the solution. It's not going to be easy. It's not going to be linear, but that's the only way in which we can solve a complex problem like the energy. And I think -- and we feel that the gas network bringing in the future, today in the future, renewable gases will help to solve the trilemma from a cost point of view and security point of view. Let me show you some numbers, very interesting one. The evolution of the energy price and the gas price in Italy before the Ukraine invasion and today. As you can see, the cost of energy, the gas in terms of euro per megawatt hour has gone back more or less, not yet, but it's not very far from the price that we had before the Ukrainian invasion. We cannot say the same for the electricity. Electricity price is 3x the gas price. And that makes even more difficult to think about electrification in certain sector. And if you couple that with the fact that we are going to see in the coming months and years, an increased demand of electricity, think about AI data-driven consumption, then will pose even more problem. The gap may even become bigger, not only, but if you think about what happened in Spain just before summer, more renewable you put in the system and you need to recover the rigidity that the renewable put in the energy system because renewable, it's production is not capacity. And in this context, gas will continue to be in different form, crucial to maintain an energy system stable, efficient, secure with a cost that is affordable by everybody. And we -- I brought you an example of the day-by-day life of the life of ourselves when we need to face certain decision to change, for example, a very traditional gas boiler for the heating system. And we made this comparison based on the number that you saw with no subsidies. That means that we are comparing apple with apple. 3 options: one that I consider probably the best effective one, very simple, high-efficiency boiler gas. The second one is heat pumps with limited modification of the heating system. The third one is probably the one that the ideological people will say that is the best solution. Heat pumps change all your heating system, put what is the underfloor coils, you will be happy. For 25 years, you will be happy because it will take 25 years to pay back the investments. What does it mean that by -- in 25 years, you will probably change everything. So you will never get there. And that is when you compare apple with apple with no subsidies. But there is the solution. And the solution part of the solution is let's go back to what the European Commission made it years ago after Ukraine's invasion that probably has been forgotten for a long time. That is the REPowerEU. They clearly identify 3 path in order to reduce the dependence on Russia and at the same time, to reduce also the cost. That is the development of biomethane, the development of hydrogen production and importation and the last one, increase the energy efficiency in our real estate activities in everything in our industry, everywhere. Why it has been forgotten? Because it's too difficult, again, -- that's the problem. But that is the solution because biomethane is something that is today available is competitive. Hydrogen, we will talk in a moment. And energy efficiency is the other area where there is a lack of interest, but it's -- again, it's one of the most effective tools that we have in order to reduce energy consumption and reduce our cost. If I look -- if I take a look at the same situation in Italy, what we can say is that biomethane is a very high potential area. Many studies and our evidence about connection request to show that we will have an increase of biomethane production as an average by 50% every single year through 2030. That will let us reaching the goal of 5 billion cubic meters of production that represent about 7% to 8% of the total demand of gas in Italy. And there are positive signal. One is the latest auction that was made about awarding the grants from our resilience recovery plant to upgrade the existing biogas into biomethane. Hydrogen. Hydrogen is let me say, a longer-term opportunity because of the cost. But I think we should continue to invest in research and development to research in the use of hydrogen. Our plant in Sardinia, Pier Lorenzo will talk to you about that. I around, it's a clear demonstration that we can build an ecosystem that is based on hydrogen. Is it competitive? Not yet, but still, there are very nice signal about that competition. Think about that the energy conversion into hydrogen is 55% in a small plant. So if you scale up the plant, you can even reach higher efficiency. And finally, the e-Methane that is for us and for Europe is probably the new frontier. For Japan, it's not. Japan is testing significantly e-Methane. See, e-Methane as the solution for gas supply in Japan. It's the combination of CO2 capture with hydrogen. So what I'm telling you with this example is that with a pragmatic approach, you find many solutions that can bring you security of supply, energy transition and cost of the energy altogether as a solution. And the fact that the gas will continue to be there today, fossil, tomorrow, renewable is also shown by this graph. After the shock in 2022, we have already seen some recovery in '24. And if I look at the first semester of '25 in respect of '24, we saw an increase in 6% -- and we have just closed the numbers at the end of September, and we look at what we injected in our network in respect of the previous year and the growth is still close to 6% also at the end of September '25. And as I said before, more electrification expands, more renewable in the picture and the more we need the molecule to compensate the rigidity of the electrification. But let me now move and give a quick outlook about the progress that we made on the 2i Rete Gas integration. You remember, I don't want to go through all the story about the different steps, but I wanted just to stay on the fact that 1st of July, we merged Italgas Reti with 2i Rete Gas. And I think that has been an incredible achievement, 90 days to complete that process. And then to complete the all 2i Rete Gas acquisition, we need to satisfy also the mandatory request by the antitrust. As you know, that has been recently closed, let me say, the agreement with the 4 buyers, the 600,000 redelivery point that were requested to be put on sale, we received 12 acceptable from a price floor point of view offers for a total of less than 250 redelivery point, which were considered also acceptable from the antitrust point of view in terms of requirement that the buyers should have. The process will involve the disposal of the delivery point together with the personnel, the systems and all the assets that are needed to operate this redelivery point, this network. The RAB value associated is EUR 218 million. The overall price that is paid will be paid is set at EUR 253 million, significant premium paid over the RAB. We expect the closing to be happened before the end of the first quarter of 2026. But of course, it will depend about also the buyer. Regarding what has not been sold, so the remaining 350,000 redelivery point, we don't have to do any second round of disposal on this redelivery point in this network will be applied the so-called soft remedies that will be applied when the tender process of the award of this asset will take place. So -- but let me say, I wanted to share with you another point that is we always said and I have already said at the beginning that we are -- that we are the best in our industry. But I wanted to bring you data facts to show you that our statement is true. So we made a comparison with our international peers. And we have looked at the different topics that for us makes the difference. So smart meters, we are close to 100%. If you look around Europe and worldwide, there is no one that is passing 50% of the installation. And the majority are below that number significantly. Network digitization, this is where the gap is huge. there is no one, no one that has made such an upgrade of the network. And when I say network digitized means that I can control remotely everything that I can manage the network remotely everything. Pier Lorenzo will tell you more in detail what does it mean that. And on top of that, we are going to implement the AI transformation in which we see some other example. But to me, to be extremely effective and to be able to adopt on a massive -- at a massive level AI, you need to have a network fully digitized and you need to have a collection of billions of data in order to be able to really leverage the application of AI. On the biomethane, that buys from country to country. We know that there are other countries that are better positioned than us. But I think Italy will recover this gap very soon. On the network ready for hydrogen. If I look at our plant in Sardinia, we can say that our network is 100% ready to accept 2% or 20% of hydrogen. In fact, we have a protocol with the Ministry of Industry and Energy to scale up the 2% that is the minimum up to 20%. If I look at the average of the network in Italy, then we can say that 80% is ready for 20% blending. But I also can say that by the end of the plan, we will have 100% of our network ready for a blending of hydrogen up to 20%. Let me go through some more significant progress we have made in the months since the acquisition of 2i Rete Gas very quickly, but I think extremely representative of our ability to make things happen. On the operational point of view, we have fully reorganized our territorial footprint, redesigning our territorial model, reducing the area of overlapping. At the same time, we have closed 19 office. We have reduced our fleet car by 13%, thanks to the to the synergy that we are starting to extract. The core of the activity has been the IT. We moved 1 petabyte of data, 1 petabyte of data. I don't know how many 0 they have it. So forgive me for that, in 90 days with no problem at all. And I think that makes -- that show our -- let me say, the strength of our IT infrastructure in dealing with such a large number. We have started in-sourcing activity, and I start mentioning Picarro. We have the largest fleet in the world of Picarro machines. We know how to manage, we know how to drive them, we know how to use them. We immediately stopped the third-party contract that 2i Rete Gas had, and we immediately start in sourcing that as well as we started to in-source activity like the integrated supervision center and other ones with a termination of a number of contracts with third party. And finally, we started to implement the digitization plan that we have for 2i Rete Gas. But let me start now to look at the numbers because I think you are here also not only to listen my and our vision, but also to see the numbers. And I'm starting from the ones that you like most, synergies in cost and revenues. So I'm starting from the synergies from revenues. From April, when we closed the acquisition, we had several working groups working together between Italgas and 2i Rete Gas, Ex-Ri-Rete Gas people in order to find out the area of synergies and to find out the area where we have to invest in order to upgrade the network to the level that we have in Italgas. And we find out that there are more investment that we expected that we presented to you last year, EUR 800 million. And we find out that there are more up to EUR 900 million. At the same time, the revenue contribution from this additional investment moved from EUR 80 million to EUR 100 million at the end of the plan. Just to mention some of the initiatives that are included in this EUR 900 million investment replacement, we find out that there are still some traditional meters in 2i Rete Gas network that are not be replaced. So that is the first thing that we started. We will finish by early 2026. But then we find out all the area where we need to upgrade, not only upgrade the single equipment, but also changing, for example, the authorization system to our standard. And based on that, we have a clear and detailed digitization plan that has already started and will deliver the EUR 900 million additional investment and the EUR 100 million additional revenue. But probably the most interesting one for you are the cost of synergy that you have already seen in our plan. And I want to remind you that last year, some of you, I don't know if many of you or a few of you were very skeptical about our ability to reach the EUR 200 million. We raised the bar. Now we are at EUR 250 million. And I think our history and our track record makes this number credible. And how we find out this EUR 250 million over time, because, as I said, the working groups have been working for months, identifying which are the areas that we can improve, where we can extract value, when we can have synergies and we have a detailed plan for each of the activities. So we know also in terms of time frame when this synergy will happen. And you can see in this graph, the previous plan in terms of time, in terms of value and the new plan in terms of time, in terms of value. So the upgrade was driven by a shift from an outside in to an inside in perspective. And it clearly reflects an optimized. There are a lot of activity that will be in-sourced -- with our ambition to avoid any redundancy, there will be no redundancy in our plan. There is no redundancy in our plan, but we will maximize in-sourcing, bringing inside the company what we feel are the core activity of the company and with the ambition to retain our top talent. We -- if you remember, last year, we were talking about 3 pillars of synergies, traditional digital and AI. Well, during the activity of the working group, we realized that the first 2 pillars sometimes are crossing one to each other. So now you will see only 2 pillars, traditional and digital and AI. And I promise to you that I will show you the time frame of the 2 categories, and I will show you and give you an example of what we are doing and what we will do. So the first one represent traditional and digital. If you remember, the sum of the 2 last year were in the range of EUR 120 million, EUR 140 million. We gave you the range. Now we are EUR 180 million. So the delta in the EUR 50 million that we are talking about are concentrated in this area. The cost saving benefits related to such initiative will be fully visible already in 2025, some of them, a few of them, still they will be visible. And you have already noticed in the 9 months result that there are some cost savings that are coming from the synergies from the acquisition of 2i Rete Gas. In '26 and '29, we will continue in-sourcing core activity. That is the main driver, including some example, authorization measurement, metrology inspection, emergency response service, those are core activity that we cannot leave to a third party. And we will use digitization and AI to work on an approach that is applying the predictive maintenance. Supplier will be part of this effort. Supplier base will be rationalized. We want our supplier to grow because we are a different company in terms of size with respect to the past, and we want to improve from a quality and economic point of view, the procurement condition. This initiative combined together will let us achieving the majority of the EUR 180 million by 2028. And then in the last 3 years, we will see a massive rollout of our Nimbus smart meter, and we will complete the digitization of 2i Rete Gas network. Regarding the AI, AI is a little bit more difficult in a sense that is from one side, the most exciting journey. From the other side is less predictable because we don't have any example, especially in our industry. The numbers today is set at EUR 70 million and does not include any additional initiatives that may arise in the future, but have not been yet identified. We have tried to list for you some of the initiatives, some of the use case that we have already been working, we have been identified use case that we have identified for which we have started working on that. These initiatives are expected to deliver most of the anticipated benefit over the next few years. Some examples, you can read it, AI-driven automatic scheduling algorithm, which allows to improve planning optimization, increase intervention sussection rate, taking into account external factor. We have already developed, I have already mentioned to you a couple of times, a predictive algorithm for faulty smart meters that is capable to anticipate by a few days. The occurrence of faults, optimizing our intervention and reducing the penalty risk. We have also identified AI opportunities also in the same IT. For example, we are implementing the first level end user support agentic automation for the IT system and application, very difficult to explain. So don't ask me what is exactly meaning. But what I can tell you that these initiatives application has been recently awarded by Databricks that is a leading platform for data engineering. We will use agentic AI also in the commercial activities in order to manage requests and claims reducing external cost and increasing our productivity. To do all that, we have set up AI rooms. So you know that we have a digital factory. Well, now the digital factory is split into 50% is always devoted to develop digital application. The remaining 50% is devoted to develop AI application, AI algorithms. So we are going to have not only digital rooms, but also AI rooms. That is what we have already planned and that is covering the portion of the synergy that is evidenced that are underlying in this chart. For the remaining, so we are talking on a medium, long term, there are a number of use cases that we have already identified that will be approach later in the plan that regard virtual coach for productivity enhancement, basic drafting, so we'll touch the engineering activities, autonomous network management, smart meter activation, remote smart meter activation. And finally, to use the autonomous driving for leak detection. In that case, we need to have a policy approval, but I can tell you that we have already started working with the Politecnico the University, Politecnico di Milano and di Torino in order to have the first prototype of autonomous driving for gas leakage research next year. It is important to highlight that this transformation will be also an opportunity for our personnel to change their skills to reskill and upskill and move from low added value activity to, let me call it, AI governance that is much more interesting than not doing the low value-added activity. Now I will move in the numbers. I have already anticipated the total investment for the plan period, including the acquisition already done of 2i Rete Gas is EUR 16.5 billion, plus 5.7%. If we take out -- if we exclude the acquisition of 2i Rete Gas and the tenders, the increase is 10%, more than 10%. In order to facilitate the comparison, we have reclassified -- last year plan, you remember that to avoid to share publicly what was our expectation about antitrust disposal, we merged the 2 numbers together, tenders and disposal. So now we took out the disposal. So now the tenders that you see are the gross tender or gross tender are the tenders in order to facilitate the comparison. And you can see that the 2 numbers of 2i are different, are higher in this plan, not because we pay more, but in fact, the reality is that we pay less than expected, but we retain more assets than not the one requested by the antitrust. So the EUR 4.8 billion, EUR 4.9 billion that is the explanation. Regarding the other area, the driver and Pier Lorenzo will tell you in a moment, is the gas distribution in Italy, an increase of EUR 1 billion. Greece remains stable in terms of EUR 1 billion investment as well as the other 2 activities, water and energy efficiency. Finally, the tenders, 1 year has passed and 1 year has been, let me say, another year of delay. That's normal. I mean that is common to the last 10 plans that we presented to you. So nothing new. And that is the reason why we reduced the number from EUR 1.7 billion to EUR 1.5 billion. That number accounts for less than 10% of the overall investment. If we look at different perspective, that is also interesting, I would like to ask your attention on the right part of the slide, it's interesting to look about the different areas. Largest amount of investment is allocated roughly for 40% of the total on network development and upgrade of the network in Italy and Greece, nearly 20%, 19% of digitization and AI. I would like to ask you if you know any other gas DSO that is investing such significant amount of money in digital and AI. And finally, Water and ESCo accounts for 5%, while tenders account for 9%. Trying again to give you a full picture of our investment plan. Our effort is focused on 3 main pillars. As we said before, network development upgrade and maintenance. We are leveraging our scale. We are leveraging our skill in order to move to a predictive maintenance that is driving and will drive our CapEx plan to improve reliability and performance of the network. The second pillar is asset digitization. We need to bring the 2i Rete Gas at the same level of our network as well as AI transformation. That is where we have the bigger difference from our competitors. There is where we have the big expertise in terms of network automation, in terms of digital transformation and in the coming years in terms of the AI application. The third pillar referred to the other initiative, water and energy efficiency. Here, we think that extending all the innovation that we have brought to the gas distribution into water and energy efficiency will make the difference. We'll make the difference because on the water sector, we will see significant reduction of leaks as well as gas, but gas is already very low. And then we will enhance infrastructure resilience in gas and water. We will improve operational efficiency. You have already seen some results, reducing energy consumption and dispatching green gases. These are the things that are taking together all these activities. But now I will go into more details, and I will leave the floor to Pier Lorenzo, who will talk to you about gas distribution in Italy and Greece, please. Pier Lorenzo: Thank you, Paolo. I'm really excited to be today on this stage to present the investment plan on gas distribution in Italy and Greece of Italgas, which is the largest in our long history. And let's start with the biggest chunk of the plan, which is dedicated to our core network investments in Italy and in Greece. It accounts for EUR 7.7 billion, and we will develop the plan along 3 lines. starting from repurposing of the grids, basically by replacement of older assets driven by predictive maintenance and active leak search through our cutting-edge technology, Picarro, which you already know. But on top of that, we will invest on grid development and extension basically to execute the commitments that we have undertaken as a result of the already awarded tenders and in Greece for the extension of the existing grid, driven by the requests for new connections. Furthermore, we plan to invest more on top of that as a result of the awarding of new tenders. And last but not least, we will invest on the infrastructure enhancement with several initiatives ranging from the installation of small-scale LNG plants in Sardinia and again in Greece, development with -- of reverse flow plants, innovative reverse flow plants, which will help us debottlenecking the existing grid to promote biomethane connections and power-to-gas pilot project plant, which has been already put in operation just a few weeks ago. Let's deep dive into the investments that we are planning in Italy, the organic investments dedicated to network. So these investments accounts for EUR 5.4 billion, and they include network development and centralized investment. They do not include new tenders. Amongst others, we will invest to execute the commitments that we have undertaken as a result of the 8 items that we have already been awarded all across Italy, plus 2 additional items tenders that we expect to be awarded in a very short period of time. This piece of plan accounts for about EUR 1 billion, and it underpins about 2,000 kilometers of networks in terms of both extensions, new networks and repurposing of existing networks. Along with that, we will invest -- continue to invest in Sardinia, where we have completed 100% of the network, more than 1,000 kilometers. We will invest basically to convert the large cities of the region, namely Oristano, Sassari, Cagliari and Nuoro by 2026. We will do that by deploying against small-scale LNG plants where the cities cannot be connected directly to a methane pipeline. Moving to the tenders. As of today, in Italy, all in all, we can record 11 officially awarded tenders -- and there is still a long road to do to the end of this process. We have still 166 tenders to go. So this year, as always, we have reviewed the schedule of the tender based on the actual progress status of the process. We believe strongly that the tenders represent a great opportunity for Italgas to further consolidate the markets. We can leverage on our current features to be best positioned to win the tenders. We have a strong track record. We have recorded 8 wins out of 11 tenders, but I should say out of 9 tenders because we took part to 9 tenders out of the 11. So the track record is really very successful. And all in all, with this plan, we are devoting EUR 1.5 billion to the new tenders, which will result in an increase in delivery points that we project to step up to EUR 2 million by the end of the plan horizon. Moving to Greece. As Paolo anticipated, we're basically confirming EUR 1 billion of investments. In this area, the investment will be dedicated primarily to the extension of the network driven by the request for new connections. This will result in the realization of 2,500 kilometers of new networks with an increase in terms of RAB up to EUR 1.3 billion by the end of the plan horizon. And in parallel, a sharp increase in terms of number of users, stepping up from more than 600,000 to nearly 1 million redelivery points by the end of the plan with a CAGR of plus 6.5%. Let's talk about green gases. We confirm our full commitment in promoting green gases and in particularly biomethane and hydrogen. Concerning biomethane, we can record as of today, 11 connections of biomethane plants to our networks. We had only just 3 years ago. So this is a sharp increase. But what's more, we have more than 38 new projects of connections under development. What's more, we have installed 3 reverse flow plants. This is a very innovative type of plants, which is vital to debottleneck the local distribution grids in order to promote the full injection of biomethane into the grids. So all in all, we are projecting by the end of 2030 to increase the production capacity of biomethane injected into Italgas grids up to 1.2 billion cubic meters per year. Talking about hydrogen. We have inaugurated just a few weeks ago, the hydrogen hyround project. This is a very innovative project, basically a power-to-gas hydrogen plant. It is in Sardinia, near Calgary, and it stands out as of today due to its very high efficiency, 55%. But what's more, it is really a showcase of the entire supply chain of hydrogen, starting from the production of real green hydrogen from a photovoltaic plant nearby, which produces the electricity needed to generate the hydrogen. Then we have storage. And then we have the demonstration of various end users of the hydrogen. We have a refueling station for vehicles over there. We have a pipeline for direct connection to a nearby industrial site. And the most distinctive feature, we are blending the hydrogen together with natural gas to feed the local gas distribution network of the city of H2. And we plan in the next 12 months to increase the percentage of blending starting from the current 2% of hydrogen up to 20% of hydrogen. This will make hyround project a unique site all over Europe. Let's move to digitization. We have dedicated in this plan EUR 3.1 billion of investment in Italy and in Greece. We will develop the investment addressing basically 3 clusters of initiatives. First of all, we are going to digitize all the assets that we have acquired from 2i Rete Gas, so that these assets will be completely controlled and monitored remotely by DANA from our control rooms in Turin and Florence. Second cluster, we are going to deploy our brand-new smart meter, Nimbus in Italy. We have validated the project. We have patented that meter. It is patented in Italy, in Eurasia, and we have a patent pending in Europe. The meters has confirmed to have superior performances compared to all the smart meters presently available on the market. So we have decided to massively roll out the meters in Italy and in Greece. And the third cluster will concern AI transformation and IT infrastructure upgrade in order to develop AI-driven new algorithms. Talking about digitization in Italy. This has become basically a trademark for Italgas. We are dedicating this plan EUR 2.9 billion in order to complete the digitization of all the assets that we have acquired from 2i Rete Gas. It's quite a large portfolio of assets. I recall that 2i Rete Gas has brought to us more than 1,200 City Gates, 12,000 district governors, more than 70,000 kilometers of networks, and we have to digitize all the bunch of pieces of equipment in a very short period of time. So we have envisaged a step-by-step approach. The first step will come to completion by the end of 2027. We will fully digitize the 1,200 City Gates so that the entire network will be remotely controlled by DANA from our control rooms in Turin and Florence in Italy. In parallel, we will digitize the 12,000 district governors, which are basically smaller plants. so that by the end of the plan horizon 2013, we will have completely digitized the entire asset portfolio of former 2i Rete Gas. AI. Let me first recall what we have done so far. We started in 2017 with a visionary approach to digitize our operation and our assets. We set up a digital factory at our headquarters in Milano. And I think that we have been very successful. Over the period of time, 2017, 2024, we have deployed more than 50 innovative digital solutions. We have reviewed more than 300 processes. But what's more, we have involved a huge amount of our employees -- and this makes the digital factory and the digital approach a change management project, more than 750 people involved in the last 18 months only. So now we have to face the second stage, the second phase starting from this year to the end of this plan, which will be focused on AI transformation. And Paolo has mentioned some of the first projects that we are already executing. So for sure, we will address data quality. We will develop algorithms in order to achieve operational excellence, and we will improve in general, our operational skills. We will evolve the digital factory from digital rooms to AI rooms in order to design all the AI stuff that is needed for this transformation. DANA will evolve, will change, will transform from a basic software for remote control and command of the network to a real platform for AI-enabled automation. And as I've mentioned before, we have already 100% of our network legacy 2i Gas Rete fully controlled by DANA. By the end of 2027, we will extend this control capability to the new grids, the new assets acquired from the former 2i Rete Gas. And meantime, we will deploy DANA by the end of 2026 also in Greece, so that DANA will cover the entire portfolio of assets of the group. The other important cluster of investment concerns metering. As I said, in this plan, we are planning a massive deployment of our Nimbus meter in Italy, primarily in order to address the replacement of the first generation of smart meters, which are based on GPRS technology or 2.5G. This technology will soon come to obsolescence. So we have decided to massive replace these meters with the Nimbus. In parallel, we will do the same thing in Greece, where the installation is driven by the need of replacing traditional meters, not even smart meters. And on top of that, the new connection, the new users, which will be driven by the extension of the grid that I already mentioned. Let me conclude my presentation by confirming here our full commitment to reach the challenging targets in terms of reduction in net energy consumption and green gas emissions -- greenhouse gas emissions, sorry. We have reviewed these targets on the basis of the successful performances that we have recorded so far. We are ahead of our original schedule, together with the extension of perimeter resulting from the recent acquisition of 2i Rete Gas. So in this plan, we're setting these new targets. In terms of reduction of net energy consumption, we aim at reaching a target of minus 35% by the end of 2030 compared to the baseline of 2020 and minus 11% compared to the baseline of 2024. We will do that progressing with the project initiatives that we have already undertaken on our legacy networks and will extend to the former 2i Rete Gas networks. So energy efficiency projects for industrial consumption and for civil consumptions, optimized fleet -- car fleet management and also a reduction of the uses of cars driven by AI. Concerning emissions, we are setting new targets on Scope 1 and 2. The new targets are a reduction of minus 55% by the end of 2030 compared to the baseline of 2020 and minus 26% compared to the baseline of 2024. We will do that with our innovative technology of Picarro for gas leak detection with smart maintenance and also with the energy efficiency initiatives that reduces energy consumption, but as a byproduct reduces also emissions to the atmosphere. These targets are in full alignment with the 1.5-degree Celsius scenario of the Paris Agreement, and we will target net zero by 2050. Scope 3 emission, again, -- we are confirming our commitment towards achieving the target in terms of reduction of minus 24% by 2030 compared to the baseline of 2024. This, of course, we will achieve by tight collaboration with our partners, vendors and suppliers. So thank you very much, and I give the floor back to Paolo for Water and ESCo. Paolo Gallo: Before getting into the numbers before giving the floor to Gianfranco, I would like just to spend a few words regarding the other 2 activities that we have in the group that are water distribution and energy efficiency. As I said before, our approach is whatever we have developed in the gas distribution, we are going to apply, especially in the water side, but also we are using in a mutual support, the energy efficiency as energy efficiency company is testing the solution to us. We are providing them ideas about innovation and then the tested solution will be put on the market. So that is the -- what is behind the link between gas distribution, water distribution and energy efficiency. On top of that, on the water, Pier Lorenzo described DANA. We will have very soon a DANA for water exactly the same as long as we will have digitized the network, we will be able to manage the network, the water distribution network remotely similar to what we are doing on the gas distribution. On the water, we will carry out large-scale replacement of all pipelines in order to reduce together with the digitization, also the water leakages. In the energy efficiency, there has been a change in respect to the previous plan. We have less M&A. We find that was not the best way to grow the business. We are moving to let me say, traditional between brackets because it's not really traditional EPC business development. So it's going to be organic development. We will have -- we will see in the numbers, less revenues, higher profitability. We are going to apply in that case, I'm saying it traditional, but it's not really traditional. We are going to apply advanced technical solution, innovative solution in order to manage and to keep the customer loyal to us. And always remember that energy efficiency is also helping us in order to reduce and to achieve the targets that Lorenzo has described before. Give you a few examples about the water, what we are doing. Since the acquisition, we have managed the company independently of the consolidation perimeter. So we manage the company being the industrial partner. And we are committed over the plan period to invest EUR 450 million. [indiscernible] EUR 450 million is what we consolidate in our numbers. If you look at the overall numbers, independently of the consolidation, the number looks bigger, it's EUR 800 million. That includes network replacement, extension, completing the development of infrastructure to increase water availability. We show you in the picture the desalinization plant that we have already built in Sicily to improve the availability of water. And on the other side, Ventotene Water Treatment Plant that has been also done. You probably know the Ventotene Island was a way to increase the quality of the water. Of course, we use a lot of funds, local and the national resilience recovery fund in order to accelerate what we feel it is essential to transform the water distribution in a better service for the customers. The plan is very -- the plan is written in this presentation. You see that our goal is to digitize the water distribution. There are a difference between the first 2 company and the second one because the first 2 are distributing up to the final customer. The other 2 are just transportation. But apart from that, the approach is exactly the same. We want to fully control the network remotely, and we want in that way to reduce significantly the water losses. The numbers of the sector, investing EUR 450 million will bring the RAB at the end of the plan over EUR 300 million. Revenue will be EUR 220 million higher than the previous plan as well as the EBITDA that will pass the EUR 100 million. That is the numbers. But to me, more -- even more important are the other objective that is the leak reduction. We want to bring down significantly the leakages of water to a number that is well below the average -- the Italian average, either in distribution and transportation. We can do that only if we digitize the network, only if we replace the older pipelines. And this objective can be reached only if we are going to invest the numbers that I mentioned before. In the meantime, energy efficiency, our company, ESCo, will work to support this company to reduce the energy consumption. 33% is our goal by 2030, even though we have experienced in 2024, a significant increase in the energy consumption due to the drought that we had not only in Sicily, but also in other parts of Italy. As well, we want to reduce by 33% Scope 1 and 2 with always the same target to get to 2050 with a net zero carbon footprint. Finally, on energy efficiency. as I told you at the beginning, was one of the 3 pillars designed by the European Commission in the REPowerEU to reduce the energy consumption, to get rid of the Russian supply energy to diversify the energy supply. That was a pillar that has been forgotten very soon. Why? As I told you, it's difficult, but it's fundamental to reach the energy transition goal. And our strategy is to offer to the 3 segments that you see, residential, industrial and public administration, innovative solution, digitized solution because that's the only way in which we can reach the targets set by the REPowerEU or in any case, set by the energy transition. We are going to invest nearly EUR 400 million, EUR 340 million throughout the plan period, mainly on the EPC contract development with limited amount of M&A contribution to growth. That means slower revenue growth, but higher profitability. As I said, our focus is on residential and industrial segment as well as public administration. With that effort, we will reach a total revenue by the end of the plan and EUR 260 million with a margin that will be 20% of EBITDA with an EBITDA margin of 20% -- if you have look at the numbers in the first 9 months, we are already there, I mean, very close, 19%. And we will continue to be there. We don't want to have -- we don't want to offer low-value solution. Our solution will be high value, innovative from a technology point of view and digitized. Now I leave the floor to Gianfranco for the conclusion of the presentation with the numbers. Gianfranco Amoroso: Good afternoon, everybody. I will -- thank you, Paolo. I will give you a quick overview over the 9-month results of this year. And immediately after, we will have another deep dive into the financial performance of the strategic plan. So let's start with this picture. I like it very much because it's very clear. is a clear demonstration of growth. Basically all the KPI of the profit and loss accounts are in the same direction. The direction is a clear growth. Italian gas distribution is the main contributor to these results made of different elements. There is the recovery of previous gap, of course, as you know very well since the first half. So the recovery of the deflator, the recovery of the OpEx recognizing the tariff by the new provision issued by the regulator. And all this, of course, together with the contribution of 2i Rete Gas consolidated starting from the 1st of April, more than offset the impact -- the negative impact of the WACC, the 60 bps this year compared to last year. In the meanwhile, in parallel Water, Greece and ESCo are continuing their trajectory positively contributing to the performance. And most importantly, as we will comment a few later after, there is a gaining momentum on the efficiencies. So benefiting of the first contribution of the initial synergies that we are implementing in this first 6 months. So basically, the EBIT marks a growth of more than 50%, 53.8%, notwithstanding the negative impact of the PPA, we made the preliminary allocation of the PPA starting from 1st of April, and this accounts for around EUR 10 million in this 6-month period. Cash flow generation is massive. We exceeded EUR 1 billion, of course, a record high for this period of time in the year and will cover -- is able to cover all the technical CapEx and part of the dividend, of course. CapEx, we will comment briefly after accounted for EUR 773 million, growing 40%, 40.7% compared to last year. And net debt, of course, increased reaching EUR 10.9 billion, of course, impacted by the acquisition. So the price paid, the debt assumed through the consolidation of the company, net of the proceed of the capital increase successfully executed in June. So all these elements will support an improving of the guidance for 2025 that I will comment later on talking about the strategic plan. I will -- sorry, I will go directly to the performance. So revenues and operating costs. So the most important thing that I want to remark here is the new element that you see on the right side of the slide, that is the minus 3.5% on a like-for-like basis in the efficiencies. This is the result of the first activities, the starting of the activities that we started last April. And this made of all the action that Paolo and Lorenzo explained before. The number attached to this potential is EUR 14.6 million that is already, let's say, an indicator of the progression of the total number that we had commented before. Going back for a while to the total revenues. I mean, the -- as you can see, the main contributor is 2i Rete Gas, of course, due to the consolidation. There is also the positive contribution in terms of RAB growth made by both the Italian gas distribution and the Greek distribution and also the impact of the resolution of ARERA that I commented before. The negative is, of course, the negative impact of the WACC accounting for about EUR 38.7 million, while on the -- over the EUR 42.7 million water and ESCo, ESCo contributed approximately EUR 426 million. So if you go to the following slide, we can see the performance in terms of adjusted EBITDA, a robust profitability, benefiting from the updated perimeters of the consolidation and also the action for the reduction of the cost. EBITDA growth compared to the last year of about 35.6%. Distribution was usually the main contributor to this performance with a positive of EUR 347 million, while Water and ESCo contributed also with EUR 12.6 million. In terms of EBIT, very short comment apart from the, let's say, contribution of the EBITDA, there is, of course, the change in the D&A that is negative. This, of course, is the impact of the consolidation of 2i Rete Gas, the CapEx executed in the last quarter and let's say, that more than offset the positive contribution due to the, let's say, termination of the Rome concession last year. In terms of net profit in the following page, of course, the growth, as we have seen is double digit in terms of net profit adjusted, up to 36.8% versus last year. Of course, there is the impact of 2i Rete Gas acquisition in terms of positive contribution of EUR 274 million, while on the negative expected impact of the financial charges due to the increase in the debt linked to the acquisition, the bridge financing, the bond that we issued in February, the interest on the debt consolidated through the acquisition of 2i Rete Gas. And the total impact of all of that is around EUR 77 million, as you can see. On the taxable income and tax rate, you see that there is a negative of EUR 58 million. This is due to the increase in the EBIT -- total that has driven the tax rate to 28.1%, a slight increase from the 27.6% of last year. So if we move to the technical investments briefly, as I commented, the total amount of CapEx in the period has been of EUR 773 million, up to 40.7% compared to last year. I would underline a couple of things. The first is more than 600 kilometers of new network pipes execute deployed during the period, of which 360 in Greece. And the starting of the activity, the preparation works for the upgrade and the digitization plan of the perimeter of 2i Rete Gas. Now on the cash flow. As I said, the remarkable number is the EUR 1 billion of operational cash flow. There is -- these results very positive as, let's say, more than offset the slightly negative impact of the net working capital, about EUR 22 million that is, let's say, typical for this period of the year due to the billing seasonality. And then, of course, this more than EUR 1 billion of operating cash flow has fully covered the CapEx executed in the period of EUR 827 million and has also covered part of the dividend paid in May of EUR 350 million. So all of that results, of course, in a variation of net debt that is impacted by the acquisition for, let's say, the debt and the price paid for the acquisition of 2i Rete Gas. So I think now we can move forward to the plan, back to the plan in order to comment the financial of the strategic plan. First, let me comment on that, let's say, broad picture. Our plan has the target to deliver a 10% EPS growth that has been, let's say, made possible by a disciplined capital allocation between the different components of our CapEx plan, an improvement in the level of efficiencies. And all this, of course, make the shareholders benefiting through the dividend policy that we will comment later on. So the 3 pillars are investment plan, of course, upgraded and increased by more than 5%, 5.7% compared to previous year, out of which the technical component reached EUR 10 billion compared to the EUR 9.1 billion of the previous plan. Second, very important, already commented and discussed the operational efficiency and extra revenues coming from the investments. that have been improved by more or less 25% compared to last year. Finally, but very important, the strength of our balance sheet. This is, let's say, supported by an increase in the level of operational cash flow aggregated for the whole life of the plan of more than 7%. Of course, this has made possible the full coverage of the technical investment done during the period, the payment of all the dividend. And of course, as usual, there is headroom for tenders and potential M&A activities. So this is not to be commented because we discussed at length, but help me to explain this one, so the development of the RAB. The development of RAB as usual, let's say, clarified with tender and without tender. If you look at the figure overall, including the tender, we are moving from EUR 10.2 billion reported '24 to a level of EUR 20.3 billion, of which 90% is gas -- Italgas distribution in Italy. If we exclude from the tenders from the numbers, the overall RAB is expected to reach EUR 18.9 billion with an average CAGR of 9.2%. Of course, tenders will contribute to EUR 1.4 billion additional RAB to the figures that I just commented of EUR 18.9 billion. The increase of RAB compared to last year plan is upgraded. If you look at the RAB, if you remember the level of the RAB in 2030 or last year plan, there is a difference with the lending number of 2031 of around EUR 1 billion. This is, of course, due to the increased level of CapEx of this plan and also there is also the impact of the deflator that we have already explained. Talking on the right side of the redelivery point, also in this situation, we can consider the number including the tenders, and we have a CAGR on the plan of 10.1%. If you exclude the tender, the number is 7.8%. Talking about profitability, we have seen increased level of investment, capital allocation, increase of RAB revenues drive to an increase of EBITDA. The rate of a CAGR of EBITDA is more than 12% higher than the RAB CAGR, meaning that we have also the possibility to have an extra growth due to the extra activities and investments that we are planning into the plan and also the efficiencies. We have done, let's say, a segmentation in order to give you the starting point of EUR 1.35 billion, the intermidpoint that will be the guidance for '25 of EUR 1.87 billion. And then the landing point at the end of EUR 3 billion of the EBITDA. Of course, most of this -- the large part of this increase is linked to the inclusion of 2i Rete Gas as expected. Another important portion is linked to synergies, efficiencies and AI. And then we have the contribution of the tender, of course. Let me say that out of the EUR 3 billion at the end of the plan, the gas distribution of the -- Italian gas distribution will have 80% of, let's say, contribution to that number, 6% will be the contribution of Greece, while ESCo, Water and other will account for 6%, same number, 8% the tenders. On the right side, you have the evolution and the trajectory of the OpEx cost basis in, let's say, as a starting point, we have here the 2024 on the '23 that we have commented before. Of course, you see the increase due to the consolidation of 2i Rete Gas, cost linked to the tenders and the synergy and efficiencies that, let's say, contributed to the reduction arriving to the level of 2031. All that allow us to make a projection of the EPS jointly with the financial charges that we will comment soon. So the EBITDA expansion, financial discipline, driving a double-digit growth of 10% throughout the plan. We start from a level of EPS adjusted for IAS 33 of EUR 0.59 in 2024. And approaching the end of the plan, there is also a very important year, the 2029 year in which the net income will exceed EUR 1 billion. So it is considered a very important achievement, of course. All that is, say, possible also due to the financial strength of the balance sheet, the third pillar. And this is the clear evidence of that. If you look on the left side, you have the maturity profile of our debt, very well spread all over the years of the business plan. Our financial strategy is focused on, of course, maintaining a solid liquidity buffer, have a mix of fixed and floating rate around 70% and 30% and increase the duration through the issuance of the new bonds in the plan. The strong, let's say, the improved cash generation profile allowed us to achieve in the plan the level set and agreed with the rating agencies 1 year earlier than projected last year in the plan. So we are now able to meet the 65% threshold not in '28 in '27. This is a clear situation of deleverage that allow us to have financial flexibility in our plan. You see on the right, the evolution of the credit ratios, net debt over RAB will end at the end of 2031 more or less at 60%, but clear deleverage starting from now. And also the funds from operation over net debt has a very positive and incremental trajectory. The result of this strategy is a cost of debt that, of course, will evolve during the year due to the refinancing of the maturities of older bonds, but we remain well below 3% throughout the plan. So finally, let me recap and give you the guidance. For the current year '25, supported by the result of the third quarter, we are improving our guidance with adjusted revenues of EUR 2.5 billion versus previous EUR 2.45 billion, adjusted EBITDA of EUR 1.87 billion versus a range that we gave of EUR 1.85 billion, adjusted EBIT of EUR 1.19 billion versus previous range of EUR 1.12 billion, EUR 1.16, while we are confirming our expectation in terms of technical CapEx around EUR 1.2 billion and net debt, excluding IFRS 16, around EUR 10.8 billion. Jumping to the final year of the plan 2031, including tenders, we are projecting revenues of approximately EUR 3.8 billion above the previous plan of EUR 3.6 at the year before 2030. EBITDA of EUR 3 billion above the previous 2030 level of EUR 2.8 billion, EBIT of EUR 2 billion above the last year plan of EUR 1.8 billion in 2030. The intermediate year 2029 will have revenues for EUR 3.4 billion, EBITDA of EUR 2.7 billion and EBIT of EUR 1.8 billion. RAB will surpass EUR 20 billion, EUR 20.3 billion versus EUR 19.2 billion of the previous plan ending in 2030. The leverage, as discussed, is improving and will end, as I said, at 60% at the end of 2031. Now I give back the floor to Paolo for the dividend policy. Paolo Gallo: Thank you. I'm going to the end. The last but not least, the dividend policy. And I'm closing that. I will leave just final remarks on slide, and then I will open the floor for questions. Let me say that has been approved yesterday by our Board of Directors, and we decided based on the results of the 9 months based on the plan that we have approved to extend the dividend policy up to 2028, maintaining the same payout ratio, 65% on adjusted EPS. And we have just changed the floor -- so instead of starting from 2023, we started from -- we use 2024 DPS as a reference point and with an increase of 5% per annum. It's not insignificant. Anna Maria will tell me that the number is not 5%, but I disagree with her, but that I will mention also Anna Maria point of view. I think it's not insignificant because not only we extend the dividend policy by 2 years, but we significantly increased the reference point. But I also would like to remind you that in the past year, we have never, never used the floor. So our result has been always above the floor and the increase provided by the floor. According to Anna Maria and probably IAS33 for which don't ask me what it is, adjustment, the increase is not -- the increase expected -- the minimum increase expected in 2025 is not 5%, but is 11.7%. You know that you know better than me IAS 33, but still, I'm very basic person. So I'm saying I want to guarantee an increase of 5% over the last dividend that we paid this year over 2024 result. That's the end of the presentation. Thank you for your patience. It has been quite long, but we are here for -- to answer to any question you may have. Maybe not all of them, but some of them, yes. Thank you. Unknown Attendee: So thank you to everyone. [Operator Instructions] James for a long time. So we start from the back there, James Brand. James, if you can stand up and... James Brand: It's James Brown from Deutsche Bank. I wanted to just, obviously, a very impressive plan and a lot of synergies and cost efficiencies that you're delivering. I just wanted to ask what you're assuming in terms of any potential regulatory clawback at some point? Because as I understand it, there's a cost review that will be coming in 2027 for 2028. And there's also this whole debate about do we switch to like a TOTEX system, but nobody seems to know exactly what that will mean at the moment. So I was just wondering, I guess, what you've assumed in your plan? And perhaps it's impossible to know, but maybe you could just talk us through a little bit how you think about the risk of getting some of the cost efficiencies claw back from you and how you think about TOTEX. And that was kind of going to be one question, but I think it's probably about 3 already. So I'll leave it at that, and I'd be very grateful to you. Paolo Gallo: Let me say that we are more than happy to give our efficiency for a time horizon back to the system. It's the way to repay institution to repay our customers, to repay the market. Just to give you a number, and then I will go back to your answer. Just to give you a number. In between '18 and '24, we gave back EUR 300 million to the system. So I think that is the game. I think we have demonstrated in the last 9 years that no matter we give the money back to the system, we are able to achieve better performance. And we have never changed that approach. So let me say, the focus on cost efficiency is one and then the regulatory is another one. But I -- the whole management is focused on cost efficiency, forgetting that the regulatory period will somehow later asking something back. To your point, what we have assumed in the plan, we have assumed an X-factor consistent with what we have experienced up to now. So we have already embedded in the plan less revenues as a way to give this money back, this efficiency back to the system. And regarding '28, '28 is difficult to shape because, as you know, there will be a new system, the TOTEX, we call ROS, but it's the same. I think that will change the rules of the game. For us, we see an opportunity because we can become even more -- we can even more implement an industrial approach because you mix altogether OpEx and CapEx and you make -- and you decide based on which is the best solution for you as an industry to allocate, let me say, money on the OpEx or on the CapEx. But because we don't have -- because there is no consultation yet on the market, we don't know how the regulatory body will shape the ROS. We know the general terms of the ROS. So what we have thought about is it's another opportunity for us to be even more efficient. But in the plan is embedded and X-factor similar to what we have experienced up to now. Unknown Attendee: We have Julius there. Julius Nickelsen: Julius Nickelsen from Bank of America. Two questions on the synergies and then just one clarification. The first one, I mean, I understand that the last time you put out the EUR 200 million, this was before you actually run the assets and now you upgraded it. Is that number now here to stay? Or are there any surprises left where you think some areas in the business that could still bring some more synergies? I don't want to be greedy. And then in terms of what have you already achieved in 2025 and what is left in 2026? I see you saw the EUR 14.6 million of cost synergies in this quarter, but could you maybe give a little bit more precise split? And then lastly, just to have ask, I assume these numbers assume that the allowed return will stay at 5.9% for the plan. Paolo Gallo: Okay. Starting from the last question, we have assumed that 5.9% will remain. So we assume flat WACC. Regarding the first question, we have already presented -- we just presented a new plan. Now you are asking me, there is something more. We need to wait 1 year and maybe we will find something more, not now. I think -- but apart the joke, I think that what we have done, thanks to -- mainly to Pier Lorenzo because he has run all the -- and the other team has run all the detailed analysis. We were able to build on a bottom-up basis really the -- all the activities that are needed to be put in place in order to achieve the synergies. So while 1 year ago, we were -- we made more an approach top-down saying, okay, what we can achieve, what with a similarity of the results that we have achieved in the past in Italgas Today, we are here and we say EUR 250 million that again, it's a round number, but it's EUR 252 million. So if you want, you can get another EUR 2 million on top of that. It's a true number based on all the detailed activities and results that we expect to achieve. What has been already achieved in '25 is the number that you have seen. It's a combination of synergies and ongoing focus on cost cutting. We cannot -- from now on, we will not be able to separate what it was if we were alone and what it is now because now 2i Rete Gas is not an entity anymore since July 1. So you should look at the numbers as the total -- so our ability to continue to reduce the cost, our ability to produce synergies, I would say, mainly in the traditional and digital part. AI will come later. It will not come. We'll probably see some numbers in '26. But as you have seen in the curve of the graph, it will come later. But I cannot tell you, if you are asking me in '26, what are the synergies, what you have -- it's impossible because now the company is one company, the organization is one organization. So I will be focused on what we will be able to achieve as a cost cutting and synergies in comparison to what was the baseline in 2023. Unknown Attendee: We have Francesco, Francesco Sala: Francesco Sala, Banca Akros. Congratulations for your results and the presentation. The first one is on the -- your inflation assumption, especially for the RAB until 2031. The second is what makes you think there's going to be a pickup in tender activity in the next few years? And if there is any evidence you have to back this assumption or if something has changed in the last few months? And thirdly, you wish that there were more opportunities in the water segment, but there have been very few in the last few years. I wonder whether you think something is going to change in this regard in the next future? Paolo Gallo: The first one, I mean, we have assumed on the long run an inflation rate of 2%, very simple. So we were not so creative. So we just flat the inflation to 2%. On the tender side, we have seen a 2025 that probably has been the best year ever since the launch of the tender in terms of number of the tenders that has been awarded and tendered, '26 look similar. My point is, and probably you have read on the newspaper, my point is that as the Ministry [indiscernible] said, tenders process need to be reviewed. And I think the point is need to be reviewed in terms of size of the tender, so increase the size of each single item, reducing the number of items. And on the other side, having let me say, an institution on an authority that authority is not the right term. A body that is running the tender that is more effective, can be local, can be regional, can be central, but should run the tender. The problem is as of today is that there are so many that have not taken this as a clear commitment to run the tender and to complete the tender. What you said on the water distribution is true. You said few, I would said 0 opportunity. I will make it few to 0, not only, but each opportunity, we need to look very carefully because we don't want to have an opportunity that is not an opportunity that is a problem. So we will look only if there are serious opportunity in the market. As of today, there is none. But on the other side, the plan will continue to deliver better quality of the service, less leaks, operational efficiency in the perimeter that we have acquired from Veolia. Unknown Attendee: So we have... Paolo Gallo: We will answer to all your questions. So don't worry. Unknown Attendee: Okay. So Aleksandra there and then we go in the line. Aleksandra Arsova: Aleksandra Arsova from Equita. So 3 questions on my end. The first one, so again, not to be too greedy, but maybe on dividend since you provided an improved growth profile, faster deleverage. So I'm thinking maybe is there any room maybe next year to further improve either the payout or the growth in EPS? This is the first one. The second one is maybe more a curiosity. You are mentioning the potential changes to the concession regulatory framework. But if this -- the timing of these changes, I mean, are quite uncertain. And so I was thinking maybe on the other hand, is there any possibility or is it viable from an antitrust point of view to do further M&A in Italy, maybe many bolt-on M&As? And the third one is a follow-up, a clarification on the unitary OpEx tariff. So you said previously, if I understood it correctly, that you assumed the X factor, which is similar to the one you have at the moment. But if I remember correctly, the consultation paper under review currently assumes a lower X factor at least for '26, '27. So you are more conservative at the moment vis-a-vis the proposal by ARERA? Paolo Gallo: On the first question, you know the answer, so I don't answer to you exactly. I said that I don't know how many times. I think -- and I'm -- on that point, you can be flexible. But the point is that with that dividend policy that we applied over 9 years, we were able to acquire 2i Rete Gas. So the answer is there. On the second one, there are many discussions around tender and concession. I don't think it is viable to extend the validity of the concession because the concession has been expired in '12. So it's strange to because somebody is proposing to extend the concession. But the problem is different. The problem is tenders have been set 13 years ago. The process didn't work. I think we need to face this situation and try to solve it. Further M&A, while the tenders are going on, you will be scrutiny again by the antitrust. And as of today, there is nothing again on the market. for the OpEx. We have used the -- for '26 and '27, we have used the numbers in the consultation, but then from '28, we use a flat number higher than the ones for '26 and '27. Unknown Attendee: And then Fernando. Okay. Unknown Analyst: First question is regarding the slide in Page 19. This is related to the time line of cost savings. I mean I was doing a visual calculation there. It looks like you are getting around 50% of the cost savings already in 2026. My question here is this is something that you expect in 2026 or maybe more end of the year. I'm saying this is because this could have significant implications of next year earnings. So that is my first question. Then second question, I think that you say that you assume a flat WACC for the period until 2031. So there, I would like to know what is your expectation in terms of the activation of the trigger mechanism for next year. I assume that you don't expect it, but you can clarify. And a follow-up question on that is France lost the AA rating in October. I would like to know your opinion on what has to be done in this scenario? And what could be the implications for the sector? Paolo Gallo: Always remember, you referred to Page 19 that this number is as a reference of 2023 cost. So part of that has been already achieved in '24. Part of that will be achieved in '25. So the '26 is already a cumulative number that takes into consideration what was already achieved. It will be, as you see, mainly traditional in '26, some digital, and they represent about, let's say, 40% of the total. On the second one, we have -- on the WACC, we have assumed, as you said, flat period, so trigger will not apply according to us also because France should be out of the reference country because they lost the AA rating. They are now in A+. So according to the regulatory framework that set the characteristic of the countries to be compared with, they said they should be AA countries. France is not anymore AA countries. So I think that is my -- I mean, reading the paper of the regulatory and applying just in a very simple way. Last year, France was probably still considered because if you remember last year, France was AA-. So they still have the AA somehow. Today, 1A is lost completely. So they have A+ only. Next... Unknown Attendee: We have Sarah there. Yes, Alberto, [indiscernible] to you. Sarah Lester: Sarah Lester from Morgan Stanley. And I really do apologize one more on synergies, and then I think we'll stop on the synergies. '27, '28. So tying a bow on, I think it's Slide 15, 19 and 20, it feels like you're in the ballpark of EUR 180 million in '27, 2028. Just doing a sense, check if they're kind of sensible numbers. And then I also have a high-level question on future mapping. You're obviously incredibly strong at extracting value from acquisitions. Would you consider expanding outside of Europe? Paolo Gallo: If you go back to page -- page, I'm coming to Page 20, you will see that by 2028, the majority of the synergies that are EUR 180 million are reached, not all, but a significant portion of that. So you're right. The second question is relevant to potential acquisition. I'm not saying nothing about that because it's -- we don't have anything in our end. I always say which are the principles that drive us. First of all, Europe is our area of interest, of course. But the second point for which we look at the outside Italy are, first of all, macroeconomic scenario of the country and then even more important, the regulatory framework. That is what we did in Greece. At the time, macroeconomic scenario was not looking very good, but we saw at the time, significant signal of improvement. So we strongly believe at the time that Greece, and we were right, would come out of the situation that they were and now they are in a very good macroeconomic condition. And the second element, even more important, regulatory framework was very stable, was clear, was similar to our. So those are the 2 elements that we normally look before considering anything outside Italy. Europe, of course, is the best area where we would like eventually to invest if the 2 conditions that I mentioned to you are met. And there is somebody that is willing to sell, of course. There is no one that there is no interest. Unknown Attendee: Yes, so Christabel. There? Christabel Kelly: Chris from UBS here. Just one question on the financing strategy. I noticed that this time, you're aiming for a fixed floating ratio of 70% to 30% and an increased duration. Can I assume that that's reflective of your view on where interest rates are going, cost of financing for Italy and for Italgas going forward? Paolo Gallo: Yes. I think if I well understood your point, the strategy is based on the expected structure of the rates in the future, of course. In this plan, we are assuming a level of the fixed rate more or less stabilized on the current levels, while we are expecting a decrease -- a sharp decrease in the short-term rates. For this reason, the ratio changed a bit from the previous 20% to 80% to 30% to 70%, meaning that we will go more for, let's say, short-term or variable rates that could be also a long-term fixed rate swap into a variable in order to take benefit of this situation of the rates. And the combination of the 2 situation, coupled with also the increased duration will result in the level of cost of debt that I have commented in the slide. Next. Alberto de Antonio Gardeta: Alberto de Antonio from BNP Paribas. My first question will be on Greece. You have given the targets for 2021 in terms of revenues, EBITDA and RAB. Maybe could you disclose what your assumptions behind in terms of WACC inflation, X-factor or any additional potential revenues? And my second question will be regarding the biomethane opportunity. And let me understand if -- are you investing directly in any plans or how this business works and how this is going to impact your company in terms of maybe CapEx, potential additional revenues or just decarbonation of the molecules? Paolo Gallo: Okay. Regarding Greece assumption, if I well understood, we have assumed similar to the overall plan, flat rate, flat interest rate, flat allowed return similar to what we have today. There may be some correction over time, but we don't think this is going to be significant. That was the assumption that we used. and inflation as well. So we use the same numbers that we are using for Italy, we use also for Greece because, as I said before, the 2 countries are very similar today as well as the other. Regarding biomethane, what we have assumed in the biomethane, maybe Pier Lorenzo can elaborate a little bit more is not that we are investing in biomethane production plant, but we are making the connection easier for them to accelerate the development of biomethane new plant and the connection. Maybe Pier Lorenzo can say a little bit more about our approach in how we can help biomethane production plant to be connected. Pier Lorenzo: Yes. As Paolo anticipated, we see biomethane not really as an opportunity to invest in directly, but as a gigantic opportunity for our country to address the decarbonization of the end user and consumptions together with the security and supply because biomethane, we have to remember here in U.K., you have a lot of production as well, is made locally. So looking at Europe as a whole continent, which is strongly dependent on importation of gas, biomethane production can mitigate this issue concerning security of supply. So all in all, our approach here is to promote the development of the industry in Italy, facilitating, making easier to connect these plants to the local grids. And we do that, we have done in the past, and we will do more and more by streamlining the design of the connections so that they cost less and less and by investing in reverse flow projects. The main issue that can arise in a project of connection of biomethane to a local grid is the fact that the local grid at the exact site where the developer of the plant wants to install the biomethane plant is not fully capable of receiving the entire amount of production of gases in every hour of the year, especially when the demand is very low. So thanks to reverse plants, we can debottleneck the local network so that virtually we can -- or really not virtually, we can connect any kind of biomethane plants wherever the developer wants to develop the plant. And connecting a biomethane plant to a local distribution network is definitely less expensive than connecting the same biomethane plant to a transportation network, which is run operated at definitely higher pressure, so they need compression and blah, blah, blah. So we have to promote and we want to do that, the connection of biomethane plants to local low-pressure distribution network. That is our aim. Of course, we reflect all these in our CapEx investment plan in terms of CapEx strictly related to the connection of the plants. So pipes and pieces of equipment that we need to connect. Unknown Attendee: Ella from Citi. Ella Walker-Hunt: I have 3 questions, if that's okay. First question is to do with the WACC trigger. The WACC trigger. -- if it is triggered, can you just give us a sensitivity of us know how the earnings would be impacted if there was a downside trigger. My second question relates to AI synergies. So I remember in the last plan when you were discussing your EUR 200 million synergies, you said that EUR 80 million were going to come from AI synergies. And then in this plan, it's more like EUR 70 million. So can you just talk about the difference there in terms of the EUR 80 million and EUR 70 million? And then my last question refers to the tenders. So you -- in terms of the 247,000 connection points that you're selling, you sold them at a great price, 16% premium to RAB. But if you do -- if we do a quick back of the envelope calculation in terms of your plan, then you have EUR 1.5 billion CapEx for the tenders to bring on EUR 1.4 billion RAB. So it's like 7% premium to RAB. So I was just wondering about the difference there. So why do you think -- I guess, yes, just the acquisition price at a much lower premium versus what you sold at? Paolo Gallo: The last question we need to interact because it was not very clear to me. Let's start from the first one. The impact of a potential trigger for which we don't believe is going to happen is EUR 45 million. EUR 15 billion of RAB multiplied by 30 bps, that's the impact in terms of less revenues. AI synergy, which -- what is the difference? Let me say what we said is, of course, pretax revenue, the EUR 45 million is pretax. In terms of AI synergies, let me say that last year, we have estimated between -- I remember, I said EUR 70 million to EUR 80 million, but it's true. We mentioned EUR 80 million because we thought the number came out from the fact that the impact that was generated the digital transformation in the 7 years previous plan that generated a certain number would have been similar or better. The synergy impact would have been similar to what was generated by the digital transformation previous plan, and that the number came out from. So it was not a bottom-up. It was a clear top-down numbers. Now we were more -- much more detailed in building see -- AI cases and say what is going to happen with the application of the AI. There will be more productivity, less personnel involved, less use of cars and other stuff like that. So we were able to detail and the number came up to be EUR 70 million. So I strongly believe the EUR 70 million is more reliable than 80 million of last year. EUR 80 million was, and I always said was taking as a similarity. But I have also to say that between now and the next couple of years, other AI uses will come up. So I would take this as a floor, the EUR 70 million, and I will not take it as a final number. Based on the knowledge that we have today, that is the best reliable number we can give it to you with the time frame that we have envisaged. But it's going to be changed. Yes, because AI is something that is evolving. I don't think anyone -- anyone in our industry, but in general, anyone in industry like ours has been able to predict with such detailed way the AI impact on the cost of the company. The last one I have -- let me just recap, okay? We bought what we bought at a limited premium. And then we sold RAB EUR 218 million with a certain premium higher than what we bought, okay? That's the end of the deal. Tender is another matter. You know the tender we buy at RAB by definition because there is no competition on the value of their assets. So that is the fact that has been reduced the amount of the tender is only due by the delay. Remember that the number is made of acquisition of existing network plus CapEx that is requested to upgrade this new network acquired through a tender. So the delay in the tender means that there may be some items that are not in the plan period anymore. But if you delay the tender also the CapEx, technical CapEx connected to the tender may be delayed, too. But there is nothing to do with premium. I don't know if I'm clear. Okay. Unknown Attendee: If there are no more questions from the room, we can take the question from the conference call. Operator: The first question is from Javier Suarez of Mediobanca. Javier Suarez Hernandez: I'm really sorry to jump with questions after a long presentation. So the first question is on the EBITDA margin that is embedded into your plan. That means -- that means an expansion versus 79%... Paolo Gallo: Can you start again because now your voice is back. Javier Suarez Hernandez: Okay. Can you hear me now? So the first question is related to the expansion on the EBITDA margin to 79%, which is the number that is embedded into your guidance for 2029 and '31. So the question for you is that if you can help us to understand that expansion in the EBITDA margin that is going to be by the end of the plan, significantly different between the old Italgas 2i Rete Gas, Depa and the water business. So further detail on EBITDA marginality between your different activities would be very helpful. The second question is on the tendering process and what may be done to incentivize and to stimulate the process. So you can share with us any proposal to the new -- to the administration in Italy to make the system more virtuous and probably quick. And if you think that what it is happening or is the discussion for the electricity distribution concession is something that could be replicated to the gas distribution concessions as well? And the very final question is on Slide 60, when you are showing the credit metrics. So there is a vertical a significant decrease on net debt to RAB and a significant increase in the FFO versus net debt. So the question is, philosophically, where do you think that a company like Italgas should be seated if it is a correct interpretation to say that beyond, say, 2028, the company is maintaining some financial flexibility to capture additional opportunities related to M&A or the tendering process, if that is a correct interpretation? Pier Lorenzo: Okay. Let me start -- maybe start Frank, on the first EBITDA... EBITDA trajectory in the plan. clear, you are right, meaning that it is true that there is a clear direction in terms of improving the EBITDA margin, both for Italian gas distribution. We are approaching at the end of the plan a level of 88% basically. And so starting from a level now that is around 80%. In terms of the same trajectory is also followed by -- in parallel by Enon, by Greece, but on the lower scale, of course, you remember that in the past, we considered Enon as, let's say, like [indiscernible] in Italy, so a smaller perimeter with headroom for improving efficiency. So also Enon will improve the EBITDA margin at the end of the plan, approaching 76%, 78% more or less. The driver behind that, of course, are the operational efficiency synergies, revenue synergies that we commented, mainly I would say. Paolo Gallo: Yes. I'm just adding 2 points. EBITDA is growing because the costs are going down. There is a clear difference between -- you remember that we put the ambition of Greece and the ambition Greece, we are on the trajectory of that ambition. But we have always said that because of the size of the Greece they will never be able to achieve the same EBITDA margin that we are able to achieve, thanks to the size that we are having in Italy. But also in Greece, we are using -- we have applied digital transformation. We will fully digitize the network. We are doing that. We are very close. By the end of this year, we will complete that. AI application will be moved to Greece too, but the scale will determine, of course, a different -- slightly different EBITDA with a margin that is probably lower than the one in Italy. On the tender side, my only comment probably Javier didn't hear what I said before. The proposal on the electricity distribution is to extend the concession, but concessions are in full force today. So the comparison between gas distribution and electricity distribution is not comparing apple with apple because gas distribution concessions have expired by law back in 2012. We have talked for many, many years about what we can do in order to accelerate the tenders. Our opinion, our position that is shared among the association is that we need to reduce the number of items. So we need to reduce the number of tenders. And we need to have a clear commitment by whoever take the responsibility to run this tender to run this tender because otherwise, you can even reduce the number of tenders increasing the size of the item, but that if no one is taking the responsibility to run the process in in a time manner, then we will be sticking the same situation. So 2 elements should be addressed. Number of items reduced and a clear and committed responsibility to run the tenders. I think regarding the last question, what we have presented always is deleveraging over time. And as in the past, we have always find a way to use and to invest properly eventually any additional fund we may have in order to increase the profitability of the company. So I would not -- we need to stay below 65%. That's no doubt about that. That is our target because we want to maintain the same rating that we have with the rating agency. Apart from that, everything else, if there is a room, we will try to use in the best way like we did in the past, available funds. Unknown Attendee: Next question from the call, please. Operator: The next question is from Davide Candela of Intesa Sanpaolo. Davide Candela: I have just 2. The first one is with regards to the nanometers rollout. It looks like to me that by 2030 and the year after, there could be a little bit of deceleration in the rollout in Italy. I wonder if you can share why is that if it is because you are reaching a certain point that no more should be installed or you're waiting for something and maybe some assumption behind the cost you are assuming in the plan for the rollout of those meter -- and second... Paolo Gallo: Excuse me, you are talking about rollout, but rollout of what? Davide Candela: Of the smart meter. Sorry for that. And second question, really high level with regards to the data centers. And we have recently seen a potential role of hydrogen with the fuel cell technology in the data centers. I was wondering if you could just share your view very high level and maybe if there is a role in future for gas distributor in there? Paolo Gallo: Regarding the first one, just to make it clear, the meters that we are going to replace are the first generation, I think Pier Lorenzo said very clearly. So the GPRS, not narrowband IoT, not the latest that we are going to install. That's the reason why we still have EUR 6 million, the combination of 2i Rete Gas and Italgas Reti of GPRS. You know the GPRS is a technology that the telco will probably soon discontinue. So we are planning to replace them. The structure should be very similar, let me say, the impact on our profit and loss and depreciation is exactly the same that we had when we replaced the traditional one with the smart one. So we expect that the regulator in order to face a situation where at a certain moment in time, this smart meter will not transmit anymore because GPRS will disappear. They will issue a regulation for which to encourage the operator to replace the GPRS with new ones. That's the reason why there is EUR 6 million on that. Regarding use of hydrogen for data center, if that is the request, honestly, I don't have an answer. So I don't know how to use hydrogen in the data center, if that is the question that I understood. Unknown Attendee: Next question please. Operator: The next question is from Bartek Kubicki of Bernstein. Bartlomiej Kubicki: Congratulations. I hope you can hear me well. A few things from my side. First of all, on the regulation as such. As we remember, there is quite some volatility with regards to gas distribution regulatory framework in the last couple of years, unexpected WACC cut, OpEx cut back in 2019. My question is, what are the key -- in your opinion, what are the key upsides and downsides from the regulatory point of view to your business plan not included in the business plan? And I'm not talking about the trigger mechanism, something which is out of the common discussion, including here the potential remuneration of the smart meters of the existing smart meters and the faster depreciation of those existing smart meters. Second thing, I would like to -- just a clarification on your leverage. Of course, you will degear very quickly from, I suppose, more than 70% net debt to RAB to 60% net debt to RAB into 2031. Just a quick question. What do you assume with regards to the famous Rome concession? Because I remember there was always some kind of EUR 0.5 billion potential payment to keep the Rome concession for longer. What do you assume here? I mean, is it still assumed in the business plan or not anymore? And the last point on your synergies and efficiencies, will it cost anything? Meaning I know that you said there will be no redundancies, but will you be incurring any additional restructuring costs to get to those synergies? Paolo Gallo: First question is, honestly, what I can say is that for me, '26 and '27 is very clear the regulation. So we don't expect no upside, no downside. Then from 2028, there will be the ROS taking place. In the ROS, we may see maybe some remuneration of the fully amortized asset, for example, similar to what currently Enon is enjoying if they keep in proper operation, fully amortized, fully depreciated assets. That's one element, but it's not so -- it comes to my mind. But generally speaking, the ROS application or the TOTEX application starting from 2028 for me, from the vision that we have, it could be an upside from an industrial point of view for Italgas in a sense that to be constrained OpEx and CapEx will be one single box in which you really leverage your capability in managing network and deciding which is better to spend in OpEx or to spend in CapEx, depending which is the best result from an industrial point of view. So if I look at the framework, I welcome the ROS, the TOTEX framework coming because it will give us more opportunity to use our industrial competence in order to increase our results. I'm just closing on the third point, and then I will leave the floor to Gianfranco for the Rome concession. I said no redundancy. We didn't any redundancy in the past. There's no cost associated. We don't have any redundancy. Our goal is today, and we have already started is to start reskilling our personnel in order to handle different kind of process and different kind of activity. We don't have to wait AI to be massively used. We need to do it now, and we will do it now in order to be ready when the AI will be used in a more extensive way to be able for our personnel, for our colleague to take other jobs consistent with the new organization from one side, the new process from the other side. So there is no cost associated. There will be no redundancy at all. Gianfranco Amoroso: On the Rome concession, the assumption in the plan is very straightforward because we have a receivable for around EUR 300 million in our balance sheet. Simply the business plan assumes that this receivable is paid during the plan. Consider that the other important assumption is that we are assuming in 2028 the taking of control after the tender of Rome of the concession. So this payment can happen before this date or I would say at the latest at this date. So you will have the cash in the cash position during the plan. Paolo Gallo: The impact of deleverage, EUR 300 million over EUR 11 billion of that is.. Gianfranco Amoroso: Not meaningful. Paolo Gallo: Exactly. But the assumption is that by -- in 2028, the concession, there will be a tender completed. Our assumption is that the Comune di Roma will continue to keep the ownership of the existing infrastructure by them and that is what is inside the plan. Bartlomiej Kubicki: May I just ask one more clarification on point number one, please? Paolo Gallo: Please. Bartlomiej Kubicki: Yes. Regarding the smart meters and the remuneration of the quicker depreciation of the currently existing smart meters. How confident are you that the regulator will be happy to allow you for another smart meters rollout while you have basically just a few years ago completed the smart meters rollout, which costed you probably EUR 1 billion plus. So there's additional kind of investments going into the network, additional, let's say, impact on the customers' bill. So how are you -- how confident you are that the regulator would be happy to approve a similar scheme to what we had back in 2019, '22? Paolo Gallo: It is not a matter to be happy or not happy. It's a matter that if GPRS will be discontinued. We will have 6 million smart meter not working anymore. So it's not a matter to be happy or not happy. It's a matter to understand the reality and say, okay, the previous smart meter that was developed and installed back 12 years ago, now has to be replaced with new ones because technology has changed. So the happiness should be -- there is a new technology that is much better than the old one. And of course, they have to consider the loss of depreciation. But consider, as I said, the first smart meter were installed back in '13, '14. There will be not a significant amount of depreciation to be paid. Unknown Attendee: Thank you, Bart. There are no more questions from the conference call. I reckon everyone here has been asking a question. IR team is available. So thank you, everyone. Paolo Gallo: Thank you. Thank you for coming.
Operator: Greetings, and welcome to the Gaming and Leisure Properties, Inc. Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Joe Jaffoni, Investor Relations. Please proceed. Joseph Jaffoni: Thank you, Latanya, and good morning, everyone, and thank you for joining Gaming and Leisure Properties Third Quarter 2025 Earnings Call and Webcast. The press release distributed yesterday afternoon is available on the Investor Relations section on our website at www.glpropinc.com. In addition to the third quarter press release, GLPI also posted a supplemental earnings presentation which highlights the events of the quarter, of recent developments and future considerations that can also be accessed at www.glpropinc.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. Forward-looking statements may include those related to revenue, operating income and financial guidance as well as non-GAAP financial measures such as FFO and AFFO. As a reminder, forward-looking statements represent management's current estimates, and the company assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to the risk factors and forward-looking statements contained in the company's filings with the SEC, including its 10-Q and in the earnings release as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release. On this morning's call, we are joined by Peter Carlino, Chairman and Chief Executive Officer at Gaming and Leisure Properties. Also joining today's call are Brandon Moore, President and Chief Operating Officer; Desiree Burke, Chief Financial Officer and Treasurer; Steve Ladany, Senior Vice President and Chief Development Officer; and Carlo Santarelli, Senior Vice President, Corporate Strategy and Investor Relations. With that, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead. Peter Carlino: Well, thank you, Joe, and good morning, everyone. We are particularly pleased to announce a really terrific quarter in which I think a lot of really good things have come together. As always, these have been thoroughly detailed in our earnings release. Nonetheless, there are 3 items that I think are worthy of spending just a little bit of time this morning that represent important elements of the GLPI story today. The first topic I'd like to highlight is our pipeline and our recent transactions. Very simply, in the last 60 days, we have announced 3 transactions. And while the market has given us a little credit for these deals, each of these has been -- is accretive and allowed us to deploy $875 million of capital at a blended cap rate of 9.3%. When completed, these transactions will add over 5% to our current annualized cash rent while also expanding partnerships with 2 existing tenants and furthering our initiatives in the area of tribal gaming. The second item is funding, which is something we get lots of questions about. We currently have over $3 billion of announced transaction activity in our pipeline. As you saw in our third quarter results announcement, we executed on $363 million of forward equity in this period at an average price of $48. Despite the size of our current funding commitments, given our current leverage profile, it is worth pointing out that we can fund the entirety of our future commitments solely with debt financing and still remain at approximately 5.1x leverage, the low end of our 5 to 5.5 range. So given the current valuation of our equity, the -- this path appears to be most appealing as it's unlikely we'll be tapping the equity market in this current pathetic range. Number three, the third item is Bally's. We get lots of questions about that. And I'd like to talk a little bit about our relationship with them. We have 2 very strong well-covered leases with Bally's, the development in Chicago, a ground lease on a soon-to-be-developed prime parcel of Las Vegas real estate and which you would know is the new home of the Las Vegas A's. Since we last spoke, a lot has transpired with Bally's, all of which has been very positive from our perspective. Bally's successfully completed its international iGaming transaction with Intralot, positioning the company very well from a liquidity perspective. Additionally, as we last spoke, Bally's has become 1 of 3 remaining bidders for 3 potential licenses, very lucrative licenses in New York, which whether we participate or not is a very good thing for them. And lastly, of core importance to us, significant progress has been made in Chicago in the development of that project. And we extended our first tranche of capital for the development earlier this month. So we step back and look at the Bally's relationship. We like the assets that we have. Coverage on our existing leases is very good. And the Chicago development has a very, very strong ROI framework. We see tremendous potential and opportunity in land in Las Vegas, and we see New York as a, as I said earlier, potentially material value-enhancing opportunity for us or for Bally's with or without us. So these have been very positive developments. I would like to point out that the progress in Chicago is significant, and the pace of construction has picked up dramatically. To that end, we publish photographs that give any interested among you an idea of just how things are looking. We've gone vertical, and we're going to keep that -- those photographs and the storyline updated, so you know at any moment where we are in Chicago. In Las Vegas, Bally's has published a site plan that encompasses what may be possible at the site. We are very pleased with what they have discovered or what they have laid out. And we may or may not participate as opportunities. It's unlikely that we will finance the entire project, but there are elements of that, profit-making elements, that I think we could participate in. So I'd stay tuned in Las Vegas as well. It's in a very good place at the moment. So with that, I'm going to turn it over to Desiree to give you things that really matter. Desiree Burke: Thanks, Peter. Good morning. For the third quarter of 2025, our total income from real estate exceeded the third quarter of 2024 by over $12 million. The growth was primarily driven by increases in our cash rent of $20 million. And those are related to our acquisition of Bally's Kansas City and Shreveport, which increased cash rent by $8 million. The Chicago land lease increased cash income by $3.9 million. Bally's Tropicana funding increased it by $600,000, and the Belle development increased cash rent by $1.6 million. The Ione loan increased cash income by $900,000. The Joliet funding increased our cash income by $1.7 million, and the recognition of our escalators and percentage rent adjustments increased cash income by about $4.2 million. The combination of our noncash revenue gross-ups, investment and lease adjustments and straight-line rent adjustments partially offset those increases driving a collective year-over-year decrease of $8.4 million. Our operating expenses decreased $53.5 million, mainly resulting from noncash adjustments in the provision for credit losses due to a less pessimistic forward-looking economic forecast as compared to the prior quarter, as well as the fact that 2024 the provision included a charge for the establishment of the Tropicana reserve. [ For the company, ] just a reminder that we capitalized interest and deferral rent during the development period for financial reporting purposes. However, we add that rend back and deduct the capital interest in deriving our AFFO. Included in today's release is an increase in GLPI's full year 2025 AFFO guidance ranging from $3.86 to $3.88 per diluted share and OP units. Please note that this guidance does not include the impact of future transactions. However, it does include our anticipated funding of $150 million for the M Resort tower expected to occur next month and approximately $280 million of funding for development projects expected to occur during the fourth quarter, of which $125 million was funded for Chicago in October. From a balance sheet perspective, and this is probably the most important part of my comments, during the quarter, we sold 7.6 million shares under a forward sale agreement to raise $363.3 million or $47.87 per share. Additionally, we issued $1.3 billion in new bonds and redeemed our sole 2026 maturity of $975 million, thereby raising in excess of $680 million of capital for our development and acquisition pipeline. Our leverage ratio is at 4.4x, well below our target and historical levels. Given our current balance sheet position, the several year runway to fund our development projects and our annual free cash flow over that time frame, we have optionality to fund our future accretive commitments. As a reminder, our significant development projects pay us cash rent upon funding. In October, we extended the company's option and call rate to acquire the real property assets of Bally's Twin River Lincoln by 2 years from 2028 -- to 2028 from 2026. Our rent coverage ratios on our master leases are ranging from 1.69 to 2.78 as of the end of the prior quarter end. With that, I will turn it back to Peter. Peter Carlino: Well, thanks, Desiree. And with that, operator, can we open the call to questions. Operator: [Operator Instructions] The first question comes from Haendel St. Juste with Mizuho. Haendel St. Juste: Desiree, I wanted to follow up on your comments on the balance sheet. Looks like you're well covered in terms of sources through your uses for now. But I guess would we -- how comfortable are you -- looks like leverage is going to tick up over the near term as you deploy capital. So I guess, how comfortable are you with your current liquidity profile? And how much would you be comfortable with letting leverage tick up here in the near term? Desiree Burke: Right. So look, if I funded everything I have out there in the pipeline with debt, which obviously, that's not exactly what we intend to do. But however, if our equity remains where it is, we may just do that. We only get to 5.1x levered, right, once everything is annualized in. So I'd be very comfortable at that range. I mean, you can see in our supplemental, historically, we've been over that, right, up to 5.5x is our maximum range of leverage. So I am very comfortable with our current liquidity position and the funding of the transactions that we've announced to date. Haendel St. Juste: Got it. Appreciate that. And then I guess, just more broadly, curious on the regional gaming trends during the quarter, foot traffic, revenue in light of the slowing macro? And I guess some broader commentary on how do you expect regional gaming to perform in this environment? Peter Carlino: Well, any number of us could take that question. I mean, look, generally, regional gaming has held up very well, and our coverages remain pretty protected and see no threat to the industry whatsoever. I mean, look, given time, who knows what will evolve. But right now, the regional business is very, very strong. So -- Carlo, do you want to add something to that? Carlo Santarelli: Sure. It's Carlo. I think when you look across our tenants who've reported to date and some who haven't, but when you look across those who have reported to date, you had a good regional report from obviously MGM, a good regional report from Caesars. I think when you look at the state level data, it all appears very solid and very steady. I know there were some concerns around promotional activity in those markets, but certainly not showing up in EBITDAR and has not showed up in coverage for those who've reported thus far. Haendel St. Juste: And foot traffic? Carlo Santarelli: Yes. I think foot traffic remains fairly steady as well in regionals. I think there's a broader malaise around the space that's created by numerous other things. But I think in regional markets, there hasn't been a dramatic change in demand as far as we can see. Operator: The next question comes from Rich Hightower with Barclays. Richard Hightower: So my first question just has to do with some of the puts and takes in expected fourth quarter development funding. I think there were some questions last night as to kind of what changed versus what the expectation was 90 days ago or even more recently. So just help us understand what changed, including obviously the impact of Chicago within that mix. Desiree Burke: Right. So really, the biggest take, I would say, is that we've reduced our Chicago development funding by about $25 million and pushed that into 2026. So it's really just a timing adjustment. So my $338 million is now $280 million. Obviously, we funded about $35 million for the quarter. And so that has declined $25 million, that's it. But it's really just timing of coming out of '25 and going into '26. Peter Carlino: Look, I think it's safe to add that some delay in the actual first payment or advance had to do with just papering the transaction. I'm looking at Brandon sitting across the table, who spent a lot of time working on the details to make sure it was all right and perfect given the scale of what's happening and so forth. But now that they're underway, the advances have begun, I think you can expect a regular flow of capital investment going forward. Richard Hightower: Okay. Great. And then obviously, we all noticed the extension of the purchase option at Lincoln. So just tell us your latest thoughts, if you don't mind on that asset and maybe some of the pressures that asset might be facing over the next couple of years and how it factors into the timing and even the purchase price itself, if you don't mind. Peter Carlino: Well, I'll take part of it, and we'll spread around the second half. Look, I think the -- you know perfectly well, as I think it's well publicized that getting approval from their lenders to get release on that property has been challenging. And look, though, we had a call right, we're not about to put our tenant -- our partner, if you will, under pressure and demand something that just simply is not in their best interest. We're perfectly happy to wait, and it's fine to assist in that manner. So it was nothing more than just simply taking pressure off that story and moving it down the road in some comfortable time frame. Brandon Moore: Yes, Rich, I mean, I think on the second half, the Lincoln asset has had some stress because of road closures, bridge closures and the competing First Light project, which is being expanded somewhat we understand. I think that this is mutually beneficial to the 2 companies. For us, we'll push Lincoln out. We'll get a better look at that market and what's going on. We've got plenty of growth in place for '26 and '27 and pushing this out doesn't hurt us at all. We have our hands full for the next year, 18 months. And so as Peter said, for the reasons it was beneficial for Bally's, it certainly isn't detrimental to GLPI. And so I think this was a win-win accommodation to push it out to '28. Peter Carlino: Yes, it's kind of an ace in the hole that we've got it, and we'll get it when its time is right. We feel good about that. Operator: The next question comes from Jay Kornreich with Cantor Fitzgerald. Jay Kornreich: I guess just first off, there's been a number of announced deals lately from you in the past 2 months, as you mentioned. And I'm curious if there's been anything that's really been driving that for you? Or is it kind of just more coincidence that many transactions you've been working on just all got done around the same 2-month time? Peter Carlino: Why don't you take that, Brandon? Brandon Moore: Okay. Yes, I'm happy to address that. I think that's easy. I think it's the latter. A lot of hard work came together at about the same time. And so all those deals, while very different, were things we have been working on for a very long time and just came together in the quarter. So as you know, from our business, it can be a little lumpy from time to time, and this was a quarter where we just had a lot of things come in at the same time. Jay Kornreich: Okay. And then if I could just follow up on the funding for the Chicago Bally's development. Are you able to comment on how much funding you expect in 2026 and what portion may spill into 2027? Desiree Burke: Yes. No, I mean, I'm not prepared to comment on that. I would tell you that it will spill into 2027, the funding, and we have said that. And when we come out with fourth quarter -- when we come out with 2026 guidance in February of next year, we will give you as much information on the timing of the funding for that project as possible. Peter Carlino: Yes. Every day that goes by, it gives us a better focus on kind of where the project is. We stay very close to that construction process, have people -- our people in place, keeping an eye on how things are going. It's going well, but it's a large project. And every -- as I say, further we get down the road, the better we'll understand kind of what the final day will be. I know they're focused on getting the casino open as early as possible. Operator: The next question comes from Barry Jonas with Truist. Barry Jonas: You've now announced 2 tribal deals. How would you characterize the pipeline for tribal deals from here? Curious how the education process has been resonating. Peter Carlino: Do you want to take that, Steve? Steven Ladany: Sure. Look, I think from a tribal perspective, the education process is ongoing. I will say we're getting many more inbounds, and we're still placing outbounds. But I think that the cadence of those discussions is somewhat starting to turn. Part of that is just the ongoing reality that other folks and advisers in that marketplace are starting to see transactions occur and access to capital being afforded to their clients, so they're starting to call us more frequently. I think we'll continue to pursue transactions in that space. I think one thing we are focused on is availing the marketplace to the reality that our structure and our capital can be utilized in more than just greenfield sense in the tribal landscape. So I think that's something we are focused on trying to find uses that are either mature assets and people are looking to diversify into other areas of business, other lines of business or looking to refinance maybe debt that they have in place as opposed to just simply funding a greenfield project. So not saying we won't continue to look at greenfield projects, but we will -- we are continuing to try to find other uses for the capital that can be demonstrated to that marketplace to continue to further the education process. Barry Jonas: Great. And then just as a follow-up, we just talked a little bit about the regional markets, but curious to get your wider views on the Strip today, given the recent softness we've been seeing. You commented on Bally's project there, but would you be open to meaningfully increasing your Vegas exposure if the right opportunity came along? Peter Carlino: Well, yes, I mean, simple answer is yes. You said it right, the right opportunity, whatever that might be. We're not looking for anything there. We have a wonderful project in hand that offers us an opportunity to participate at some level should we choose. But look, we're always in the market for the next thing. Carlo Santarelli: And Barry, this is Carlo. Look, I mean, you've covered the space for a long time. You've seen Las Vegas Strip go through many cycles, and this feels like just another one of those cycles. So when you're thinking long term like we are, I don't think a couple of choppy quarters in a row coming off of a very strong period like we saw coming out of COVID really changes the thinking much around investment into that market. Operator: The next question comes from John Kilichowski with Wells Fargo. William John Kilichowski: My first question is just on the New York City casinos. How is your appetite to participate in those casinos change given the developments that we've seen in the quarter? There's been some news flow recently. And I don't know if there's been any more progressive conversations being had? Or are we in the same place that we were a quarter ago? Brandon Moore: Well, I think we're in a little bit different place than we were a quarter ago given that there are now 3 left standing and 3 licenses to provide. No telling whether New York will actually issue the 3 licenses or whether they'll be issued to the folks that are still standing or some other change in process might occur that we saw back when resorts eventually came out in Queens. But I think that the appetite for New York is strong in the sense that these are really strong projects that promise a lot of EBITDA coming out of that market. And if we can participate in a prudent way in those projects, we'll certainly seek to do that. As most of you probably know, we do have a ROFR associated with the Bally's project. So we'll see how that plays out. I think it's a little early in the game for us to tell you if and at what level we might commit capital to that market. But it obviously remains a very attractive expansion market to not only GLPI, I'm sure everybody that's looking at investing in gaming. Peter Carlino: And I probably should underline that there's no shortage of money chasing that opportunity. And I can't speak for Bally's, but I can well surmise that they're getting calls from all over the place, people wanting a piece of that opportunity. So it's a big deal. Good for them. We could take us -- a part if the right opportunity appears, but we're certainly not going to be the sole source of what they're going to require there. William John Kilichowski: Okay. Very helpful. And then my second one is back on the tribal deal. Could you just talk more about the return hurdles that you're looking for, for a tribal deal where there's less protections maybe involved versus the construction that you're working on or the fee simple acquisitions that you've been targeting? Brandon Moore: Yes. I think from an underwriting standpoint, each of them are going to be a little bit unique because each one will present a different credit profile, just as in commercial gaming, we face that. And I think at the end of the day, the difference between the risk on the tribal and the commercial may not be as wide as some folks believe. I think when you dig into it, you can see that there are some challenges to tribal gaming, but they may not be as steep as you think, and there are some very well-capitalized tribes. So clearly, we're looking at a wider spread to the cost of capital than what we do with commercial gaming, whether it's 50 basis points or 100 basis points or 150 basis points. It's going to depend on the credit quality of the tribe and the opportunity. And I think we're also looking for increased coverage on those assets because of the nature of that investment, we want to make sure that the coverage is even stronger than what we have in our commercial deals. And as I think most of you know, we've always focused on coverage. We've done that since day 1 here. We've known that creating a healthy tenant landlord relationship for the term of the lease is very important. And so while we look at 2:1 coverage generally on commercial assets, if not better, you can assume with tribal we're looking to be much higher. So that's kind of where we are in the underwriting process on tribal as we sit here today. And I think each deal will be a little bit different. With Dry Creek, we went into a project that had some cash flow with an existing facility. It has some history to it. It has a very strong partner in Caesars branding at their top brand, Caesars Republic and a strong market in California. And you see what kind of rates we got for that transaction and what kind of coverage we wanted for that transaction. And I think it's demonstrative of how we'll view tribal gaming as we continue to roll this out. Operator: The next question comes from Greg McGinniss with Scotiabank. Greg McGinniss: So I guess just quickly speaking on coverage. Is the expected rent coverage at Live! Virginia in that 2:1 range? And how did you go about underwriting that project to determine the expectations? Desiree Burke: So as we always do, we go through a rigorous process to due diligence on what we think the market can do and what the demographics of the market are, the drive times around the property. And we do expect in the line of 2:1 rent coverage on that property as it opens. Peter Carlino: Yes. Let me add. We're talking about the Cordish organization. These guys are highly capable, highly successful. The kind of folks you'd want to sign up for every deal imaginable given the opportunity. So it doesn't get any -- there's no better opportunity to partner with any entity in the planet than the Cordish organization. So we're delighted to be part of that project. No worries whatsoever. Brandon Moore: Yes. I think in that market, we also did a lot of work on the legislative side, on the regulatory side to understand what the potential for expansion is going to be in that market. And we're pretty comfortable that, that Richmond market is pretty well protected at the moment. As Peter said, the Cordishes have a demonstrated ability to deliver projects on time and on budget. And so that's a project that's easy for us to get behind in that market with that kind of partner. And I would just add at 2:1, I think it's more of a downside base case scenario. If you ask the Cordish folks, I think they tell you that they think coverage is going to be much higher at that facility. But we don't underwrite on the hope certificate. We underwrite on the conservative side. And so at 2:1, we think we're going to be very well protected in that market. Greg McGinniss: Yes, I guess, given where their other leases are, that makes sense. Brandon Moore: That's right. Greg McGinniss: And then just a follow-up on, I guess, a point of clarification on the Lincoln deal. If Bally's were to receive approval from the term loan lenders, the few remaining that they need it from, do you expect they'd elect to do that deal earlier? Or do they prefer not to have to pay off the $500 million of debt that would require? Brandon Moore: I think that asks us to crawl into the minds of Bally's, which we obviously can't do, but I will acknowledge that you're correct in the way that the option works. If they solve the lender consent issue, Lincoln can come in well before 2028. There's been no change in the terms of how the option works only the date. So if Bally's can solve that and they think it's prudent to bring that capital in, they'll likely come to us and ask for that. I can tell you that we've done a lot of work in the market. We have our own views on how the market is going to perform and what's happening in that market. And if we're called upon to exercise Lincoln earlier than 2028, we'll be prepared to make that decision and have that discussion. Operator: The next question comes from Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Just 2 quick ones. Going back to the Chicago project, I think you guys are providing a lot more transparency. I believe some of the upcoming activities were -- you talked about going vertical construction on the hotel, vertical construction on the casino and then sort of the cranes being delivered, Cranes #2 and 3. Just any sort of update on that piece of it and those progress? Steven Ladany: Yes. There are 3 cranes now working on the projects, steel's getting erected. The hotel, I think, is -- there's 4 or 5 levels of concrete that have been poured. So it's approaching the first floor guestroom height. So there's definitely a lot of ongoing construction taking place on the property. And if you pull up the camera to take a peek or if you happen to be in Chicago, you can swing by. There are plenty of people, and there's plenty of action taking place every day there. Ronald Kamdem: Great. Helpful. And then my second one was just on just the cost of financing, if you can remind us where you think you can issue 10-year? And how is that impacting or is that even impacting your sort of underwriting return hurdles for new deals in the pipeline? Just how is that shifting? Desiree Burke: Yes. Sure. So obviously, as you know, the 10-year treasury is moving quite a bit lately. So the last I looked, it was around 4.1%, which means we would be issuing somewhere around 5.6% to 5.6% range. I think it bumped up over the last few minutes, hours, it keeps changing on me, but that's about where we would fund. And it is pretty consistent. We've been somewhere around the treasury of right around 4%, and our spreads to that haven't changed significantly. So our funding and our spreads that we're expecting to our cost of capital are really only changing on the equity side more so, not necessarily the debt side. Steven Ladany: We're very hopeful that the market will realize that 160 or 165 basis point spread between the equity dividend yield and the 10-year issuance costs will be recognized by investors and... Peter Carlino: Well said, Steve. Operator: The next question comes from Chad Beynon with Macquarie. Chad Beynon: Congrats on the recent activity. On the gaming calls this quarter and last quarter, there's been a lot of focus on the overall benefit from the One Big Beautiful Bill on the construction side and the CapEx side, obviously, accelerated depreciation. So I wanted to ask if -- how important is this, I guess, in your conversations with current or potential counterparties, just kind of the urgency and the benefit of spending money, I guess, in the next year or 2? And could that lead to more funding or lease deals in the near term? Desiree Burke: So -- yes, it doesn't really come up in our conversations. Obviously, there is a tax benefit to our tenants to do that under the One Big Beautiful Bill. But it's a tax benefit. It's not a free cash flow issue for them. So it's not part of our discussions as to them wanting to do it quickly. Brandon Moore: Yes. I don't think it's what's driving capital investment decisions at the gaming operators primarily. It may be something that if it's on the margin or on the edge, they might tip it over. But I think they're making those decisions based on the return of capital, not on tax depreciation. But as Desiree said, I don't think we've seen any of that. Steve? Steven Ladany: Most of our transactions, as you're aware, we're funding the hard cost and we're owning hard cost. So the tenants are not in position where they own that physical property to be able to take the accelerated depreciation. So I think what you're hearing is the tenants in our discussions have been more focused on cost of capital and the rate at which they can access capital from us versus a lender and therefore, making the decision based on the cost of capital afforded to them, not necessarily on a tax deduction they can get. Chad Beynon: Great. Appreciate that. And then on the strategic deal that was done, maybe just a broader one in terms of assets, country that maybe generate less than $50 million or less than $40 million of EBITDA and finding homes for these operators. Do you think there's going to be additional M&A or kind of changing of properties that could help some of these smaller regional gaming operators that you either work with or could work with in the near term? Steven Ladany: So -- this is Steve. Two things. One, if -- and you might not have been going there. But if you were, I did see one note overnight talking about the $40 million EBITDA ROFR with Strategic. That was an aggregate number, so they've exceeded that through this deal. So if that was part of where you were going, I just want to clarify it for you. Separately, with respect to smaller assets and smaller operators, I do think we will see an acceleration of opportunities for them. The opportunity will be in sellers' willingness to get rid of what used to be called 4, 5 years ago by everybody noncore divestitures. I think that will become in vogue again. So the larger regional folks will look to sell off some of the smaller ones. I think one of the things that will be complicated for the smaller possible buyer will be access to capital. So I do think, given the right partner and the right relationship, if we have a number of smaller operators that we're comfortable working with, I do think there will be opportunities for those businesses to grow. But as you see, looking across the space right now, capital is constrained from some parties, and I don't think they'll be able to take advantage of the noncore divestitures in those cases. Operator: The next question comes from Daniel Guglielmo with Capital One. Daniel Guglielmo: At REITworld last fall, there was a lot of discussion around the new administration and potential for gaming M&A. It didn't materialize in the first half, but it has picked up some in the second half. From your seat, what conditions do you think have led to that pick up? And do you expect them to carry through to next year? Steven Ladany: I think most of the transactions you're seeing have been worked on for a number of months. They are not things that just happened in the second half of this year. So I don't think there's a perfect read-through for you on that front. The other thing I would tell you is most of the transactions that have been announced either by us or others in the space are more bespoke and they're one-off transactions. I think what you will see maybe now going forward is maybe more broadly marketed competitive bidding type process transactions, which historically aren't the ones that we typically are passionately winning. But I do think you'll start to see maybe some more broadly marketed type transactions that will feed off of the REITworld assumptions, I guess. Daniel Guglielmo: Great. I appreciate that. And then the second one, you mentioned that lease coverages have held up well. But for leases where coverage ratios are coming down, when you dig into those properties and talk with the operator, can you just give us a sense of if it's revenues lagging, labor coming in hot, both? Anything you have there would be helpful. Desiree Burke: And so our rent coverage is really -- when we say tick down, I think they were like 1 to 2 basis points. It wasn't like -- we haven't seen any large changes. What we did see earlier this year was a decrease on the Pinnacle lease that we have with PENN. And that was more due to competition than really what was happening in any regional market. Peter Carlino: Yes. Look, our coverages are strong. It's a long way to the bottom. So there's nothing that we're -- that gives us any pause at all quite candidly. Operator: The next question comes from John DeCree with CBRE. John DeCree: I think we talked quite a bit about some deal terms, coverage, et cetera, underwriting, but maybe some of the less exciting ones like initial lease term and master lease or single assets. So the Cordish transaction in Virginia, can you talk a little bit about the negotiation or thoughts on keeping that as a single asset lease versus combining it with the other leases? And then the initial term, 39 years is what you've done with Cordish in the past, but it's quite a bit higher than some of the other leases we've seen in gaming. So curious to hear your thoughts there if that's a significant negotiating point or not. Brandon Moore: Yes. Thanks, John. I mean I think to your latter point, the longer lease term is mutually beneficial. I think it shows that Cordish is investing in these deals for the long term, and it's a generational investment rather than quick in and out. And so they're looking for long-term certainty in the lease, and we are as well. So I think that mutually beneficial lease term to have is the longer leases. Your initial question on negotiation with the Cordishes -- I'm sorry, John, what was the question there? John DeCree: The decision or negotiation point to keep it as a single asset lease versus combining it with Maryland and Pennsylvania. Brandon Moore: Yes. That's more just structural. The Cordishes have a different partnership in Virginia with the Bruce Smith Enterprise. And so there's not an overlap -- a perfect overlap of the partners in those deals, and therefore, Cordish can't combine those deals and have one risk to the other because there's not the same ownership structure. So that's just not a possibility for those trends. Peter Carlino: And that applied even in Maryland versus Pennsylvania and previously as well. Steven Ladany: [ It's a different ] partnership group. Brandon Moore: That's correct. So Pennsylvania master lease, the Maryland lease and the Virginia lease will all be separate single-tenant leases. Pennsylvania, obviously, has Westmoreland and Philadelphia and those cross-collateralize each other. But the ownership groups in Maryland and Virginia are different. So... Operator: The next question comes from Chris Darling with Green Street. Chris Darling: I'd love to get your thoughts on regional casino values and how they might have evolved over the course of the last year. As I think back through the past several commercial sale-leaseback deals you've done, they've all kind of been in roughly that 8.25% cap rate range. And I wonder if that really reflects just competitive market dynamics or it's more a reflection of GLPI being one of maybe the only bidder in some of these cases? Steven Ladany: I think it's going to be deal specific. But I think in -- in many cases, I think that the pricing pressure that you would get, whether you were the only bidder or a competitive bid is only probably slightly different from our perspective. We're going to be a disciplined buyer either way. The market is not unintelligent. Everyone is banked by someone who knows where all the comps have been and where everything else is traded. So whether someone brings us a deal and says, "Hey, you're our favorite guy, we'd love you to buy this, before we go shop it." They're still not going to then give us a 200 basis point spread because we're nice. So the market is going to dictate where pricing goes. We all recognize where that should be, and we're always going to look to get a spread to our cost of capital. So that's just kind of how things will evolve. Peter Carlino: Look, I think you've heard us say before, we don't like auctions. I like to think the winner loses often. And so it's never our goal to be the high bidder on anything. So there's a range of things that we would consider and that we would offer that make us desirable, but not -- but the absolute lowest or highest price, if you will, is never our goal. Chris Darling: All right. Fair enough. And then maybe just a quick point of clarification on something mentioned earlier. You discussed a view around your share price, your equity cost of capital today. Does that impact your willingness to pursue incremental new deals from this point going forward? Or does it really just influence how you would finance any future deals? Desiree Burke: I think it really just influences how we would finance future deals or what the spread we would be looking for to our cost of capital. Operator: The next question comes from David Katz with Jefferies. David Katz: Covered a lot already, but I wanted to go back to New York, if I may. The concession there is -- or the license is 15 years, I believe, instead of 30, right? And I'd love just your perspective on what that does to the parameters of your participation. And I think, Peter, you mentioned earlier there's any number of sources of capital that might be available to them, right? They have a partner in that bid, who I assume is a funding partner, too. How does that sort of change your opportunity set also, please? Peter Carlino: Go ahead. Brandon Moore: I'll comment on the first part, David, on the licensing. I haven't dug into that in tremendous detail, but I will point out that licenses in many jurisdictions renew every 3 years, every 5 years, every 10 years. So the fact that you have a 15-year initial license period, I guess I'm not reading too much into that. In other words, if you put $4 billion, $8 billion into the ground, the thought that you'd lose a license in 15 years and they'd relocate that or do something with that license seems outlandish even in a smaller market where you might invest $400 million. And it's inconsistent with how any other state regulator has approached a renewal of a gaming license. So we're going to take a closer look at that given that that's been highlighted as a rationale for why MGM might not want to do Yonkers or didn't want to do Yonkers. But on its faith, I think that we're less concerned with that than we are of getting the spend right, getting the facility right, understanding what the market is and the EBITDA that's coming out of it, what the competition is going to be. I think all those things may be more important than that 15-year term. That being said, we are going to dig into that and take a closer look to make sure it's not something more than what we think it is. Operator: The next question comes from Smedes Rose with Citi. Bennett Rose: Covered a lot of territory, but I just had a couple of just quick ones here. I noticed that the Bally's added a corporate guarantee for the Chicago casino. And I was just wondering, was there something in particular that triggered that? Or is that something you were pushing for? Or kind of what was -- I mean, I think it's positive for you, right? But just kind of curious what caused that. Brandon Moore: Contractually triggered, Smedes. That was a negotiated term that when Chicago came into the restricted group, which is what they did following the Intralot, Gamesys merger, we were to get a corporate guarantee on that. So that was already prenegotiated. Bennett Rose: And then I just wanted to go back, you talked about funding at the beginning of the call on how you could use all debt. But presumably, you want to have an equity mix in there. I guess, I'm just thinking how do you -- can you just remind us how you guys think about issuing equity. Some companies are kind of -- they have an internal estimate of NAV and they don't want to issue below that. Others are -- it might be below NAV, but it's still accretive. And just how do you think about equity issuance? Desiree Burke: Yes. So we do look at it very opportunistically, right? So we do look at the cap rate of where we're trading and what that spread would yield to whatever we are attempting to finance. I wouldn't say that we put a floor on it per se, but certainly, I can tell you at these levels, we have 0 interest in funding with equity. Peter Carlino: Smedes, I'll add to that. You saw, obviously, we executed on the forward closer to $48. Since that, subsequent to that, we've announced a couple of transactions that are AFFO accretive. So you could kind of think about that floor as potentially moving higher in the absence of an immediate need for equity, which we don't have, as Desiree outlined earlier. Operator: The next question comes from David Hargreaves with Barclays. David Hargreaves: I apologize if this is really a simple question, but you guys have given us a range of rent coverage. And I'm just wondering if that's calculated based on reported EBITDAR or some adjusted EBITDAR? Are you just using cash rent? Are you making adjustments to these numbers? How do you -- what's the [ comp? ] Desiree Burke: Right. So those -- they're -- contractually, they must be reported to us by our tenants, and they are based off of their actual EBITDAR as defined in each of the lease and the actual total rent that's being paid. There's a small adjustment in the Pinnacle lease because there's an asset that is not included in their coverage ratio, but it's very minor adjustment on that lease, but all the other leases are all of the properties, all of their EBITDAR and divided by the total rent that's being paid. David Hargreaves: But is this just the property-level EBITDAR? Or are you looking at it on a consolidated basis. Desiree Burke: Yes. It's the properties that are in that lease. So if it's a master lease, it's all of the properties that are in that lease. It is not at a corporate level. David Hargreaves: So for example, with Bally's, it wouldn't have been factoring in any contribution from Gamesys or anything like that? Desiree Burke: That's correct. Operator: The next question from Robin Farley with UBS. Robin Farley: I just wanted to circle back to the New York project. I know you mentioned you're sort of evaluating how to weigh a 15-year term. And I know other operators that pulled out of bidding cited the risk of New York legalizing iGaming. I guess just given some of those factors, would you -- how would you think about the rent coverage ratio that you would need in New York compared to maybe a typical 2x? Peter Carlino: We're looking around the table to see who wants to take that one. Steven Ladany: I can tell you, I don't envision us doing anything upfront in New York that would be based on anything close to 2x. I think our -- we all know that there are a lot of things that are at play here, there's construction schedules, there's construction budgets, the number of years it could take to build in New York. So I think if we were asked by anyone to do something in a very accretive way upfront, it would be massively more coverage than 2x. We would never consider doing something at that level. I think beyond that, once you get out, I think when we're all sitting here on the call 4 years from now, I think we'll have a much better vantage point into whether iGaming has transpired, has not transpired, what the profitability is of those businesses. and I would still venture to say, based on what we've seen in Las Vegas as far as the need to refresh these massive mega resort -- casino resort properties, I think we would look at New York to be a pretty similar experience with these massive mega casino resort properties. So I think we would continue to have a level of cushion that we would build into our rent coverage underwriting. Brandon Moore: Yes. I also think a lot of the projects that you've seen fall by the wayside in New York failed the Community Action Committee hurdle. So I think that ended up being a much bigger hurdle than maybe even New York could realize it would be. And therefore, a lot of those folks, I think, would still be interested despite iGaming and unknown tax rates and things like that, had they passed that hurdle. And that was the last and final for many of these applicants. Operator: Thank you. At this time, I would like to turn the call back to Mr. Peter Carlino for closing comments. Peter Carlino: Well, thank you all who have dialed in this morning. I think and hope you get the idea that we're quite happy with the way things have been going here at GLPI. And we were anxious to tell our story, and we'll see how it plays out. But stay tuned. I think there's good things ahead. With that, operator, and all, thank you very much. Have a great day. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Unknown Executive: Good morning, everyone. Welcome to CLCT's 3Q Update Briefing. I'm [indiscernible], IR for CLCT. And with me today, we have our CEO, Gerry; CFO, Joanne; CFO, [indiscernible]; Head of IPM, You Hong; and Nicole from the IR team. For this briefing, we will start with a brief presentation followed by a Q&A session.[Operator Instructions]. With that, Gerry, please go ahead. Kin Leong Chan: Good morning. Welcome, everybody, to CapitaLand's China Trust Business Update for Q3 2025. I'm quite sure everyone earlier been watching this U.S.-China President Trump and China's Xi coming together in South Korea. So that's actually a good way to get us started on this business update for CLCT. First, let me go to a snapshot of where we stand today in terms of our asset. Allocation by percentage of GRI, our retail allocation is now at 69.9%, about 70%. That dropped from first half where it was 70.8%, about 1% drop was because we divested this CapitaMall Yuhuating through the C-REIT securitization exercise. And as a result, of course, the other components that we went up 26.5% of GRI is in business parks, 3.6% in logistics parks. In terms of our distribution yield is now 6.2%. Our stock price have came up a bit, that caused a compression in yields. That is also reflecting some of the overall S-REIT yield compression across the board. In terms of third Q key highlights, very happy to again share that CLCT together with our sponsor, we have listed the C-REIT CLCR on Shanghai Stock Exchange on the 29th September 2025. That is China's first international sponsored retail C-REIT. It opened well. It was open trading at 19.6% above its IPO price of CNY 5.718 per unit. That is CLCR. For CLCT, of course, we seeded this C-REIT with our CapitaMall Yuhuating. And we also became a strategic investor through our 5% holding of units in CLCR. Overall, I would say that I think I mentioned before the demand for C-REIT has been, I would say, very, very encouraging. The IPO oversubscription is 254x for institutional, retail 535x. We can see that allocation-wise, we have 20% with the originating or the strategic sponsor group, of which CLCT is one of them. We hold 5%. In terms of the current -- at IPO, the DPU yield for CLCR is 4.4%. Currently, it's already traded. Currently, the IPO -- currently, the trading yield for CLCR is between 3.8% to 3.9%. During the Q, we also refinanced and issued SGD 150 million of perpetuals, right? That was also very well subscribed, at 3.4x subscription coverage. And interestingly, we also had quite a big fund manager and insurance companies allocation, about 1.5 more than of it was to institutional investors. So we successfully completed our perpetuals refinancing through this exercise. In third quarter, we also attained and maintained our 5-star rating for GRESB, while this is the third year where we have obtained our 5-star rating. So very well done to our sustainability team there. In terms of results for third Q, you can see in terms of overall portfolio, our gross revenue came down by 8%. Our NPI also came down by 8%. In terms of -- if you consider on a same-store basis, excluding our Yuhuating, that number would be basically the gross revenue drop of 3.4% and NPI, a same-store basis, drop of 4.4%. Now if you compare that to first half for our overall revenue, the drop would have -- excluding Yuhuating, the drop would have been minus 4.7% in first half. So we are talking for the -- sorry, let me take that back. Let me rephrase that. For our retail revenue -- for our retail revenue, it dropped for this third quarter, minus 1.8% without Yuhuating for retail revenue. If you compare to first half, on the same basis, it would have dropped 4.7% without Yuhuating. So you can see that actually our retail revenue, the drop have narrowed. For Business Parks, the revenue this quarter dropped by 9.1%, right, again, due to Shanghai to Singapore-Hangzhou Phase 2. The -- if you compare to first half, the drop was about minus 10%. Again, a slight narrowing of drop. In terms of logistics revenue, this quarter, we went up by about 13% compared to first half where it was increased by 2%. That was mainly due to the improved occupancy at Shanghai Fengxian. Let me add more color in terms of -- just now I talk about the retail revenue in terms and the overall revenue drop from [DPU] as well. If you look at our overall revenue this quarter, it dropped by about CNY 36 million, of which CNY 21 million came from the loss revenue from the divested Yuhuating. So that's about 58%. About CNY 10 million was from business parks due to the conditions that I have mentioned. So that's about 28% of that drop. And the rest came from what we have put here in terms of lower rents and occupancy at CapitaMall Xinnan and mini anchor tenant repositioning at Rock Square. For the Rock Square mini anchor repositioning, right, we have basically had a tenant open on 1st October. So we would -- that would go away in 4Q. It was -- that space will start contributing and that tenant is at the CapitaLand at Rock Square and the new tenant at the CapitaLand has saw good traffic and started contributing to Rock Square's numbers from October onwards. In terms of NPI, I mentioned minus 8.5% overall year-on-year. Again, very much due to the divested Yuhuating NPI loss, right? So on the same-store basis, we see minus 4.4%. And of course, there are some other factors due to the overall drop in gross revenue from other asset class, other assets like the Business Parks and some of the assets like CapitaMall Xinnan. On the other hand, it's partially offset by our cost reduction efforts of about 1.3% year-on-year on a same-store basis. The next slide, we take a look at some of the retail metrics. If you look at shopper traffic and tenant sales, third Q compared to first half or 9 months for the year, you would see that third Q actually, both on shopper traffic and tenant sales have done quite well comparatively speaking. Third Q year-on-year increase in shopper traffic is 4.5%. Tenant sales third Q increase is 3.2%, right? One of the factors is, I would say, is that some of the key sectors continue to do well. We also had the effect of better Golden Week holidays in 2025 than 2024. So for the key sectors, if you look at F&B, we are plus 5.1% year-on-year for a 9-month basis. Infotech, plus 12.8%. Toys and hobbies, again, very strong momentum, plus 56% and jewelry and watches, 16.6%. So these key sectors continue to do well, whereas maybe some of -- I mentioned before, some of the bigger ones -- bigger categories like fashion and beauty and health continue to have single digit drop in sales year-on-year. In terms of AEI, we have completed -- we have seen the contribution from CapitaMall Xuefu and some contribution from -- one thing, which I'll talk about later. But here in this slide, we just wanted to highlight one of the key growth driver for third Q, which is CapitaMall Xuefu AEI. That added 20.8% to our shopper traffic for that mall and a 24% increase for -- in terms of tenant sales in that quarter. Occupancy costs continue to maintain at about 17.7%. That's quite stable below pre-COVID levels. In terms of China's Golden Week, we saw, as I mentioned earlier, a better Golden Week than last year. So we had 4.6% year-on-year increase in traffic and about 4% increase in total sales versus the last comparative period for Golden Week last year. So if you look at retail occupancy, we have a slight bump in this quarter, right? Some of our strong malls, Xizhimen, Rock Square, Xuefu, Nuohemule basically are fully leased, and that has helped to bring up the retail portfolio occupancy. There is continually positioning for CapitaMall Xinnan, which you can see the occupancy dropped slightly. We are trying to work hard to pivot that mall to a new concept where we focus more on the IP and the anime and young to cater to the younger generation. So what we call [indiscernible], and we are seeing some progress there. But in the interim, there will be some bumps in occupancy. In terms of retail reversion, we see that we now have a retail reversion for 9 months of minus 1.5%. And these have narrowed from first half where we reported about minus 3%. And some of the reversions -- stronger reversions we see from, again, the strong categories that I spoke about, F&B, IT, toys and gifts, right? Again, the weaker reversions from fashion and beauty and health. So that's basically for retail. For Business Parks, our overall occupancy dropped by 86.9% to 85.2%. I'll explain shortly why that's happened. The Xinsu portfolio and our -- Xinsu portfolio has been relatively stable. There was a small drop due to one of the -- one tenant basically giving up the space, but we are looking to fill them. The AIT asset within Xi'an, that asset has started to basically fill the Ping An's -- fill the space that was vacated by one of our big tenants that left 1 year ago. And currently now, we have brought it from 74.6% to 75.4%. We are making quite good progress. And by the end of December, we are looking for occupancy of mid-80s, right? So we have some tenants already lined up. So we were coming progressively, and we hope that by end of December, we will be able to push it up to the mid-80s. I continue to be at the mid-80s level, 80s levels, there was some drop, but we'll try to fill in those tenants as well. For Hangzhou, Phase 1 had a small increase. And Phase 2, where we had previously shared that we have basically taken over some service office tenant space that was at about 25,000 square meters. In third quarter, we had another service office space, which, when we review our tenant portfolio for Phase 2, we found that we wanted to proactively take over that service office tenant -- to basically start to convert them into spaces that we can control directly. There was, of course, learning from the earlier exercise where we took over the space on the service office operator. We thought that it may be better that we take it over earlier, right, so that the transition if the service office operator dropped off would be easier. So that was what we did in third Q. You could see that, that caused a temporary reduction in the occupancy from 79.7% to 70.7% because the service office was about 29,000 square meters, and when we take it back, we directly signed leases with the subtenants of which about 60% of that space was leased. So that caused basically a change from a master lease of 100% to about 60% of the space being in our books being leased. We are working hard on this, and we hope to repeat the success that we have with the other service office operator that we took in. In all, we took back -- from the last round we took plus this round, we took back about, I would say, about more than 50,000 square meters of space. We now have already leased up about 67% of that space, right? So for -- in the 4Q, I think we should be able to push that Phase 2 occupancy closer to what we saw in June 2025 of the high 70s mark. For the Business Park reversion, for first half, it was minus 8%. So for 9 months, including the Q, it's minus 8.9%. So for Business Park, we continue to deploy rental incentive as a key tactic to maintain our occupancy as well as preserve our asset value in quite a challenging market in some of the business park assets. Overall, you can see that our Business Parks continue to -- in terms of occupancy, continue to outperform the submarket, Xinsu in Suzhou, of course, outperformed quite significantly about 30 bps -- 30%, but for the Xi'an portfolio, AIT and AIH, currently, it's slightly below submarket, but with the committed tenants that have signed on in October, our AIT and AIH as a cluster would have 83.9% occupancy that would have outperformed the submarket. As I was mentioning, in 4Q, we should see even more, and that should push up the whole Xi'an cluster above 83.9% in terms of occupancy. Hangzhou at 73%, it's also outperforming the Hangzhou submarket. And we should, as I mentioned, in 4Q, continue to see improvements in our Hangzhou overall business park occupancy. In terms of logistics, we're quite stable, same occupancy as June '25, 96.6%. The revisions that -- negative reversions that you see there basically is due to one of our renewal of a strategic anchor tenant at Wuhan, which was already previously reported. I will let Joanne take the capital management part before I close off. Okay. Siew Bee Tan: On our financial position for this quarter, as you can see, the total debt has actually reduced from SGD 1.8 billion to SGD 1.6 billion. This is also actually because of the temporary use of the proceeds from the perpetual that we issued in September. That also actually brings down our gearing to 28.8%, as you can see. But we have actually redeemed the perpetual out there I think, 2 days ago. If we actually include that additional perks that we have used our loans to redeem, that gearing would have been 41.3%. On the average cost of debt in this quarter, it has actually improved from 3.42% to 3.36%. I think this is actually the fruits -- the labor of the fruits that we have actually earlier on issued CNH bonds and also all the initiatives that we have actually rolled out that at a point in time, CNH interest was actually lower and we actually benefited and that can be seen from the cost of debt this quarter. Our ICR is at 2.9x and average debt to maturity is 3.4 years. In terms of the ICR sensitivity, as you can see on the right table, on 100 basis point interest rate movement, our ICR is still at 2.3 level, which is a healthy level. Same goes for the sensitivity on the EBITDA. 10% decrease on the EBITDA, my ICR is still at 2.6x. That is way above the requirement by MAS of the 1.8x where we need to actually explain and put up some explanation to that. We also have a sensitivity in terms of the gearing on a 1% movement of the Sing dollar to renminbi, our gearing will move about 0.27%. I think this is something that we actually put out on the debt maturity profile. As you can see for 2025, we are actually pretty done. There's nothing that is due for refinancing for 2025. In fact, I think the team has actually proactively look out to actually extend our loans, and we actually work on the 2026 tower. SGD 120 million, which was actually dollar debt has actually been -- will be refied to a renminbi debt. I think we are working towards what we have actually communicated to the investors that by end of this year, we are actually targeting our renminbi debt as a total percentage of our total debt to be at least 50%. As of 30th September, we are actually reporting 45%. I think by end of the year, we will definitely be more than 50% is what we have actually started to achieve. As a percentage of total fixed to floating, we are at 80% fixed this quarter. This level is at this level because, again, for the temporal perpetual and we use the proceeds to actually pay down floating debt. I think this percentage, we will -- you will see that this fixed percentage will come up a little bit to actually benefit from the lower [indiscernible] that we are seeing right now in the current interest rate environment. And I think, in terms of the debt maturity -- debt funding mix, we are pretty well mixed. We've introduced our renminbi bond. We also have done FTZ bond and also increased our onshore renminbi loan percentage. I think that's a little bit color of the debt maturity profile and capital management. I'll hand back to Gerry to actually... Kin Leong Chan: Okay. So thanks, Joanne. Yes. So looking forward to the fourth Q to the end of the year, some of the things that our stakeholders can look forward to. In terms of our AEIs, right, for CapitaMall Yuhuating where we transform a large supermarket area into a higher-yielding retail space overall, we have successfully leased 100% of the AEI area, right, achieving an ROI of 12.6%, very well done AEI and achieving a very good return of our investment and CapEx in this area. Currently now on 1st October, in fact, we are ahead of schedule. We were actually initially thinking that we will be only able to open the space in November, but now we have managed to basically open it in 1st October. About 14 of 27 tenants have opened, including 7 Fresh, which also when they opened, did very well, right? The remaining shops will open progressively throughout October and November, right? Our AEI area was opened right before the Golden Week period. So that has really helped to increase the shopper traffic and tenant sales at CapitaMall Yuhuating. In terms of the Golden Week performance, you can see there our shopper traffic went up by 13%. Tenant sales went up by 21%. The supermarket itself really outperformed in terms of per square foot sales versus the previous supermarket at 177x. So very efficient use of space, very good sales, right? So I would say that we are looking very good in terms of this AEI. In terms of CapitaMall Xuefu, I think last first half, we shared already about it. For our Animation, Comics and Game Street, now besides the supermarket that has opened, now the Game Street, ACG Street has now opened. This 2,105 square meter NLA where we transform it previously, again, it was part of the original supermarket. We took it back and then now transforming the Game Street. It's 100% occupied next to our B.U.T supermarket, which opened in June. This street now has 13 brands, 9 of which are introduced to the whole CapitaMalls for the first time. So these are some of the popular ACG brands where we are trying to basically build an area, which leverage and which would basically be able to attract more IP merchandising such tenants into the space, and which would attract also a different demographic, a younger consumer demographic, Gen Z demographic who are really into IP merchandising and the offerings that we are putting into this street. So if you look at the first month since the street has opened, the shopper traffic has increased by 18% year-on-year. Total rental increase that we achieved here for this share of AEI is 13.1%. In terms of how we are creating value through our strategy, we have already achieved entering the C-REIT market this year by becoming -- by listing CLCR and becoming a key stakeholder. That gives our unitholders access to the China domestic capital market. In fact, we are proud to say that we have only S-REIT or perhaps only REIT in Asia Pac that would be able to allow our unitholders access to the C-REIT market. In terms of unlocking value, we have recycled CapitaMall Yuhuating. We divested Yuhuating through C-REIT securitization at a premium. Basically, it was 8.8% premium to our announced floor price. And it was also a 4% premium above Yuhuating's 2024 valuation, right? So this, I would say, is a very good outcome. In terms of exit NPI -- exit NPI, it was a very competitive, very attractive 6.2% NPIU that we have exited at for basically Tier 2 city asset, right? This really shows how we can effectively take an asset like Yuhuating, even though it's a Tier 2 city asset, add value to it over time. We bought it maybe about 5 years ago and then be able to recycle that asset into a C-REIT exiting at a premium, right, at a good yield and then bringing back money and then being able to then find new ways to redeploy that capital. And this S-REIT connection, I think in the months ahead and the next year, we will try to continue to exploit our unique advantage and continue to see whether we have more opportunities to do such activities. In terms of extracting value, we continue to look at our AEI as an important way to drive some organic growth. So we have already announced Wangjing and Xuefu's successful completion. The next one up is Xizhimen, which we are looking forward to completion in 4Q. Currently, the AEI work is going well. The tenant is doing AEI work, which is basically 89% completed. We are now looking forward to them getting approvals to open. Hopefully, we -- by the time we get to 4Q, we'll be able to give you some good news and also some snapshot of how it's looking. In terms of capital management, we have been very proactive at that. We told our stakeholders and unitholders that we want to aim for 50% of debt being renminbi-denominated debt so that we basically have a better currency mix and asset liability matching in terms of our renminbi exposure. And we have -- basically have achieved that. We have achieved that. And by the end of December, I think you would have seen that we have made very big efforts and have successfully outperformed this 50% mark. With that, maybe I'll pass back over to [indiscernible] to take in questions. Yu Qing Chen: Okay. Thank you, Gerry, for the presentation. Now let's proceed to the Q&A segment. We have the first question from Derek. I'll pass the time to you. Please go ahead. Derek Tan: Can you hear me? Yu Qing Chen: Yes. Derek Tan: I just wanted to ask a few questions. So firstly, if I -- I'll start with retail, right? I mean your numbers, sales and traffic looks pretty okay, but your reversions are still negative. I was just wondering whether -- when should we see that turn coming in? And could you have a guidance for that? Maybe that's the first one. Kin Leong Chan: Yes. I think I previously shared in terms of reversion, quarter-to-quarter, we are seeing plus 3%, minus 3% sort of range. This quarter was a better quarter where we had some reversions from the good reversions from some of the stronger trade cats. So we sort of basically improve on the first half. But first half, I think we -- I mentioned before, we had a mini-anchor repositioning the CapitaLand at Rock Square that basically brought down reversion a bit. And also, we were transiting from some of the higher rental EV tenants in some of our malls, some of them have basically consolidated, right? So we have to replace them with different trade cat? So that affected the reversion in the first half. So going forward, now that we have basically worked that out, our reversions will probably look at in that tight range of, I think, flat to maybe slightly negative but what we are seeing currently. Derek Tan: Sorry, you're still looking at flat to negative. That's the guidance still at this point? Kin Leong Chan: Yes. I think at this moment, the balance is such that there are some trade cats that are doing well. So that's contributing positive reversions. But there are also other trade cats that are doing not as well, which I've mentioned before, fashion and beauty and health. And overall, the -- while sales are -- as you can see, sales and traffic are doing well, but we are still in an environment where in terms of expanding space are being cautious, right? So it's also quite difficult for some of the trade cats to ask them for rental increase. Hong You: Yes. Maybe just to add another perspective. I think our stronger malls are actually doing okay, do register generally flat to slight positive that we wanted. But there are also malls that have been going through repositioning, for example, [indiscernible] and I think we still continue to see a bit of adjustment there. So that's why you see as a whole, we remain cautious. The other perspective is that I think you probably are also aware that the -- for example, when people got to spend the per capita spending tend to bit more on the downside. So I think the tenants are also aware of that because they actually do give a lot of sales promotions and all that. So while sales is actually on a healthy trend, I think their profit margins are also still having a bit of pressure. So I think in negotiating with the landlord on the rental, we continue to be cautious in terms of how they actually expand. I mean we hope things will be better next year. But I think at this moment, we still would want to be guiding a bit cautious. Derek Tan: Sure. No problem. Maybe I just want to -- it's an observation. I'm not sure whether it's the right kind of comparison. But if you compare to your peers, right, for example, people like Mix is doing pretty okay. I'm just wondering whether it's a function of the tenants or the trade cat or just maybe the positioning in the retail sector. Just wondering your thoughts on that. Hong You: Maybe -- I mean, we can't speak as a whole, but when we actually visited some of the mixed-use properties and based on the conversation that we had, they had, I would say, some of the malls were opened in the more recent times, and their strategy would have been starting from a low base, get the mall filled up. And then as the business continues, then ramp up. I think there are certainly some effect from there. In fact, when we compare some of the malls that we are in our portfolio and similar locations, our rents are actually not lower. So from that point of view, there's a bit of a catch-up in the rent I feel from those newly opened malls. Derek Tan: Got it. So I mean last one for retail. Your op cost, do you have an exact sense for me? Kin Leong Chan: Yes. I think we have an op cost is still about high 17s to about 18%. Derek Tan: Okay. Got it. Got it. Sorry, last one for me from your business park and logistics, right? I noticed that we saw dip in reversions, but also occupancy is a bit soft selected assets. So I mean, I know, Gerry, you mentioned you took back some space and you managed to work on it yourself, right? So you look at, say, going forward, right, reversions, negative, which is the one that will move into a positive territory first. So occupancy first or reversions? Kin Leong Chan: Occupancy. Derek Tan: So you'll be focused on occupancy going to a certain level before you start to be a bit more stricter on rents? Kin Leong Chan: Yes. I think clearly, for the business park sector, I think everyone is almost in the same direction, us as well as other competitors. Everyone is focusing on occupancy. Just now I mentioned for our Xi'an cluster, AIT and AIH, right, we -- with some of the committed occupancy that we have already in October, as a group, we -- as Xi'an Group, it's now about 84%, right? We have brought it up in terms of committed occupancy, but we'll continue to bring it up, hopefully, to the high 80s by end of December. For Hong Kong, it's the same thing, right? Currently, maybe as a group is about low 70s. But by end of December, as we work through that those service office converted return space that we are working on directly, we should be able to bring it up -- hopefully, we'll be able to bring up to the high 70s. Yu Qing Chen: We have the next question from [indiscernible]. Unknown Analyst: A couple of questions from me, a bit more in terms of the divestment proceeds from CapitalMall Yuhuating. So I'm just wondering what are your thoughts on conducting a unit buyback at this juncture versus carrying down debt? Kin Leong Chan: Okay. So currently, whatever proceeds that we bring back, the likelihood that immediately, we'll probably use it to temporarily pay down debt first because that's the fastest way to use the proceeds. This, Tan can share a little bit more about timing and all that later. But in terms of the medium-term plan in terms of how to make use of -- obviously, after you pay down debt, we have a slightly better gearing headroom. I'm still looking at it together with the team. One of the options, of course, like you mentioned, is a unit buyback plan. Today, as you can see in earlier in our slide, the -- our trading is about 6-plus percent, right? Maybe give it -- it was in first Q or first Q to second Q, it was 8%, right? So if you ask me when it was first Q and second Q, 8%, there was a very strong, of course, rationale to do the unit buyback. Now it's about 6%. It's still, I would say, maybe an opportunity, but I think now we have to weigh against maybe other opportunities that may come up. And I've mentioned before the fact that I want to look at ways to continue to exploit this the C-REIT -- the Ex-rate and C-REIT connection that we have now. I believe that we are in a position where we can now actually go and look in the market, specifically at retail assets right? As you can tell, as we -- because we have sold the Yuhuating asset, we lost some income. If we can find a solid asset that basically has long-term value and at yields that are higher than our trading yield and also higher than the asset that we have divested, right, that becomes maybe another option for us to basically use our gearing, right? We could deploy into those to such a retail asset. And then, of course, continuing in the long term to have a pipeline of good retail assets, which when their value have peaked, we can then rotate them and securitize them. So that's what we are thinking through now, right, what we are looking at the market right now to see whether there are such opportunities, right? I give myself -- we give ourselves about maybe 6 to 9 months to go through the exercise, right? And we'll come back to unitholders when we have made that decision. But certainly, unit buyback is still on the table if we cannot find better use of the money. Unknown Analyst: Got it. That's very clear. I guess it's a tangential note, given that we have potentially some lower gearing and still that $107 million worth of offshore CNY debt that is coming due next year, where do you see your cost of debt trending in FY '26? Kin Leong Chan: Joanne, can you take that? Siew Bee Tan: Yes. Okay. For us, I think like I mentioned earlier on, we already actually have seen our cost of debt improving for this year vis-a-vis last year. I think it's also because of the effort that we actually have achieved more renminbi loans on our book. So going forward, I think if this continues, as we mentioned, where we are actually also embarking at least 50% of books on renminbi debt. We see that the average cost of debt will actually hovers around this level. So what I want to say is that actually, we have really benefited from the lower cost of debt beginning of this year already. Unknown Analyst: Okay. Got it. Just one last question for me, a bit more of a stupid question. But back in first half '25, we actually retained about [ CNY 1.8 million ] that was contributed by CapitaMall Yuhuating in terms of distributions. So I'm assuming that all of this will kind of be sort of returned to the REIT to form the second half DPU. And also given the cutover date of 29th September for CLCR, should we still expect any contributions from the asset for the second half sort of DPU? Siew Bee Tan: Yes. Yes, you're correct. In 1 half, we actually retained 2Q Yuhuating's contribution. At that point in time, we're actually not very clear in terms of the regulation on what is the cutoff date of the transaction. But following on the IPO of this asset in CLCR, the initial date or rather the cutoff date has actually been confirmed that it will be on 31st March. So having said that, it means that we will not be able to actually have Yuhuating's contribution starting from 1st April onwards. So in other words, for the 2Q retention of Yuhuating will not be released back to the unitholders. And at the same time, as what we have also shared in terms of operation numbers, 3Q Yuhuating is also not inside the NPI where we actually presented. Yu Qing Chen: We have the next question from Hong Wei. Wong Hong Wei: This is from Hong Wei from OCBC. I just have 3 questions. So my first question is on the tenant retention. So I see that for retail, for example, the renewed leases is actually less than half of those. So just wondering how sticky are the tenants? And are these tenants churning in and out quite rapidly. So that's my first question. And the second one is that there are certain big categories that really boom a lot in tenant sales. So I think that also contributed to some of these tenant sales figures being supportive. So is this something that's sustainable? Or do you think this will come off? And closely related to this tenant sales question is, I mean, just now talk about occupancy cost. So it's come down to a level where you mentioned it's healthy. But I think Derek also mentioned and asked about the negative rental reversion. So just wondering, is 17.7% something that is going to be where you will stabilize at? Or do you think it will go up or down from here? So that's my second question. And my third question is that Yuhuating has been divested. So I think now GRA, about 70% is coming from retail. A couple of years ago, there was a road map to reduce retail down to 30%. So I mean, obviously, a lot of things have changed since then. So is there a kind of a refreshed target or road map? So that's my third question. Kin Leong Chan: Okay. I think the first 2 questions, You Hong can take and I can take the third question in terms of strategy, I think. Hong You: Okay. On the trade cat sales, I think, of course, different trade behave slightly differently. In terms of F&B, we actually continue to see good traction. And I think there are interesting brands that's coming up. And so on the retention side, in fact, that's also from our experience, I think for retail malls, refreshing 50% to 60% of the area brands is quite common. And if not, I think we also would run a risk of at times our shoppers getting a bit tired of the same color. So I think that churn, we are not too worried about. Indeed, it is what kind of tenant that bring in, what kind of tenant that goes out is more of a question to us. So I mentioned about the F&B. In terms of toys and hobbies, this traditionally is not a big trade category, but benefited from the likes of Pop Mart and a few other names. It did actually give us a very good sales momentum. So far, we see that trend is still continuing. IT side, I think the first half indeed benefited quite a bit from the so-called government's incentive trading program. So I think there is that benefit. And Q3, we are seeing slightly tapering down a bit. What we believe on the ground is that the training program and then the incentives are still ongoing. But I think perhaps the quotas, the timing of the voucher that's given as well as the fact that the [indiscernible], some of people would have already done their big shoppings in the first half. Q3, the effect will not be as big, but still on a year-on-year basis, it's still increment. Jewelry and sales, we still see increase. Yes. So I think if you ask me whether the sales momentum will continue to grow, I think it's still a healthy recovery and some of the rotational trade cat shift will still continue. Yes. That's the trade cat sales retention question. On the cost, from what we see, I think this is generally -- I mean, our cost is a function of rent and sales. So from that point of view, our cost will probably stabilize at this stage and then may turn out a bit if our sales continue to grow. But I think that probably will set a good momentum when I think the tenants are actually really feeling the confidence coming back and for us to actually engage them in a positive rental cycle negotiation. But like I mentioned, that hopefully would happen sooner than later in next year. Kin Leong Chan: Okay. On the question of strategy and asset allocation, currently, we are about 70-plus percent retail. As you have noted, many things have changed versus a couple of years ago. The new economy sector, of course, have been quite in a turbulent time relatively speaking, compared to our retail, which are very defensive asset class. On top of that, we have successfully listed a new recycling vehicle, right, securitization vehicle through the C-REIT. So in our view, we want to revolve our strategy now towards this competitive and strategic advantage that we have in terms of the retail value chain, right? So I see ourselves focusing more on the retail side of the business rather than, say, growing the new economy side of the business in terms of asset allocation. Yu Qing Chen: We have the next question from [indiscernible]. Unknown Analyst: Just a very quick one. You mentioned you want to look at China maybe potentially for acquisitions again. Can you give us some color on what's happening on the ground? Are there distressed deals? And what's the kind of cap rates for retail in the market right now? Kin Leong Chan: Okay. I will maybe introduce this shortly, but I'll let You Hong take that question because he looks at it from an investment point of view. But indeed, I would say that we are just starting to scan the market more actively, right? I mean we haven't bought a retail mall for some time, right? But from our perspective, this asset has been a very defensive asset on our portfolio. And particularly retail malls that are more mid-market, have good traffic connections in dense residential catchment, those are the ones that in our portfolio have done well, and we want to add such assets into our portfolio if we can find them. I will let You Hong take maybe the current market conditions. Hong You: Yes. I think the market has been, I would say, still investment market relatively soft between institutions. right? The transaction volumes, I think, has not really cut that much, especially in the retail scheme since traditionally, it was not a very big market and then it requires a lot of operation capabilities. I mean the C-REIT market has been actually active and then giving very attractive, I would say, valuations in the assets that we have sort of traded, it's giving us that about 6% exit cap that we hope to achieve. And then for first year, I think it will be one notch lower, right, close to the 5%. Whereas in the capital market side, I think things are a bit different. I would say, when I say capital market, it's more the physical institute the unblock sales market. I think generally, people -- the offer spread are still large, right? I think any buyer are still asking higher than what I've spoken about in terms of at least 1 to 2 percentage or 100 to 200 basis points, right? I think this is where things are. And I mean, we are still at early days. So we hope to come back to you. Kin Leong Chan: So like what You Hong said, I think I'll summarize that liquidity is keen in the unblocked market, right? That's across asset class, not only retail, but retail because needs expertise tend to be blocky, chunky in terms of size, right? So that increased the level of market dislocation that we are seeing. And because now with our, I would say, superior conditions for investing in such asset, I mean, we are backed by our sponsor and our operator who have retail expertise for 30 years in China. We have proven track record of value adding to retail assets. And we now have the ability to recycle older assets into a C-REIT, helping us to achieve liquidity when we need them. We feel pretty good about trying to find opportunities under this environment of market dislocation and particularly want to focus on retail. Yu Qing Chen: We have another question from Derek. Derek Tan: Gerry, I just wanted to have a follow-up on the questions, right? So I mean, you have done the C-REIT, which was a great recycling avenue for the trust. But going forward, right, is that the only one that you think is most viable at this point in time? And thinking about SA you also looking at acquisitions, right? I mean my own thoughts are that your gearing at 38%, debt capacity is not, say, a lot or so. So I'm just wondering whether how should we think about your capital and the size of the deals that you potentially could look at, just these 2. Kin Leong Chan: I think you are referring to whether Yuhuating is the only one that could potentially be injected with C-REIT. Is that correct? Derek Tan: I think 1 year's time, they can buy, right, can buy more from you. But I'm just wondering whether at this point in time, is this the only avenue that you think is open for you for now? I'm just curious. Kin Leong Chan: In terms of -- I think this would be a key way that we want to utilize, though it's not the only way. I mean, You Hong can share there will be -- there are third-party avenues. But generally speaking, I think valuations for the right assets, probably you can achieve better valuations through the C-REIT securitization. And of course, not everyone can basically securitize through -- as you know, it's not easy to lease a C-REIT, and we are only basically foreign sponsor who have leased a retail C-REIT on the A share, right? So we have the advantage. So of course, we want to make use of that advantage, right? So that's one. Two, I think your question of the balance sheet, right? Of course, we divested Yuhuating. Clearly, that sort of bite size of about CNY 1 billion of asset is clearly something that would be interesting that would replace sort of the Yuhuating asset size. And if we require -- if we find really fine asset, for example, that is bigger, I don't know, say, CNY 2 billion, right? We may have other ways to raise money. As I said, we are continually looking at targets where we can recycle some capital. Of course, the C-REIT is one avenue. I did mention that I want to continue to utilize that channel to basically get capital when I need it, right? So there are, in fact, something that is actively looking at. You, do you want to add anything else? Hong You: Yes. In terms of divestment channels, I think we have, in the past, been able to divest assets to the various local institutions, right? So I would say that some look for income, right? Some look for alternative use. So in this market, like what Gerry alluded to, I think the liquidity is relatively thin. So on the alternative use, I think we are seeing buyers being generally more cautious where if they are looking for income, I think, again, in this market where the bid offer spread is still a bit wide, I still think probably C-REIT is the better option for us. Derek Tan: Okay. Got it. Got it. Sorry. Last one for me. If you think about, let's say, your capital sources, right, that you want to tap. So I would presume that you will look at divestments first, followed by the capacity per [indiscernible] equity. So is equity something that you think you want to tap at the right opportunity? Kin Leong Chan: I mean it's not something that we can speculate, right, by [indiscernible]. So I think end of the day, it's finding -- it's the quality of the asset that we are looking at, whether on a stabilized basis, that asset that we eventually find can justify the use of capital, right? I think that's the starting point, right? We don't find a good asset that meet all these criteria, then obviously, we won't force it. Yu Qing Chen: [indiscernible] if you have another question. Unknown Analyst: No, sorry. Yu Qing Chen: Okay. Are there other questions from the floor? Okay. Since there are no questions, this concludes our session for today. Thank you, everyone, for joining, and please feel free to reach out to me or my team if you have any further questions. Thank you all, and have a great day.
Carlos Lora-Tamayo: Good morning to you all, and welcome to Acerinox Third Quarter 2025 Results Presentation. As you well know, the geopolitical uncertainties, regional conflicts and tariff wars continue to affect world markets. Consequently, the third quarter has been another challenging quarter. However, as a group, we have demonstrated our resilience in the light of the difficult market situation. As we will explain in this presentation, we continue to focus on working capital reduction and solid cash generation. During this call, we will hear from our CEO, Bernardo Velazquez; our Chief Corporate Officer, Miguel Ferrandis; and also Esther Camos, our CFO, who will explain our third quarter results and provide outlook for Q4. Before we start the presentation, let me remind you that this conference call is being broadcast on our website acerinox.com. And now, I hand you over to our CEO. Bernardo, please go ahead. Bernardo Velázquez Herreros: Thank you, Carlos. Good morning, everyone, and thank you for attending this presentation. We have released the set of results in the lowest part of a long cycle that is basically defined by the geopolitical conflicts, tariffs, tariffs negotiations and uncertainty. If something can define this part of the cycle is uncertainty and confusion. As how can you prepare a budget for next year? How can you organize your commercial strategy? We don't know whether you will have tariffs with several countries or not, you will be able to export or not. And then everybody is just working in daily basis, is what we call from hand to mouth. From hand to mouth means that our customers are only buying when it's strictly necessary for them to replace materials. So in this situation, logically, the consumption is quiet and everything has been postponed. The recovery that we expected has been postponed. We have no doubt that this recovery finally will come and that the new trade measures will help the even a stronger recovery of Acerinox. We have new trade measures in EU or expected to have very soon new trade measures in the EU. We have the Section 232 and other tariffs in the United States, and we are also negotiating some tariffs in South Africa. But in the meanwhile, we need to concentrate our efforts in the short term, and that means that we need to concentrate in cost cutting and cash generation. With uncertainty with the current situation, everybody preparing the end of the year. Quarter 4 cannot be much better, will be more or less the same reason than Q3, but with a shorter period because the seasonality is very strong in United States and in Germany, and finally, December is half a month. So this is what we are releasing this outlook that we expect Q4 to be lower than Q3, and it's basically because of seasonality. Miguel? Miguel Ferrandis Torres: The market -- the main market highlights for 2025 clearly are driven by the uncertainty, as has been mentioned. We are a cyclical company working in a cyclical business. We are in the low of the cycle. And most of the specialists are considering that probably we have reached the bottom, but we still are in the bottom of a cycle. So we must accept that. The demand has not recovered and is in the third consecutive year in the Western world of not recovery after such a strong correction that was experienced in the year 2023, in which both America and North America and Europe corrected more than 20%. Still we have not recovered that level. So still we are waiting, and the uncertainty is creating these unique circumstances that never in life 3 years -- 3 consecutive years with not recovery in the market. And as a consequence of that, obviously, there is a clear effect in prices, mostly in Europe as well as in Asia. And consequently, this is having also its effect with a slowdown in some of the Asian countries for moving more production on to Europe, which clearly is not contributing. Our main advantage is clearly the diversification. Because of that -- we try to explain it in a simple way. In this slide just showing where there are green shoots. We are in advantage clearly to take the most of these green shoots when appearing. So we are sailing in trouble waters, this is clear, but we are taking advantage for the green shoots appearing, for example, in the -- our main relevant market, which is the North American Stainless Steel. You can appreciate in these traffic lights that where there are more green shoots is in America. The inventories are below historical levels. The imports have been going down. This is as a consequence of the probably commitment to the industry that is a driver of the American market. The administration -- the American administration always has been committed to the industry. The buy American also is a clear characteristic that differentiates the American customers. We are taking advantage of that. The imports have been going down. In addition, we have new measures. The new -- the increases of the Section 232 obviously has been having its effect. And as a consequence, the prices in the States are having a positive evolution. So this is clearly the market where we have appreciated a sooner improvement. In the high-performance alloys, this is a bitter sweet. It's bitter because at the end also we are experiencing in this sector the absence of investment that is characterized by the uncertainties. So all the relevant projects are being delayed. So especially the chemical process industry is actually facing that as well as the oil and gas, in which these more or less relevant projects have been delayed. So as a consequence of that, our European produced high-performance alloys are experiencing -- the order book now is getting slower. But the strategy of diversification and moving to other sectors, which made our decision to invest in the States, invest in Haynes, and especially moving also to the aerospace, creates that now we are in position of taking advantage of the better momentum that is coming from the aerospace industry. So as a consequence of this, the recovery is coming. We have appreciated already the recovery in the long product nickel base. We are more based in the flat products, and this is now coming and start coming because the supply chain is a bit different. But it looks that for the 2026, clearly, this is a sector which is going to drive the profitability mostly of Haynes. So this is the sweet part. And then other sectors like the industrial gas turbine also is taking a good momentum, especially now driven by all the investment in data center for –- in artificial intelligence as well as the more or less all the necessary uses for all the hydrogen transition. So this is the part that is positive and probably shall have a better momentum in the coming months and mostly in the '26. Where we are not seeing yet relevant green shoots is in the European stainless steel market, not in the conditions we have been experiencing up to now. Later on, Bernardo shall explain the new reality. But up to now -- it could be considered that the increase in the apparent demand of 10% is healthy, but clearly, it's not the case when it's coming as a consequence of an increase in imports of 36%. So the main effect of this, as I told before, still the Asian players are putting material in Europe, especially anticipating what could be the more commitment of the union to the industry. So this is driving this increase in imports. 36% in the current market condition is huge. And as a consequence of this, the inventories are growing. And the final effect is that still we have seen significant price pressures that has been characterizing the third quarter. So this is more or less the global scape of what has been the situation up to now. Let's analyze now what's coming. Bernardo Velázquez Herreros: Well, for those of you following Acerinox for many years, you will realize that it's not new to listen to me speaking about trade measures. But this time, finally, we can speak in a positive way. We are not claiming that we don't have measures. We can say -- and it's the first time that we have the opportunity to disclose this to you, to explain this to you that we are very close to have the protection that we were dreaming and asking for many years. In March, after the tariffs or the new Section 232 in the United States, the European Commission released what was called the Steel and Metals Action plan, in which we identified that most of our petitions were considered. And finally, in 7th of October, the European Commission released these new trade measures, still pending to be approved, but very, very positive. Just to -- I will read you some quotes just to see the importance of our industry. "A strong decarbonized steel sector is vital for the European Union's competitiveness, economic security and strategic autonomy." That was said by Ursula von der Leyen, President of the European Commission. "And a strong future for Europe is impossible without a vibrant and resilient steel industry." That was said by Sejourne, Executive Vice President for Prosperity and Industrial Strategy. So we have to be happy and we have to be positive, because at the end, the European Union is moving. You know that it is a slow movement, but finally, they have accepted all our petitions and we are moving in the right direction. These new measures will bring a more competitive and a healthier steel industry in Europe with a drastic reduction of quotas. In the case of stainless steel, can be at the level of 55% reduction in import market share, in steel, in general, is 47%. Materials above the quotas will have a 50% tariff, double than what we have today. Every anti-dumping, anti-subsidy or anti-circumvention case will be added on top of these tariffs and will apply country by country without exemptions, and the quotas will not be -- will not have a carryover to the next quarter. And what is also important is melted and poured will be considered. Melted and poured, that is the origin of the material will be the place where it has been melted and poured. This is very important because we are suffering circumvention, very rapid changes in country of transforming the slabs or black coil coming from Indonesia or China. And we are -- we have been invaded by materials rerolled in Taiwan, in Vietnam, in Turkey, in other countries. And this new situation will stop this unfair competition. What is important now is that at EU we have to implement these measures as soon as possible. Still we have to -- we need the approval of the European Parliament. But we think that we will succeed because there's a strong support to these measures. And after that, the European Council will have to approve it. But generally, it's very good news for the industry. It's very good news not for the next quarter, but it's very good news because that will give us a level playing field. We will compete with fair rules, with fair competition, and then we are sure that the situation in Europe will improve. In top of this, we have to add what can happen with the CBAM, Carbon Border Adjustment Mechanism, that will start being implemented in 1st of January, still with a lot of uncertainties, a lot of unclear rules, but will also prevent the lack of competitiveness of the European industry based on CO2 emissions, ambition reduction and some other measures. So in general, I think that we have a better future. We are willing to receive the good news of having these new measures implemented. The safeguard measure will expire in summer '26. We are pushing or trying to accelerate the process as much as we can. Maybe it can be 1st of April or as soon as possible because it's urgent for the European industry to have this kind of measure in place. So this is good news for our future. This is what we have been claiming for many, many years. You perfectly know that we have been always trying to ask and speaking with the European Commission to develop these kind of measures. And finally, they listened to us and we have succeeded, and we are happy to announce that, that will be very good for the European stainless steel industry. Miguel Ferrandis Torres: If we move to the results, both of the third quarter as well as accumulated. In these circumstances and in these days of uncertainty, we are proud to be well understood, we are proud to be reliable as well as predictable. When we presented the second quarter results, we made an outlook for the third quarter that should be in line with that of the second quarter. We have been in line with that of the second quarter, slightly below. But obviously, when you put it in the equation the depreciation of the dollar, which obviously is our most relevant currency, as well as the situation and the evolution of the prices in Europe, you understand that the results on this third quarter are clearly consistent. And especially, when you put them in the context of the results that other players in the industry are in these days presenting, it clearly demonstrates the success of the diversification and the strategy that we are facing in the last years. In addition, as a consequence of these weaknesses on the prices that we are announcing, we have made an inventory adjustment at the end of the Q3 for EUR 31 million, preparing ourselves clearly for the more or less realization of our stock mostly in the fourth quarter and especially in Europe. So on this basis, we are proud that at the end if we analyze this EUR 108 million EBITDA or the EUR 321 million EBITDA of the 9 months, at the end, we are in the bottom of the cycle. We are clearly obtaining the average profits and contribution that we're experiencing all during the whole last decade. So it clearly demonstrates that how we – we are now more resilient and we are able to keep this level of profitability. Also, in these days, it's extremely relevant to put on value the cash flow generation. We have obtained an operating cash flow in the quarter of EUR 152 million, which is almost EUR 300 million, EUR 299 million up to September. And this is also one of the drivers. It's clear that in the current circumstances, it's difficult to increase profitability, but we are able to generate cash and cover our CapExs and our dividends with the cash that we are generating. This is also one of the main values and principles of the company and we are clearly following that. And then in addition what we have is this level of net financial debt at the end of the quarter of EUR 1.2 billion. When we compare, as appears in the chart, with that of the third quarter in 2024, it was EUR 453 million. So this brings, again, more or less what always has been our strategy, and we feel proud that we are able to invest in any part of the cycle and keep our strategy plan or even develop a strategic plan in any part of the cycle. Our financial strength allows us to do that. So in these circumstances, in the current circumstances, we make such a relevant investment as the acquisition of Haynes. This is the main comparison with the net debt that we experienced 1 year ago, which fully takes sense. Clearly, our strategy goes there. And at the end, this financial strength allows us that not only we are facing that, we are not experiencing any troubles regarding our leverage. As you know, our -- all our debt is covenant free from every covenant related to profitability. So this is -- for us, it's obviously some KPI that follows our policy, but has no relevance in our debt. And in addition, we have a -- as always, we have had a high competitive debt that allows us that the finance charges are not killing in these days. The KPI of the debt-to-EBITDA this year obviously appears to be high, but this is something that clearly as a consequence of the possibility of being able to make relevant investments even in the low part of the cycle. So low EBITDA and a relevant acquisition has this effect, but it shall be diluted gradually and especially with a consistent and committed continuous cash flow generation. Esther Camós: Going to the Stainless division. I think there are several factors that are characterizing this quarter. Some of them has been presented along the presentation. First of all is seasonality in Europe, okay? According to the collective bargaining agreement that we signed last year, we have closed production in Europe for 15 days in August. Second factor, I would say, is the weak demand, okay? Weak demand has affected both Europe and United States, but more significantly Europe. The third factor, I would say, it's the import pressure, okay, which has caused the prices to reduce even more in Europe. We are selling in this quarter at the lowest prices in the year. And in the positive side, we have United States, which are much better situation of prices despite of the weak demand. Also positive is the cash generation of EUR 82 million in the quarter and EUR 165 million, which is a demonstration of our projects of working capital reduction that we have been mentioning along the year. Going to the figures, the figures reflect exactly the factors that I'm mentioning. On one side, we have a 10% reduction comparing quarter-over-quarter in production. We have also an 8% reduction quarter-over-quarter in sales, which is lower than production because of the higher prices in the United States. The EBITDA is lower by EUR 2 million, but EUR 2 million is exactly the effect that we have because of the depreciation of the U.S. dollar in this quarter. This is the effect that we have in the EBITDA. And a positive -- and in the positive side, we have the increase of the margins. We are increasing margins in this third quarter despite the lower sales, and margin is 8% instead of the 7% that we have in second quarter. Going to HPA. In the HPA, due to our diversification to different sectors, we are being able to compensate the negative impacts experienced in sectors like oil and gas or chemicals, which is -- which our factory -- which our group VDM is more exposed to. We are compensating this with a gradual recovery of the aerospace, that affects mostly Haynes. The EBITDA is lower by EUR 2 million. We are achieving an EBITDA of EUR 32 million and EUR 103 million in the 9 months, okay, which is true that 9 months is also -- has contributed with Haynes this year. And again, the cash generation, okay? We have an operating working cash flow of EUR 70 million in the quarter, which is much better than the second quarter. Most of it is coming by the reduction of inventories, and it's EUR 134 million going to the 9 months. And capital allocation. We continue generating cash through our working capital reduction plans, which are resulting to be very successful and we are proud of it. In the quarter, we are reducing our working capital by EUR 85 million. And we have been able to generate an operating cash flow of EUR 152 million. We have had stronger CapEx this quarter of EUR 88 million, as we already announced. We already announced that we were making down payments in this quarter of some of the investments for Haynes. The free cash flow is EUR 64 million. And we have paid -- we have made the payment of dividends to our shareholders of EUR 77 million, which, in the end, has made us to increase that only by EUR 21 million. So we are maintaining the debt despite of the stronger CapEx and also despite the payment of dividends. Going to the 9 months, which is also very significant the cash generation through working capital. It is true that in the 9 months it's partially impacted by the U.S. dollar depreciation, okay, which is -- which you can -- you see also reflected in the bridge. Then it allows us to -- the operating cash flow in these 9 months has been of EUR 299 million. We have had CapEx of EUR 212 million. And the figure that I like the most is the free cash flow. Free cash flow achieved in these 9 months has been EUR 155 million, which is exactly the amount of dividends that we are paying, which means that our debt would have remained flat in these circumstances if it wouldn't have been by the depreciation of the U.S. dollar and the effect that it has in our cash in U.S. dollar. In this case, we have increased our debt in EUR 123 million, which is exactly the effect that we had in the conversion to euros of our cash in U.S. dollars. Miguel Ferrandis Torres: In this regard, we are able to keep on focus on our clear strategy. As you know well, our clear strategy, if we start from the top to the bottom, we are clearly making relevant investments on growth, especially where we have a warranty return. This means, clearly, in the case of North American Stainless, as you know, we are increasing our capacity at 20%. The new equipment shall be on place from the next year. This is an investment that we are taking place for the last 3 years. In addition also, as we have a warranty return, we are increasing -- investing in increasing also production and efficiency in VDM by 15%. In those areas, we actually are more exposed to the current circumstances of the market, which is Acerinox Europa and Columbus. We are also making a huge effort not with so relevant investments, but at the end, we are making virtually out of necessity for transforming the business for being prepared for the current circumstances and especially for taking advantage of the market recovery when it comes, but with not relevant investment because still this return is not so warranted and it is not only depending from ourselves but also from market conditions. But in any case, we transformed the business model of Acerinox Europa. This is already prepared and working. As well as Columbus has demonstrated its ability to become the most diversified steel plant in the world, making not only stainless steel, as well as carbon steel, as well as now moving to the electrical steel, and, in addition, is obviously prepared for processing HPA. So this is more or less what we have been doing most in these 2 areas. In addition, going to the bottom, we are not only successfully integrating Haynes, our strategy of moving to this AAA investment. We always mention America Alloys Aerospace. The integration is successfully more or less being done and accomplished. And in addition, we have already precised the additional investments to take place in Haynes for the coming future. It has been mentioned. So this is already -- has also been fixed. And as a global consequence, but also keeping our driver of absolute control of the working capital as well as continuous cash generation. Bernardo Velázquez Herreros: Okay. So everything has been said. In the short term, we are living in this uncertain market, uncertain scenario, where the demand is still weak, has been weak for 3 consecutive years. And this is happening with stainless steel. It's also happening with projects in oil and gas and in the chemical processing industry because this lack of visibility moves to postpone investment, as have been mentioned. So in the short term, it will be still weak. We'll have a fourth quarter basically in the same rhythm like Q3, but with seasonality that we mentioned. I'm very optimistic in the future, very optimistic, because all the situation of the group with the diversification in different countries and the different materials, the position that we have and all the projects that we are now facing will put us in a very good position to take advantage of the level playing field that is being created in Europe, United States and maybe, why not, in South Africa as well. So very optimistic for the future. Thank you very much. Carlos Lora-Tamayo: Thank you for the presentation. Now we can start with the Q&A session. So please, operator, go ahead. Operator: [Operator Instructions] Our first question is from Tristan Gresser at BNP Paribas. Tristan Gresser: I have 2. The first one is on the U.S. market. If you can comment a little bit on the weakness you're seeing. We're seeing that cold-rolled production for the group is down 5% year-on-year. Does that reflect the demand decline you're witnessing in the U.S.? And any differences between flats and longs? And if I'm not mistaken, you should see in Q4 a greater positive pricing impact. Will that be enough to offset the lower volumes? Bernardo Velázquez Herreros: The situation in the United States is more or less the same than in Europe, of course, with a better price level, but the situation in the market is more or less the same. In '22, the demand went down by 5%, in '23 it was minus 20%, still is flat in '24 and will be flat in '25. So the situation is more or less the same in both long and flat. We expect a recovery once the situation is more clear. Normally, in consumer goods materials, in the case of flat products. But we are also waiting for the reactivation of oil and gas that can help the long products, bars for drilling, and also can help all the infrastructure programs in the United States with our stainless steel rebars for bridges. And the situation is more or less the same, flat demand, but with a better level of prices and waiting for the recovery. In Q4, prices have been what we –- was the consequence of what we announced in Q -- at the end of the second quarter results, we announced a price increase. We have been negotiating with our customers a price increase. And that has been -- we have been able to get this price increase in the customers in which we don't have a longer-term agreement. In some cases, we have 6 months contracts, so we have quarterly contracts. So we have been postponing these negotiations until the contract is finished. So Q3 has been the result of this price increase. Q4 will be more or less the same level. We expect a further recovery, a further increase in Q1 '26. Tristan Gresser: No, that's very clear. Then if -- you have that pretty severe seasonality into Q4. If I look at group EBITDA for Q4, does it mean it could be lower on a year-on-year basis? Miguel Ferrandis Torres: Well, the -- each time we are obviously more American driven. It's North American Stainless, it's Haynes. Also, in the HPA in Europe, normally, December is the slowdown. So as a consequence of that, we announced it's going to be lower. Basically, from the seasonality in America from Thanksgiving to Christmas, it's very low activity. So at the end -- the fourth quarter is not a quarter of 3 months normally in the States. It's substantially 3, 4 weeks shorter. And this is more or less what shall appear in our figures. This is -- obviously, it still is too soon. We need to see more or less the evolution of the market. We need to see how effective and successful is our working capital reduction as planned, which shall be the effects, obviously, on this, on the inventory adjustment. So we feel comfortable stating that the Q4 shall be lower, and we feel comfortable saying that mostly due to seasonal slowdown. Then I invite you to take your conclusions on your model. Tristan Gresser: Yes. No. Yes, it's a bit early. And maybe just one last question, if I may. On the -- obviously, you talked positively about the import situation, well, not now, but the measures have been implemented in Europe. But in Europe, we've also seen a surge in stainless semi-finished products, and those are not being covered by the quotas. So do you believe that semi should be included, could be included? And how big is it of a risk if you have CBAM, if you have the quotas on CRC, HRC, but then all these slabs -- all those slabs are coming through. So we would love to have your view there. Bernardo Velázquez Herreros: Yes. No, for sure that we are asking for semi-finished products to be -- sorry, it's not semi-finished products. Semifinished products will not come to Europe because it will be affected by all the trade measures. What we expect is the measures to be extended also to product where stainless steel has a lot of influence in the cost, means tubes, sinks or this kind of products. But semifinished will be included, will be covered by the quotas. And also CBAM will help to avoid circumvention. Operator: Our next question is from Adahna Ekoku from Morgan Stanley. Adahna Ekoku: I've got 2. So first, just to follow up on the U.S. prices. Could you give us a sense of how the contract negotiations are going for 2026, just given the kind of continued weak demand as well as the new volumes coming to market. And you mentioned you expect this to be higher kind of heading into Q1. Operator: Apologies. The line is very unclear, Adana, so we weren't able to get your question. If you could kindly try dialing back in and then we can move on to you again. In that case, we'll take the next question from Tom Zhang at Barclays. Tom Zhang: Yes. Can you guys hear my line? Is that okay? Bernardo Velázquez Herreros: No, no, no. If I could understand, it's something about in the previous call. It's speaking about U.S. contract negotiations for '26. And we are busy in these negotiations today. There's nothing that we can add. Normally, these negotiations happen earlier, normally start happening in July. And many years in October, we have already finished the negotiations. With the uncertainty and lack of visibility, everything is being postponed. And we are now negotiating. And we expect that in November, December, we will close all these contracts. It's difficult for our customers to predict volumes. So in most of the cases -- in this previous forecast, we are speaking about repeating volumes in '26. But no idea. That can change in months when the recovery start or once the rules will be more clear. Operator: And sorry for the interruption. So we'll now move on to Tom Zhang at Barclays. Tom Zhang: Great. First one for me, just -- you mentioned in the presentation sort of inventories growing now in Europe, and I guess maybe that's a little bit of prestocking ahead of measures. How much further do you think inventories can keep going in Europe? I guess I'm just trying to figure out how much more import prebuying we could see in the next couple of quarters before measures come in and the market normalizes a little bit? That's the first one. Bernardo Velázquez Herreros: But this is very difficult to predict. As Miguel mentioned, some of the importers can think that it's better to import now because next year will be more difficult, we have more protection or will be -- but it's going to be difficult to predict, which is going to be the effect of CBAM in 1st of January and if the new trade measures are going to be applied in April or in May or when the safeguard measures expire at the end of June. So it is difficult to predict what's going to happen. If I were an importer, if I were a distributor, of course, I would keep my stocks in reasonable levels, not high because everything can change. The volatility is very high. And we don't think -- I don't think personally that it's a good time to increase your stock. But this is a -- I cannot answer your question. Tom Zhang: Okay. Fair enough. And then could you just remind us about the kind of volumes that you send from South Africa? I think historically that was a very export-driven plant. I know you brought the export volumes down a lot in the last few years. I think the last we heard was it was about 50-50 between domestic and export shipments. I'm just wondering does that flow get affected at all by the European trade measures if you send any material from South Africa into Europe? Bernardo Velázquez Herreros: This is something that we predicted. And we have been working in South Africa in Columbus Stainless to change the situation, because we always thought that the future will be more regional and Columbus will not have the possibility to export big volumes to Europe or to any other region of the world. So that's why we are starting making mild steel in South Africa, and we are also prepared now to produce also electrical steel. So we are concentrating Columbus in the local market. In the past, it was -- at the beginning, it was 70% export, 30% local. Now we are targeting to have more or less 60% local, 40% export. And in that case, all the volumes exported to the European Union will be into the quota. So we will not have to pay any extra tariff there because the material that will come to Europe will be included in the quota. Tom Zhang: Okay. So sort of no change in terms of volumes going from South Africa into Europe. It's already well below the new quota level. And then maybe just a final one for me around NAS volumes, I guess, with the capacity expansion. I think you guys previously talked about first coil meant to come out by the end of the year. Do you have any visibility on that? And maybe any early targets on how long the ramp-up period will be, if any, for the sort of NAS expansion? Bernardo Velázquez Herreros: The NAS expansion is going very well. So we already installed the crane in the melting shop. But still, we don't have this capacity increase because we are repairing or revamping one of the other existing cranes. But everything is ready. Hot rolling mill is also ready. We will produce the first coil in the cold rolling mill at the end of January. The ramp-up will depend basically in the revamping of our AP #2, that is the annealing and pickling line that we are modifying to absorb the increase of capacity. But that will be ready also 1st of January or early January, and the ramp-up can take 3 or 4 months. So we will be ready for the recovery of the American market. Operator: Our next question is from Bastian Synagowitz at Deutsche Bank. Bastian Synagowitz: Hopefully, the line is okay here. Maybe firstly, on Americas. Can I briefly ask, is the softness in the U.S. which you're seeing here in the fourth quarter any more than the usual seasonality, i.e., is this really very much in line with what you're usually seeing? Or is there anything more in it? That's my first question. Bernardo Velázquez Herreros: No, no, it's more or less -- as I mentioned before, it's the same, more or less the same consumption rhythm that we have had in second quarter and quarter 3. It's more or less the same. There's not additional weakness in the market. No, no, it's just seasonality. Bastian Synagowitz: Okay. Then maybe moving over to the HPA business. And I guess third quarter was actually pretty stable, but you still obviously seem to see a lot of softness in energy and also chemicals, as you're saying, I guess, mostly in the former VDM business. So do you think that we have already seen the trough here in HPA? And the contribution, i.e., should we -- sort of would you be comfortable to say that we'll be -- that we'll stay pretty close to these levels and then rebound from here? Is there any color you could give us, any conviction? And then I guess, secondly, on your investment strategy here, where you have a reasonably big pipeline for investments. Are you confident that these investments still all make sense? Or have you taken at least any action to pace those down and maybe adjust for the current market also in the context of your net debt to EBITDA probably hitting around 3x. I guess you clearly have a lot of comfort on that and I think you express it, but are you still pacing on the CapEx side here? That's my question. Miguel Ferrandis Torres: In regarding of the HPA, I think it's differentiated obviously by the areas. As we told before, the weakness of the chemical products industry, obviously, the maturity and the lead times for this sector as well as on the oil and gas are also driving lower order book than normal in the current days. So we clearly assume that the best semester of next year for these sectors are not going to be relevant. So more or less what we also consider now. And this is – obviously, the consequence of our strategy is that the improvement in the aerospace could compensate. And obviously, when we talk about the aerospace, it shall be more reflected in the States through Haynes, should compensate this weakness that we are going to experience in the chemical process mostly and in the oil and gas. In the oil and gas, there are some volumes more related to maintenance, but not for new projects. This is obviously for Haynes as well as for NAS, for example, for all the drilling. This end use still is not there. In maintenance, there are some issues. But still clearly, we must take in mind that VDM is mostly covering 2/3 of its production, covering these both areas. The other areas, the automotive shows certain improvement, the electronics remains there. In the case of Haynes, we shall experience the growth and the clear recovery of the aerospace industry. And the gas generation also, as was expressed, is also doing well. So our understanding is on the global picture for next year, we think that probably shall be more or less compensated the correction or the effect in a global year of this weakness with the other strength. But probably in the first semester, especially for oil and gas and CPI, we do not see now any recovery. So if it comes, it should be more in the second semester. In regarding of the investments, we are long-term driven. This sector is huge in investments and it's not for thinking on a short-term basis. The investment plan in Haynes and especially the areas where it's focused as well as also what we are investing in North American Stainless for process, HPA takes full sense. It's a growing sector. And also the main driver of the synergies and the future synergies is coming from that. So it's not more or less any type of questioning of the timing of the investments. As also the same circumstances takes place in VDM. There are investments for increasing not only volume, but it's mostly for increasing efficiency as well as for avoiding dependence from 3 players and having the possibility of make the whole process as much as possible internally. And this is clearly -- the efficient also is coming through that. So it takes sense. So we -- as I said, we are obviously following our debt carefully and making the best in cash generation, but we should not reconsider these investments as they are because of the current level of debt. As I told before, we are clearly investing on growth where we have a warranted return. And in these cases, it's evident. Operator: Our next question is from Maxime Kogge at ODDO. Maxime Kogge: So first question is a follow-up on Tristan's one on semis. I think actually you are yourself sourcing some semis on the market, and that's quite recent, especially from Indonesia. So what has led you actually to adopt this strategy recently? And could you go further in that direction? And would there be a case for Europe actually to really focus on the hot rolling or even just cold rolling mill and source its slabs externally given that Europe's production is bound to remain quite uncompetitive compared to some other regions in the world at least in the hot side? Bernardo Velázquez Herreros: As we mentioned before, we are suffering of unfair competition, especially for materials that have been melted in Indonesia and roll in other countries and entering in Europe with other origins than Indonesian. So that's making -- not only in stainless steel, also in carbon steel, it's making our industry unsustainable. So we cannot live in these conditions. The European steel industry is in real danger, and that's why the Commission is now placing these set of measures that are going to be very important for us. But still we don't have these measures. We have to do something. So that's why many players started to bring slabs from Indonesia. So we have to do things. So we defend the European industry, or then we close our melting shops and we start bringing material from Indonesia. In this case -- in our case, we only have made one trial. It's not a significant volume. Maxime Kogge: Okay. That's clear. And second and last question is on South Africa, because there, historically, you had a big competitive advantage because you had access to quite cheap ferrochrome. But now the industry, the local industry is in disarray, and there could be a future when the whole industry will have disappeared. So how do you see the situation there? How does it impact Columbus? What's your view potentially on the export tax on chrome as well that is being envisaged? That would be helpful, yes. Bernardo Velázquez Herreros: You know that very recently the production of ferrochrome in South Africa was suspended because of the high electricity price, basically because of high electricity price. And the ferrochrome producers were asking for better conditions, because otherwise, they are exporting, instead of producing in the country, they are exporting the chrome ore to China. And China with South African chrome ore has become the biggest ferrochrome producer in the world. They have around 56% or 60% of the world production. And that is why, because South Africa in the last years has lost competitiveness. Now the situation is better in terms of availability of electricity. There are some negotiations between the ferrochrome producers -- we are included in these negotiations -- and the government asking for better electricity price for the electro-intensive industries as well as an export tax or export duty for the exports of chrome ore that are damaging the competitiveness of the country. Having said this, we still have access to cheap chrome compared with the rest of the world. We can use it, as we have mentioned many times, in liquid, liquid form. We can use liquid ferrochrome because we have ferrochrome smelter as an enabler company less than 1 kilometer away from our plant. And this is a significant advantage because we don't need electricity to melt this ferrochrome because it's already liquid. And we also save a lot of money in refractories and in electrodes. So still very competitive. And basically, most of the materials that we are exporting to Europe from South Africa are ferritic, because it's our specialty and because we are more competitive. Operator: Our next question is from Inigo Egusquiza from Kepler. Íñigo Egusquiza: So I have 4 questions, if I may. And the first one would be on the European Union safe measures. If Bernardo, you can share with us what are your expectation in terms of calendaring implementation? I think you have mentioned April, May, but maybe we have to wait until June. If you can share with us what could be potential calendar. I know it's tough. This is the first question. The second question would be on Haynes International integration. If you can also elaborate and share with us how is the integration going? How are the synergies, the number that you increased? How are things going on this front? The third one would be on stainless steel. If you can also elaborate a bit how is the profitability of the U.S. versus Europe? I guess Europe is again making losses, but I don't know if they are bigger or smaller than a year ago. And what could be the implications of the new European Union's safe measures for the European business profitability? Can we expect this facility to reach breakeven if the new safe measures are implemented to reach breakeven by 2026? And the final one, I'm sorry for being long, on the U.S. base prices that you have mentioned. If you can quantify a bit how large has been the base price increase that you implemented during the summer of 2025? Bernardo Velázquez Herreros: I cannot answer the first question because it's not in our hands. The existing safe measure will expire the 30th of June. So partly we are moving fast in this sense is because we need to finish the process. You know all the European process are long, safe, but long, and have to be ready for -- at the end of June. Of course, everybody is aware of the emergency that we have of these measures, and everybody, including the European Commission is making the best to accelerate the process. So this is -- nothing that I can add. And I have read that could be 1st of April. But we don't have any information on this. We cannot control this process. Miguel Ferrandis Torres: Regarding the Haynes integration, we are there, we are satisfied. There has been a huge effort. The integration at the end is more or less with participation of relevant people, not only at VDM, also at NAS, also at Acerinox headquarters. So it's a global team who is accelerating the process of the integration. We are really satisfied of how the things are moving on. Regarding the synergies, the estimation of the synergies, obviously, the -- we are in the year of the start of the process. The synergies fixed for this first year were EUR 11 million, and we are there. So we have accomplished what has been the analysis for the first stage, assuming that the synergies should gradually be increasing year after year. But those for the first year already we are there, and we are very comfortable with that. Esther Camós: Regarding stainless and the contribution of Europe, okay? We are following our strategy in Europe, which is resulting to be positive. All the KPIs that we are measuring, comparing, going higher value-added, going end customers versus distributors and so on, everything is making us to trust on that strategy that we are following. The problem in Europe is being, as said, is, first of all, demand, and second, import pressure in prices, okay? So this low level in prices, I think, is affecting all the industry. So we are positive in the future. We are positive with the measures because we think that those measures -- we cannot predict what is going to happen with the prices, but we expect that with these measures in place, the market will be able to increase prices, and that definitely will help in our strategy. The contribution compared to last year is being better, okay? So it's a reflection of that. All our measures are going on the good directions, but still suffering from these price levels and demand. Bernardo Velázquez Herreros: Inigo, when we are speaking about prices, normally, we are speaking about the prices that are published in several magazines because we cannot speak about prices. We are very sensitive to this. So as Esther mentioned, everybody is speaking that prices in Europe today are very low, around EUR 100 per ton below the average of this cycle and probably below -- EUR 300 per ton below the average of the previous cycle. But we are not speaking about our prices. And in the case of United States, it's exactly the same. So we are negotiating customer by customer, product by product. Everybody has a different price. And this is something that we cannot disclose. We have -- we announced that we are increasing prices, but this is not an official tariff. We are not publishing official tariffs and say this product will have this price for every customer or whatever. This is negotiations and will depend on everything, situation of the customer, situation of our plant, the need to have more or less orders in several products. So that depends very much. We cannot disclose our pricing situation very much. Operator: Our next question is from Tommaso Castello at Jefferies. Tommaso Castello: Is the line clear? Can you hear me? Miguel Ferrandis Torres: Yes, we hear you perfectly. Tommaso Castello: Okay. Yes. Sorry. Okay, fine. I was just checking. I have one last question. So you have highlighted cutting costs and cash generation through the management of working capital as key priorities for year-end. So given the ongoing market uncertainty, do you anticipate further opportunities to release working capital in Q4? And if you could remind us of your cost-cutting initiatives to date and if there is any target number and date there? Miguel Ferrandis Torres: Well, we are pushing hard in terms of making the best of the working capital in the Q4, and this is a clear guideline that every division of the business is actually focusing. So this has been recurrently restated from the headquarters, and all the group is committed. So in this regard, we understand that this is going to be a strong and relevant effect coming in the Q4. You also can see that one of the Q3, for example, was substantially higher than the Q2. So in this regard, we are clearly focused. Esther introduced it previously. With the cash generated up to now, we have covered the relevant CapExs up to now, but also the dividend for the whole year. There is no cash-out coming for dividend payment in the fourth quarter. But it's a strong tax cash-out that also is going to take part. So on that basis, we consider that we shall reduce probably the net debt. But a lot of the cash generated through the reduction of working capital also shall be for paying taxes. So on that basis, it's not going to be -- even though we make our best and we are successful in the discipline of reduced working capital, we are not going to make or experience a huge reduction in net debt because of that, because the tax has to be paid in the fourth quarter according to the circumstances on the areas where we are profitable are clearly there. In regarding of the other plan, we have now a clear public number of the cost reduction plan that we are involved, but also the plan remain on place. And we are healthy there. But obviously, as much as productivity is higher, as much as they are better appreciated. So sometimes even though we make a huge effort for reduced cost that can increase our profitability, in the current level of prices, not always it's so appreciated in the final P&L, because at the end, as has been previously stated, the magazines are reporting base prices now in these days of around EUR 450. I remember in the old days, we considered that it was not possible for the industry to be profitable below EUR 900 or EUR 950. Then we developed for being profitable levels of EUR 700. Now we see this level of prices. So still the cost savings that we can obtain that are significant in our business and for our controls and benchmarks, but has less visibility when the market is so poor. Bernardo Velázquez Herreros: But anyway, remember that -- sometimes we have mentioned that with the volatility of the cycles in the last decade, we have learned to run our plants like the cars. We have the eco mode and we have the export mode. When we are full of orders, we go to export and we try to focus on productivity. When we are in the low part of the cycle, we are not fully at full capacity and then we go to the eco way, I mean, trying to focus on cost. And this is what we are doing now, trying to be effective and very efficient in all the production, trying to save in everything, in electricity, trying to save in refractories, all the consumables. Trying not to make extra hours. Trying to take holidays when it is possible. And also focusing in our excellent program, our Beyond Excellence plan. That is seen. We published the numbers in quarter 2 for the first half of the year, and it's moving very well. So we are focused in all these projects that will help us to improve our profit and loss account. Miguel Ferrandis Torres: Tommaso, regarding this Beyond Excellence plan, as Bernardo mentioned, we published twice a year in H1 and full year results. And in H1 -- well, the target for the year is EUR 45 million. And in H1, we achieved EUR 23 million. So it's -- we are going on track and we expect to be close -- very close to this target by the year-end. Operator: Our next question is from Dominic O'Kane, JPMorgan. Dominic O'Kane: Just one quick question. I just wanted to double check with the Q4 guidance for lower EBITDA quarter-on-quarter. Does that also include any assumption for an inventory revaluation? Bernardo Velázquez Herreros: No, no, no, the guidance is only including what can be considered adjusted EBITDA. Operator: At this time, we currently have no further questions in the queue. Carlos Lora-Tamayo: We have 2 questions from the webcast. The first one is coming from Adahna from Morgan Stanley, and it's as follows. On HPA, conditions for VDM continue to be weak, which is getting partly offset by Haynes. Can you help us with a split of how these 2 businesses are doing? Or maybe how much lower VDM is tracking relative to its normalized EBITDA, which I think you previously said is around EUR 120 million? Miguel Ferrandis Torres: Well, I think we already have explained that. Obviously, still it is a bit early. It shall depend on circumstances, and it still is too early for considering what may take place in the '26. We already have indicated that the order book appeared to be weak for the first half, but let's see what comes later. And on the other side, the recovery in the aerospace industry is coming. So this -- we understand that this shall compensate, but still it's too early to make any commitment in what shall be the profit contribution for that division. So we shall have more visibility probably at the year or when we make the year-end results presentation in February. It still it is too soon. Carlos Lora-Tamayo: Thank you, Miguel. And the last question is coming from Marisa Hernandez from Times Square. What are your expectations for CBAM impact on stainless prices in Europe? Bernardo Velázquez Herreros: Very difficult question. We still don't know what are the rules of steel. And we know the rules, but we still miss some information that is going to be necessary for this because still we don't know what is going to be the benchmark for the industry. So then we cannot compare prices or different CO2 emissions between importers and this benchmark. And still there's some uncertainties in the formula. So there's nothing that I can add here. And I also cannot give you information from consultant companies or whatever because the range is so big that some people are speaking about EUR 100, some people are speaking about EUR 500. But this is not the price increase. It could be the effect for importers. So there's no visibility on this. I cannot help you. Carlos Lora-Tamayo: Okay. Thank you. That concludes today's conference call. So thank you very much for all your questions and for joining us today. Have a good day. Esther Camós: Thank you. Bernardo Velázquez Herreros: Thank you. Esther Camós: Thank you. Miguel Ferrandis Torres: Thank you.
Operator: Good morning, everyone, and welcome to the Butterfly Network Third Quarter 2025 Earnings Conference Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I would now like to hand you over to the Interim Chief Financial Officer, Megan Carlson, to begin. Please go ahead when you're ready. Megan Carlson: Good morning, and thank you for joining us. Earlier today, Butterfly released financial results for the third quarter ended September 30, 2025, and provided a business update. The release, which includes a reconciliation of management's use of non-GAAP financial measures compared to the most applicable GAAP measures is currently available on the Investors section of the company's website at ir.butterflynetworks.com. I, Megan Carlson, Interim Chief Financial Officer of Butterfly, alongside Joseph DeVivo, Butterfly's Chairman and Chief Executive Officer, will host this morning's call. During today's call, we will be making certain forward-looking statements. These statements may include, among other things, expectations with respect to financial results, future performance, development and commercialization of products and services, potential regulatory approvals and the size and potential growth of current or future markets for our products and services and changes in the nature of our business. These forward-looking statements are based on current information, assumptions and expectations that are subject to change and involve a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those contained in the forward-looking statements. These and other risks are described in our filings made with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, and the company disclaims any obligation to update such statements. As a reminder, this call is being webcast live and recorded. To access the webcast, please visit the Events section of our investor website. A replay of the event will also be available on this page following the call. I would now like to turn the call over to Joe. Joseph DeVivo: So thanks, Megan. Good morning, and thank you for joining us for our third quarter 2025 conference call. We're pleased to report the third quarter '25 results were at the higher end of revenue guidance. We continue to consume less and less cash while driving gross margins higher, excluding our noncash inventory adjustments that we recorded. Please keep in mind that our third quarter 2025 results compared to last year's third quarter where we delivered 30% revenue growth on the heels of a very successful iQ3 launch. We were able to keep growing on top of that very strong quarter a year ago. We knew coming into 2025, we would have to anniversary a big year and new product launch. In major medical institutions across the United States, there are hundreds of doctors who own a Butterfly. To drive enterprise sales, we developed a strategy that builds on the base of individual support and introduces Butterfly more holistically through the health system. During the second quarter of this year, we encountered some headwinds in the strategy as hospitals were focused on broader macro issues. Those headwinds remained during the third quarter. Nonetheless, our pipeline opportunities have increased. We believe we're starting to see the cloud lifting. I expect we'll return to the momentum we're used to in 2026 and may even see early signs in the current quarter. When we laid out our 5-year plan in March 2024, we introduced multiple growth pillars. One of those was our core business, going deeper into the POCUS category with higher quality imaging and software that meets the needs of hospital systems. We also said we'd expand into entirely new markets, and we continue innovating to maintain our differentiated edge. We're seeing that our strategy is working and that our many shots on goal position us for success. We're improving healthcare economics every day and are intent on bringing this innovation directly into the heart of medical care. While the third quarter is usually our quietest, we kept busy driving progress across the business and continuing to lay the necessary foundation as we mature and scale. An important part of that foundation is ensuring that we remain a trusted partner to our customers and information security plays a big role in that. We've always had a strong security posture, and we've now strengthened that further with ISO 27001 and other international certifications announced earlier this week. Each of these reinforces that Butterfly's cloud is safe, trusted and enterprise-ready as we expand globally. Our AI strategy is also proving to be a great accelerator for us, and it's really come to life in Q3. A major milestone came in September when the POCUS CARE trial from Rutgers Robert Wood Johnson Medical School published in JAMA, highlighted the real-world impact of Butterfly's AI lung tool, or auto beeline counter on patient care and hospital efficiency. In this evaluation of over 200 patients, integrating Butterfly's tool into workflows, improved clinical management in 35% of the cases, reduced hospital length of stay by 30% and generated more than $750,000 in direct cost savings. This is exactly the type of clinical and economic validation that fuels our enterprise strategy and shows the power of AI to drive real change in health care. And our next-gen enterprise software, Compass AI is on track to launch before year-end. So we expect to take this type of impact further by making large-scale hospital use even easier and more effective. We've also said time and time again that education is the biggest barrier to mass adoption of point-of-care ultrasound. Butterfly has invested throughout our journey in education from in-person training to advanced AI tools. Butterfly Garden is our ecosystem to deploy AI tools to caregivers, including those who were not classically trained in ultrasound. During the third quarter, HeartFocus from DESKi became the first FDA-cleared Butterfly partner app to launch in the Garden. HeartFocus uses AI to guide echo probe placement, capture quality images and support faster cardiac scans for any healthcare professional. So we're excited with this launch and now it's bringing action into the vision that we've had. Echocardiograms are done about 7 million times a year in the U.S. with a wide range of procedural costs from $250 a study and sometimes well over $1,000 out of pocket. That's over $1.7 billion to payers on the lower end. Most of that happens in a facility. And if the cost isn't a barrier, access is. Now anyone with a Butterfly can get a HeartFocus license, download the app from the Apple Store, plug in their probe and perform a limited echo, a scan that's often all you need to get key information fast right at the bedside. It's that easy, and this is why Butterfly Garden is an amplifier. It lets more users practice medicine in ways they couldn't before, improving patient access to timely care. We also have Butterfly ScanLab in our very own AI-powered app that members can use for ultrasound learning at no additional cost. Last October, Kansas City University College of Osteopathic Medicine became the first medical school to use ScanLab in an elective course. This week, they joined us for a webinar to share their results, which 95% of students committed to independent scanning, over 7,000 scans were reviewed and more than 230 faculty hours were saved. This was made possible because they leveraged AI through ScanLab. In fact, the impact and student enthusiasm was so strong, as of this fall, KCU expanded to a one-to-one model using our probes and ScanLab across all 4 years of their curriculum. Continuing on AI. For the last several years, Butterfly has been working with the Gates Foundation and the University of North Carolina on an AI-powered gestational age calculator. In many low- and middle-income countries, women often learn their pregnant late in their term and may not know the date of conception. Yet gestational age is critical in guiding the care and could be life-saving for those far from health facilities. This is where the AI steps in. So using a simple set of blind sweeps across the uterus during pregnancy, the tool automatically calculates the age of the baby. No image interpretation or specialized training required. It's a powerful example of technology meeting accessibility and affordability. Since 2022, more than 1,000 Butterfly devices have been deployed in over 1,000 healthcare providers across sub-Saharan Africa, resulting in about 2 million scans to date. What's exciting is as of Q3, caregivers now in Malawi and Uganda can now use the AI calculator directly in the Butterfly app. No additional hardware needed. And with the tool currently under FDA review, we're looking ahead at bringing it to even more settings. Each of Butterfly's AI initiatives have the opportunity to drive a paradigm shift in how care is delivered and represents exactly what Butterfly stands for, using AI and handheld ultrasound to remove barriers, empower more providers and help improve outcomes. We've built the framework and the platform, and now AI is unlocking massive leverage and bringing our growth strategy to life. So I'll pause here and turn it over to Megan to review the financial results for the quarter. Megan? Megan Carlson: Thank you, Joe. Revenue for the third quarter of 2025 was $21.5 million, reflecting 5% growth over the prior year period, which was primarily driven by higher average selling prices from a larger percentage of iQ3 sales internationally as well as increases in volume mainly in the U.S. Breaking things down between U.S. and international channels, total international revenue increased 4% over the prior year period to $5.4 million. The increase was driven by price given the international launch of iQ3 in the third quarter last year. During the third quarter, U.S. revenue was $16.1 million, which was up slightly from the third quarter of the prior year. The slight gain was due to e-com sales as well as improved performance in our veterinary distribution channel. Breaking our revenue down between product and software and other services, product revenue was $14.6 million, an increase of 8% versus Q3 2024. This increase was largely driven by higher average selling prices in our international markets as well as increased volume within both e-com and vet. Software and other services revenue was $6.9 million in the third quarter, which was flat to the prior year period. During the period, we saw increased licensing and services revenue from our partnerships, offset by lower renewals of individual subscriptions and lower revenue from extended warranties as the standard warranty of our iQ3 probe is longer than our prior models. Software and other services mix was 32% of revenue, which was slightly lower than the third quarter of 2024. The percentage of revenue from software and services has decreased in recent quarters as our product revenue growth outpaced software revenue with the launch of the iQ3 in early 2024 as well as our geographic expansion. Turning now to gross profit. Gross margin, including a noncash write-off of excess inventory of $17.4 million was negative 17.5% compared with 59.5% in the prior year. Adjusted gross margin, which excludes the impact of the inventory write-downs, increased to 63.9% from 60% in the prior year period. The increase in adjusted gross margin was driven by an increase in average selling prices as well as a reduction in software amortization costs. To expand on the inventory write-off, during Q3, we recorded a noncash charge for the write-off of excess quantities of our previous generation chip that are used in the manufacturing of our iQ+ probes. We originally expected iQ+ to continue to be a larger portion of our volume. However, the strong market adoption of iQ3 has outpaced expectations, prompting us to revise our assumptions to reflect a higher proportion of volume attributable to iQ3. In quarter 3, for example, iQ3 accounted for approximately 85% of our probe volume and iQ+ represented the remaining 15%. While iQ+ will continue to serve as the lower cost alternative and address targeted use cases, our earlier forecast assumed a greater share of demand from iQ+. We've since refined our forecast to reflect the actual product mix and market trajectory, resulting in the write-down. Moving to adjusted EBITDA and capital resources. For the third quarter of 2025, adjusted EBITDA loss was $8.1 million compared with a loss of $8.4 million for the same period in 2024. The improvement in adjusted EBITDA was driven by the previously mentioned improvement in adjusted gross profit. These reductions and improvements led to a normalized cash burn of $3.9 million. Cash and cash equivalents, including restricted cash at the end of the quarter were $148 million, and the trailing 12-month use of cash was $31.5 million. Before turning to guidance, I can update you on some macroeconomic factors. As of this morning, we are on the 31st day of the federal government shutdown. To date, we have not been directly or significantly impacted by this. However, we're keeping our eyes on customers that may be impacted as well as agencies such as the FDA. A shorter-term shutdown is not expected to affect our sales pipeline, but a prolonged closure could delay deal timing for the deals that rely on some degree of government funding. However, this is not currently a significant portion of our pipeline. We're also exposed to the indirect, more systemic impacts of a prolonged shutdown such as customer cash flow timing as a result of impact to payers. As of now, we don't see this as a significant risk to our business. Additionally, at this time, the FDA has paused fee-based submissions during the closure, though they'll continue to review in-flight submissions for the time being. Again, a short-term shutdown is not expected to impact our submission time line. However, should it extend significantly, regulatory processing delays could become a factor. We will keep you updated on this matter as it progresses. Next, we continue to see a trend of some of our customers delaying purchase decisions as they navigate macroeconomic factors. And while Q3 is typically our softest quarter of the year, contributing to this were purchase delays that impacted our U.S. hospital and enterprise channels. While timing remains uncertain, we have several large deals in our pipeline we expected to close earlier in the year that remain active. From an opportunity perspective, in addition to unlocking the Octiv pipeline, we are working on several deals within our Octiv business and continue to negotiate an agreement with a large insurance company to reduce readmissions. As soon as we have updates on these, we'll let you know. When we evaluate our headwinds and opportunities together, we are reaffirming our full year revenue guidance in a range of $91 million to $95 million, which implies $25 million to $29 million in revenue for Q4. In order to get to the higher end of the range, we need to close on some of the larger deals that are in our pipeline. Given the visibility we have into the remainder of the year, we are able to tighten our full year adjusted EBITDA loss guidance to a range of $32 million to $35 million or $9 million to $12 million for Q4. We have continued to maintain our disciplined approach to expense control while also investing appropriately beyond our growth areas to enhance our delivery capabilities as additional revenue opportunities crystallize. To summarize, we delivered on the top and bottom line in Q3. And while uncertainties continue to exist around the impact of the government shutdown or the outcome of policy decisions from the administration, we have strengthened the diversification of our business and are excited about the opportunities in front of us. Butterfly is extremely well positioned to meet the needs of our customers as our technology not only enables superior flexibility and strong image quality, but has allowed us to be a much more affordable solution at scale than the current cart-based ultrasound solutions. In addition, our semiconductor development path will continue to improve this price performance advantage with each subsequent generation. Simply put, we see Butterfly as a long-term winner in ultrasound in any macro environment. With that, I'll turn the call back to Joe. Joseph DeVivo: So thanks, Megan. As we discuss almost every quarter, we're working on a compelling growth plan that builds first on our market leadership in point-of-care ultrasound. As I mentioned before, it's coming to life through education, cloud compatibility, incredible technology and accelerated through our leadership in AI. We're also building on our POCUS business with strategic initiatives that we're getting closer to delivering in a meaningful way. We are working every day to transition our home care pilot to a commercial agreement. And the moment we have a significant update, we'll let you know. In parallel, we're engaging with additional national risk-bearing organizations that are receptive to the model we tested earlier in the year. What we've learned is clear that selling probes isn't enough for large at-risk providers. They need scalable models that educate, manage data and competency and enable growth through new use cases and AI. I believe a meaningful part of Butterfly's future revenue will come from solutions, not just devices. Selling hardware alone is in the past and pairing it with software, services and hands-on support is how we'll scale. I'm hopeful we'll bring the first of these opportunities across the finish line very soon, signaling the start of a potent next chapter for Butterfly. I'm also happy to share that we have officially completed the development of our P5.1 chip. As discussed during our 2024 Investor Day, Butterfly's next-gen chip was designed to integrate advanced MEMS capabilities that significantly increase the mechanical pressure associated with imaging, something critics of CMUT technology long claimed couldn't be done. They said our digital approach would never accomplish harmonics like piezo-based handhelds. Well, they were wrong. P5.1 is now entering fab production, and we expect that in the second half of next year, it will debut in its new form factor. If Butterfly iQ3 established performance parity with other handhelds across key presets, helping fuel our sales growth over the past 2 years, P5.1 will surpass them entirely with the potential to make piezo handhelds a thing of the past for nearly all use cases. Apple recently launched its 48-megapixel chip, a continued manifestation of Moore's Law, demonstrating they will never stop innovating. Well, neither will we. Our image quality will continue to make exponential leaps for Butterfly. The only question will be, why would anyone buy a piezo handheld anymore? These competitors are loading their devices with more LED crystals, trying to keep up with what Butterfly's all-in-one digital platform already delivers. But piezo is yesterday's technology. Soon, these devices will be in the drawer next to the film cameras. Big Piezo may be well funded, but they failed to invest and now they no longer deserve the market. I'm equally excited to share that with P5.1's release to fab production, we transition into the beginning of our sixth-generation Apollo AI chip development. Apollo AI is designed to deliver not only lightning fast ultrasound processing, but also a local AI capability at the edge. The upcoming Apollo AI chip introduces a scalable architecture that seamlessly fuses Butterfly's proprietary ultrasound front end with the advanced digital processing, achieving a much smaller chip size and greater power efficiency in order to deliver even better image quality and capability across a broad range of clinical applications. It's intended to support both on-device and edge AI acceleration, providing flexible compute expansion and integration with leading AI platforms. With its intelligent architecture and future-ready design, Apollo AI will serve as the foundation of Butterfly's next wave of innovation, advancing diagnostic imaging performance and enabling a new era of AI-driven medical insight. So finally, Octiv. There are several large ultrasound on-chip partnership discussions that we are continuing having. And while I'm still not at liberty to unpack them for you, I hope you can sense my enthusiasm. Progress is happening and the time line that allows us to share news with you is largely driven by our partners. What I can share is this, if these opportunities play out the way we see them shaping up, Butterfly may, over time, transition from a POCUS company with an ultrasound chip to an ultrasound chip company with a POCUS business. That's a step change in how our core technology will scale and how our total addressable market will multiply with POCUS becoming just one of many ways ultrasound on semiconductors can be deployed across some of the largest medical applications in the world. I am looking forward to providing more information as it becomes available and when our partners are ready. As I close, it's worth remembering just 1.5 years ago, we set out to transform this business. Today, I can see the vision now coming to life. Soon, we'll be swimming in a big, beautiful sea of Blue Ocean. So with that, operator, let's move to Q&A. Operator: [Operator Instructions] And our first question comes from the line of Chase Knitbacker with Craig-Hallum. Chase Knickerbocker: Maybe just first, if there's any way you can help us kind of quantify the size of some of these deals that have pushed because of the macro and kind of what you're seeing from an activity perspective in October as far as it relates to those and the rest of your pipeline as we -- as when we look at kind of guidance, what it implies for Q4, it does imply a nice step-up. And so maybe just speak to kind of your confidence in that pipeline and the activity so far in October. Joseph DeVivo: Well, yes, we've been seeing through the year deals just simply push, and we just haven't been able to get them closed. So those can be in a size of 100 to 200 probes. We have some pretty large medical school deals also. So it's kind of across the board when it comes to anything over 100 probes. Chase Knickerbocker: And then just as far as October has... Joseph DeVivo: Yes, regarding my confidence, we really -- the beautiful thing is that we're not losing deals. This is not a competitive issue. This is not an issue where -- and I think people and especially as we griceite ourselves with hospital administrators very much for the first time, there's an inevitability to this. As I said earlier in my comments, doctors are purchasing Butterflies on their own. And when we tell administrators how many people in their institution own a Butterfly, they're shocked. So -- and not only that, but there's such a preponderance of ghost scans, scans that are not being reimbursed because it's not a part of the ecosystem. So we definitely feel there's inevitability, and we see a lot of activity and people going into the end of the year. I think when we get into a whole new 2026 budget cycle, I think people will feel more comfortable about spending on like brand-new projects. I've seen in other companies where people are saying, okay, well, CapEx is fine. That's because it's budgeted CapEx and they're getting reorders. To do a whole new project to carve out time from the IT department because everyone has some major EMR project. But the carve-out time in the IT department and carve-out time for a big project, that's been just the easiest thing from the delay. So we're definitely seeing that the opportunities are stacking up, which is good. And we're very hopeful -- we wouldn't guide to the quarter if we didn't feel confident with what we put out there. Chase Knickerbocker: Understood. And maybe just on the subs and software side of the business. It sounds like there's a little bit of some lower renewal rates. Can you just maybe discuss kind of drivers there and kind of how you think you can kind of improve some of those metrics, particularly with Compass on the horizon here? Megan Carlson: Yes, sure. Thank you for the question. So we continue to see churn in our individual subscription as we've seen over the past couple of quarters. And also year-to-date, we've seen an uptick in our enterprise subscription. In terms of timing of subscription as a percentage of revenue, a lot of it is just that timing because the software and the hardware have different revenue recognition patterns. But as you mentioned, we are very excited about the rollout of Compass AI later in Q4. Operator: And the next question comes from Josh Jennings with TD Cowen. Joshua Jennings: I wanted to just follow up on the sales funnel or pipeline and just ask about -- maybe remind us of the sales cycle and timing and just how the pipeline is shaping up for 2026 in terms of an outlook for growth. It sounds like with some of the delays -- with some of the concerns or just tightening of capital spending for new projects that the sales pipeline may be more full heading into '26 than what you're experiencing heading into 2025, but maybe just help us think through that as well. Joseph DeVivo: Yes, Josh. Well, clearly, the time to close has extended. So we have -- we definitely have a lot of deals that have aged beyond what we would normally have an age. So if anything, we're stacking up more and more deals, but we haven't been closed fast enough. So again, I think that's going to -- that will lift in '26. I think there was a bit of a shock to the system in '25 and then people have been mitigating and managing it. But whenever we get to the end of the year, there are always dollars that people have to spend, and we'll be fighting for those dollars. Joshua Jennings: Just on the -- just the Robert Wood Johnson and the cost savings and cost effectiveness, I think that cost effectiveness data is accruing nicely for Butterfly iQ platform. But I mean, how powerful can that be in terms of driving stronger interest and closing of deals as we get into 2026 as your team is able to market that Robert Wood Johnson study published in JAMA and others? Joseph DeVivo: It's really important for a bunch of different reasons. The first is that it establishes that pulmonary congestion is a very key endpoint for congestive heart failure. So from a pure clinical standpoint and which -- whether we go in home, we go in outpatient or we go in inpatient, using ultrasound and using it as a marker for congestive heart failure progression or lack of progression is really important. I'm dealing with a chest cold here. So also, when we have our enterprise conversations, the primary place that we start from an economic side is go scans. 35% of the scans in a hospital in point-of-care ultrasound, make it all the way through to reimbursement. When they put Compass in place, that goes to 70% to 80%. So we have that great economic benefit. But that's also something that they capture that benefit in the first year of putting the software in and then going forward, they can say they're anniversarying that benefit, but where is the next benefit. So the next big economic piece of evidence that we have identifies the fact that by using point of care in the intensive care unit, by every day a doctor just pulling out a probe very quickly, doing a pulmonary scan and using a pulmonary scan with our AI shows significant economic benefits in the ability of managing patients in the hospital. So it's not just about early diagnosis. It's about taking care of the patient's wellness at the moment that the doctor sees that, giving them the tools to see something instead of having to order a scan. So when we sit with administrators now, we have a second big indisputable set of evidence around the economic value of doing this. And when we sit with administrators, it's not necessarily people saying, should we do this? I think actually, with this next piece of economic evidence, people believe they need to do, it's when. When am I going to take on this project? When can I stack it in with IT? When should we move forward? And so it's just such a wonderful piece of evidence that helps our economic argument when we think about our enterprise sale. Joshua Jennings: Excellent. If I could sneak in one more. I mean it sounds -- I know there's no update on the home program today, but you did complete a pilot program with a major partner and payer. Just to check the box. It's not a matter of if, but when it sounds like, and you'll just provide an update when that partnership kind of finalizes and no diminished kind of optimism or enthusiasm about that channel and that opportunity is my understanding, but I just wanted to clarify that. Joseph DeVivo: Well, not certainly about the channel, but until you have ink on something, it's not real. So I would have liked to have had it done by now. It will be done when it's done. I just don't control it. Operator: [Operator Instructions] Our next question comes from Andrew Brackmann with William Blair. Andrew Brackmann: So you seems very confident on the P5.1 chip and new form factor launching next year. Can you maybe just sort of talk to us about what's needed to get to the point of launch sort of between now and then what you're going to be working on to sort of derisk that launch? And then when you get there, anything you can share on just sort of the product build ahead of that launch or anything on pricing that you might expect for P5.1? Joseph DeVivo: Well, thank you. So P5.1 will certainly be a highly specialized product. We haven't identified pricing yet. We'll get to that closer. As you saw with iQ3, we've been able to establish a new price watermark. We've been able to improve our overall corporate gross margins. We've been able to maintain not only a higher blended ASP, but at that higher ASP, iQ3 has outsold iQ+ to a pretty significant magnitude more than we expected. So we -- it's not implausible to think those trends would continue with the next version. Putting a chip in a probe, tuning the chip to our software and AI, getting that probe completely -- these -- every year, we launch a new technology or develop it, it's a great coalescing effort for our company because there's not a team in the business that's not touching that new product. So iQ3 was a very successful launch. It's a very successful effort on getting the technology to market. And I don't think there's any different. There's -- the beautiful part of when we're bringing in new processors is we're not having to reinvent every wheel. We bring a new processor in. We tune all the components and all the software to the edge capability of that processor and then we roll it out. So I think the risk to execution on launching the new product is pretty low. I think there's always risk. The call it research for that purpose. But I think right now, we look really good. Andrew Brackmann: That's perfect. And then just on the info security piece, you had the press release out earlier this week and then obviously touched on this call. Maybe just in practical terms, how does this help you win business? And as you sort of think about sort of what you've achieved here, do you think that this is sort of table stakes for the entire market? Or is it a sort of meaningful differentiator for Butterfly? Joseph DeVivo: It's an interesting dynamic because aside from one other independent competitor, and I could be wrong maybe by one. But in general, the industry is on-prem. The industry has software that they'll connect to a WiFi and they'll push an image into a DICOM, but they're not cloud connected. And so when you're not cloud connected and you're on-prem, you don't really have to worry about security because people don't -- can't get into your device. But our competitors have clearly communicated that they really want to follow in our footsteps and finally catch up to where we've been for a while. And so the industry is going to cloud connectivity on imaging devices. And so historically, our competitors would use it as a selling disadvantage for Butterfly. They would say, oh, you have to connect it to the cloud. So you have to now have all of this security concerns, which is kind of garbage because every single hospital has an AWS cloud interface. And so we have -- by being the first company that's mass commercial in the cloud, we've had to kind of set the bar on security and make sure that we deal with data compartmentalization, we deal with the HIPAA requirements proper. We deal with all the different multiple layers to ensure that the data is secure. Because remember, we have 25 million images in our cloud growing 30,000 a day, keeping that data secure, making it available to our customers, porting it into their systems for the EMR, for DICOM, for reimbursement is essential. And so we expect in 2026 that we'll have our HITRUST certification and FedRAMP, which is the highest certification of any security basically worldwide. It's the most complex. And so to have a cloud environment, have that level of security is insane. So it has always been our competitive advantage to have cloud. It's always been our competitive advantage to be there. All others will say bad things about us and say until they finally get there and then they'll say how great it is, which I think is absolutely hilarious. But we absolutely believe that cloud is the way to be able to manage large fleets to be able to manage data, push and pull large complex models, create overall connectivity. And we have literally the best cloud security posture in the industry. Operator: [Operator Instructions] And our next question comes from Ben Haynor with Lake Street Capital Markets. Benjamin Haynor: Joe, on the commentary on Apollo AI, I was just curious, have there been kind of upgrades to the original design as far as the kind of edge AI aspects to it beyond what was kind of discussed at the Investor Day last year? Joseph DeVivo: Yes. Benjamin Haynor: Any more color there? Joseph DeVivo: Yes. So we have pushed the boundary of Apollo to include the ability and to make sure that we are capable to do local AI on the chip. That is the next biggest trend in AI instead of having to calculate and process AI in the cloud and then push the devices to be able to do it actually on location is the next biggest processing feat and it creates a significant amount of local benefits in speed and capability. Instead of having to take something, push in the cloud process it and wait for it to come back by having that processing power to do it dynamically in your hand is a major step-up. So yes, Apollo has 20x the processing power of P5.1 and our legacy. And so we're making sure that, that processing power is put to the right use. Benjamin Haynor: And I guess, maybe dovetails a little bit with your last comment regarding the cloud in terms of kind of pushing and pulling models that you would be pushing and pulling the correct model or maybe not -- the relevant model to the device if you're doing XYZ scan. Joseph DeVivo: Well, yes. I mean, today, one of the benefits of our cloud architecture is we do -- like it does work like an ecosystem. You have the device, you have the app and then there's this dynamic communication with the cloud. And we kind of purpose data processing where the assets are available. But as AI models get more and more sophisticated, it's certainly possible that, that becomes more of a lag and you want to have greater local control. So for the individual device to have that kind of processing power creates a much faster way of delivering that feedback. And that is on -- literally on the edge of where AI and compute are going today. Benjamin Haynor: Yes. So specialized model to push the device eventually. Got it. Go ahead. Joseph DeVivo: Yes. So more and more AI capabilities be processed on the device. Benjamin Haynor: Got it. And then just curious on any updates to -- with regard to IQ Station or the RoHS situation with the European Commission? Joseph DeVivo: IQ Station is actively in development. And when we get closer to a date, we'll put it out there. a big part of our future strategy. And regarding RoHS standards, it's on August 1, they closed the book on any type of submissions from ourselves or our competitors. And it's in the midst of a third-party review. That third party is reviewing data and then asking questions as they see necessary. And then hopefully, sometime next summer, they'll render their decision or their opinion to the government to the governing body, and then we will -- they'll make a decision. But it's kind of their -- all the data now is sitting there. They're crunching the data, and we're in that quiet period unless they ask questions, and we're waiting for an answer. Operator: And that was our final question. So I will hand back over to Joe DeVivo for any final comments. Joseph DeVivo: So everyone, thank you very much for the support. Sorry about my seasonal cough I keep getting. We're thoroughly excited about the progress that we're making, and we're thoroughly excited about what's to come. We definitely think we had a slower start to the year, but everything that we're building is very, very strong. And I just can't wait to be able to unpack a lot of other things for you as they mature. And also, I'm just very appreciative for Megan Carlson, our Interim CFO, for doing just such an expert job in this interim. So thank you, Megan, and thank you, everyone, for your support. Operator: Thank you, everyone. This concludes today's call. You may now disconnect. Have a great rest of your day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2025 Third Quarter Results Conference Call [Operator Instructions] Introducing today's conference call is Mrs. Mary Skafidas, Senior Vice President, Investor Relations and Communications. Please go ahead. Marry Skafidas: Thank you. Hello, everyone, and thanks for being with us today. Our speakers for the call are Stephan Tanda, our President and CEO; and Vanessa Kanu our Executive Vice President and CFO. Our press release and accompanying slide deck have been posted on our website under the Investor Relations page. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. As always, we will also post a replay of this call on our website. I would now like to turn the call over to Stephan. Stephan, over to you. Stephan Tanda: Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our third quarter results. Later in the call, Vanessa Kanu, our CFO, will provide additional details on key drivers for the quarter. Starting on Slide 3. For the third quarter, we delivered adjusted earnings per share of $1.62. During the quarter, growth in our Pharma segment was driven by solid demand for proprietary drug delivery systems for central nervous system therapeutics, asthma, COPD and ophthalmic treatments. We saw moderating demand for emergency medicine dispensing systems. We also captured significant growth in injectables during the quarter from increased demand for elastomeric components for GLP-1 medications and solid growth in our Active Materials Science division. When you step back and look at our Pharma segment's performance for the first 9 months of the year, prescription has a 7% core sales increase, injectables at 6% and growing and active material science is up 8%. Consumer Healthcare continues to be affected by the destocking and is down 11%. Additionally, royalties continue to contribute positively to our top and bottom line results. And we're continuing to invest in the ongoing growth and innovation within pharma. To that end, we have signed an agreement to acquire Sommaplast, a Brazil-based provider of oral dosing pharma packaging solutions, including droppers, dispensers and dosing cups. Aptar has been manufacturing in Brazil for 25 years, and this acquisition, which is subject to regulatory approvals and anticipated to close later this year is expected to further reinforce our footprint in the region. It also helps position us to capitalize on growth in Brazil's oral dosing, over-the-counter and nutraceutical markets, which are projected to grow at mid- to high single digits through 2030. This growth is driven by an expanding population, rising middle class and aging demographic. In our Beauty segment, for the quarter, we saw revenue growth in a number of regions over the previous year quarter, such as Asia, Latin America and certain end markets in North America. At the same time, in Europe, our largest region, sales were flat as we continue to see softness in our higher-value products such as facial skin care and in certain prestige fragrance end markets. Our Prestige fragrance pumps did have modest volume growth in the quarter. Additionally, we saw lower sales for our full pack solutions that service the India market in the U.S. due to the challenges at one of our larger customers. In the first 9 months, Beauty reported sales rose 2%, while core sales held steady overall. Strong 11% growth in Personal Care helped balance softer demand in Prestige fragrance and facial skin care. Turning to the Closures segment for the quarter. While product volumes were up, lower tooling sales and pass-throughs of lower resin pricing impacted core sales growth. For the first 9 months, closures reported and core sales rose 1%, driven by a 5% increase in product sales, partially offset by lower tooling sales and the pass-through of lower resin pricing. Food and beverage markets saw solid growth and Personal Care declined. Turning to innovation. I'd like to highlight recent technology launches and key news as shown on Slide 4. Starting with the Pharma segment, our Unidose liquid system is used in the newly FDA-approved Enbumyst by Corstasis Therapeutics, the first intranasal loop diuretic for treating edema linked to heart failure, liver and kidney disease. This approval underscores the growing role of nasal drug delivery in systemic treatment and our commitment to patient-centric solutions. An Aptar proprietary nasal system is also used in a Phase I clinical trial for a powder nasal spray managing Parkinson's OFF periods. Managing Parkinson's OFF episodes means treating periods when medication wears off and symptoms like stiffness or tremors return, often by adjusting medication timing or using fast-acting rescue treatments for on-demand relief. During the quarter, we signed an exclusive partnership with French biotech company, Dianosic, to develop a bioresorbable intranasal insert for long-term local drug delivery in chronic allergic rhinitis and rhinosinusitis. This collaboration also explores nose-to-brain delivery for neuropsychiatric and neurodegenerative diseases. Next, our HeroTracker Sense technology has also received FDA 510(k) clearance as a Class II medical device. This Bluetooth-enabled sensor transforms traditional inhalers into smart, data-driven tools for patients and providers. Finally, we inaugurated our expanded pharma research and development center in France, which helps boost capabilities across our proprietary drug delivery business. It's one of Aptar's 11 global innovation centers. Over 10% of our pharma workforce is dedicated to research and development, supported by nearly 4,700 active and pending patents. The center integrates advanced technologies, digital simulation, rapid prototyping, predictive modeling, data utilization and artificial intelligence. It is aimed at accelerating and derisking development of next-generation drug delivery solutions. Turning to our Beauty segment. During our recent Investor Day, we showcased our award-winning technology for the Clarins reloadable total eye-lift serum featuring our patented ALS packaging with a highly recyclable reload and double tamper seal system. In fragrance, Christian Dior is using our prestige fragrance pump for its new launch Miss Dior Essence Parfum. Finally, our Precise dropper technology used for the controlled and targeted application of liquid formulas is a dispensing solution for the indie brand basic lab in Europe. Lastly, in Closures, Marzetti's Buffalo Wild Wings sauces in the U.S. feature our poor spout closure, a more lightweight sustainable solution that delivers convenience. In the beverage concentrate market, our flip top non-drip solution was chosen by PepsiCo for their SodaStream syrups. Moving to Slide 5. All of this would not be possible without tremendous teams around the world. We take great pride in the numerous recognitions we have earned, including being named among the top 100 of the world's best companies for women by Forbes. This honor highlights our ongoing efforts to build an inclusive culture that empowers individuals to grow, connect and reach their full potential through meaningful development opportunities and inclusive initiatives. Before I turn the call over to Vanessa to share further details on the quarter, I want to highlight that we continue to focus on returning capital to shareholders through share repurchases and by increasing our dividend. To date, 2025 has been a banner year for share repurchases, and we plan to lean in more. In addition, we recently announced an increase to our quarterly dividend by nearly 7% to $0.48 a share. This underscores the strength and resilience of our business model as well as our confidence in Aptar's long-term growth prospects. We are very proud of having paid an increasing annual dividend for the last 32 years. Now I would like to turn the call over to Vanessa. Vanessa Kanu: Thank you, Stephan, and good morning, everyone. Let me begin by summarizing the highlights for the quarter on Slide 6 and 7. Our reported sales increased 6% and core sales, which adjust for currency effects and acquisitions, grew 1% compared to the prior year period. Before moving further, I want to call out that this quarter, we had a couple of atypical items impacting our reported net income. First, as a result of the BTY transaction that closed this quarter, we recorded a gain on the remeasurement of the previously held minority interest of approximately $27 million, which increased our net income. And as this gain is nontax impacting, it reduced our reported effective tax rate for the quarter to 17.1%. Our adjusted effective tax rate, which excludes the impact of this item, was 20.8%, in line with expectations. Second, as we mentioned on our prior quarter call and in our recent Investor Day, we are engaged in litigation to actively and vigorously defend our pharma IP portfolio and products. This resulted in atypical litigation costs of approximately $4 million that impacted our net income. As the gain on remeasurement of our equity investment and the litigation costs incurred in the quarter are both atypical and not indicative of operational earnings of our business, we have excluded both of these items from our adjusted EBITDA and adjusted earnings per share for the quarter. All references that I now make to adjusted EBITDA and adjusted earnings per share exclude these items. A full reconciliation is provided in our earnings press release and in our 10-Q. With those high-level comments, let's take a closer look at segment performance. Turning to Slide 8. Our Pharma segment's core sales increased 2%. Let me break that down by market, starting with our proprietary drug delivery systems. Prescription core sales increased 3%, driven by strong year-over-year demand for dosing and dispensing technologies for central nervous system applications, asthma and COPD therapeutics. We also saw growth for emergency medicine, albeit at a slower rate. And royalty payments continued to contribute positively to revenue in the quarter. Consumer Healthcare core sales decreased 11%, primarily due to lower sales of nasal decongestant and nasal saline. Sales for ophthalmic solutions continued to grow in the quarter, but could not offset the overall decline in cough and cold volumes. Injectables core sales increased 18% with strong demand for elastomeric components used for biologics, GLP-1 and regulatory-driven Annex 1 requirements. Services also contributed positively in the quarter. And for our active material science solutions, core sales increased 3%, driven by continued strong demand for active material science technologies for diabetes treatments. Pharma's adjusted EBITDA margin for the quarter, which excludes the impact of nonordinary course litigation costs referenced earlier, was 37.2%, a 120 basis point improvement from the prior year. The margin improvement was driven by increased sales of higher-value proprietary drug delivery systems, services and royalties. Moving to our Beauty segment on Slide 9. Core sales were flat in the quarter. While increased tooling revenues provided a lift, these gains were offset by a decline in product sales. Looking at the Beauty segment by market, fragrance, facial skin care and color cosmetics core sales decreased 5%, primarily due to lower sales of skin care dispensing products for indie brands in North America. Personal Care core sales increased 13%, driven by continued strong demand for body care and hair care applications. And core sales for Home Care, the smallest end market in our beauty portfolio, decreased 18% in the quarter due to the timing of some nonrecurring service fees in the previous year. This segment's adjusted EBITDA margin for the quarter was 12.1%, a decline of 120 basis points. The decline in Beauty margins primarily reflects less favorable sales mix and lower margin tooling sales. Moving to Slide 10. Our Closures segment core sales decreased by 1% compared with the prior year. While product sales were up 2%, this growth was more than offset by lower tooling sales and pass-throughs of lower resin pricing. When looking at the market fields for closures, food core sales decreased 4%, primarily due to lower tooling sales, while volumes increased across a number of categories. Beverage core sales increased 9%, primarily driven by increased sales for functional drinks and bottled water. Personal Care core sales decreased 8%, while in our other category, which includes beauty, home care and health care, core sales were flat. This segment's adjusted EBITDA margin was 16.1%, representing a 110 basis point decline over the prior year, primarily due to unscheduled equipment maintenance that impacted production. At the total company level, consolidated gross margins declined by 80 basis points year-over-year, while SG&A as a percentage of sales declined from 15.6% to 15.5%, a 10 basis point reduction. SG&A expense in absolute dollars increased largely due to the aforementioned nonordinary course litigation costs incurred in the quarter. Overall, consolidated adjusted EBITDA margins increased by 30 basis points to 23.2% compared to 22.9% in the prior year period. And adjusted earnings per share was $1.62, up 4% year-over-year on comparable foreign exchange rates. Slides 11 and 12 cover our year-to-date performance and show that reported sales increased 3% and core sales increased 1%. Our reported earnings per share increased 17% to $4.75 and adjusted earnings per share increased 7% to $4.48 compared to the prior year, including comparable exchange rates. The current year had a reported effective tax rate of 20.4% and an adjusted effective tax rate of 21.9% compared to the prior year reported and adjusted effective tax rate of 22.7% and 22.8%, respectively. Neutralizing both the effective tax and exchange rates for the year ago period, adjusted earnings per share would have been up 6%. Additionally, adjusted EBITDA increased 8% to $624 million, and the adjusted EBITDA margin increased by 100 basis points to 22.2%. In the first 9 months, free cash flow was $206 million, comprising cash from operations of $386 million, less capital expenditures net of government grants of $180 million. The year-over-year decline in free cash flow was largely due to higher working capital and higher pension contributions in 2025. These were partially offset by lower capital expenditures. Finally, we ended September with a strong balance sheet once again, reflecting cash and short-term investments of $265 million, net debt of $936 million and a leverage ratio of 1.22. Over the past 9 months, the company has returned $279 million to shareholders through share repurchases and dividends. So far this year, we have repurchased 1.3 million shares for $190 million, the highest repurchase amount in a decade. Of the $500 million authorized by our Board of Directors for repurchases, approximately $270 million remains available as of the end of September. Given the recent trends and the strength of our balance sheet, we expect to fully utilize this remaining authorization over the next couple of quarters. Before we move on to outlook, I'd like to provide a brief update on our emergency medicine portfolio, where we continue to see strong underlying demand, but we anticipate near-term headwinds in this end market that we expect will impact Q4 and at least the first half of FY '26. To help with your modeling, as we previously shared, in 2024, emergency use delivery systems represented approximately 5% of total company sales. For the first half of 2025, this end market accounted for 7% of Aptar's total sales. Revenue for the first half of 2025 grew roughly 50% year-over-year, while Q3 showed more modest growth. For Q4 2025, we expect a more pronounced deceleration mainly due to elevated inventory levels at a large customer and expect revenue contribution for the full year 2025 to be about 5% of total sales. While demand from other customers remains healthy, we expect this inventory normalization to extend into 2026. Based on what we currently know about end market demand, funding dynamics and customer inventory positions, we anticipate 2026 revenues from this end market to be approximately 35% lower than 2025. Given the high-value nature of this portfolio, this will have a compressing effect on overall margins prior to any mitigation actions. Now on to outlook for Q4, summarized on Slide 13. We expect continued strength across the majority of our Pharma businesses in Q4, particularly injectables, driven by rising demand for higher-value elastomeric components, fueled by growth in biologics, GLP-1 therapies and Annex 1 compliance requirements. Partially offsetting the growth in injectables is softer demand for emergency medicine that I just spoke about. For the consumer businesses, we anticipate Beauty will have positive core sales growth in Q4 and product sales volumes for closures will also continue to grow. In terms of earnings per share, we anticipate fourth quarter adjusted earnings per share to be in the range of $1.20 to $1.28 per share. Our effective tax rate range for the fourth quarter is 19.5% to 21.5%. Our guidance for the quarter is assuming a EUR 1.17 euro to USD exchange rate. Additionally, as you will model depreciation and amortization, due to the closing of the BTY transaction and other timing and FX impacts, we expect fourth quarter depreciation and amortization expense to be between $75 million and $80 million. With that, I will turn it over to Stephan to provide a few closing comments before we move to Q&A. Stephan Tanda: Thank you, Vanessa, for the review of our emergency use delivery systems business. Now let me step back and share the bigger picture. In the short term, we faced some headwinds due to tough comparables from the exceptionally steep onetime ramp-up of the unique naloxone distribution channels as well as uncertain and evolving landscape around government funding. Steady state, our customers expect this market to grow in the low to mid-single digits. Over the past 2 years, our prescription division serving this market has grown at brisk double-digit rates. After a period of destocking, we anticipate more stable sales of our dispensing systems. Looking ahead, we expect our pharma pipeline to continue to be strong and robust. As I shared during the Investor Day, it has been contributing 7% to 10% of revenue annually. What is important is that our revenue stream in pharma is largely based on the treatment of chronic diseases with the help of our proprietary solutions, resulting in a long-term stable to growing business with new launches layered on top of that base. We believe this is possible because together with the molecule, our dispensing system form a combination medicine, which is part of the regulatory filing and remains embedded in the drug master file. Vanessa touched on injectables, I want to highlight that we are seeing good and strong growth in the very areas where we have invested, GLP-1, Annex 1 and biologics. Our investments in added capacity and capabilities in high-value products are paying off. Closures is performing well. The reorganization we started 2 years ago has delivered solid growth and innovation traction. Beauty has lowered its cost base and breakeven point, which we believe is giving it a competitive footprint. We have reinforced operational efficiency and cost discipline as an important part of our culture, and these efforts sharpen our execution. We also keep a close eye on shareholder returns, strategic capital allocation and bolt-on acquisitions. Bolt-ons are a core strength. Take our Brazilian Pharma Packaging acquisition as just the most recent example. As we look to the future, we remain confident in our ability to deliver sustainable profitable growth. We believe our business model is resilient. Our pipeline is robust and our teams are focused. With the right mix of innovation, operational discipline and strategic investments, we think we are well positioned to continue creating value for our customers, our employees and our shareholders. With that, I would like to open up the call for your questions. Operator: [Operator Instructions] Your first question comes from the line of Ghansham Panjabi with Baird [Operator Instructions]. Ghansham Panjabi: Can you hear me okay? Stephan Tanda: Yes, hi Ghansham. Vanessa Kanu: Hi, Ghansham. Ghansham Panjabi: Just so I can understand your comments specific to '26 for Pharma. So is it right to assume that you're assuming 7% to 10% growth just from the new product pipeline, et cetera? And then emergency medicine is roughly 11% of pharma, and that's going to be down 35%, and that's how we should calibrate as it relates to the growth expectation for next year? And then related to that, where are we on the cough and cold, specific to Europe in terms of the destock? Is it going to drag into 4Q? And yes, where are we on that? Stephan Tanda: Yes. Let me start and then Vanessa, please chime in. The 7% to 10% comment was just to reiterate what we covered at Investor Day that we have a stable growing business and on top of that is innovation, and that supports our long-term target. It was not meant to give you a guidance for '26. So when we look at out to '26, of course, we don't give guidance for '26. We made an exception for emergency medicines for the obvious reasons, and Vanessa went through that in quite some detail. Zooming out, we expect injectable to grow very nicely, high single-digit, low double-digit rates for the coming period. We expect Consumer Healthcare to return to growth. To your second question, we believe that has largely run its course with quarter 4 potentially returning to growth admittedly versus a lower base and also active material returning to growth. So the key impact will be emergency medicines and Vanessa can reiterate some of that, if you'd like. Vanessa Kanu: Yes. No, absolutely. But I think, Ghansham, you got the number. It is -- again, we expect for the full year 2025 to be roughly 5% of the total company. And so for the pharma business specifically, it will be in that 10%, 11% range of revenue. So that goes down about 35%. Ghansham Panjabi: And then European cold and cough or cough and cold. Stephan Tanda: Yes, that's what I was referring to, sorry. That has largely run its course. We expect quarter 4 to potentially be growing again and certainly growing into next year. Ghansham Panjabi: Okay. And then for my second question, so for the initial 3Q guidance, you did include the litigation cost of $0.06 to $0.07. And then you've changed that going forward? And just give us a reason as to why that is. Vanessa Kanu: Yes. We did, Ghansham. So we did give the estimates. We said it would be roughly $5 million to $6 million a quarter, roughly $0.06 to $0.07 of EPS impact. You will see in our disclosure that the actuals for Q3 came in at about $4.4 million. We did disclose that. But this is litigation. This is litigation. The timing of the litigation is always uncertain, and you discover things through as the litigation progresses. And as we looked at the business, I mean, these are elevated litigation costs, very atypical. You know Aptar, you have a very long history with the company. We don't typically do this. So these are very atypical costs. And when you look at the underlying performance, the underlying operating performance of the business from a management perspective, this is not indicative of the underlying performance of the business. And so we certainly provided all the transparency that we need to, but we wanted to make sure that we called out what the underlying operating performance was of the business. Stephan Tanda: You're quite right. It was when we gave the guidance. Operator: Your next question comes from the line of Paul Knight with KeyBanc. Paul Knight: Can you talk to the GLP-1 marketplace and Annex 1? What level of contribution to growth do you think those 2 markets represent? Is it 100, 200, 300 basis points of additional organic growth? Or can you quantify it is the first question? Stephan Tanda: Yes. Paul, we don't break it out in that detail. But clearly, GLP-1 is a solid driver probably in the quarter and let's say, in the couple of quarters to come, top one driver of growth. Annex 1 closely behind and then obviously, biologics continues to fill the pipeline. Now we are on all of the auto-injectors. And remember, there was always 2 SKUs on an auto-injector, plunger and needle shield and 2 companies can say they're on the same auto-injector and it may very well be true. And on the plunger side, I think there's even some double sourcing. So -- we had lower growth rates in the beginning of the year quite simply because we were still validating some of our capital investments and some of the equipment. Now as of, let's say, middle of the year, early quarter 3, everything has been fully validated and we can catch up with demand. So the growth rate you're seeing is reflective of the market demand, but also a certain catch-up. That's why we feel we're going to have a very strong finish of the year. The other question, of course, that people often ask what about our oral? Is that going to crimp demand? We don't see that at the moment. One, it's still quite a bit away. Two, from everything we hear, it's more intended to serve markets that don't have cold chain capability, but pricing will be such that it will not obsolete existing investments by our clients. That's our best read. Vanessa Kanu: And maybe the only other thing I'll add just because we did mention GLP-1 specifically, Paul, we continue to see really healthy year-over-year growth rates. For September year-to-date, we're up over 40% compared to the prior year. So to Stephan's point, we're seeing some very healthy growth there. Paul Knight: And then lastly, Annex 1 with your large French operations, are you seeing what is that #2 or 3 benefit you said in the quarter? Stephan Tanda: Correct. Correct. Now I don't want to make too light of it, but they basically say you need to provide sterile products. Well, this is not a change of the world. It's just some customers as a result, decide to go more towards higher value solutions. Operator: Your next question comes from the line of George Staphos with Bank of America. George Staphos: My 2 questions. First of all, certainly, you've had progress in your non-pharma business operationally over the years. You've been doing really quite well in closures better than we would have expected a couple of years ago, props to you on that. Beauty, we certainly recognize the challenges that you've been managing against yet the margin still seems to be slow to come around. What is the next 2 or 3 steps that are going to drive higher margin in Beauty -- when should we expect that inflection? And then a separate question, just as we think about the pharma business and the product side and recognizing you love all of your kids and you have a tremendous suite of products, and that's the reason why you've been able to grow 7% or better over the years. Should we expect that unit dose has been where you've seen most of the product activity recently? Just seems like that's the case from your slides even today and some of the commentary in the last couple of quarters. How should we think about that? Stephan Tanda: Sure. Thanks for recognizing the progress, George. I take any compliment I can get, especially for closures. I would say that #1, 2 and 3 for beauty is volume. But clearly, we're never done with the productivity story. We have significantly strengthened the competitiveness of the footprint. We see that now flowing into project activity, including leveraging our very agile China footprint for rapid prototyping, small volume launches and so on. So that makes us quite confident that the volume is going to come. Number two, it's a regional story. As we've discussed, Europe is already well in its target range. Of course, it's a global target, not a regional target, but nevertheless, China is also doing well. Where we are currently held back is North America. We talked about the -- what is in essence, our Fusion PKG business that serves indie brands with a significant customer having issues. And then overall, of course, innovation continues to be a key driver in that business. And again, with a more competitive infrastructure that gives us confidence that, that business will grow. Now on your second question regarding our kids, yes, high dose is important. So especially also for a lot of those things in the pipeline for additional indications. I mean, I mentioned the one to treat edema and I think tachycardia is not much far behind. But we also have other formats. Of course, SPRAVATO is a good example. It's a Bidose that supports Johnson, J&J's ramp-up. And we have large volume powder inhalers and many other formats. But clearly, emergency medicines, which is primarily Unidose played a big role in the last couple of years. George Staphos: Stephan, if I could just get a clarification point on volume in Beauty. Did you see signs of destocking in your customer base in the quarter or looking at the fourth quarter? You don't have to go into great detail. Just curious, yes or no. Stephan Tanda: Not really. I think there's more of -- keeping the powder dry for next year. Customers really manage their year-end inventories. We actually see encouraging signs for quarter 1 order entry as opposed to destocking. Operator: Your next question comes from the line of Matt Larew from William Blair. Matthew Larew: I want to ask about growth expectations for the Pharma segment. So over the last kind of 12 months, core sales growth has been about 3%. Obviously, you've been dealing with the cough and cold destock. But it sounds like you've had a benefit from higher NARCAN sales given that, that was 7% -- emergency medicine as a class was 7% in the first half of the year. So as you think about kind of the more medium-term period, understanding you're not giving guidance, what's the level of confidence that 7% to 11% absent the variety of moving parts is still the right range given that, again, it's been several quarters now since you've been at the low end of that range. Stephan Tanda: Yes. Well, first, let's acknowledge 7% to 11% is our long-term target range. It's not a quarterly and conceptually not even a yearly number. It's a long-term target range. We've been in that range for many, many years. There were some years where we've not been in that range. But I think everything we went through in September, what we have in the pipeline, the growth that we see coming out of the pipeline with launches, the injectable growth, active material growth, the lapping of consumer health care European cough and cold as Ghansham calls it. All of these things are contributed to growth. Of course, the emergency medicine situation, we've described as best as we could that kind of gets us the visibility perhaps into the middle of next year. So nothing has changed about the attractiveness of our pharma pipeline, about our pharma business, the pharma markets. And yes, we just reaffirmed the 7% to 11% growth rate in the Investor Day as the long-term target. So no reason to change that. Matthew Larew: Okay. Very good. And then obviously, from a capital allocation standpoint, the balance has been towards pharma in recent years. And Stephan, you alluded to the validation of some equipment to bring on new capacity. As you're starting to ramp your injectables capacity and now thinking about the next level of capital investment, what are the areas that you think are most interesting? And at what point do you think from an injectable standpoint, you will need to start to think about broad capacity again? Stephan Tanda: I think we have quite some time with injectables. You may remember, I disrespectfully called it the large boxes. We built 3 large boxes. There's a lot of equipment we can put in that box in injectables. And to creep capacity as needed, and those are much lower increments. So we don't foresee a next large increment for quite some time, certainly not on the books. Operator: Your next question comes from the line of Daniel Rizzo with Jefferies. Daniel Rizzo: I was muted. Just with the NARCAN with the emergency medicine, is that a significant margin difference between that product and others? Or is it kind of just along with the rest. I was just wondering how we should think about that effect on... Vanessa Kanu: Dan, thanks for calling that out. I did mention that in my remarks. There is a significant margin differential. I mean, as you can imagine, emergency medicine being a high-value life-saving product with high regulatory requirements, quality requirements, et cetera. These are very high-value products to us. So certainly amongst the highest of our margin products within our overall pharma portfolio. I can't give you specifics. As you can imagine, we've got competitive reasons not to share that publicly. But as you kind of think about our overall pharma portfolio, this is amongst the highest of the margins. Daniel Rizzo: I'm sorry, I must have missed that. I understand you talked about volume and mix. How does pricing work on an annual basis? Is it generally like a 100 to 200 basis points tailwind? Just -- I mean, across the board. I'm just wondering how that kind of plays into the things versus -- also versus -- I mean, some of your costs, which are generally not kind of called out, but I was just wondering how we should think about price versus cost. Stephan Tanda: Yes. Clearly, pharma is about value and use pricing. So price is not very much related to cost. The material content is in relation to the other value added, whether it's quality systems, whether it's data packages, additional services, completely different mix than in our consumer-facing business. So -- the one addition I would want to add to Mary -- sorry, is that it's really our Unidose system that is quite attractive. It's not just limited to NARCAN. It's across the board in our Unidose system as our Bidose system. Clearly, anything that is life-saving and central nervous system targeting is more profitable than allergic rhinitis business, of course. Operator: Your next question comes from the line of Matt Roberts with Raymond James. Matthew Roberts: Can you all hear me? Stephan Tanda: Yes. Hi, Matt. Matthew Roberts: On the emergency medicine, again, I'm just trying to square some of that commentary with a customer in emergency medicine. It seemed like NARCAN was down, but sequentially improving, and they noted some international potential and broader market growth. So are there other categories within emergency medicine that are still growing? And if so, how much specifically is naloxone expected to be down? And maybe into '26, what gives confidence in a second half recovery and any market share changes or shifts in that category at all? Stephan Tanda: Yes. Matt, we don't break down different indications or SKUs within the emergency medicine category, but things like neffy, things like hypoglycemia, BAQSIMI are also in that category. The -- I don't know which customer you referred to, but maybe there's one publicly traded customer is pretty important. You could look at their balance sheet and their inventory. I think that will be a big part of the reconciliation you're looking for. Vanessa Kanu: Yes. Yes, that's exactly right, Matt. They are -- they did express some optimism going forward, which I think actually validates that things will improve. But as we said in our commentary, there is inventory in the system. So they'll have to work through -- customers will have to work through that inventory situation. Matthew Roberts: All right. That makes sense. And maybe on Personal Care, that seem mix. It was up in Beauty, Closures was down. Home Care, I think, was down. So given some mixed signals there and another publicly traded peer recently called out sudden inventory corrections in those categories. Maybe just broadly, what are you seeing in those categories? Or what are customers saying in regard to inventory levels heading into 4Q, recognizing that they are smaller contributors overall in Beauty and Closures. Stephan Tanda: Sure. I mean we obviously separate what is accounted for in Beauty versus what is accounted for in Closures. Those are different formats. And sometimes customers switch between these 2 formats, and we try to catch as much of that as possible. Don't hear a lot of noise around inventory or destocking in Personal Care. It's more of a rotation in formats and sometimes the pump side wins and sometimes the closure side wins. It's different by customer. I'm not sure if we can call out a trend there. Operator: Your next question comes from the line of Gabe Hajde with Wells Fargo. Gabe Hajde: I just want to make sure I'm doing my math right. Are we sort of implying maybe a $40 million to $45 million revenue headwind associated with what you called out specific to the emergency response medicines in H1 2026? Vanessa Kanu: Well, we gave you a lot of data points. And I think if you sort of work through the math, again, if you think about 10%, 11% of pharma, 5% of the company, 10%, 11% of pharma declining 35% year-over-year. It's a slightly bigger number than you're coming up with, but I think you can get to the same ZIP code. 11% declines at 35%. Gabe Hajde: Got it. I guess I appreciate it's tough in an open mic like this. But -- as it relates to the, you called it out, Stephan, is that a product line that you're currently supplying to? Or does the litigation prevent any sort of outside sales of that product? Like is it sort of progressing as normal commercially until there's a resolution? Stephan Tanda: To the best of our knowledge, we are supplying all of that product. It's the only one that has the 99.999% proven reliability. And of course, we serve our customers with that and in this case, ARS, absolutely. Operator: We have a follow-up question from George Staphos with Bank of America. George Staphos: First of all, on D&A, Vanessa, you called out the $75 million to $80 million. Just from a modeling standpoint, should we be carrying that forward for the next number of quarters? Or is that just a onetime kind of step-up because of... Vanessa Kanu: No, no, carry it forward. Yes. So the run rate -- thanks for the question, George. And we would -- as we put out our future quarters, we'll provide more clarity around some of this. But you did see a bit of a step-up because we're now going to be amortizing or we are now amortizing the intangibles from BTY. So that was the reason for the step-up. So it's essentially a new run rate. So if you take sort of the midpoint of the guide and annualize that, I think you should get pretty close. George Staphos: Okay. Very good. The other question I had for you, just back to emergency medicines, and we appreciate all the detail that you've given us. No guarantees, no guarantees in life. But if it plays out as you expect, are we back to sort of the more normal growth rate into '27 after the step down in '26. And I think you said low single-digit growth on a going-forward basis. I just want to confirm that. Stephan Tanda: Yes. We don't guide for '26. We for sure don't guide for '27. But based on what we've said, I think that is a fair interpretation, George. George Staphos: Yes, Stephan, I wasn't asking you to guide. Stephan Tanda: I know, I know. George Staphos: I was saying I just wanted -- is the assumption that you're done with the destocking in '26, no guarantees and then it's more normal going forward. And you said -- and would you say the growth rate look normal? Stephan Tanda: Yes. I said low to mid-single digits. George Staphos: Understood. Stephan Tanda: In my opening remarks. The one additional uncertainty that I hate to throw on you is, of course, that's assuming normal government funding levels. Now we've just had reconfirmation in September that this is a supportive product by the government. And of course, the opioid overdose settlement money is readily available. So of course, if those funding sources are turned off, then it will be a more difficult environment. But I wouldn't expect that for a life-saving intervention that has been proven so successfully. And then your interpretation would be my interpretation of what we're seeing. Operator: There are no further questions at this time. I will now turn the call back to Mr. Tanda for closing remarks. Stephan Tanda: Thank you, operator. And let me just summarize and zoom out a bit. Our teams delivered another solid quarter with adjusted EBITDA growth of 7%, continuing our well-established track record of expanding the bottom line at a faster pace than the top line. While we do face the uncertainty we discussed at length on the sales trajectory of emergency medicine, we hopefully were able to give you progressive insights that we gained ourselves since Investor Day that confirm the temporary nature of this headwind. The fundamentals of our Pharma business remain highly favorable with an attractive and growing project pipeline, a steady stream of new launches, leveraging the nasal delivery route for exciting new indications. We talked about edema. And at the same time, of course, our injectable business is now taking full advantage of a booming market with our state-of-the-art capabilities. Our novel innovations and decades of experience drive a significant body of intellectual property, including patents, know-how and trade secrets, which we protect vigorously. Now as we look towards 2026, beyond the emergency medicine topic, we see solid growth in the other parts of our pharma business and are receiving some encouraging signals from our consumer goods customers, including in fragrance and beauty at large. Given the strength of our performance and our strong balance sheet, we have and we will further accelerate capital returns to shareholders, underscoring our confidence in the business while retaining the strategic optionality of our capital structure. With that, I look forward to speaking with many of you in the coming weeks. And should we not speak before then, let me wish you already now a restful Thanksgiving in the U.S. and the holiday season around the world. With that, operator, we can now close the call. Operator: This concludes today's call. Thank you for attending. You may now disconnect. Have a wonderful day.
Operator: Greetings, and welcome to the Weyerhaeuser Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor, you may begin. Andy Taylor: Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's Third Quarter 2025 Earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our earnings release and on the presentation slides concerning the risks associated with forward-looking statements as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer; and Davie Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish. Devin Stockfish: Thanks, Andy. Good morning, everyone, and thank you for joining us today. Yesterday, Weyerhaeuser reported third quarter GAAP earnings of $80 million, or $0.11 per diluted share, on net sales of $1.7 billion. Excluding special items, we earned $40 million, or $0.06 per diluted share. Adjusted EBITDA totaled $217 million for the quarter. Our third quarter performance reflects solid execution by our teams against a very challenging market backdrop. Notwithstanding recent headwinds, we remain well positioned to navigate the current environment given our deeply embedded OpEx culture and competitive cost structure. We've done considerable work over the last several years to align our strategy with the cyclicality of our businesses. As a result, Weyerhaeuser is a much stronger company today than at any point in recent history. And we continue to demonstrate the durability of our portfolio, the strength of our balance sheet and the flexibility of our capital allocation framework across market cycles. Looking forward, we remain constructive on the longer-term demand fundamentals that support growth for our businesses, and we're ready to capitalize on opportunities as market conditions improve. Before getting into the businesses, I'd like to provide an update on recent actions to further optimize, improve and grow our Timberlands portfolio. Our recent Timberlands transactions are summarized on Page 18 of our earnings slide. In the third quarter, we completed two high-quality acquisitions totaling $459 million. This includes our previously announced transaction for timberlands in North Carolina and Virginia and another acquisition of exceptional timberlands in Washington state. Additionally, in the third quarter, we advanced three divestiture packages of non-core timberlands, one of which closed earlier this month, and the other is under contract and scheduled to close later in the fourth quarter. These two transactions will result in $410 million of expected cash proceeds by year-end. We anticipate closing the third divestiture in early 2026, and expect total proceeds from all divestitures to exceed the cash outlay required for our recently completed acquisitions. These transactions represent strategic opportunities to improve the quality and value of our portfolio. As we've demonstrated over the last several years, we're committed to active portfolio management across our timber holdings and it remains disciplined and nimble in our approach to growing the value of our timberlands. Through this process, we've achieved the multiyear timberlands growth target we announced in September of 2021. Over a similar period, we've also returned a substantial amount of cash back to shareholders through dividends and share repurchase and announced a compelling engineered wood products growth opportunity, all while maintaining a strong balance sheet. Moving forward, we will continue to evaluate capital-efficient opportunities that enhance the return profile of our timberlands while also balancing other levers across our capital allocation framework to drive long-term value for our shareholders. Additionally, in the third quarter, we completed the sale of our Princeton mill in British Columbia for $85 million. In September, we received $61 million of the proceeds in conjunction with the closing of the sawmill portion of the deal. We expect to receive the remainder of the transaction proceeds over the coming months following the transfer of associated timber licenses in the province. It's worth noting that our other lumber operations in Canada are not affected by this transaction, and we continue to serve our customers from our 2 sawmills in Alberta. Turning now to our third quarter business results. I'll begin with Timberlands on Pages 6 through 9. Timberlands contributed $80 million to second quarter earnings. Adjusted EBITDA was $148 million, a $4 million decrease compared to the second quarter. In the West, adjusted EBITDA decreased by $9 million. Log pricing in the domestic market faced downward pressure in the third quarter as supply remained ample, and mills continue to carry elevated log inventories and navigate a very challenging lumber market. As a result, our average domestic sales realizations decreased moderately compared to the second quarter. Per unit log and haul costs increased in response to higher elevation harvest activity that's typical this time of year. And forestry and road costs were slightly lower than the prior quarter. Our fee harvest volumes were moderately higher and exceeded our initial plan for the quarter, largely driven by fewer operational restrictions given a relatively light wildfire season. Moving on to our export business to Japan. Log markets in Japan softened somewhat in the third quarter in response to ongoing consumption headwinds in the Japanese housing market. As a result, our customers' finished goods inventories increased and log prices decreased. Despite this dynamic, our customers remain well positioned relative to imported European lumber, which continues to face headwinds in the Japanese market. For the quarter, our average sales realizations for export logs to Japan were moderately lower and our sales volumes were moderately higher, largely due to the timing of vessels. Turning to the South. Adjusted EBITDA for Southern Timberlands was $74 million, a $5 million increase compared to the second quarter. Southern sawlog markets moderated slightly in the third quarter as log supply increased with drier weather conditions and as mills further adjusted to weaker lumber markets. In contrast, Southern fiber markets were relatively stable outside of a few localized regions impacted by recent mill closures. On balance, takeaway for our logs remained steady given our delivered programs across the region. That said, our average sales realizations decreased slightly in response to a higher mix of fiber logs from increased thinning activity. Given favorable weather conditions, our fee harvest volumes increased slightly compared to the prior quarter. Per unit log and haul costs were lower and forestry and road costs were comparable. In the North, adjusted EBITDA increased slightly due to the higher sales volumes, resulting from the seasonal increase in harvest activity that is typical in the third quarter. Turning now to Real Estate, Energy and Natural Resources on Pages 10 and 11. Real Estate and ENR contributed $69 million to third quarter earnings and $91 million to adjusted EBITDA. Third quarter EBITDA was $52 million lower than the prior quarter, but $28 million higher than our initial outlook for the segment, largely driven by the timing and mix of real estate sales. It's worth noting that real estate markets have remained healthy year-to-date, and we continue to benefit from strong demand and pricing for HBU properties, resulting in high-value transactions with significant premiums to timber value. Notably, our average price per acre has steadily increased in 2025 and reached its highest quarterly level since late 2022. I'll now turn to our Natural Climate Solutions business. First, on our carbon capture and sequestration project with Occidental Petroleum, which is expected to reach first injection in 2029. In the third quarter, Occidental announced the formation of a joint venture for the construction and operation of pipeline infrastructure between regional customers in the CO2 storage facility in Livingston Parish, Louisiana. This represents another important milestone associated with our CCS project and underscores the importance of selecting sophisticated counterparties with strong technical, commercial and project development expertise. Turning quickly to forest carbon. We have now received approval on our fourth project and currently have 5 additional projects under development. We continue to see solid demand for our credits given our commitment to developing projects that meet a high standard for quality and integrity. For 2025, we still expect a significant increase in credit generation in sales relative to the last couple of years. And overall, we remain on track to reach $100 million of adjusted EBITDA from our Natural Climate Solutions by year-end. I'll note here that we are excited to go into much more detail on our Natural Climate Solutions business, including multiyear growth targets at our upcoming Investor Day in December. Now moving to Wood Products on Pages 12 through 14. Excluding a special item associated with the sale of our Princeton mill, earnings for Wood Products was a $48 million loss in the third quarter. Adjusted EBITDA was $8 million, a $93 million decrease compared to the second quarter. These results reflect extremely challenging lumber and OSB prices in the quarter, which reached historically low levels on an inflation-adjusted basis. Starting with lumber. Third quarter adjusted EBITDA was a $48 million loss as several ongoing headwinds persisted across the North American market. The framing lumber composite began the third quarter on a slight upward trajectory, largely supported by improving Western SPF pricing and broader concerns around the pending increase in duties on Canadian lumber. As the quarter progressed, demand softened seasonally and buyer sentiment turned much more cautious. In addition, the supply-demand imbalance worsened in response to elevated shipments of Canadian lumber into the U.S. market, ahead of the increasing duties. Collectively, these dynamics drove composite pricing significantly lower through the balance of the quarter. It's worth noting that we have seen pricing stabilize and move slightly higher for certain species over the last several weeks. At this point, the industry has largely worked through the excess lumber volume that entered the U.S. prior to Canadian duties moving higher. Although we do expect the typical seasonal softening of demand as we enter the colder winter months, leaner inventories, combined with elevated duties and the new 232 tariffs should support product pricing and bridge the market until we start ramping up for next year's building season. For our lumber business, production volumes decreased by approximately 3%, compared to the second quarter. This reflects our election in September to slightly moderate production across our mill set in response to the softer demand environment as well as the volume impacts associated with the closing of our sale of our Princeton mill late in the quarter. As a result, our sales volumes were slightly lower compared to the second quarter, and unit manufacturing costs were higher. Our average sales realizations decreased by 11% in the third quarter and were generally in line with the framing lumber composite. Log costs were moderately lower. Now turning to OSB. Third quarter adjusted EBITDA was a $3 million loss, primarily driven by weaker product pricing in response to subdued residential construction activity. Following a steady decline for most of the year, the OSB composite stabilized in August and was generally range-bound for the balance of the quarter, albeit at a much lower level than the prior quarter average. For our OSB business, average sales realizations decreased by 18%, compared to the second quarter. Our sales volumes were comparable to the second quarter. Unit manufacturing costs and fiber costs were moderately lower. I'll note that pricing has remained stable through October. And similar to lumber, we do expect demand to improve early next year as we approach the spring building season. Engineered Wood Products adjusted EBITDA was $56 million, which was comparable to the second quarter. It's worth noting that third quarter results included a onetime $7 million benefit from insurance proceeds associated with the fire at our MDF facility in Montana earlier this year. As for the performance of our EWP business, we continue to align our production with customer demand and single-family homebuilding activity, both of which softened somewhat in the third quarter. As a result, our sales volumes decreased for most products compared to the second quarter and unit manufacturing costs increased. Notably, our average sales realizations for solid section and I-joists products were comparable to the prior quarter. And raw material costs decreased primarily for OSB web stock. In Distribution, adjusted EBITDA decreased by $4 million compared to the second quarter, largely due to a decrease in sales volumes. With that, I'll turn the call over to Davie to discuss some financial items and our fourth quarter outlook. David Wold: Thanks, Devin, and good morning, everyone. I'll begin with key financial items, which are summarized on Page 16. In the third quarter, we generated $210 million of cash from operations and ended the quarter with approximately $400 million of cash and total debt of just under $5.5 billion. Our balance sheet, liquidity position and financial flexibility remains solid, notwithstanding the challenging market backdrop, and we are well positioned to navigate a range of market conditions. Share repurchase activity totaled $25 million in the third quarter, and as of quarter end, we had completed approximately $150 million of share repurchase activity for the year. Capital expenditures were $125 million in the third quarter, which includes $32 million related to the construction of our EWP facility in Monticello, Arkansas. As we previously communicated, the total investment for the facility is expected to be approximately $500 million to be incurred through 2027. For full year 2025, we anticipate approximately $130 million of investments for Monticello. And as a reminder, CapEx associated with this project will be excluded for purposes of calculating adjusted FAD as used in our cash return framework. Excluding CapEx for Monticello, we have lowered guidance for our typical CapEx program to a range of $380 million to $390 million in 2025. It's worth noting that we are always evaluating our capital allocation levers and have the flexibility within our framework to make adjustments in response to market conditions, alternate uses of cash and to fund growth opportunities. Given the timing of cash inflows and outflows associated with recently announced timberland transactions and typical liability management activities, we took advantage of the beneficial rate environment in third quarter to secure a 3-year $800 million term loan with an effective interest rate of 4.3%, and we used $500 million of the proceeds to prepay a portion of our 2026 maturities. Third quarter results for our unallocated items are summarized on Page 15. Adjusted EBITDA for this segment increased by $30 million compared to the second quarter primarily attributable to changes in intersegment profit elimination and LIFO. Looking forward, key outlook items for the fourth quarter are presented on Page 19 and updates to full year outlook items are presented on Page 20. In our Timberlands business, we expect fourth quarter earnings before special items and adjusted EBITDA to be approximately $30 million lower than third quarter of 2025, largely driven by lower sales volumes and realizations in the West. Turning to our Western Timberlands operations. Log demand in the domestic market remains soft at the outset of the fourth quarter as mills continue to work through elevated log inventories and navigate a challenging lumber market. That said, log supply typically moderates into the winter months, which should provide some support for log pricing as the quarter progresses. On balance, our domestic sales realizations are expected to be moderately lower compared to the third quarter. Our fee harvest volumes are expected to decrease largely due to fewer working days in the fourth quarter and the pull forward of volume over the summer with minimal wildfire-related operational restrictions. Our per unit log and haul costs are expected to be lower and forestry and road costs are expected to decrease seasonally. Moving to our log export program to Japan. As Devin mentioned, log inventories have expanded in the Japanese market in response to ongoing consumption headwinds. As a result, we expect softer demand for our logs in the fourth quarter and lower sales volumes compared to the prior quarter. That said, we anticipate our Japanese log sales realizations to be slightly higher, largely driven by freight-related benefits. It's worth noting that we expect demand for our logs to improve over time as inventories normalize in the Japanese market and as our customers continue to take market share from competing imports of European lumber. Turning to the South. Sawlog markets remain muted as mills continue to navigate lower pricing and takeaway of lumber and work through elevated log inventories. However, we anticipate a slight uptick in log demand as supply decreases seasonally into the winter months. In contrast, fiber markets are expected to remain relatively stable outside of a few localized regions impacted by recent mill closures. On balance, takeaway for our logs is expected to remain steady given our delivered programs across the region, and we anticipate our sales realizations to be comparable to the third quarter. Our fee harvest volumes and forestry and road costs are expected to decrease seasonally and per unit log and haul costs are expected to be higher. In the North, our fee harvest volumes are expected to be moderately lower due to seasonal wet weather conditions, and we anticipate slightly lower sales realizations due to mix. Moving to our Real Estate, Energy and Natural Resources segment. Real estate markets have remained healthy year-to-date, and we have capitalized on strong demand and significant premiums to timber value. As a result, we are increasing our guidance for full year 2025 adjusted EBITDA to approximately $390 million, an increase of $40 million from prior guidance. We now expect Basis as a percentage of real estate sales to be 25% to 30% for the year, and we remain on track to reach $100 million of EBITDA from our Natural Climate Solutions business by year-end. For the segment, we expect fourth quarter earnings before special items to be approximately $5 million lower and adjusted EBITDA to be approximately $15 million lower than the third quarter of 2025 due to the timing and mix of real estate sales. Turning to our Wood Products segment. Excluding the effect of changes in average sales realizations for lumber and OSB, we expect fourth quarter earnings before special items and adjusted EBITDA to be slightly lower than the third quarter of 2025. We anticipate a slightly softer demand environment for Wood Products in the fourth quarter as housing and R&R activity typically moderates into the winter months. Looking further out, we would expect demand to increase into next year's spring building season and more broadly as the macro environment improves. Composite pricing for lumber and OSB has been relatively stable through October. That said, pricing for both products remains at historically low levels on an inflation-adjusted basis and slightly below third quarter averages. For our lumber business, we slightly reduced our production at the end of the third quarter in response to the softer demand environment and have maintained a similar operating posture through October. Assuming we continue with this reduced posture for the remainder of the quarter, combined with the effect of the Princeton sale, our lumber production would be approximately 10% lower quarter-over-quarter. As a result, we anticipate lower sales volumes in the fourth quarter. Unit manufacturing costs are expected to be comparable to the prior quarter and log costs are expected to decrease moderately. Looking forward, we will continue to ensure our operating posture is aligned with driving optimal financial performance. For our OSB business, we expect sales volumes and fiber costs to be comparable to the third quarter. Unit manufacturing costs are expected to be higher due to planned annual maintenance outages that are typical in the fourth quarter. For our Engineered Wood products business, we continue to align our production with customer demand, which is most notably tied to single-family home building activity. As a result, we anticipate lower sales volumes for most products compared to the third quarter, with our average sales realizations and raw material costs expected to be comparable. For our Distribution business, we expect adjusted EBITDA to be comparable to the third quarter. With that, I'll now turn the call back to Devin and look forward to your questions. Devin Stockfish: Thanks, Davie. Before wrapping up this morning, I'll make a few comments on the housing and repair and remodel markets. Starting with housing. Overall, housing activity has remained lackluster this year with total starts hovering around 1.3 million units on a seasonally adjusted basis and single-family starts below 1 million units. Based on conversations with our homebuilder customers, the biggest issues continue to be ongoing affordability challenges and weaker consumer confidence. While mortgage rates have declined to the low 6% range, many potential homebuyers remain on the sidelines given elevated uncertainty about the economy, inflation and employment. The ongoing government shutdown is likely also not -- also having an impact on overall sentiment. All said, consumers have been less inclined to jump into the housing market in 2025, given all the noise in the broader macro environment. Moving forward, it seems we could see some of the tariff-related concerns easing over time. We might also get additional support from the Fed on interest rates in the coming months. And hopefully, the government shutdown will end soon. Perhaps clarity in these areas could alleviate some of the uncertainty that's been weighing on consumers in the housing market. And while I suspect we'll see the typical seasonal pattern of slowing construction activity over the winter months, we do expect to improve as we approach next year's spring building season. Over the longer term, our outlook on housing fundamentals remains favorable, supported by strong demographic tailwinds and a vastly underbuilt housing stock. In addition, there seems to be a growing appreciation that government policies need to better accommodate building activity to address housing shortages across the country. All of this will ultimately support healthy demand for housing over time. Turning to the repair and remodel market. Activity has been softer this year compared to 2024, largely driven by many of the same factors impacting the residential construction market, namely lower consumer confidence, higher interest rates and concerns around the trajectory of the economy. We've also seen less R&R activity in response to lower turnover of existing homes given higher mortgage rates and the lock-in effect. Looking forward, while we do expect seasonal moderation in R&R activity around the holidays, we're optimistic that demand will recover as interest rates move lower and consumer confidence improves. In addition, we think the dynamic around deferral of large discretionary projects over the last few years will ultimately serve as a tailwind as the macro environment improves. And longer term, many of the key drivers supporting repair and remodel activity remain intact, including favorable home equity levels and an aging housing stock. In closing, I'm extremely proud of the focus and resilience demonstrated by our teams in the third quarter. Despite the challenging market backdrop, we continue to execute against our strategy and demonstrate the durability of our portfolio and capital allocation framework across market cycles. Our financial position is strong, and we continue to capitalize on strategic opportunities to enhance the value of our portfolio. And looking forward, we maintain a favorable outlook on the longer-term demand fundamentals that support growth in housing, repair and remodel and climate solutions. And we remain focused on driving operational excellence, serving our customers and creating long-term value for our shareholders. And finally, we look forward to connecting with many of you at our upcoming Investor Day on December 11. Davie and I will be joined by other members of our senior management team to present a detailed overview of our strategic growth plan, enterprise capabilities and financial targets through 2030. For those of you who plan to attend the event virtually, please visit our website to register in advance for the live webcast. And with that, I think we can open it up for questions. Operator: [Operator Instructions] My first question comes from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is on -- I want to talk a bit about how you're thinking of lumber and OSB capacity. Appreciating the comments around the fact that your lumber production will be 10% sequentially lower in the fourth quarter and expectations that housing activity could pick up as we get into the spring. But I guess as we think about what the builders are telling us, especially the big publics that they're going to slow starts late this year. And that sounds like it could hold into early 2026 as well. How are you thinking about the potential for further capacity to come out of your business. What are you watching for, for signs to determine if that's necessary? And how are you thinking about balancing the near term and the initiatives that you've put through with OpEx, which are obviously coming together and allowing perhaps for some share gains relative to the longer-term demand outlook? Devin Stockfish: Yes. I mean great question, Sue. The reality is this has been a really challenging year from a lumber standpoint and of late from an OSB standpoint. And that's largely been driven by just the dynamic that we've seen in the housing market primarily, but to a certain degree, by repair and remodel as well. And I think there are a lot of reasons to expect that over the medium to longer term, we need a lot of housing in the U.S. And so we're still very bullish on housing in the U.S. But as you say, in the near term, both from the standpoint of just the general consumer confidence environment, affordability. And then obviously, we're going into that time of year where we typically see some slowdown in residential construction. I don't think we have an expectation that we're going to see the demand environment for those products pick up dramatically here as we close out the year. So as we think about our operating posture, we look at a number of different factors, as you would expect. We think about consumer commitments. We think about balancing our fee volumes to maximize profitability across our integrated portfolio. We think about trying to maximize our earnings at both the mill and the regional level. Because of the nature of our portfolio, there are some dynamics that play with us maybe that wouldn't necessarily be the case for less integrated companies. We think about it from a short-term and long-term perspective. And really, we also look at it from a competitive dynamic in our space and really how we want to position ourselves with our customers. And that includes our position on the cost curve, all the levers that we can pull with our integrated scale business, the cost structure, the OpEx, the environment. So there are a lot of things that go into that. For us, I do think that look, from an operating margin perspective, I think we've demonstrated we're best-in-class. I think we're well positioned on the cost curve. And so we're going to continue to watch that as we progress through the quarter. I will say stepping back from our operating posture specifically when we look at the industry as a whole, it's been a tough environment, and we've seen some level of capacity announcements here recently. I think there's some quiet downtime going on in the market as well, but producers are not going to continue to operate below cash breakeven indefinitely. Something is going to have to change, and absent some dynamic with the demand environment that's going to have to come on the supply side. And that's just kind of the reality of where we are, at least until we start getting ramped up for the building season. Susan Maklari: Yes. Okay. I appreciate all those comments. And then maybe turning to the timberland side of the business. It's nice to see the acquisitions and some of those sales that you announced this quarter that will be coming through. I guess as you think about your timberlands portfolio and having reached the goals that you have set for yourself at the last Investor Day. How are you thinking about the positioning today? What should we expect going forward? And can you talk a bit about how you're thinking of the general footprint there? David Wold: Yes, look Sue, I mean we're really pleased with the Timberland portfolio activity that we've been able to complete over the course of this year and advance into early next year. Look, that's something that is a core part of who we are and what we do. We're always going to be active in this space. We're very pleased to have completed the target that we set out a few years ago. As a reminder, I'd say that was really our view of what we thought was a realistic level of programmatic M&A that we could affect in a disciplined fashion over a multiyear period. And so as we said at the time, we expect to be active, looking for opportunities to optimize our timberlands portfolio in a disciplined fashion, and that will continue to be true going forward where we can find acquisitions that we think create value. So I think we've demonstrated that we can create value anytime we transact, whether on the buy or sell side. So we'll continue to look for opportunities to optimize our portfolio moving forward. Operator: Our next question comes from George Staphos with Bank of America. George Staphos: I appreciate the commentary. So I wanted to dig in a little bit more into the portfolio transaction that you made in Timberlands. Devin, what do you think the net cash generation has been benefited by the acquisitions relative to the divestitures. What do you think the sort of cash flow, if you had to look at it per acre has benefited just across what you sold relative to what you gained? David Wold: Yes, George, this is Davie. I'll take that one. And I'll dimension that in a couple of ways. Obviously, we've got the transactions that we're executing on here in the current environment. I think if you look back to 2020 over the series of acquisitions and divestitures that we've completed, that's somewhere in the neighborhood of $50 million of an increase to our annual EBITDA that we've been able to generate through the buy and sell activity. So it's a phenomenal way for us to continue to look to increase the cash flow generating capabilities and optimize the portfolio. The transactions that we've -- that we're working on this year, on the buy side, we've said that, that's on a 21x EBITDA multiple compared to the 45x multiple. From a divestitures perspective, we've disclosed the cash yields. So I think you can go do the math on what you think that looks like. Again, I think it's really important to note that we have the ability to create value anytime we're transacting on our portfolio, whether on the buy side, whether on the sell side, and I think our integrated portfolio, the scale and diversity, that gives us a way to unlock value on these types of transactions that others may not be able to do with the tools and teams that we've invested in over time. I think it uniquely positions us to execute in a disciplined fashion in this space. George Staphos: I guess my other question would be aimed at lumber, in particular. So again, recognizing that you are low on the cost curve and you have the higher margins in the sector from what we can see. Nonetheless, black at the bottom was born from kind of an absolute need way back when coming out of the crisis to improve the cash flow kind of irrespective of what everybody else was doing, where you're at and recognizing there's been a lot of progress. When we look at EBITDA losses this quarter versus, I guess, last year's third quarter, pricing was about the same, but the EBITDA loss was a bit further. What -- and maybe we'll talk more about this at the Analyst Day, but what are you doing to lower cost and try to get to a breakeven at these very, very labored, if you will, price levels for lumber? Devin Stockfish: Yes. I mean, I'll make a few high-level comments on that, George. I mean we've been focused on cost and OpEx for going on a decade at this point. And I think you can see that in our relative position against most of the industry. The reality is we are operating in an environment that is extremely challenged at present. The pricing dynamic that we are seeing currently is really one of the toughest pricing environments we've seen in a very long time. Now I think when you think about black at the bottom, I do think kind of pre-pandemic and the high single-digit inflationary environment that we saw for a few years, we were there. The reality is when you see inflation go up like that, it's going to take us a little bit longer to kind of work all the way back down there. There's just -- there's a scenario in any environment where prices go so low that it's going to be very difficult. I think that's where we are right now. And you can kind of see that hitting the entire industry. Again, we're well positioned on the cost curve. I think we're navigating the environment better than most. But the driver for negative earnings was just the weak price environment. And we did elect to reduce our operating posture a little bit in September, and we're carrying that through to October. But we're going to keep focused on efficiencies. We're going to keep focusing on reliability and cost and all the things that we do to make sure that we have world-class manufacturing operations, and to the extent that we do see a little bit of improvement in pricing, we'll be back in the positive from an EBITDA standpoint on lumber. George Staphos: Devin, if I could just -- if prices held at these levels, and we recognize why they can't because of where prices are for everybody in the fourth quartile and so on. But let's assume just for instance, that prices held at these levels, would you be able to, within the course of a year or 2 years through whatever actions and things that you know you have on your whiteboard to actually get to a breakeven level on a cash basis. Devin Stockfish: Yes. I mean we've got a path there. Every mill has a road map to get to first quartile cost structure. We're frankly largely there at most of our mills. So we have lots of things on the drawing board, and we're going to talk about some of that at our Investor Day and the continuing OpEx work that we're doing, and we're supplementing that with some of the things that we're doing from an innovation standpoint. So we're never done. But again, tough environment right now. It's not going to stay this way forever. It's unsustainable, and we'll be well positioned to take advantage of the market as things start to improve. Operator: Next question comes from Anthony Pettinari with Citi. Anthony Pettinari: When we look at leverage, net debt-to-EBITDA at 4.3x, I know that's backwards looking on what should be kind of trough Wood Products earnings. But I'm just -- if we do have a more muted year in '26, like it seems like we have had in '25, can you just talk about kind of guardrails on leverage, the levers that you can pull potentially to delever capital allocation priorities, maybe in -- if we kind of imagine maybe a bit of a tougher scenario in '26? Or just generally, kind of how you think about that given what's kind of optically at least elevated leverage? David Wold: Yes. Look, Anthony, I mean I think Devin laid it out well in his prepared remarks. We've done considerable work over the last several years to align our strategy with the cyclicality of our businesses. So with the strength of our company today, we have a tremendous number of levers. I think you hit on it right. I mean, really, the -- from an LTM net debt-to-EBITDA perspective, what you're seeing there is that with the EBITDA coming down, you're seeing that number tick up. But importantly, that's a number that's designed to be a mid-cycle evaluation, and we expect to be well under that target as EBITDA levels normalize over time. I mean I think from the starting point, we remain committed to maintaining that investment-grade credit rating, and that's going to be a guiding principle as we think about all the ways that we navigate these challenging markets. But again, I think our view is that eventually, we're going to see these markets improve, and we'll see that number normalize over time. Anthony Pettinari: Okay. That's helpful. And then your two public timber REIT peers are combining into one company. And I'm not asking you to comment on competitors, but I'm just wondering if you can share any thoughts on the consolidation we've seen in the timber space over the years. Maybe you can remind us how much you actually face off against Potlatch and Rayonier in your local markets? And if public timber REITs are moving, I guess, to Coke and Pepsi, like how should investors think about Weyerhaeuser's relative value proposition? Devin Stockfish: Yes. I mean, like you said, we're not probably going to comment too much on that acquisition. I will just say from a high level, we obviously agree that there is a significant benefit to scale and to having an integrated business. We've been operating that way for a very long time. We think that there are a lot of opportunities to create value in having a scaled integrated model. We compete against each of them in local markets as we compete against other landowners, both small private landowners, TMOs, et cetera. We'll compete against them in more or less the same way once they combine. I do think, from our standpoint, it's important to keep in mind, right? So we have 10.4 million acres. We're one of the largest wood products manufacturers in North America. I don't think this fundamentally changes in terms of the competitive operating environment in any region in any sort of meaningful way. But again, I do think scale and integrated business makes sense. So there's some logic in the deal. Operator: Our next question comes from Mark Weintraub with Seaport Research Partners. Mark Weintraub: First, a small one, maybe leads into a bigger one. So on the HBU, you had pointed out that prices have been rising over the course of this year. Is that a function of just the mix of what you're selling? Or is it that you're seeing higher pricing for like properties than you were before? Devin Stockfish: Yes. I mean I think it's a little bit of both. There's always a component of mix, right? Because every quarter, there's going to be a slightly different mix of the properties that you're selling. So there's a part of it that's that, and there's some geography dynamics at play there as well. But I would say on balance, what we are seeing is -- on a like-for-like basis, we're continuing to see the prices that people are paying for this go up. And I think so it's a combination of both of those things, Mark. Mark Weintraub: Okay. Great. And then also, I hear you on the buying and the selling of timberlands and how optimizing the portfolio is very, very beneficial, makes total sense. At the same time, it's very interesting that the per acre at least to me, the per acre values that we're seeing as well as the multiples of cash flow that you were relaying, are as high as they are, if anything, it does seem like timberland values, like HBU, in the private market transaction seems to be trending higher, too. And obviously, your stock hasn't fared as well, lots of other variables at play. But does that color your appetite to be more aggressive on the sell side than on the buy side? And also, as you've gone out, particularly and sold some acreage, is your sense that there's a fair bit of money still looking to be deployed in the timberland space. Kind of color on that would be great. David Wold: Yes, Mark, let me comment just broadly on the overall timberlands market. I mean we continue to see very strong interest in the asset class. We've talked about the amount of capital that's been raised to pursue these assets. There's a lot of that that's still sitting out there, several billion dollars that's not yet been placed. Really, if we go back to the genesis of our 2021 target in timberlands, that was really coming from the standpoint of there's going to be an increasing scarcity in the availability of high-quality timberlands. And that's really played into all of the decisions that we have made over the last several years. And so I think that's guided our strategy, and I think it's an important element as we move from here. Devin Stockfish: I would just make one other kind of comment generally on that, Mark, and that is when you think about both the values that we're paying to bring the timberlands into our portfolio and the value of the timberlands that we're selling. Embedded in that is really, a, our team on the A&D side spends a lot of time out looking for high-quality deals. And I think you can see that really in all of the transactions that we've brought in. We're looking for very high-quality timberlands with good cash flow generation that can also create value through our integration, NCS alternative values. And so to some degree, the value that we're paying is reflective of the team's work and what we're looking for. But also even on the sell side, I think -- and maybe this was part of your question, we have a very high-quality timberlands portfolio existing. And so even when you think about some of the deals that we're selling, which are noncore to us, it is reflective of what is a very high-quality timberlands portfolio that we've assembled over, frankly, 100 years. And so I think both of those things play into the value that you're seeing on the buy side and sell side when we do deals. Mark Weintraub: That's helpful. And speak to maybe just one quick follow-on. Given that is the case, it would seem that, that discrepancy between how the public markets are valuing your stock, recognizing it's tough times in Wood products, and that's certainly playing a role. But are there other things that you're contemplating to help bridge at least what is a temporary seeming very, very wide gap between NAV and where the stock trades? David Wold: Yes. Look, Mark, that's always on our mind. I mean we're always out here trying to think about how we can create shareholder value. And part of that means looking at that very item. I think we're going to have a lot of items that we'll walk through at our Investor Day in December on that topic. I think we've been focused for a while now on how we can ultimately grow the value of the company and drive cash flow improvement through the cycle. So I think we'll have more to say about that in December. Operator: Our next question comes from Kurt Yinger with D.A. Davidson. Kurt Yinger: I think Mark had a lot of good questions there. But maybe just dovetailing and trying to kind of wrap it up. Like Davie, you talked about remaining kind of active from a portfolio management perspective. Does that mean that we should expect that you guys will remain acquisitive going forward? Or just help me understand kind of that balance between being a buyer versus maybe a net seller looking ahead? David Wold: Yes. Look, again, we're going to consider all the options to create shareholder value. We think we can create value on both the buy side and the sell side. I mean I will note one of the realities here in the current environment as we look at all of the capital allocation alternatives that are available to us, when the inputs on some of the other alternatives are more attractive, that does raise the bar on what it's going to take from a timberland acquisition perspective. But I think it's indicative of the quality of the acquisitions that we're completing this year that they cleared that bar. And that's something we're always going to be looking at as we make those decisions. Kurt Yinger: Okay. Switching gears to the Wood Products side. A little bit surprising to see the EWP realizations up a bit in Q3. It sounds like you're expecting pricing to be stable in Q4. Is there anything temporarily benefiting that? I mean it seems to kind of diverge at least from what we've heard around the market? And how are you thinking about kind of overall competitive dynamics and what you're seeing out there? Devin Stockfish: Yes. I mean, well, look, the EWP market has been under some pressure this year, just as residential construction activity has been soft for a bit. As you know, EWP demand is largely driven by residential construction. And with the housing market being stuck in second gear, no doubt that's been a bit of a headwind. And we've seen pricing come down somewhat over the course of 2025. But that being said, I do think that we've managed the environment fairly well. We've mitigated some of the downward pressure, and that's largely a function of the power of our Trus Joist brand, the quality of our products and really I think, to a large degree, the service model that we provide to our customers. And so while there has been some pressure on pricing, we're doing everything that we can to bring value to our customers in what is a tough environment. And I'd also say in this environment, which has been challenging, we're also out there working to take market share, take market share from competitors, take market share from Open Web. So we're out there really pushing. And I think it's a testament to the team that we've been able to keep our market share, grow our market share, keep the pricing relatively stable in what is a very challenging environment. And we'll adjust our operating posture as needed through Q4, as we said. But ultimately, we feel like we have a really good brand, a really good business here in EWP, and we're going to continue to look to find ways to take advantage, whether we're in good markets or bad markets. Operator: Our next question comes from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Maybe to start with, on the timberland side, particularly in the U.S. South, we've seen a lot of pressure on pulpwood prices here in the last 4 to 6 quarters, I mean these are kind of multi-decade lows right now. Some of it is -- sure has cyclical weakness, but we've also seen a lot of pulp and paper mill shutdowns, which it seems like kind of will be hard to reverse here. So can you sort of talk to kind of what you guys are seeing out there on the pulpwood side? And how you at least in your sort of wood baskets, what can you do to help mitigate some of that. I guess the Engineered Wood plant that you're building will help, but anything outside of that? Devin Stockfish: Sure. Well, the reality is, as you say, I mean it's unfortunately been the case that we have seen a lot of pulp and paper capacity coming out of the system. And that's something -- it's not new. This has been going on for a while. But even this year, we've seen several fairly large pulp and paper mills shutting down. Now I will say one of the benefits to the diversification that we have geographically as well as just the integrated model that we have, the scale that we have, we do have levers that we can pull when you see those market dynamics. And even with the mills that have shut down recently, we're typically able to just move volume to different customers. So it probably impacts us maybe to a lesser degree than some others. We also have some levers, for example, one of the IP mills that shut down, we were able to move some of that volume to our OSB mill. And so we have some levers. As you say, the Engineered Wood Products, Timberstrand facility that we're building in Arkansas will be using a fair bit of pulpwood in that geography. But it's an issue. It's an issue for the industry. I think it's going to be challenging. We do have some ideas. And frankly, we're going to lay some of those out at our Investor Day. So I'm not going to front run that, but it's an issue. I would say, though, for us, on balance, fiber demand has been pretty steady lately. You see a few dips here and there on pricing, at least temporarily when you see a mill close down. But I think we're doing a pretty good job overall in navigating that... Ketan Mamtora: Got it. No, that's helpful. And then Switching here to sort of capital allocation. Obviously, a lot of discussion here on the call around both acquisitions and divestitures in timberlands. I'm curious on the downstream side, given how extended the downturn has been in lumber, would that be sort of an area of interest from an inorganic growth standpoint for Weyerhaeuser? David Wold: Yes. Look, Ketan, we're -- we've had a focused M&A strategy. I think you've seen us be really active on the timberland side over the last several years with the portfolio improvement opportunities. But we're always evaluating and looking at opportunities for bolt-on as well as potential larger scale M&A opportunities. But of course, as always, they've got to meet our stringent criteria. We are focused on making sure that the assets are complementary or accretive to our industry-leading portfolio. They've got to be cohesive with our longer-term strategy and drive significant value for our shareholders. So that's really how we think about it. Operator: Our next question comes from Hamir Patel with CIBC. Hamir Patel: David, I was just wondering how you think about the opportunity to grow Southern pine log exports. I know China has cut off, but what sort of opportunity do you see in India over time? Devin Stockfish: Yes. I mean we're really excited about the opportunity. Obviously, we would prefer that the China market get opened back up, and I can tell you we're having conversations with the administration about that topic on an ongoing basis. But in the interim, I do think the silver lining behind the China log ban has been it's really increased our focus on India. And I do think that there's a pretty significant opportunity there. We've been growing our India export business as well as, frankly, trying some additional markets in Southeast Asia. Again, we're going to go into a lot more detail about that opportunity at our Investor Day, but I would just leave you with I think it's a real opportunity for us. We have been growing it, and we have some plans to grow it meaningfully from here. Operator: Our next question comes from Matthew McKellar with RBC Capital Markets. Matthew McKellar: Just two quick questions on Japan for me. First, should that inventory destocking phenomenon be relatively short-lived in your view, maybe a one quarter headwind? Or could that persist longer? And then second, you addressed demand conditions, but I was wondering if you could also provide some perspective on how supply has trended over the last quarter or so. Is there anything we should be thinking about around trends on the supply side, maybe around imports from Europe or elsewhere that maybe also contributed to this situation? Devin Stockfish: Yes, happy to answer that. I do think it's going to be relatively short-lived. The issue -- without getting into too much detail, there was a regulatory change in Japan that impacted the timeline in getting permits for smaller houses and that created a real backlog in managing those permits. And so what you saw was a bit of a slowdown in the housing environment. We expect -- our customers expect that will resolve itself and things should normalize. I mean they have some headwinds from a demographic standpoint, of course. But that being said, our customers are really, really well positioned in that market. And candidly, notwithstanding some of the challenges that they have in Japan, the customer base that we have, the cost structure that they have, the mill investments that they're making, I'm as optimistic about the Japanese opportunity in the midterm as I have been in a while. So we think that, that will -- the headwind on consumption should resolve itself relatively soon. The big dynamic at play currently is just that relative cost position of our customers with our logs from the Northwest competing against European supply. In Europe, log costs in many of the key producing regions have been going up fairly dramatically, add in some other cost competitive dynamics at play. It's just a really challenging environment for European lumber coming in that market. And so our customers taking advantage of this and they're really looking to grow market share. And so like I say, I'm pretty optimistic about that opportunity over the medium term. Operator: Our next question comes from Hongliang Zhang with JPMorgan. Hong Zhang: I guess you've adjusted lumber production in response to the weakness in prices, but with OSB pricing where it is, would you potentially reduce production as well? I'm just asking relative to your guidance of comparable volumes in the fourth quarter. Devin Stockfish: Yes. I mean, so OSB, just like lumber, it's something that we're going to continue to watch and monitor. We'll adjust as necessary. Most of the same considerations that I talked about earlier with respect to our decisions on lumber capacity are equally applicable. I will say, as we mentioned with lumber from a cost curve standpoint, we're in a pretty good spot. And so that certainly plays into our consideration there. But like lumber, we're going to continue to watch that, and we'll make adjustments if necessary. Operator: Our final question is from Mike Roxland with Truist Securities. Michael Roxland: One -- the first one I have is, Devin, you mentioned that there are some items that you consider as an integrated producer in terms of running lumber, that smaller nonintegrated producers don't have to consider. Any way to expand on what factors you're referencing? Devin Stockfish: Yes. I mean, so there are a few things, right? So we can adjust log flow to our mills to make sure they're getting the optimal log mix to maximize profitability. You can take a little bit more risk on log supply because you know you have the full power of the timberlands business. If you have a rain event or a weather event and you start to lose inventory, you can flex that very quickly. I would say just in general, the planning on ultimate product mix coming out of the lumber mill when you work closely with your timberlands business, you can get that dialed in to make sure that you're optimizing the mix to maximize profitability. So there are a bunch of planning things that you can do when those two businesses are working together to really maximize profitability across market cycles. It's always important, but I would say particularly in the environment that we're in today where every dollar counts. And so our teams, as you can imagine, are working together every single day to make sure that we're maximizing the profitability across our portfolio. David Wold: And Mike, I would just add, I mean, those are a lot of the things that we can do from a day-to-day operational perspective, but when you think medium term, longer term, some of the larger-scale strategic things we can do like putting a Timberstrand facility in a place that's very advantageous for our timberlands business. That's another huge advantage that we can drive with that integrated portfolio. Michael Roxland: Got it. And in this one, I know we're running over here, but just one quick second question. In terms of Natural Climate Solutions, any concerns over the government cutting funding? I know you've spoken about this in past calls, but obviously, the government from the get-go has been aggressive with wind. From the outset, it's become more -- it seems to have become more aggressive on solar. So any concerns about government and maybe restricting federal funding for these types of projects. Devin Stockfish: At a high level, I'm not particularly concerned about that. Certainly, some of the things that came out of the Big Beautiful Bill did impact, particularly on the renewables side. I do think for our partners, we align with more sophisticated larger partners who, to a large extent, saw this coming, and so their pipeline feels pretty good. So I don't think it's going to have any meaningful impact over the next several years. There may be an air pocket when you get towards the end of the decade on some of these renewable projects, but these are typically long term. And I would just say CCS with the 45Q tax incentive that did make it through the bill. And overall, even though the rhetoric certainly has changed in this current environment, behind closed doors, most big company management teams understand this is a long-term issue that they're going to have to address. And so I haven't really seen a meaningful drop-off in the level of interest in these solutions even in this current environment. Operator: There are no further questions at this time. I'd like to turn the floor back over to Devin Stockfish for closing comments. Devin Stockfish: All right. Well, thank you, everyone, for joining us today. Thank you for your interest in Weyerhaeuser, and we look forward to seeing you at our Investor Day in December. Take care. Operator: This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Carlyle Group Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Daniel Harris, Head of Public Investor Relations. Please go ahead. Daniel Harris: Thank you, Michelle. Good morning, and Happy Halloween, and welcome to Carlyle's Third Quarter 2025 Earnings Call. With me on the call this morning is our Chief Executive Officer, Harvey Schwartz; Chief Financial Officer and Head of Corporate Strategy, John Redett; and incoming Chief Financial Officer, Justin Plouffe. Earlier this morning, we issued a press release and a detailed earnings presentation, which is available on our Investor Relations website. This call is being webcast, and a replay will be available. We will refer to certain non-GAAP financial measures during today's call. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. We have provided a reconciliation of these measures to GAAP in our earnings release to the extent reasonably available. Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on Form 10-K that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time. In order to ensure participation by all those on the line today, please limit yourself to one question and return to the queue for any additional follow-ups. And with that, let me turn the call over to our Chief Executive Officer, Harvey Schwartz. Harvey Schwartz: Thanks, Dan. Good morning, everyone, and thank you for joining us. We delivered another strong quarter of results, as we continue to execute our strategic growth plan. For the third quarter, we delivered FRE of $312 million and now have generated $946 million year-to-date, up 16%; record AUM of $474 billion, up 7% year-to-date; organic inflows of $17 billion in the quarter and nearly $60 billion over the past 12 months with significant capital coming from credit, secondaries and global wealth. With this momentum, we feel confident about exceeding the financial targets we updated last quarter, which included full-year FRE growth of approximately 10%, up from our prior outlook of 6% and full-year inflows of $50 billion compared to our prior outlook of $40 billion. Before I dive into more specifics of the quarter, I'd like to address the macro environment. As we look across markets today, this remains a somewhat complex, but quite resilient environment. While the markets have been impacted by ongoing headlines related to policy shifts and geopolitics, the underlying health of the global economy continues to be strong. Inflation has moderated, balance sheets are healthy, and overall, consumers are still spending. With official government data delayed by the shutdown, earlier this month, we released Carlyle proprietary U.S. economic data. These indicators are derived from our portfolio of nearly 300 operating companies and more than 700,000 employees. These insights provide one of the few real-time views into the economy, steady EBITDA growth, continued investment in technology and AI infrastructure and resilient consumer demand. Turning to credit markets. There's clearly been a lot of focus here over the past several weeks. To date, our own market and portfolio data are not signaling any broad deterioration in overall credit quality or systemic risk. Consistent with the economic data I just walked through, fundamentals remain pretty solid and credit events have been idiosyncratic. Of course, the credit cycle is evolving, as it should, repricing where necessary, but again, not flashing broad stress. Capital markets activity has meaningfully accelerated. Announced M&A volume was up more than 40% year-over-year in the third quarter. IPO volumes are up 60% year-to-date with increased activity during the quarter. Now turning to our global private equity business. We've capitalized on an improving transaction environment, returning capital to our limited partners. Over the past year, we have returned $19 billion in capital to investors in global private equity, 150% of the industry average. Note, this does not include $5 billion of signed transactions. Our momentum internationally continues. In Japan, we announced the successful IPO of Orion Breweries. This marks a positive indicator for the broader IPO market and is another important milestone for our team in the region. In Europe, we recently completed the sale of Calastone and announced the sale of HSO. Lastly, in private equity, we recently announced the EUR 7.7 billion carve-out of BASF's coatings business, leveraging our global industrial platform and deep carve-out expertise. In the past 20 years, Carlyle has done 19 industrial corporate carve-outs with an average IRR of 25%, another great example of the unique operating skill set we bring to our investors. In Carlyle AlpInvest, the team continues to deliver exceptional growth with FRE more than 80% year-to-date. Last month, we closed our largest-ever secondaries fund of $20 billion, further scaling the business. We recently closed a $1.25 billion publicly rated, GP-led collateralized fund obligation, the largest of its kind to date. This underscores Carlyle's leadership and innovation within a rapidly expanding segment of the marketplace. We also recently completed a $550 million credit secondaries continuation vehicle, reflecting the evolution of our business across newer asset classes. Carlyle AlpInvest is a market leader at the forefront of an industry with strong secular and cyclical tailwinds. In Global Credit, our platform continues to scale. During the quarter, inflows into our asset-backed finance strategy were almost $2 billion, highlighting the continued demand for private investment-grade assets. Our strategic approach to insurance solutions continues to pay dividends across all aspects of our investment management capabilities, including our partnership with Fortitude Re and with our third-party insurance clients. Justin will get into more details about Fortitude Re, but insurance remains a key driver of growth for Carlyle, and we continue to see momentum across the platform. Finally, moving on to Global Wealth, our momentum remains strong. When I first joined Carlyle, we were attracting about $300 million per quarter in evergreen wealth inflows. Today, we're running at 10x that level at $3 billion of inflows, our best fundraising quarter in Global Wealth ever. To be successful across all aspects of wealth, retail and retirement, you need experience, scale, brand recognition and diversification. Part of our strategy is partnering with extraordinary brands, like our recent announcement with Oracle Red Bull Racing. This marks the first ever private markets partnership in Formula One and aligns directly with our long-term global wealth strategy to reach new clients and deepen engagement in key markets. Over the last 2.5 years, we mobilized quickly to capitalize on the growth of private markets and retail. We continue to invest heavily into the business, adding resources and platform partnerships to drive growth. To wrap things up, we are well on our way to exceeding our financial targets for this year and have very strong momentum heading into 2026. With that, let me turn things over to Justin. Justin Plouffe: Thanks, Harvey, and good morning, everyone. Q3 was yet another strong quarter, consistent with the long-term growth trajectory we've established. We generated $368 million of distributable earnings or $0.96 per share. Year-to-date, distributable earnings totaled $1.3 billion or just over $3 per share, up 10% from last year. Fee-related earnings were $312 million for the quarter, up 12% year-over-year. This increase in FRE has been fueled by organic topline growth. For Q3, total fee revenue increased 11%, and year-to-date, a 13% growth rate represents our fastest pace of growth in the last 3 years. Roughly 55% of firm-wide FRE now comes from Global Credit and Carlyle AlpInvest. That's up from about 25% just 5 years ago. FRE margins remained strong at 48% for the quarter and year-to-date, exceeding last year's record of 46%. Capital markets and transaction fees were $32 million, up almost 20% year-over-year and have more than doubled over the past 12 months. As we said throughout the year, our FRE growth is entirely organic and reflects the scalability of our model and operating discipline across the firm. We are on track to exceed our full-year target of at least 10% growth in FRE while continuing to invest for the long term. Let me turn to a couple of highlights for our businesses. Carlyle AlpInvest delivered another excellent quarter, raising $6.3 billion of capital, bringing the year-to-date total to more than $15 billion. Third quarter inflows were driven by both institutional demand and strong momentum in our global wealth products. AUM at AlpInvest now sits at $102 billion, up more than 20% year-to-date. FRE at AlpInvest now represents 23% of Carlyle's FRE, about triple the level from just 2 years prior. Global Credit generated nearly $10 billion of inflows this quarter, and over the last 12 months, inflows have totaled $31 billion, helping lift total AUM to $208 billion. Global Credit AUM now comprises 45% of firm-wide assets and has grown at a 33% CAGR over the past 5 years. And Global Credit's FRE is now nearly 1/3 of Carlyle's total. Our Global Credit business is comprised of a diverse set of platforms that deliver attractive risk-adjusted returns for our investors. Our $87 billion insurance solutions platform is anchored by our strategic partnership with Fortitude Re and has been quite active over the past few months. It closed its $4 billion reinsurance agreement with Unum, its fourth reinsurance transaction this year, issued an inaugural $500 million funding agreement-backed note and recently launched a reinsurance sidecar focused on driving growth in Asia. Together, we believe these initiatives will lead to more than $20 billion of new AUM in the intermediate term. Our leading nearly $50 billion global CLO platform had inflows of more than $3 billion in the quarter. Credit quality remains strong, and the business has recently been recognized for having among the best performance across all U.S. CLO managers this year with the faults running well below the industry average. Our $13 billion direct lending platform has been growing at a 20% CAGR in the past 5 years. We believe the market opportunity for direct lending will continue to grow, and we are continuing to invest in this platform, adding resources across leadership and origination. Credit quality remains healthy across the portfolio with realized losses running at an average of just 10 basis points per year over the past decade. Our $10 billion asset-backed finance business raised $2 billion just this quarter, and our leading $20 billion opportunistic credit strategy continued to deploy its third vintage fund and is quickly approaching its next fund raise. Shifting now to Global Private equity. Over the past year, we have attracted nearly $9 billion of capital into our GPE strategies. And today, we have $40 billion of available capital to deploy across the platform. We're excited about our growing transaction pipeline as we head into the fourth quarter, including the recently announced EUR 7.7 billion transaction with BASF in partnership with the Qatar Investment Authority. We also have nearly $5 billion of announced exit transactions that we anticipate to close in the coming quarters. While Q3 was a lighter realizations quarter, we expect a significant step up in Q4. In addition to this, as you may have seen, one of our U.S. bio portfolio companies, Medline, filed a registration statement with the SEC in connection with the proposed IPO. We remain excited about the future of Medline and congratulate the management team on all they have accomplished so far. In Global Wealth, our evergreen vehicles continue to scale quickly. We currently have more than $32 billion of evergreen capital, and we raised $3 billion across our evergreen wealth products this quarter. The $6 billion raised over the past year reflects a 90% growth rate from the same period last year. Notably, our new Carlyle AlpInvest CAP solution in partnership with UBS saw strong demand in its first full quarter and has already surpassed more than $1 billion in assets. Finally, I'd like to say a few words about the state of our balance sheet and capital management activities. During the quarter, we took advantage of strong debt markets and issued $800 million of 10-year notes at 5%. This extends the duration of our liabilities and leveraged our strong credit rating. This capital provides additional flexibility to invest in growth initiatives in the coming years. We also repurchased over $200 million of stock in the quarter, reflecting our conviction that Carlyle shares continue to be an attractive investment. We are disciplined and opportunistic when allocating capital, balancing share repurchases with investments to drive future growth. Our balance sheet is strong and well positioned to support our organic initiatives and the firm's long-term financial flexibility. To summarize, our third quarter results highlight continued growth earnings diversification and operating momentum across the platform. We're executing well, scaling efficiently and delivering attractive results for both shareholders and investors. I look forward to meeting and working with all of you more over the coming months. And before we get to Q&A, I'd like to hand things over to John for some concluding thoughts. John Redett: Thanks, Justin. Good morning, everyone. Let me make a few points on the progress we've made on our strategic plan over the last 2 years. We grew AUM 25% to nearly $475 billion. In the last 12 months, we grew FRE more than 50% to $1.2 billion. Not only did we grow FRE, we improved FRE margins by over 1,200 basis points. We overhauled our capital allocation and compensation strategy. We returned more than $2 billion in capital to shareholders through dividends and repurchases. We also implemented a strategic update to our compensation strategy to increase alignment with all stakeholders. This allowed us to pay more carry to our employees and more fee-related earnings to you, our shareholders. We overhauled our global wealth strategy. As Harvey said, we increased our inflows 10x. And lastly, our focus on capital markets has clearly generated momentum. We have more than tripled our revenues over the last 2 years to almost $240 million. The positive momentum we carry into 2026 is the direct outcome of the extraordinary work of our people. I'm excited to begin my next role, leading global private equity, a business with world-class investors and significant momentum. With that, let me turn the call over to the operator for your questions. Operator: [Operator Instructions] And our first question will come from Brian Mckenna with Citizens. Brian Mckenna: So looking at inflows for the -- hey, how's it going Harvey? So looking at inflows for the quarter, it was clearly a little bit lighter in private equity, but credit and solutions both came in above expectations, and there's a lot of momentum there. It would just be helpful if you could talk about the outlook for inflows by business into year-end. And how you're thinking about flows throughout 2026 and some of the different drivers there? And then, I guess, do you have any visibility into some of the larger insurance transactions that might be coming in over the next couple of quarters? John Redett: Thanks, Brian. It's John. Look, we feel very good about where we are in terms of inflows. This is an area where I think we have tremendous momentum and really reflects we have strong investment performance across the firm. And I would say client engagement remains positive and remains elevated. So $17 billion in the third quarter, obviously, a very strong quarter, it's nearly double the third quarter from 2024. If you look at kind of an LTM basis, we're $60 billion, and year-to-date, we're around $45 billion. So we feel good about the revised guidance that Harvey alluded to in his script, which we provided last quarter, which was around $50 billion. Again, we're at $45 billion year-to-date. We obviously had a very strong quarter in credit and AlpInvest. Harvey talked about how we closed on the secondaries platform, where we raised $20 billion, but we had a really strong quarter without any real private equity funds in the market. So I feel good about the diversification that's driving this growth. So overall, I'd say in terms of inflows, we have tremendous momentum going into the fourth quarter, but more importantly, going into 2026. Operator: And our next question will come from Alex Blostein with Goldman Sachs. Alexander Blostein: Justin, welcome to the call, and John, congrats again on the new role. Harvey, maybe just building on that a little bit. You alluded in your prepared remarks, in the script as well, just around the strong momentum you guys think for 2026. Maybe expand on that a little bit. What are the key top-of-the-house priority in terms of growth for next year? What do you find to be most needle moving? And what do you guys ultimately that could mean for management fee growth into '26? Harvey Schwartz: Great, Alex. So I would say at this particular point in time, the momentum for the firm has never felt better. And I say that in terms of client engagement globally, the strategic execution of the team. And I think that, when I say that, I'm talking about all aspects of the firm. So you see it in solutions, you see it in the wealth channel, you see it across credit. It's a quiet year for private equity and fundraising, but the performance by the team, as I mentioned, has been remarkable, returning 150% of the average of capital. When you think through 2026, the demand for capital is going to be quite high. So I think deployment will be good, and I think the opportunities would be great. We see opportunity virtually in every part of the platform. If you think about credit, they're building quite quickly in the asset-backed business. You'll see more activity there. Same across insurance, the pipeline remains very good and fortitude and the engagement just broadly speaking, with insurance clients, as they continue to invest in private credit. So the team has done a remarkable job there. We have the 2 flagship wealth funds, evergreen funds, up, CPEP will really be in the market next year. And so you'll see another wealth flagship vehicle, which will give our wealth investors the opportunity to participate there. So really when you sort of look at all aspects, either through the client lens or the specific business, I feel very, very good about the momentum and about flows and about growth. And then, capital market still has a lot of room to run, and that's just going to be levered to activity. And so all the pieces now that we've been putting in place over the last couple of years, and I have to thank John for his leadership and partnership in that role, you're really starting to see it, but we're -- really feel we're just very much at the beginning of that. Operator: And the next question will come from Glenn Schorr with Evercore. Glenn Schorr: So I'm curious, you had a lot of good things to say about the forward momentum in realization pipeline, and all the banks are super supportive in the deal environment coming through. So when you go through your comments of your $5 billion of announced transactions, I don't know if you can help us a little bit on timing with that. But fourth quarter better than third quarter, Medline IPO happening, I guess my question is if we could peel back that onion a little more because I think that's the part of softness in the quarter and just a light realization quarter. And then, as you move into next year, I think that's where the extreme bullishness on the bank's part was, as we head into early '26, does your forward pipeline align with that? And then, again, trying to get at what some of the other questions get in that is what does that mean for an FRE story for next year? This year, you beat your 10%, is it shaping up to be a bigger story than that next year? Harvey Schwartz: Sure. I think that was 4 questions. Glenn, I just want to point out you're violating Dan's rule, but we're going to address it all. So I'm going to ask John to talk to the extreme bullishness in the pipeline. One thing I will say is that's not a quarter-to-quarter thing in our business, and so I think people should understand it. But John, why don't you give a little more color on how we think about that pipeline, monetizations and realizations? John Redett: Yes. I would just echo a little bit what Harvey said, Glenn, we as a management team don't look at quarter-to-quarter. It's much more of a multi-quarter view that we take. I mean, it's just part of the private equity business. It's hard to control when deals close, and it's just -- it is what it is. I think just taking a step back in terms of -- we have been very -- this management team and our investors have been very focused on performance, and we are incredibly pleased with our investment performance. And I would say the team -- the investment teams have been very focused on realizations, and the numbers show that. Realization activities are up 35% in the last 12 months. In global private equity, which I think most people focus in on in terms of realizations, that's where most of our carry funds are, we've returned nearly $20 billion in the last 12 months, and that's 30% higher than the prior period. And as Harvey said in his prepared remarks, as of third quarter in Global Private Equity, we're 150% of the industry average. So clearly, we're an outlier in a positive way. I would also say -- our engagement with our investors is very positive. But let's just focus in on your question in terms of the pipeline. In our U.S. private equity business, I would say we are returning more capital than we have -- than our goals or our targets. Since we had the end of the third quarter, we've closed on $1 billion of transactions. That includes the Calastone transaction, which was a very good transaction across a couple of different funds for us. We also will likely close -- announce and close on a deal today, which is in our U.S. private equity business. In terms of the $4 billion of deals that are signed and pending close, that does not include, Glenn, the Medline IPO, which, as you know, we publicly filed for an IPO on Tuesday. But -- look, I can't say all of this $4 billion of pipeline will close in the fourth quarter, but it's a big number. Most of it will probably close in the fourth quarter. Some of it might spill over into the first quarter. But we feel very good in terms of we are giving our investors in our private equity business. We are giving them back more money than we are investing, which is a positive in the environment we're in. In terms of just kind of high-level pipeline going into 2026, I'd say our deal teams are very busy, both in terms of deployment and realizations. And I think the pipeline, including the Medline IPO, speaks volumes to kind of how our business is positioned in terms of momentum and realizations. Operator: And the next question will come from Bill Katz of TD Cowen. William Katz: Okay. Maybe just a 2-part. Just to want to make sure I understand the math, if it's $4 billion to $5 billion of announced transactions, is the typical MOIC 2x to sort of think through the realization opportunity? And then a broader question is just as I think about you getting towards the end of your repurchase activity, can you maybe refresh a bit on capital management priorities? How are you thinking about maybe where the stock is trading today versus any kind of inorganic opportunity now that the core business has stabilized? John Redett: It's John. So I -- we are near the end of our $1.4 billion authorization. We repurchased $200 million in the quarter. I think year-to-date, we're around $500 million of repurchases. I would expect a similar amount probably in the fourth quarter. And look, just more broadly, how do we think about capital allocation. There are various ways we can allocate capital as a management team. One of them is we can invest in our businesses for growth. We are clearly doing that. That's our first priority. We are laser-like focused on growth. So any time we can invest capital in the business to accelerate or achieve growth. That is our first priority. We can give capital back to our shareholders via dividends or via repurchase. We still think, and you should assume, based on our repurchase activity that we still view our stock as an expensive and attractive investment. And the other use of capital can be something on the inorganic front, but we focus on all 3 areas with driving growth our main priority. Operator: And the next question will come from Steven Chubak with Wolfe Research. Steven Chubak: Welcome Justin to the call. So I did want to ask on the FRE growth just looking out to next year. I recognize you're tracking above the 10% year-on-year guide. You spoke of the strong momentum heading into next year. At the same time, you do have some headwinds just in the form of elevated catch-up fees that may not repeat as well as the fee rate step down from CP VII. So just wanted to gauge your confidence level and the ability to drive FRE growth next year, even in the face of some of those headwinds, and speak to some of the building blocks that support that view. Harvey Schwartz: We feel -- as we've been saying, and we'll give you guys better guidance as we come through the year, but we feel very good about the momentum across the platform. Again, you pick your sleeve, capital markets, insurance flows, investments we're making in credit, the wealth channel. And then, we'll have a bigger pickup in private equity flows into next year. So I'd say overall, coming into the end of the year, the momentum feels, as we've said, as good as it's ever felt. Operator: And our next question will come from Brennan Hawken with BMO. Brennan Hawken: The credit flows were really strong this quarter. But actually, the fee rate looks a little bit light versus my expectations. Was there anything to do with timing on those flows? I know sometimes that can kind of skew the averages and cause the fee rate to look a little wonky. Did the flows come in at a lighter fee rate with the mix? Or was that fee rate impact more of a timing thing? Justin Plouffe: Yes. Thanks for the question. It's Justin. Look, I think some of that might have been skewed by some of the insurance transactions, where the fee rate can be a little bit wonky. But overall, we have great momentum across credit. We're up 18% year-to-date in fee revenues. We're up 28% year-to-date in FRE. And we really see broad-based momentum. It's not just one business, right? Asset-backed is taking in capital significantly. Our CLO business is really hitting on all cylinders, having another great year. And we're seeing really consistent and strong flows from wealth as well with our CTAC product and our BDCs. So quarter-to-quarter, it sort of just depends on the mix, but really every part of that business is doing well, and we're really excited about the momentum we're going to carry into 2026. Operator: And our next question will come from Dan Fannon with Jefferies. Daniel Fannon: So $3 billion of wealth flows in the quarter, quite strong. Can you talk to the diversity of those flows? And then, clearly, you have momentum in that business, but -- and I think you mentioned one product and potentially coming to market next year. Maybe talk about the product roadmap, and where you see that evolving as we go into 2026? Harvey Schwartz: Yes. So as we talked about on the call, flows were up 10x since the new management team came into place a few years ago. And so what you're really seeing now is -- and I still think it's early innings on this, the strategy coming together. And the pillars of that strategy are 3 flagship funds: CTAC, which is best of credit; our Carlyle AlpInvest Solutions business; and then, CPEP, which will be really coming into view in 2026 across the private equity platform. And so the mix has been quite good. CTAC has been out longer, but a steady contributor. And then, of course, you -- what you're really seeing is the pickup in the Carlyle AlpInvest Solutions, the partnership with UBS. But I feel really, really good about the building momentum globally. Again, all of these building blocks connect together and so success on each of the strategies really provides an exponential effect to the other strategies. And it's all just about the brand, our connectivity with advisers. Obviously, you've seen us continue to invest in any number of ways. There's human resources, product development, and obviously, the partnership with Oracle Red Bull in terms of connecting with the global platform. And so you should expect to see good momentum in that business and continue to grow at a good pace. Operator: Okay. And our next question will come from Ben Budish with Barclays. Benjamin Budish: I had maybe another 2-parter on the -- your sort of public markets exposure. Maybe just in the quarter, it looked like there were a few public investments that were weighing on your private equity performance. Just curious if you could address, is it sort of timing-related end of quarter to end of quarter? Are there any sort of like impaired stories there? Or is it more market fluctuations? And then, as we think out, you've given us some commentary on big specific transactions like Medline, but maybe just philosophically, how should we be thinking about the realization pipeline in terms of strategic versus financial sponsors versus IPOs? What's the historical mix? What would you expect going over into the next couple of years? John Redett: Ben, it's John. Look, your question is obviously focused on corporate private equity. And again, I -- similar to realizations, I look at performance over a multi-quarter period. It's very hard to have a story or narrative on any specific quarter, so -- and I think this quarter actually is -- doesn't really deserve much narrative in the sense we just had some volatility in the publics. But when I kind of look at corporate private equity performance, particularly in the U.S., we're very pleased. CPA is up kind of 15% in the last 12 months. But more importantly, when I look at the operating metrics within the portfolio in the U.S., we continue to see continued strength. Revenues are up almost up double digits. EBITDA is up 8%. So I feel good about the underlying performance of the -- operating performance of the individual portfolio companies. I'd say, look, we are an outlier in terms of realizations, you can't have the level of realization activity we are having if your performance is not good. So I think that's important to understand. And again, the teams remain very focused on performance and realizations. I think some of the volatility you're referring to was largely isolated to our CAP franchise, where I think we have an outsized percentage of the assets we manage in public securities, and there has been some volatility in those markets. But fundamentally, those are very good companies we own. We don't have any long-term concerns on that in Asia. In U.S., CP VII, in particular, has some -- had some volatility in the public markets as well. It's particularly isolated to StandardAero and Hexaware. They were down from the previous quarter. If you look at where they are today, actually, we've already erased most of that down movement we saw in StandardAero and Hexaware. They're both great companies. So I have absolutely 0 concerns long term about the public securities we own in our U.S. private equity business. Operator: And our next question will come from Kenneth Worthington with JPMorgan. Kenneth Worthington: John, it's been a pleasure working with you. Best of luck back in buyout. Justin, I'm sorry, John has set a pretty high bar here. When looking at credit, the Unum block hit this quarter, so congrats. At the same time, we saw the most significant level of credit, I'll call it, distributions in both AUM and fee-paying AUM. Can you talk about the dynamics that drove the outsized, I guess, distributions this quarter? I don't know if it was Unum related or something else, recurring, doesn't recur, anyway? Any flavor would be helpful. Justin Plouffe: Yes, Ken. Look, I'd characterize it as the normal course of the business. It's not a bad time to realize some of our investments, especially in the opportunistic side. So when we have an opportunity to have a great outcome for our investors, we certainly take advantage of that. And some of it is the normal flow of our CLO business, which we've done a -- the team has done a really amazing job over the last couple of years. Two years ago, about 40% of our CLOs were in runoff. And the team has actually done 41 resets since then. And now only 12% of the CLO platform is in runoff. But that -- when you call a CLO and you reset it, that can play into the numbers. So I don't think there's anything really specific there, nothing really in the insurance side, just the normal course of raising new capital and realizing investments for our LPs. Operator: And the next question is going to come from Patrick Davitt with Autonomous Research. Patrick Davitt: Obviously, been a perfect storm for secondaries here for a while now. But to your point earlier, it feels like the realization window is opening up a bit, though in fits and starts. How are you guys thinking about the sustainability of the so-called golden era in secondaries if the realization window keeps opening up? Harvey Schwartz: Yes. So I think -- let's take a step back, there's a reason why we call it Carlyle AlpInvest Solutions. That whole business is going through sequential growth, not just because of the secondaries activity, but because of the broader capability set across the platform. Remember, that -- the shorthand, and I know you know this quite well, the shorthand for that business is secondary. But actually, what they're providing is a suite of solutions, secondaries, co-invest, really corporate finance solutions. We highlighted a few of the trends in terms of credit secondaries and obviously co-invest. So it really is, I think, a bit of the evolution of what's happening in our industry. As the industry continues to grow and mature and private capital is really at the center of capital, what you're seeing are the need for liquidity tools, so AlpInvest -- Carlyle AlpInvest creates the entire solution set for that. Now, in terms of the more narrow slice of secondaries, anything you look at, in terms of statistics, suggest that demand for secondary capital is going to grow for several years. We would see that in our pipelines, in our engagement with clients. And this is not -- again, sometimes they are sort of misunderstood or stale narratives in the world around the industry. This is not about distressed portfolios or people who can't sell things. A lot of this now is about capital allocation and repositioning of capital. And so we can be in a room with a CEO or CIO and the whole discussion is about how to reposition our portfolio. So again, we need to start really thinking about this being at the center of a flywheel of corporate finance solutions. But the narrow question on secondaries, it feels quite good. Operator: And the next question will come from Michael Cyprys with Morgan Stanley. Michael Cyprys: Wanted to ask about ABF. I think you mentioned $10 billion platform today. I was hoping you could elaborate on some of the steps you're taking to expand the platform to accelerate growth. How you see this platform contributing as you look out over the next 12 to 24 months? Justin Plouffe: Yes. It's Justin. We're very excited about the ABF platform that we've built. It really started as a partnership with Fortitude, and it's expanded from there. We have multiple partnerships with origination platforms that have been leading into that portfolio. We've had a lot of interest from the noninsurance space, which ABF has historically been really an insurance product, but we have some vehicles that we are discussing with a number of counterparties outside the insurance space to expand that business. So -- we're at $10 billion today, and it's accelerating. I actually think that is probably one of the greatest growth areas that we see in our credit business. Steve has done a fantastic job. And I think there's a lot of potential for that, as we go into the fourth quarter in 2026. Operator: I show no further questions in the queue at this time. I would now like to turn the call back over to Daniel for closing remarks. Daniel Harris: Thank you, everyone, for your time today. If you have any further questions, feel free to follow with Investor Relations. We look forward to talking to you next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to Zillow Group's Third Quarter 2025 Financial Results Call. [Operator Instructions] Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Brad, you may begin. Bradley Berning: Thank you. Good afternoon, and welcome to Zillow Group's quarterly earnings call. Joining me today to discuss our results are Zillow Group's CEO, Jeremy Wacksman; and CFO, Jeremy Hofmann. During today's call, we will make forward-looking statements about our future performance and operating plans based on current expectations and assumptions. These statements are subject to risks and uncertainties, and we encourage you to consider the risk factors described in our SEC filings for additional information. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. Please review the cautionary statement and additional information in our earnings release, which can be found on our Investor Relations website. This call is being broadcast on the Internet and is available on our Investor Relations website. A recording of the call will be available later today. During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA and adjusted free cash flow, which we refer to as free cash flow. We encourage you to read our shareholder letter and earnings release, both of which can be found on our Investor Relations website as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. We will open the call with remarks followed by live Q&A. And with that, I will now turn the call over to Jeremy Wacksman. Jeremy Wacksman: Good afternoon, everyone, and thank you for joining us. I'm pleased to share that Zillow delivered another excellent quarter, thanks to continued momentum across both our For Sale and Rentals operations. For Q3, we reported strong revenue growth, EBITDA margin expansion and positive GAAP net income. In the housing market that's bouncing along the bottom, Zillow continues to outperform both our outlook and the broader industry, showing the strength of our execution and the durability of our strategy. Delivering growth while managing costs keeps us on track toward our 2025 targets of mid-teens revenue growth, expanding EBITDA margins and positive full year GAAP net income. Zillow has earned its success because we are a consumer-focused product-led company transforming the way people move. For consumers, that means a simpler, faster, more transparent way to buy, sell or rent a home. For real estate professionals, it means more effective tools to grow their businesses. And for our shareholders, it means sustained growth driven by innovation regardless of where we are in the housing cycle. We are delivering the seamless digital end-to-end experience that consumers and increasingly the real estate industry expect and depend on. And we deliver innovation quickly across our ecosystem and across the customer journey. In Q3 alone, that included adding virtual staging to the super listening experience in Zillow Showcase, enhancing messaging functionality and debuting the Zillow app inside ChatGPT. I will dig into our latest launches in a few moments, but first, I'll walk you through our Q3 results, which show how well our strategy is working. Total revenue increased 16% year-over-year to $676 million in Q3, exceeding the high end of our outlook range. For Sale revenue increased 10%, outperforming the broader housing and mortgage markets, which continue to bounce along the bottom. Within For Sale, residential revenue grew 7% and mortgage revenue grew 36%. Rentals revenue grew 41% year-over-year with 62% year-over-year revenue growth in multifamily. Together, this revenue growth, along with effective cost management helped us generate EBITDA of $165 million, above the high end of our outlook range and EBITDA margin expanded more than 200 basis points year-over-year. The combination of revenue growth and cost discipline also resulted in positive net income of $10 million in Q3. Our consistently strong performance reinforces the fact that Zillow can grow regardless of what the market is doing. What drives our success and differentiates Zillow from everyone else in our category is consistent execution on our integrated transaction strategy, relentless product innovation and a focus on consumer and partner experiences. Our success starts with our brand, which is loved and trusted by both consumers and real estate professionals. Our apps and sites had 250 million average monthly unique users in Q3, and we are a strong partner for the residential real estate industry. Agents who use at least one of our products, whether that's Premier Agent, Follow Up Boss, ShowingTime+, Showcase or dotloop, are responsible for an estimated 80% of U.S. residential real estate transactions. Our brand strength and quality product offerings feed our broader Zillow ecosystem and give our partners a powerful edge in building their businesses as they operate where consumers are and deliver the experience consumers want. We take the strength of our brand and audience seriously, always looking for ways to meet consumer needs in an ever-evolving and competitive landscape. The latest demonstration of that principle launched this month, the Zillow app in ChatGPT. Consumers searching for homes in ChatGPT can explore listings, maps, photos and pricing directly in the Zillow experience and can seamlessly continue on to Zillow's website or mobile app to book a tour, connect with an agent or learn about financing. It's another new doorway directly into our ecosystem, just like when we built one of the first apps for mobile. Being early matters. And as we learned then, first-mover advantage pays off when technology transforms how people use the Internet. We are currently the only real estate app inside ChatGPT, a testament to the speed and technical depth of our teams as well as our near 20-year track record of using AI to build innovative, data-driven consumer-first products responsibly. We are still in the very early innings of how AI will transform consumer experiences, but we strongly believe that the critical differentiators between those that succeed and those that get left behind in our category will be user experience, quality of audience, unique insights and providing integrated transaction services instead of just top-of-funnel lead generation. We feel incredibly well positioned to take advantage of the AI transformation given how unique our strategy is. Now I'll dive deeper into how our consumer-first product forward thinking has shown up across our business and helped us grow in Q3, starting with For Sale. Our For Sale revenue is consistently outperforming the broader market as we deliver strong revenue growth and continue to drive share growth relative to the total industry transaction value. We're executing well on our For Sale strategy to make buying, selling and financing easier for consumers and agents alike. Zillow is built for where the industry is going, not where it's been. We've moved beyond home search and become a diversified transaction-focused platform that integrates the disparate steps of the housing journey, connecting with an agent, touring, exploring financing options and more and equips agents to successfully guide consumers through it. We continue to scale our immersive listing experience, Zillow Showcase. More than 50 brokerages have adopted Showcase as a go-to marketing solution to help agents win more listings and sell homes faster. These enterprise partnerships spanning leading national brands, regional powerhouses and innovative independents reflect industry recognition that Showcase gives agents and sellers a measurable edge in today's housing market. As of the end of Q3, Showcase was on 3.2% of all new listings in the U.S., up from 2.5% last quarter and more than double our share versus a year ago. And in Q3, we launched AI-powered virtual staging on Showcase listings. This new feature uses computer vision to restyle rooms instantly with just a tap, letting buyers picture a home's potential while giving agents who use Showcase another way to make listings stand out. Whether a buyer starts by virtually walking around homes with Showcase, instantly booking an in-person tour and connecting with an agent or exploring their financing options, Zillow provides the right support at the right moment in their journey. With products like BuyAbility, a powerful tool from Zillow Home Loans that helps buyers shop based on what they can afford, we're making financing simpler and more transparent and improving how we identify high-intent buyers in the process. BuyAbility has enrolled 2.9 million people since it launched after surpassing 2 million last quarter. These buyers are more knowledgeable and ready to act when they connect with an agent through Zillow. In addition, we introduced a verified digital pre-approval and began rolling out a new borrower application designed to get shoppers quickly to a real decision and improve loan officer efficiency. These updates are live now on our website and coming soon to our apps. We also just rolled out major enhancements to our proprietary messaging system that lets buyers communicate directly with their agent and with loan officers from Zillow Home Loans within the Zillow app, thanks to an integration with Follow Up Boss. Buyers can now co-shop with a partner or co-buyer right inside Zillow, sharing homes, comparing favorites and staying aligned in one place. We expect keeping homebuyers better connected will deepen engagement, help real estate professionals provide better service to their clients and ultimately boost transaction rates. We are the company that is innovating rapidly to apply new technology where it matters most, improving the customer journey and helping real estate professionals succeed in the age of AI by giving them the tools and insights they need to serve clients better, work more efficiently and grow their businesses. As part of that effort, we've continued to invest in a growing set of features within Follow Up Boss. Recent updates include real-time call transcripts, smart summaries that recap each connection's recent communication with suggested next steps and custom Zillow Home Loans pre-approval letters for buyers who request one, each integrated directly in the Follow Up Boss system, giving agents richer context and helping them communicate faster. All of this innovation comes together and brings our For Sale strategy to life in our enhanced markets, where we're connecting high-intent movers with high-performing professionals and delivering a more integrated transaction. In Q3, 34% of connections came through the enhanced market experience, up from 27% last quarter and on our way to our midterm goal of at least 75%. Virtually all Zillow connections in the enhanced market experience are now managed through Follow Up Boss, enabling better collaboration amongst buyers, agents and loan officers. We're also seeing double-digit adoption of Zillow Home Loans across enhanced markets, a clear sign the integrated experience is delivering value as we help consumers get home. As that integrated experience expands, we're updating our invite-only pay when you close program for top-performing teams. This month, we announced Zillow Preferred, the next chapter for our Flex program that recognizes partners for delivering outstanding customer experiences and provides them access to dedicated support and growth tools. Zillow Preferred builds on the foundation of Flex and the new name helps ensure shoppers know they are connecting with a preferred partner of ours. As we expand the integrated experience in our enhanced markets to the majority of our connections, we expect our preferred program to grow in tandem. Earlier this month, we also introduced Zillow Pro, a membership that brings together Zillow's most impactful tools and services into an integrated AI-powered suite that helps growth-oriented agents scale their businesses. Zillow Pro helps agents more effectively serve all their clients in their sphere, not just those they connect with on Zillow. With features like My Agent, client insights flow into Follow Up Boss and agents can see what their buyers are eyeing on Zillow, invite any customer to connect on Zillow and keep their branding visible across Zillow as those clients shop. Zillow Pro also enables real-time touring for clients an agent found off of Zillow, unified messaging and property sharing among co-shoppers and premium profiles that let agents customize how they show up on Zillow. Over time, top-performing Pro users become eligible for Zillow Preferred. Zillow Pro gives agents the data, tools and brand reach they need to uncover opportunities, work smarter, deepen relationships and drive more transactions. It also expands the serviceable addressable market of our housing super app to more agents and all consumers. Given that agents who use our products touch an estimated 80% of U.S. residential real estate transactions, we have a strong partner base to sell Zillow Pro into. We look forward to rolling it out across the country throughout 2026. Now I'll update you on rentals, where we're seeing some of the strongest growth and momentum across Zillow. Just like in For Sale, we're focused on speed, transparency and innovation on behalf of consumers and partners. As a reminder, our strategy in rentals is twofold. First, we are building a comprehensive 2-sided marketplace of homes for rent, giving renters a single trusted destination to find every type of property from single-family homes to large apartment complexes. Second, we are modernizing the transaction experience for renters and property managers alike, streamlining how they connect and handle applications, leases and payments. This strategy works because it solves real pain points. Renters get transparency, efficiency and trust, property managers get better qualified applicants and higher ROI. And because renting is where nearly every mover starts, our progress here is expanding the top of Zillow's housing funnel and creating durable growth across the business. We are executing well on this strategy and accelerating revenue growth as a result. Rentals revenue increased 41% year-over-year in Q3, primarily due to a 62% increase in multifamily revenue. In Q3, Zillow Rentals had 2.5 million average monthly active rental listings, ranging from single-family homes to large apartment complexes. This includes 69,000 multifamily properties listed on Zillow. That's almost double the 35,000 we had 2 years ago, and there is room to expand with an estimated 140,000 total multifamily properties across the country. Multifamily is a key growth driver, and we're expanding both our property count and wallet share as more large property managers choose to upgrade to more comprehensive advertising packages with us. As proof of the real value we add for our multifamily partners as we deliver high-intent qualified renters to fill their vacancies, Zillow Rentals ranks #1 in partner satisfaction in our category for return on marketing investment. Our multifamily listing syndication agreements with Redfin and Realtor.com are benefiting consumers and property managers by expanding the reach and visibility of rental listings online, helping more renters see more available units on more sites and helping property managers connect with qualified applicants more efficiently. Beyond cultivating a comprehensive marketplace, we're innovating quickly to make renting simpler, fairer, more transparent and more affordable. This quarter, we expanded our cost transparency features across the Zillow Rentals network, showing renters a full breakdown of move-in and monthly costs and providing calculators to help them estimate total expenses before applying. This helps cost burden renters plan accurately and in turn, property managers get more qualified serious applicants. Many renters on Zillow can also reuse a single secure rental application across listings, saving time and cutting repeated fees, an example of how Zillow reduces friction and makes renting fair. We also announced a new partnership with Esusu, the leading rent reporting platform to help renters build credit through on-time rent payments. This collaboration expands credit building access nationwide, allowing any renter, not just those who pay rent through Zillow, to have their payments reported to major credit bureaus, strengthening their financial footing as they prepare for the next step. This partnership is another example of Zillow's broader effort to help renters and buyers access and afford housing. Finally, we recently launched Listing Spotlight, a premium listing option that gives single-family rentals and smaller buildings the highest exposure to this category available on Zillow. Building a better experience for renters and property managers has earned us strong rental traffic over the past few years with about 35 million average monthly unique visitors in Q3. As we execute on our twofold strategy in Rentals, we expect continued acceleration in year-over-year revenue growth in Q4, supported by growing inventory and partner adoption. The path to our $1 billion-plus annual rental revenues opportunity is clear, and we're confident in our ability to keep delivering value for consumers and partners. Our strong results in both For Sale and Rentals show how Zillow is successfully innovating on behalf of consumers and real estate professionals across the housing journey. As we continue delivering excellent results, we're also aware of the external noise that has gotten louder in recent months, and we're confident in our ability to execute through it just as we have the past few years whenever the volume has turned up. We're all eyes forward on building a marketplace that expands visibility and choice, promotes fairness and broad access and empowers consumers and the real estate professionals who serve them. Solving their problems is what ultimately matters. That's what enables success in the modern era and the AI-driven future. That's what drives results, and that's exactly what Zillow is doing with this quarter as the most recent example. We'll keep executing with discipline, delivering value for consumers and partners and leading the industry toward a more transparent consumer-first future. We have a strong brand, a lightning fast innovation cycle and consistently excellent execution. Thanks to that steady focus and execution, we are on track toward our full year 2025 goals of mid-teens revenue growth, expanding EBITDA margins and GAAP profitability with year-over-year revenue growth expected to accelerate in Q4. 2024 and 2025 have proven our strategy works, and we are proud of our ability to grow our revenue while also expanding margins. What's most encouraging is that our execution is setting us up for what we believe will be sustainable, profitable growth well into the future. We're excited about our opportunity to unlock $1 billion of anticipated incremental revenue in For Sale just by rolling out our integrated transaction playbook to more people in more places, even in a flat macro housing environment. The momentum we're seeing in enhanced markets indicates we're on the right track towards capturing that opportunity. And Zillow Pro is well positioned to meaningfully expand our potential for growth in For Sale. We also see a clear path toward our $1 billion-plus annual Rentals revenue target and a much larger business beyond that as we build our comprehensive 2-sided marketplace. Behind our strong financial performance is a clear mission, helping millions of people get home and supporting the professionals who make that possible. As a beloved consumer brand and a trusted partner platform, we're proud of the work we're doing to make the housing journey simpler, more transparent and more integrated. With that, I'll turn the call over to our CFO, Jeremy Hofmann. Jeremy Hofmann: Thanks, Jeremy, and good afternoon, everyone. We delivered strong results in Q3 that exceeded our expectations and are well positioned to continue delivering strong performance as we execute on our strategy in 2025 and beyond. Q3 revenue was up 16% year-over-year to $676 million, which was above the high end of our outlook range. Our better-than-expected revenue performance, combined with effective cost management, delivered EBITDA of $165 million also above the high end of our outlook range. Q3 EBITDA margin was 24%, more than 200 basis points higher than a year ago. Our trailing 12-month EBITDA as of the end of Q3 grew 29% year-over-year as we continue to scale revenue and control costs. We reported GAAP net income of $10 million in Q3 as a result of these efforts. For Sale revenue grew 10% year-over-year in Q3 to $488 million, roughly 500 basis points above the mid-single-digit residential real estate industry growth as reported by the NAR and tracked by Zillow. This was also well above the purchase mortgage origination volume growth for the industry, which we estimate was roughly flat. Purchase mortgage origination volume is noteworthy because the majority of Zillow buyers purchase their home with a mortgage. Within the For Sale category, residential revenue grew 7% to $435 million. Of note, residential revenue year-over-year growth accelerated 100 basis points from Q2 to Q3 despite a 400 basis point tougher comparable quarter-over-quarter. We saw contributions to this growth broadly across our agent and software offerings and within our new construction marketplace. Agent offerings include Zillow Preferred, formerly Flex, market-based pricing and Zillow Showcase. Software offerings primarily include Follow Up Boss, dotloop and ShowingTime+. Within the For Sale revenue category, mortgages revenue was up 36% year-over-year in Q3 to $53 million. Our mortgages strategy is making it easier for more buyers to choose financing through Zillow Home Loans, which is the main growth driver of our overall mortgages revenue. Purchase loan origination volume grew 57% year-over-year to $1.3 billion. Turning to Rentals. Q3 revenue was $174 million, with growth accelerating to 41% year-over-year. Rentals revenue comprised 26% of our total company revenue in Q3, up from 21% a year ago. This increase was driven primarily by our multifamily revenue, which grew 62% year-over-year, up from 56% year-over-year growth in Q2. Our value proposition to multifamily property managers and execution by our sales force to both win new properties and upgrade to more comprehensive packages is evident in our Q3 results. We increased the number of multifamily properties on our apps and sites by 47% year-over-year, reaching an all-time high of 69,000 multifamily properties as of the end of Q3, up from 64,000 properties at the end of Q2. As a reminder, we measure our multifamily property count as 25-plus unit buildings and do not include our industry-leading long-tail properties, which is a significantly larger count. When you include these long-tail properties, Zillow Rentals had 2.5 million average monthly active rental listings in Q3, the most in the category. Our Rentals offering is clearly resonating in the market today. By expanding our listings across more sites and apps through trusted platforms, including Redfin and Realtor.com, we are helping provide more visibility into available properties, a simpler search experience and the option to shop on the platform of renters' choice. For multifamily operators, we offer a compelling value proposition by providing efficient and cost-effective alternatives to reach more potential renters through the largest rental audience. The quantity and quality of high-intent renters on our platform has allowed us to expand our wallet share with property managers. We expect this formula to continue to drive growth in Rentals towards our $1 billion-plus annual revenue target. Q3 EBITDA expenses of $511 million were slightly favorable compared to our outlook. We drove leverage on our total fixed costs, which grew 5% year-over-year compared to total revenue growth of 16%. This includes share-based compensation expense, which was down 8% year-over-year in Q3. The results of our cost discipline continue to be evident as we expanded our EBITDA margins by more than 200 basis points year-over-year. The combination of revenue growth and cost discipline is also yielding robust cash flows. During the first 9 months of 2025, we generated $295 million of free cash flow, a 28% increase compared to the same period a year ago. We began reporting free cash flow as a new metric this quarter. We plan to do so going forward to help you all better understand the effectiveness of our strategy and execution and our ability to consistently generate cash from our core operations. We ended Q3 with $1.4 billion of cash and investments, up from $1.2 billion at the end of Q2. Program to date share repurchases have been $2.4 billion at a weighted average price of $48. We are very pleased with the program and expect to be opportunistic in share repurchases going forward. Turning to our Q4 outlook. We expect total revenue to be between $645 million and $655 million, implying a year-over-year increase of 16% to 18%. We expect For Sale year-over-year revenue growth in Q4 to be in the high single digits. We expect residential revenue growth similar to Q3 and mortgages revenue growth of approximately 20% with continued purchase origination volume growth of over 40%. We saw an accelerated number of loans that closed in late September, resulting in outperformance in Q3 mortgages revenue versus our expectations. In aggregate, we expect mortgages revenue to grow roughly 30% for the second half of 2025. Our guidance reflects our expectation that challenging housing market conditions and macro uncertainty will continue. We expect our Rentals revenue growth to accelerate in Q4, increasing more than 45% year-over-year, driven by further multifamily revenue growth acceleration. We continue to expect the Redfin partnership to be accretive to EBITDA dollars in the second half of 2025. For the full year, we continue to expect Rentals revenue growth to be approximately 40% for Q4, we expect EBITDA to be between $145 million and $155 million, representing a 23% margin at the midpoint of our outlook range. EBITDA expenses will decrease from $511 million in Q3 to an estimated $500 million in Q4 due to normal seasonality. For full year 2025, we continue to expect to deliver mid-teens revenue growth. We expect fixed cost investments to grow modestly with inflation while investing in variable costs ahead of revenue to drive future growth, primarily in Rentals and additional loan officers and Zillow Home Loans. We are on track to deliver expanded EBITDA margins and positive net income for the full year 2025. As an early read, we expect 2026 to have similar growth and EBITDA margin expansion as we have had the last 2 years. We are planning for the macro housing environment to continue to bounce along the bottom in 2026 as well. As we look even further out, we are confident in our mid-cycle targets for $5 billion in revenue and 45% EBITDA margins in a normalized housing market. We have continued to execute on the integrated transaction experience for both consumers and agents. As of Q3, this includes continued expansion of our enhanced markets with 34% of connections now going through the experience and increasing showcase adoption to 3.2% of all new listings. This also includes rapid growth in Rentals with 69,000 multifamily properties advertising with us as of the end of Q3. As Jeremy mentioned earlier, we recently announced the upcoming launch of our Zillow Pro offering. Through Zillow Pro, the expansion of our serviceable addressable market sets us on a path to engage more customers and more agents. We plan to beta test Zillow Pro in the first half of 2026 and to expand nationwide over the second half of next year. We expect a very modest incremental contribution to revenue from Zillow Pro in 2026. In the near term, we will focus on demonstrating value for the product and incorporating learnings to support continued innovation. To close, we are successfully executing on our strategy, are on track to meet our full year goals and are very excited about the opportunity ahead of us. We believe we have the right investments in place to support our strategy and are delivering strong growth while maintaining a disciplined cost structure. That formula is driving expanding margins and positive GAAP net income. And with that, operator, we'll open the line for questions. Operator: [Operator Instructions] Our first question will come from Ron Josey with Citi. Ronald Josey: Maybe, Jeremy Wacksman, I wanted to ask a bigger picture question for you just on all the news around AI and commentary around Zillow apps on ChatGPT. You talked about ChatGPT and app just being a new doorway to Zillow. And what I wanted to hear a little bit more is just the integration here, the risk, the opportunities of being that first mover on newer platforms. And then as newer doorways open, Zillow does have 250 million uniques, obviously, right? And so how do you balance your current traffic with these newer doorways with potentially having to spend more on brand awareness? Jeremy Wacksman: Yes. Thanks for the question, Ron. I mean we think about this as really pure opportunity. We're excited about the partnership integration we did with OpenAI to be the first real estate app and one of the first apps in this new paradigm. I think you should expect other providers to build out similar ecosystems. And this is really similar to other platform shifts that create expansion into leading brands. Think about as search exploded, think about as mobile exploded, and we were early on to the mobile platform as well. And just look at how brands like ours developed in those shifts, right? Mobile wasn't a replacement. It was additive. It was more time spent. It was incremental use cases. It was easier for us to start to build a more digital transaction than you had in desktop search and the browser only. So we think of it the same way. That's why we kind of call it another new doorway directly in. And then to your question on brand, I mean, I think that's why we feel so fortunate we have a great strong brand that consumers want whenever you get these new opportunities, it's an opportunity to be additive to that. And when our core base, 80% of our traffic comes to us brand direct. And the data and the platform and the software that we offer, those differentiators to create this really unique experience, I think, get strengthened by these platform shifts. So I know there's a lot that is written about, well, what does this mean for acquisition? It will, for sure, be an opportunity for all of us to tap into more customer demand in more new ways. But we're also equally excited about the ability to build AI into Zillow. As you know, we've been doing that for the last 20 years and really accelerate that effort the last 3 or 4 as these capabilities have come online. And so building more native capabilities into the software for our consumers and for our agents to make the transaction experience better, to make it more seamless to create more of that one-stop shop for buyers and sellers and for their agents, that's really the opportunity. So you're always going to see us lean in and be early. We're really fortunate that we can do that, and it's a tremendous testament to the technology teams we have at Zillow that we were able to do that here. And we think this is a really, really great platform shift for us to take advantage of. Operator: Our next question will come from Dan Kurnos with Benchmark. Daniel Kurnos: A couple. We've obviously done a lot of work on the Marriott court cases. Clients are particularly focused on the recent FTC suit. So maybe it would just be great to get your perspective on any impacts and how you think it plays out? And then separately, the other hot topic with investors is somewhat related, Compass proposed acquisition of Anywhere. So antitrust concerns aside, maybe your views on any potential disruption if agents choose or are forced to take their 3-phase marketing program or if anyone else bandwagons on their efforts to grow the private marketplace listings. Jeremy Wacksman: Yes. Maybe I'll try and hit both of those, and Jeremy hop on with anything I missed. With respect to the FTC case, we've been syndicating multifamily property listings to Redfin for about 6 months now. We're seeing the benefits to both consumers and property managers. You see more consumers can see more listings on all of our sites. An interesting stat is renters on Redfin now have access to 3x the number of rental properties they had when Redfin was trying to acquire those on their own. So it's very pro consumer. And then it's also very pro property manager. As a result of the syndication agreement, property managers are seeing increased ROI. As we said earlier, we're #1 in partner satisfaction for return on investment. And while we are excited about that ROI we deliver today, there's a ton of room for growth. We hear regularly from our large property managers that we are the strongest advertising channel, as they're thinking about their very complicated advertising mix, yes, they advertise on Zillow, other apartment sites, but they also advertise on Google, on Facebook, on Instagram, on TikTok, they market their own property websites. And so being a growing source of high ROI advertising for them, we feel great about that. So to us, it's obviously pro consumer and pro property manager, which makes it pro competitive, and we look forward to making that case as the process plays out. And then on the proposed merger, we don't really see any concerns to our business. We do see maybe more noise around hidden listings and the potential to push more hidden listings on to sellers and to buyers and to harm consumers. And so for us, our listing standards which help ensure that agents do right by their sellers. And if they're going to market a listing, they make that listing broadly available to all buyers. We continue to see the vast majority of the industry align with those standards. And we've always advocated for open, fair and transparent access. That's why we always have the most listings. Most folks want their listings on the Internet. They don't want to put the Internet back in the box. And we expect that behavior to continue because agents are trying to do right by their sellers and help their sellers sell their home. Operator: Our next question will come from Brad Erickson with RBC. Bradley Erickson: I have 2. First, I guess, the residential business looks like it outgrew the market by a couple of points in Q3. Can you just lay out maybe any market forces that leaned one way or the other on the resi business during the quarter that netted out to that number? And then second, can you just talk about what's embedded from a market growth perspective in the Q4 guide? And then I have a follow-up. Jeremy Hofmann: Yes, Brad, it's Jeremy Hofmann. I'll take that one. Yes, we were definitely pleased with the outperformance in Q3. For Sale grew 10%, which outperformed the housing market by about 5%. And then obviously, the mortgage market was flat. So pleased to be able to keep taking share. When we zoom out, our For Sale line has outperformed the industry by 20% over the last 2 years on a 2-year stack. So that's great as well because that's what we tend to focus on more than quarterly fluctuations. On the residential front within For Sale, I'd note that the revenue accelerated from Q2 to Q3. So we went from 6% growth in Q2 to 7% growth in Q3 despite a 400 basis point more difficult comp. So I think that's an interesting thing for you all to just keep eyes on and part of the market dynamics. And obviously, Q4 is probably an easier comp for the housing market comparatively. So when we look at what we're doing, we're pretty consistently outperforming the market. We're doing it over multiple periods and feel like the way in which we're doing so is pretty consistent. The enhanced markets are performing well. Zillow Home Loans continues to grow share alongside that enhanced market expansion. Showcase is expanding really nicely. Follow-up Boss is getting in the hands of more people across our agent base. New construction is doing well as well. So it's a really nice formula, and it's one that we're looking forward to continuing to roll out in Q4 and then into 2026. Bradley Erickson: Great. And then just a follow-up on Zillow Pro. You mentioned in the prepared remarks just several points of kind of value add. Can you maybe just expand a bit on kind of where the biggest sort of value unlocks come from with Pro? And then also just how does that get monetized? Or how do you envision that getting monetized over time? Jeremy Wacksman: Yes, I can take that. I mean I think, first, just to outline what Zillow Pro is because it is new, and we just did announce it. it's effectively an evolution of our software platform for agents. So it's a membership, it's a bundle so they can get access to all of our software. And that includes Follow Up Boss, right, the software that almost every preferred agent is using now. That includes premium branding on Zillow so premium profiles and consistent branding. That includes expansion of a feature called My Agent, which allows them to connect with all of their clients. And so previously, agents could use My Agent for Zillow clients that they had on Zillow, but now they can invite their clients from their database or their sphere of influence to connect with them and become their My Agent on Zillow and get access to great real-time client insights from us about those customers. So it really bundles all this together, and you want to think about that as a way we are trying to help them just run their business better, right? We're always going to try and help them deliver for our customers, right? But we want to help them deliver for all their customers. And then the last piece on Pro is it ends up being the pathway to Zillow Preferred, right? Zillow Preferred is the subset of agents and teams that we're trusting to handle our customers. We're going to continue to grow that audience of agents and teams as we go from 34% of our customers getting that experience to 75% plus. And this is the great way in. Many folks who are on Zillow Pro and using this stack of software will become eligible to be part of Zillow Preferred as well. So we see these things working really well together. And we're really excited, as Jeremy said, to test and learn with our initial beta customers early in the year and then roll it out throughout '26. Operator: Our next question will come from Nikhil Devnani with Bernstein. Nikhil Devnani: When you step back and you think about the longer-term opportunity with the Zillow Preferred program, how do you think about the impact on your share spread over time? Would you expect to see a widening gap as these markets scale and the cohorts mature there? And specifically, I'm thinking about the delta between residential and TTV. Jeremy Hofmann: Yes, I'll take that. Thanks, Nikhil. I would think about it as the expansion of Zillow Preferred is really a testament to what we're doing in the enhanced markets and how well we feel like those are going. So as we expand the enhanced markets, we will expand Zillow Preferred in tandem. And then with respect to outperformance, I think the outperformance has been strong. We expect it to continue to be strong. I would expect it from both the residential perspective and from the For Sale category as well. So much of the enhanced market experience really comes from that integration of our preferred agent base and Zillow Home Loans. And when we think about the customer experience we're building, the ability to drive conversion, the ability to drive adoption and ultimately take share, that's where we have so much confidence in not only 2025, but really towards that mid-cycle target of $1 billion of incremental revenue regardless of what the housing market does. Nikhil Devnani: And maybe if I could follow up on Rentals. You've talked about wallet share gains on the back of the increased distribution with Redfin and Realtor. It makes for a compelling sales pitch as well for your customer base. So do you think about needing to run that business any differently from a sales strategy perspective next year if this arrangement is being kind of questioned by the case? Or is it business as usual? Just wondering how we should think about how you guys run the business in Rentals in 2026. Jeremy Hofmann: Yes. I'll take that one as well. It's business as usual. Jeremy laid out how we feel about the defenses we have, and we're looking forward to sharing those perspectives. But in the meantime, business as usual, I think we're really proud of what we've done in Rentals over the past couple of years, and we're confident in our ability to grow strongly in 2026. One of the questions would be why do we feel good? I think 2025 just set us up really well, right? Property growth has been strong. We grew properties in Q1 and Q3 by 5,000 a quarter. We had that spike of about 9,000 added in Q2, and we expect to grow properties nicely in Q4 even with typical seasonal patterns. And we're actually translating all that supply growth into accelerated revenue growth throughout the year. So we grew revenue 33% in Q1, 36% in Q2, 41% in Q3, expect 45% plus growth in Q4. Supply is in a great spot. And then you're right, we've added a lot of value to property managers on the demand side because of our organic traffic and those syndication agreements, right? Each of the 69,000 properties is getting more exposure across Zillow Rentals, Trulia, HotPads, StreetEasy, Realtor.com, Redfin, ApartmentGuide and Rent. So that just puts us in this really nice position to continue to grow properties, continue to see advertisers upgrade to higher packages and continue to drive really, really good ROI. Jeremy Wacksman: And. Yes maybe just to add to that as like to zoom out and Jeremy touched on multifamily. If you think about the Rentals marketplace overall, obviously, multifamily is a big part of the revenue growth driver right now. But the strategy of building this 2-sided marketplace with all available listings or as much as we can and building the transaction experience for the renter, there's a ton of opportunity beyond that $1 billion-plus revenue target we've talked to you all about as you think about attracting even more renters and having them consume more content from, yes, multifamily, but also long tail. So I think if you zoom out and look over the last couple of years, that strategy has been working incredibly well. We were growing building count and growing audience all along the way, and it's obviously accelerated this year. But we feel great about that strategy. And yes, we feel great about multifamily revenue growth and its contributor to the midterm target, but we're not done there. We see a fantastic business beyond that as we layer on more value for the renter and for the property manager and the long-tail landlord. Operator: Our next question from Tom Champion with Piper Sandler. Thomas Champion: One question we get a lot is on the various components of residential revenue. And I'm wondering if you could just talk about the segment, the broad categories around agent software, new construction marketplace, what kind of rolls up into that number? And Jeremy, your point on the revenue acceleration was very interesting. So just curious if there was any 1 or 2 components that might have driven that. And then just really super quick, Jeremy Hofmann, if you could talk about headcount and investment into next year. I understand it's probably still in planning process, but I think you provided some early comments on '26. Just any preliminary thoughts there. Jeremy Hofmann: Yes. Thanks, Tom. I'll take both of those. So I'll take the For Sale relative outperformance first. Yes, it was a really good quarter. I think we've had a really good year so far. I'm really quite pleased with the team's ability to accelerate revenue into a tougher comp. So all of that does feel quite good. With respect to drivers, I would think of them as the enhanced markets are performing well. So we went to 34% of all connections at Zillow are now in these enhanced markets, and that's well on our way to the 75% target that we are marching towards in those mid-cycle targets. Zillow Home Loans is growing really nicely, grew nearly 60% in Q3, and we're seeing double-digit adoption of Zillow Home Loans across the enhanced markets. So that feels quite good. And then you couple it with Showcase expanding nicely. Showcase is 3.2% of all new listings today. That's more than double a year ago. And obviously, it's still early. We're learning a ton. We've only been selling the product for about 18, 20 months at this point, but plenty more to come there. And then Follow Up Boss, just getting in the hands of more people, and we just keep building better and better features to make the software more and more interesting to agents. In our Preferred base, it's in nearly everybody's hands, and the business has just done really well since we acquired it. So we're really pleased there. That's all doing quite well on the existing homes front. And then new construction team has just executed nicely. They've been able to show up for partners quite well in a challenging time and really nicely complement the rest of the For Sale business. So that's really a good formula. And then with respect to costs in 2026, the way we're thinking about it is actually pretty similar to '24 and '25. I think revenue growth formula is pretty similar. We grew 15% in '24. We're on pace for mid-teens in 2025. We think that's a good way to think about '26. And we think the expansion of margins in '24 of 200 basis points, '25, we're on track for solid margin expansion, and we think that's a good way to think about '26 as well. With respect to the cost base, you're going to hear more of the same from us. We are planning to keep fixed as flat as possible and fight inflation, but there will obviously be some inflation and headcount is going to stay pretty flat on the fixed side. And then on variable, where we see opportunities, we will invest. We've done that in Rentals, I think, quite nicely. I think we've done it well in Zillow Home Loans. And where we see these really outsized growth opportunities, we will go run at those. But the fixed cost discipline allows us to really get leverage and grow profits faster than revenue. And when you think about that together with marketing, which we dial up and down based on what we see in the market, it all nets out pretty nicely to solid revenue growth, ability to expand margins and then GAAP net income comes in there as well because as we hold our fixed costs flat with inflation, we get a lot of leverage on stock-based comp. So stock-based comp was down 8% year-over-year this quarter. We expect it to be down 10% year-over-year for 2025. And that's just a function of the fact that 90% of our stock-based comp charge really sits in that fixed bucket. So you'll hear much of the same for us, I think, in 2026, and it's a testament to the strategy and execution that the team has been able to deliver. Operator: Our next question will come from Lloyd Walmsley with Mizuho. Lloyd Walmsley: I just wanted to ask about sort of the back and forth of the funnel between the agent and Zillow Home Loan side. I think it's clear how in enhanced markets, agents can be helpful in making consumers aware of Zillow Home Loans. Where -- in terms of the other direction, people coming in, whether that's the viability calculator or otherwise, are you seeing a good flow from people who come in through the mortgage funnel and attaching them to an agent? And is that an opportunity you guys are focused on at this point? Jeremy Wacksman: Lloyd, I'll take this, and welcome back to the call. We think about them as more similar than different, to be honest. I mean you hit it right. If a consumer is interested in touring homes, whether that's virtual or booking a real-time tour and they start with an agent, making sure a Zillow Home Loans loan officer is ready for that agent and can be a choice for that customer, that's a big part of the growth. We can do that in enhanced markets, and that's how we're rolling out this formula is giving access to more and more agent teams, a Zillow Home Loans team for them to work with for us to earn their trust as one of their choices for Zillow Home Loans. But that works in reverse, right? So the set of customers that might be shopping financing or asking affordability questions, they're using viability, and that's a good proxy, right? So viability is up to now 2.9 million people have enrolled and used it and found their viability number. That's up from 2 million last quarter. Some of those folks are ready right away to go get preapproved. And we now have a digital preapproval they can do and a loan officer can help them, and that's the path they want to go down. But many of those folks end up doing that and then shopping. And so it really is not that separate funnel, right? So many of those viability customers just go tour. They're just a more high-intent customer, and they're more interested in Zillow Home Loans because they've started the process with us. And so it makes that conversation more natural for that agent to recommend Zillow Home Loans. So we see both those things kind of growing together over time. And if you just put the loan officer hat on, that's how a loan officer would think about it. These are just customers coming to Zillow. They're learning the financing answer, they're finding the home they want to buy and the loan officer is there to help nurture them along in partnership with the agent whenever they're ready and whenever they find the house. So for us, we will work on both products from a consumer experience standpoint, but they really are kind of 2 sides of the same coin more and more. Operator: Our next question will come from Dae K. Lee with JPMorgan. Dae Lee: First one for Jeremy Wacksman. Following up on your comments on the ChatGPT integration, I understand that mobile transition was an incremental for you guys. But with ChatGPT, there is kind of like an intermediary sitting between you and the consumers kind of helping you make that connection. So like when you view the consumer journey for users who start their home search in ChatGPT versus those who start directly on Zillow, are you seeing or are you expecting any differences in engagement or monetization potential? And do you expect these users to eventually come back directly to Zillow or continue engaging through ChatGPT? And I have a follow-up. Jeremy Wacksman: I mean I think it's really early to try and prognosticate how this all plays out. But I will say, if you think about like what framework could you use to think about that question, the actions you want to take in this category typically lend themselves to a very bespoke category experience. It's a very long-duration shopping cycle for a very large emotional asset where you have to make very almost regulated decisions and need regulated help to make that decision, right? If you're going to buy, you have to get in touch with an agent, you have to work with a loan officer or most people will do those things to make a very complicated financial decision. And the complications of the industry itself require a ton of local specific data and a ton of software to work through all those steps. So all of that to us says building GenAI into that platform is how we're going to make it easier, faster, better. Consumers are going to start and ask questions everywhere the way they always have. That's kind of, I think, where the -- does this feel like an app store or does this feel like a search engine question plays out. But once you start browsing and shopping, you ultimately raise your hand to want to transact and having a bespoke native kind of vertical experience is how most people are going to want to transact. They want this one-stop shop, and it's more about how can GenAI help enable that one-stop shop for them when they're ready. So we think about it as increased exposure. And we also think about it as like new ways to build that vertical experience because you now can interact with an intelligent piece of software that listens to you and remembers you and his patient. And so we're very excited to wire that up inside of Zillow. But that's why we're so excited about this. It's yet another way for us to start to build this more integrated transaction, which is what this category has desperately needed. Dae Lee: Got it. And then as a follow-up to Jeremy Hofmann. When you look at Zillow Pro and Zillow Preferred, like how should we think about like how that could change the monetization potential of your platform and profitability potential of your platform? And when you gave us an early view on 2026, does that early view include meaningful contribution from these products? Jeremy Hofmann: Yes, I'll take that. Thanks for the question. I would think about the $1 billion mid-cycle target in For Sale coming from Preferred. Pro is really on top of that. So I don't expect any meaningful changes to the way we monetize in Preferred. I think it's working quite well, and we expect to continue to roll it out steadily over the next couple of years as we march toward those targets. And then with respect to Pro, we don't expect it to be much of a contributor from a revenue perspective in 2026. We think 2026 is a year where we do a bunch of beta testing first half of the year, start to roll it out nationally second half of the year, but we're going to really focus on adoption and learning. And then ultimately, we have, I think, a really interesting opportunity to sell Pro over time and really expand our SAM. But 2026, I wouldn't be expecting huge revenue contribution. Operator: Our last question will come from Ryan McKeveny with Zelman. Ryan McKeveny: One on Showcase. So good growth and expansion of listing share. You also called out the AI-powered virtual staging rollout in 3Q. I guess any initial uplift you would say to the overall listing share based on the virtual staging? And I know that's early days, so maybe not. But maybe you could speak more broadly about virtual staging. And should we think of that offering as somewhat unique to the Showcase offering? Or could that be something of broader application over time? Jeremy Wacksman: Yes, Ryan, I'll take that. So on Showcase broadly, 3.2% of new listings, we feel great about. We're constantly testing ways to drive more adoption and how to help build it into the workflow of teams and agents that are working through listings. You're asking them to capture media differently in many ways. And so that's part of why so much of our tech focus is on how to make that easier. And then you're right to call out, we're also improving the product while we're growing adoption, right? So we added AI-powered virtual staging this quarter. We added SkyTour last quarter, which is this fantastic generative AI ability to fly around with all the drone media we capture. We've added listing dashboards. So we continue to add capabilities. With AI-powered virtual staging specifically, yes, we definitely could see that coming to more types of listings over time. I think we wanted to start with the listing experience where we have the native software built and learn and build from there. But over time, just like we want to see Showcase technology on more than 5% to 10% of listings over time, we've given you all that as intermediate-term targets. But the goal is really to create a more interactive listing experience on all listings. Photos and text are just not going to cut it. And that's what Showcase shows everybody, and that's why you're seeing the rapid growth of Showcase even in these early innings because this is just a better way for buyers to consume content. That's why buyers spend more time with it. That's why sellers and listing agents want it because ultimately, they're trying to get the homes sold faster and they're trying to win the next listing, and they can use Showcase to do both of those things. Ryan McKeveny: That's great. And then just one final one. A couple of questions ago, you were asked about the different mortgage funnels. You called out in the shareholder letter, the loan pre-approvals within Follow Up Boss. That sounds interesting. Should we think of that as kind of additive or new to the potential funnel on the mortgage side? Or is that more -- just a more efficient way of doing things that had historically been done seemingly in a different way? Any thoughts there would be great. Jeremy Hofmann: Yes. Thanks, Ryan. I'll take it. I would think of it as really just making the experience better for the shopper, the agent and the loan officer. It's a really nice integration. And if you think about what a shopper is looking to do, that shopper wants a really tightly coordinated team between its loan officer and real estate agent. And we think building functionality that helps that integration work in Follow Up Boss, which is where these agents tend to run their businesses is beneficial for all parties in the transaction. So that's the way I would be thinking about it. Operator: This completes the allotted time for questions. I will now turn the call back over to Jeremy Wacksman for any closing remarks. Jeremy Wacksman: Great. Thank you all for joining us today. We really appreciate your continued support. We are very excited for what's ahead and look forward to speaking with you again next quarter. Operator: Thank you for joining Zillow Group's Third Quarter Financial Results Call. This concludes today's conference call. You may now disconnect.
Operator: Good morning, and welcome to Alerus Financial Corporation Earnings Conference Call. [Operator Instructions] Today's call will reference slides that can be found on Alerus' Investor Relations website. You can also view the presentation slides directly within the webcast platform. [Operator Instructions] Please note, this event is being recorded. This call may include forward-looking statements and the company's actual results may differ materially from those indicated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release and the company's SEC filings. I would now like to turn the conference over to Alerus Financial's Corporation President and CEO, Katie Lorenson. Please go ahead. Katie Lorenson: Thank you. Good morning, everyone, and thank you for joining us for our third quarter 2025 earnings call. Joining me today in the Twin Cities is our CFO, Al Villalon; our COO, Karin Taylor; and our Chief Banking and Revenue Officer, Jim Collins. Joining us by phone is our Chief Retirement Services Officer, Forrest Wilson. I plan to cover a few highlights for the quarter and then spend a few minutes recapping the progress we have made as a team and as a company. Results for the quarter were consistent with expectations. Another pearl on the string as we continue to execute our long-term strategy, drive transformation across our commercial wealth bank and position the company for sustainable value-driven growth. Improved results reflect our team's strategic actions and progress towards top-tier performance. Our ultimate differentiator at Alerus is our diversified business model, which drives nearly double the average fee income compared to other banks. Due to the annuitized and capital-light businesses of Retirement and Wealth, Alerus has revenue resilience across cycles. This enables us to deliver consistent value to our clients and consistent returns to our shareholders. This quarter, we continued to deepen client relationships and expand our reach. Our seasoned team of bankers, both the new and long tenured at Alerus drove robust organic growth in both our commercial and private banking segments. Our Retirement and Benefits business remains a national leader and continues to establish meaningful partnerships across the country. In Wealth Management, we completed a major platform upgrade, enhancing both the client and adviser experience and laying the groundwork for future recruiting efforts and client growth. We continue to derisk the balance sheet with our company-wide prioritization of proactive risk management. Last quarter, we sold a portfolio of higher risk acquired hospitality loans. We previously marked this portfolio and realized a gain of $2.1 million on the sale in the second quarter. Throughout this year, we have continued to diligently work through and out of credits that are not core to where we are focused or those that we think could be negatively impacted in an economic downturn. Our emphasis on capital allocation to organic growth in full C&I relationships resulted in the investor CRE capital ratio dropping below the 300% threshold. Another example of our conservative and proactive risk management was a large recovery during the quarter of a credit we charged off only 5 quarters ago, bringing the year-to-date charge-off ratio to 8 basis points which remains below our lower-than-industry long-term history of 27 basis points of net charge-offs. Nonperforming assets to total assets were 1.13%, an increase of 15 basis points from the prior quarter. The quarter-over-quarter increase in nonperforming by one commercial relationship. The commercial relationship that was recently identified has many clients since 2010. They are a general equipment lessor for transportation, logging, construction and manufacturing industries. They experienced cash flow challenges relating to one large customer going out of business and delayed work tied to FEMA funding. There is currently a 50% reserve on the relationship, pending additional information on equipment values. Of the $60 million in nonperforming assets, our largest exposure continues to be a large multifamily loan in the Twin Cities with a book balance of approximately $32 million. We saw some progress on this credit as permanent certificate of occupancy was issued in July of this year and is currently 67% leased. The property was publicly listed for sale this month. Based on various expected outcomes, we are currently reserved at about 15% expect resolution by midyear 2026. These two loans make up nearly 75% of our total nonperformers and we do not believe the level of nonperformers to be indicative of any widespread credit concerns. We ended the quarter with a strong reserve level of 1.51%. In addition, capital accretion boosted the TCE ratio to over 8%. Tangible book value grew nearly 5%, and we returned $5.3 million to shareholders through our long-standing commitment to our dividend. As we look back over the last several years and forward through the remainder of 2025 and beyond, our strategic positioning is exceptionally strong, and our priorities are clear. Since 2022, Alerus has made transformational changes and substantial progress to return performance to top-tier profitability as a premier commercial wealth bank and a national retirement plan provider. We have completed succession at the entire negative team level and beyond and have strong leaders in place throughout all parts and levels of the organization, many of which have joined Alerus from much larger institutions and are key to our progress in making Alerus, not just bigger but even better. We have courageously transitioned the majority of our commercial making team in our growth markets over the last several years with specialized industry veterans with deep credit acumen. Key verticals have been established and teams have positioned us to grow mid-market C&I and equipment finance. In addition, we have added teams of deposit-rich verticals, including private banking and government not for profit. In 2023, we lifted out and added over 120 new team members while reducing head count over 10%. We have strategically divested business lines that are not core to our franchise and successfully acquired in key markets, including Arizona, Rochester and Wisconsin. We retained #1 market share in our hometown market of Grand Forks, despite new market entries and targeted competition. Our markets across our franchise are exceptional in terms of full relationship growth opportunities and economic and household demographics. While performance ratios are improving, we continue to monitor and evaluate opportunities to enhance our core earnings profile. This includes the engagement of a third-party consultant to ensure we have processes and systems in place to profitably and sustainably scale and grow our business with improving margins and exceptional risk management. These challenging efforts to transform and improve the returns of our Commercial Wealth Bank were critical in order to receive the recognition of the embedded value of our stable and recurring revenue from our retirement and health businesses. We remain bullish on our retirement business of which we are the 25th largest in the country. We intend to continue to build organically and inorganically in this highly scalable business. We put in place the first dedicated and experienced executive to oversee the business a year ago. With the leadership team now in place, we are doing the work to transition the operating model to optimize margins and introduce automation and AI in an industry that is growing with the support of legislation at rates well above GDP. Our robust wealth division at Alerus is more valuable than that of the typical community bank with nearly all of the business being full fiduciary management and advising clients. The conversion of the new platform went incredibly well. We have a unique and differentiated value proposition for recruiting wealth advisers. And with improved technology, we are moving forward with our plan to double the wealth advisers, mostly in our growth markets over the next several years. The fundamental foundation of the company is strong. The difficult work has been completed, and now we look forward to the ultimate goal of top-tier performance and being recognized and rewarded what they deserve in top-tier valuation. Our focus going forward is to keep growing organically by deepening client relationships and expanding in growth markets, leverage technology, data and AI to drive efficiency and deliver differentiated client experiences. Long term, we will continue to evaluate M&A opportunities, particularly in retirement and HSA businesses, where we have deep experience and catalysts to consolidation positions Alerus favorably as one of the few independent abrogators in the space. Lastly, and as always, we intend to maintain our disciplined approach to capital allocation, risk management and expense control. We are confident in our strategy and the opportunities ahead. Our foundation is solid, and our team is energized. We are committed to delivering sustainable top-tier performance for our clients, our communities and our shareholders. With that, I will now hand it over to Al to cover the financial results. Alan Villalon: Thanks, Katie. Turning to Page 11 of our investor deck that is posted on the Investor Relations part of our website. On a reported basis, net interest income increased 0.2% over the prior quarter, while fee income decreased 7.3% Net interest income was stable as deposit inflows and organic loan growth offset the impact of the CRE hospitality loan sale and purchase accounting accretion was stable. Excluding onetime items, mainly the gain from the loan sale from the second quarter, fee income was down only 1%. Our fee income remains over 40% of revenues and over double the industry average. Let's dive into the drivers of net interest income on the next slide. Turning to Page 12. In the third quarter, net interest income continued to reach new highs at $43.1 million, and our reported net interest margin remained stable at 3.50%. Total cost of funds remained stable at 2.34%. We had 45 basis points of purchase accounting accretion in the quarter. Although 45 basis points, 17 basis points were from early payoffs. We continue to remain disciplined in pricing as we continue to not price in the version of the yield curve for loans. In the third quarter, we saw a new loan spread of 259 basis points over Fed funds while the deposit costs were coming in 92 basis points below Fed funds. With the new business margin of 351 basis points, we continue to expect purchase account accretion to be replaced by core net interest income. Let's turn to Page 13 to talk about our earning assets. At the end of the third quarter, loans grew 1.4% over the previous quarter. Multifamily real estate, C&I and residential real estate were the biggest drivers of loan growth. For the fourth quarter, we're expecting around $159 million or 4% of our loans to contractually mature. Overall, our loan mix is around 50% fixed and 50% supply. On investments, we continue to let the portfolio roll off and revisit the higher-yielding loans. The portfolio has a duration of just under 5 years. For the remainder of 2025, we expect another $37 million of securities to pay down. Excluding balance sheet, derivatives remain slightly liability sensitive. Any 25 basis point cut in the Fed spun should help improve our net interest margin around 5 basis points. Turning to Page 14. On a period-end basis, we were able to grow the cost by 1.7% despite the usual seasonal outflow we see from public funds. Growth was primarily driven by continued expansion to full commercial relationships. Over 70% of our commercial deposits now have a treasury management relationship with Alerus. Loan-to-deposit ratio remained stable at 93%. Lastly, since the close of the acquisition of Home Federal, our net retention rate remains over 97%. Turning to Page 15, I'll now talk about our banking segment, which also includes our mortgage business. A focus on the fee income components now since net interest income was previously discussed. Overall, noninterest income for banking was $6.4 million for the third quarter. The second quarter included a $2.1 million gain related to the sale of hospitality loans. Excluding onetime items, net interest income was only up 1%. Mortgage saw a slight increase in originations during the quarter. We do expect the seasonal slowdown in mortgage for the upcoming quarters. We also saw very little swap income this quarter, which tend to be lumpy from quarter-to-quarter. On Page 16, I'll provide some highlights on our retirement business. Total revenue from the business increased to $16.5 million or a 2.9% increase over the prior quarter. Most of the increase was driven by asset-based fees coupled with a slight increase in recordkeeping fees. Assets under administration and management increased 3.7%, mainly due to market performance. Synergistic deposits within our Retirement Group grew 3.4% over the prior quarter. HSA deposits grew almost 2% over the prior quarter, over $202 million. HSA deposits continue to remain a strong source of funding for us as these deposits only carry cost of around 10 basis points. Turning to Page 17, you can see highlights of our Wealth Management business. On a linked-quarter basis, revenue decreased to $6.6 million, while end of quarter assets under management increased 4.3%, mainly due to market performance. Revenue declined due to a decrease in transactional revenues such as brokerage and insurance commissions. Page 18 provides an overview of our noninterest expense. During the quarter, noninterest expense increased 4.3% due to an increase from higher incentives driven by our higher loan and deposit growth, along with incentives from higher mortgage originations. The increase in incentives was offset by decrease in benefit-related expenses. We also saw an increase in technology expenses as we transition to a new wealth and deposit platform. Occupancy expense increases, we opened a new office in Fargo, North Dakota and placed two older facilities. Turning to Page 19, you can see our credit metric. During the quarter, we had net recoveries of 17 basis points. The quarter-over-quarter decrease was primarily driven by a $1.9 million recovery in the third quarter of a 2025 related to a loan that had been previously been charged off. Nonperforming assets were 1.13%, an increase of 15 basis points from the prior quarter. As Katie mentioned in her opening comments, we are currently carrying a 50% reserve in the long commercial relationship related to a general equipment lessor. On the special capital liquidity on Page 20, our capital -- our tangible common equity ratio improved to 8.24%, which is higher than a year ago of 8.11%, right before we closed on the acquisition of Home federal. On the bottom right, you'll see a breakdown in the sources of $2.6 billion in potential liquidity. We continue to utilize some broker deposits to optimize our cost of funds. Overall, we continue to remain well positioned from both liquidity and capital standpoint to support future growth, or weather economic uncertainty. Turning to Page 21 now. I will update you on our guidance for 2025 and provide preliminary guidance for 2026. We expect the following: For loans, we expect the year to end with over $4.1 billion. For 2026, we expect to continue to grow at a mid-single-digit growth rate. Total deposits should be around $4.3 billion at year-end. While we expect inflows from our public funds, we are also planning on calling in around $165 million in brokered CDs. For 2026, we expect to grow deposits in the low single digits based on the projected ending amount of $4.3 billion for 2025. Net interest margin for 2025 is now to be expected higher and end around 3.35% to 3.4% on a full year basis. For the fourth quarter, we're only expecting 23 basis points of purchase accounting accretion, which includes no early payoffs. For 2026, we're expecting our net interest margin to be around 3.35% to 3.45% which will include only about 18 basis points of purchase account accretion and no early payoffs. In comparison, we expect around 40 basis points of purchase and account accretion for the full year 2025. As a reminder, we do not embed any further rate costs in our guidance. However, the guidance does include the recent 25 basis point rate cut that was announced this week by the Fed. Again, for every 25 basis points cuts in rates, expect NIM to improve about 5 basis points. We expect our non adjusted noninterest income for the year to end around $115 million in total. This will exclude the $2.1 million gain on sale of loans in the second quarter. On the mortgage side, we expect originations to see a seasonal downturn in the fourth quarter. For 2026, we expect noninterest income to grow in the mid-single digits from the adjusted $115 million in total reflected for 2025. Adjusted pre-provision net revenue should end the year around $85 million to $86 million. Again, this is adjusted for onetime items in 2025, which is mainly the gain on sale of loans and severance and signing expenses. For 2026, we expect low to mid-single-digit growth from the $85 million to $86 million in adjusted PPNR. Lastly, we expect our adjusted ROA to end 2025 greater than 1.15%, which excludes onetime items such as the loan sale. For 2026, we expect our ROA to exceed 1.10% for the year. We expect a normalized provision in 2026 and less purchasing account accretion relative to 2025, as previously mentioned. With that, I'll now open up to Q&A. Operator: [Operator Instructions] The first question will come from Jeff Rulis with D.A Davidson. Jeff Rulis: Maybe just on that last one, Al, on the provisioning level this quarter. I guess, pretty good growth is the lack of the provision maybe on the recovery I guess you've got some confidence on that larger credit as well. I just wanted to kind of get to that. And then as we go forward when you say normalized provision, if you could refine that a little bit, that would be great. Karin Taylor: Jeff, this is Karin. I'll start. You're correct. The lack of provision this quarter was driven primarily by the recovery as well as a decrease in the requirement for pooled loans, particularly as we move that one problem owned individual impairment and then a decrease in our unfunded commitment requirement. In terms of provisioning going forward, that will be driven primarily by loan growth macroeconomic factors. Jeff Rulis: Okay. So the normalized term is kind of reserving for growth versus kind of the inputs that we had this last quarter, recoveries and such? Is that kind of... Karin Taylor: That's correct. Jeff Rulis: All right. And I appreciate the outlook on the loan growth. Interested in your view, Katie or others, just in terms of a mid-single-digit outlook. But I guess where's the upside if things were to be better, would you frame that up? If we do get lower rates, kind of where do we see higher than mid-single digits, if that were to line up. James Collins: Jeff, this is Jim. If we do see some lower rates, I think we could see some higher loan growth closer to the 10%, 11%, 12% loan growth. But that's really going to be -- we're really going to be focusing on a lot of deposit growth -- at the point, for the most part, we're really sticking and focusing on full C&I relationship growth. So depending on how that deposit full relationship goes, Obviously, that comes with loan growth. So my guess is if rates do come in, we're probably inching up closer to that 9% to 10% loan growth. Katie Lorenson: Yes. I would add, Jeff, that the headwind to the loan growth is really our continued proactive work on the portfolio in terms of pushing out credits that just are core to our focus or that we don't have full relationships with and are not in our asset class priorities. Jeff Rulis: Katie, you mean there's -- would you suggest that there's maybe a little more work to do in '26 to kind of keep that capped a little bit? Is that what I'm hearing? Katie Lorenson: I think it will continue in -- throughout '25 and perhaps the early part of '26. Operator: Our next question will come from the line of Brendan Nosal with Hovde Group. Brendan Nosal: I just wanted to dig into the margin outlook a little bit. Al, thanks for the comments on the accretion expectations for '26, I guess it kind of stands to reason even without additional rate cuts, it looks like you're baking in some improvement in the level of the core margin from here through 2026 even without additional rate cuts. Could you just maybe unpack the drivers of that a little bit? Alan Villalon: Yes. That's a good question, Brendan. I mean we are expecting what you call core margin improvement or the way we look at it here, net interest margin, excluding purchase accounting accretion, but the big drivers of that for right now is -- I commented on earlier, we're seeing really good spreads on loans, and we're also seeing good spreads on deposits. So with that -- what we call the new business margin in excess of 350 basis points we continue to expect that net interest margin, excluding purchase accounting accretion to continue to improve. Brendan Nosal: Okay. That's helpful. Maybe one for me, just turning to fee income. If I annualize this quarter, you're around $118 million just on what you did this quarter. The guide for next year kind of implies right around there, plus or minus a little bit. So I just want to kind of dig into why the lack of more robust loan growth -- or sorry, more robust fee income growth and maybe what market and organic assumptions you're using for AUA and AUM in your fee business? Alan Villalon: Yes. I'll take the first part of this is in terms of fee income growth for next year, we do expect mortgage to be under pressure just a little bit still. So that's just kind of where we're modeling we have to be conservative. The other part of it, too, is that we're not modeling much in terms of market growth. Operator: Our next question comes from the line of Nathan Race with Piper Sandler. Nathan Race: Just going back to the last discussion point on fee income. Maybe Katie, could you just touch on some of the underlying drivers that you're seeing within the wealth and retirements in the areas these days? Particularly just curious around what you're seeing in terms of capture rate increases and just how you're kind of stemming some of the natural attrition within AUA as well these days. Katie Lorenson: I wouldn't say our trends are consistent in both the attrition side as well as the capture rate side on the retirement business. In the wealth business, again, we completed a full conversion onto a platform that is an upgrade for both the client experience as well as an adviser experience. We've had great success in recruiting and retaining exceptional advisers. And the technology now just removes a little bit of an obstacle because we do have such a differentiated recruiting profile. So those are not layered in yet in terms of the revenue growth of the expense side, but we do expect to move full force ahead in adding advisers in our growth markets. Nathan Race: That's really helpful. And just going back to the loan growth discussion, maybe for Jim. I appreciate there's potential upside to that mid-single-digit guide with lower rates. But curious how much of the M&A-related disruption the Twin Cities can also contribute to that. Obviously, there's been some distribution with a couple of notable competitors recently. So just curious if you guys can attract those clients just via your existing teams or if you're seeing opportunities or any appetite to hire additional commercial folks. James Collins: We are always very opportunistic on talent. So we always look for talent, and we do the cost benefit of that talent. We're -- certainly have upgraded talent and have a really good talented team now. And a lot of that talent has inroads to a lot of the disrupted banks in this market in the Minneapolis and some of the other markets. So we are finding success in those disruptions. So that will be part of the growth for 2026. For sure, that's some of the names that I see on the pipeline, that will be part of that growth. But we are always looking for talent, certainly in all markets where there's disruption and there's disruption in all markets, we definitely -- that is part of our strategy to take advantage of those disruptions, both with the talent and with the customer base. Nathan Race: Okay. That's great. And then, Al, I appreciate the guidance around PPNR growth for next year. Just curious, what kind of legacy expense growth you're kind of thinking about an underpinning that? There were some sequential increases across a handful of line items in the third quarter. So just wondering if there's any kind of cost that will come out as we enter 4Q or into next year? And just how you're thinking about overall legacy expense growth into 2026? Alan Villalon: Thanks for that question, Dave. We're still in the midst of the budgeting process and evaluating opportunities to reinvest and save costs as well. So that's why there's a rate for PPNR right now, it will be up low to mid-single digits. We'll have more color for that as we get probably in the fourth quarter results when we finish the budgeting process. Operator: Our next question is going to come from the line of Damon DelMonte with KBW. Damon Del Monte: Al, just to circle back on the expenses, given the uptick in the software technology line there, is that kind of like a run ratable level from this quarter? Or do you think there's some noise there that shakes out? Alan Villalon: Yes, there's still going to be a little bit because a lot of the contracts these days have escalators in them. So we'll still see a slight uptick in that next year. Damon Del Monte: Okay. Great. And then the guide for the margin for '26, I may have missed what you said, you expect the fair value accretion impact to be that's embedded in there? Alan Villalon: Yes. That's -- we're only expecting 18 basis points of purchasing accounting accretion in there, and that's with no early payoffs. Damon Del Monte: Got it. Okay. And then again, just to confirm, for each 25 basis point cut, the core margin should benefit by 5 basis points? Alan Villalon: That's correct. Damon Del Monte: Okay. Great. And then lastly, do you guys have any NDFI loans in your portfolio? Katie Lorenson: No. Damon Del Monte: Okay, great. Everything else has been asked and answered. Operator: Our next question comes from the line of David Long with Raymond James. David Long: Just wanted to touch base on a couple of things on the balance sheet. On the funding side, time deposit growth led the deposit growth in the quarter. What are you looking at in deposit growth going forward? And what is the duration of what you've been adding and the yield on that? Alan Villalon: So David, in terms of the deposits. Let me go circle back to you on that one. Let me just look this up what we've been adding on. Do you want to hit me another question and then? David Long: Yes. Sure. The other thing I want to ask is just on the asset side, thanks for giving us some of the repricing metrics with the loans and the deposits. But how do you expect the mix to look over the next 6 to 12 months? Will that differ? Will you -- is there any interest in moving some of the securities cash flowing into loans at this point? Alan Villalon: Yes. There's definitely the interest of moving the securities into loans because I mean, we basically have a low 2% yield right now in our securities book, and we're getting loans that are very much higher than Fed funds. So we definitely want to do that. Operator: Our next question is a follow-up question from Brendan Nosal with Hovde Group. Brendan Nosal: Katie, I just want to kind of follow up on something you said in your prepared remarks about evaluating opportunities to enhance the return profile. Could you just expand upon that a little bit and kind of put a scope around what sort of things you might be looking to do in that regard. And then specifically, would you folks look at securities restructuring as part of that? Katie Lorenson: Sure. Well, as I mentioned, we have engaged a consultant, which is really focused primarily inside the commercial underwriting and origination processes. We believe, first and foremost, that's about getting better, faster and a better experience for all of our team members and our clients. But we do believe there may be some efficiencies that we realized from that, that will help us improve our profile. In addition to a tremendous amount of work being done within the Retirement division to optimize how we deliver there. We think that industry, in particular, is absolutely full of opportunities for AI and automation. And so we think we can continue to improve margins over the long term in that business. And then relating to the balance sheet restructuring, that's something that we are always evaluating, those opportunities and that's not a change for us, that's been over the course of the past several years. Alan Villalon: Also just on the follow-up call from -- for Dave Long there. New non-maturity deposit accounts in Q3 came in at rates of less than 3%, and our CD term rates were kept short. Operator: This concludes our question-and-answer session. And I would like to turn the conference back over to Katie Lorenson for any closing remarks. Katie Lorenson: Thank you, everyone, for the questions and thank you for taking the time to join us today. I want to thank our employees for their unwavering dedication to our clients and our shareholders for your continued trust and support. The progress we've made together reflects the strength of our strategy, the resilience of our diversified business model. And as we look ahead, we remain focused on disciplined growth, leveraging technology and innovation, delivering sustainable top-tier performance. Our foundation is solid. Our team is energized, and we are confident in the opportunities ahead. Thank you, everyone, and have a great day. Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Marta Noguer: Good morning, and welcome to CaixaBank results presentation for the third quarter and the first 9 months of 2025. We are joined today by our CEO, Gonzalo Gortazar; and our CFO, Javier Pano. Just a brief reminder in terms of logistics, we will spend about 30 minutes with the presentation and about 45 minutes to 1 hour with the Q&A. The Q&A, as you know, is live, and you should have received by e-mail the instructions on how to participate. Let me end by saying that my team and I will be at your full disposal after the call. And without further ado, Gonzalo, the floor is yours. Gonzalo Gortázar Rotaeche: Thank you, Marta, and good morning, everybody, and welcome to this results presentation. It's a quarter that, I think, confirms the trends that we've been seeing for the last year and even further where volume growth sort of accelerates despite the seasonality. Obviously, we need to understand that comment in the context of the weakness due to seasonal reasons in the third quarter, you see how basically, loans and customer funds are close to 7% up; premia for insurance business, 13% up; and remarkably growth in number of clients, almost 400,000 new clients in Spain on a net basis, which indicates, clearly, the group is in the right direction, growing client base for much more than population growth in Spain. So very good dynamics for the business, for the organization. With respect to NII, as we predicted last quarter, finally, we've seen an inflection point with a pretty decent increase, 1.4% quarter-on-quarter. So Javier will elaborate on the Q&A. We'll have further details on trends. But certainly, it feels very good at this stage. Revenue from services, up over 5%; asset quality, record lows. Cost of risk, in fact, we're improving guidance as Javier will sort of detail. Capital in the right direction. And obviously, this quarter, we, as per our policy, are announcing the interim dividend to be paid in November, which is the top of the range of 30% to 40% of first 6 year -- of the first 6 months results, sorry. And announcing a further share buyback, the seventh I'm keeping core equity Tier 1 above our targets and with, again, strong trends, particularly given the deduction of the share buyback that is included in the figures. We're upgrading our return on tangible equity to circa 17%, which indicates again the good trend of the business, which we obviously expect to see for the foreseeable future. The economy, the economy has again surprised on the upside. We have raised our estimates for Spain from 2.4% to 2.9% currently. A couple of days ago, we had the figures for the third quarter very much sustaining the projections that we've made for this year, this 2.9%. We expect some slowing down, but to a pretty decent level, just above 2% this year for Spain, similar level for Portugal. By the way, Portugal published their GDP figures yesterday, also very strong. So a nice outperformance of the Iberian economies, expected to last. And certainly, we are a clear beneficiary there. What's behind this? First of all, the labor growth. You can see over 0.5 million of new jobs created in the last 12 months. Disposable income and savings rates, both moving in the right direction. And obviously, that's a tailwind for our customer funds and for the economy. Consumption figures that we saw a couple of days ago, private consumption up 3.3%. Investment part of the GDP, very strong growth, 7.6%, and very remarkable export of services, close to 10%, 9.5%, and of that, the tourism-related services is only 5.8%. So it gives you an indication of the recovery and the strength of the Spanish economy goes much further beyond pure tourism, which is very relevant because obviously, tourism is going to continue to contribute to the economy, but not to the same extent that it has had in the past and as the sector has recovered. Continue to have a very low private sector leverage compared to the Eurozone, which is great news, both in terms of defensive scenario if there are issues. And certainly, glass half full opportunities for loan growth, which we see sustainable -- sorry, which we see sustained for the next year. So in that context, obviously, volume growth, 6.8% up. Client acquisition, as I mentioned. On the right-hand side, you have a reminder, this is coming from FRS Inmark of our client penetration, we have 40.4% increased during this year, along with that increasing client base. It's very important to see here the group gaining the traditional commercial strength that it has always had, and the fact that the type of relationship that we have with our banks is much stronger than the other peers. As you can see, 72% of our clients use Caixa as their primary bank, which is well above all. Market share gains, I'd say, across the board, but highlighting some of them. Payroll deposits, in particular, which is very relevant, certainly. On the lending side, consumer and business lending, in particular, not so much in mortgages, where we are stable, a slight -- a few basis points reduction in deposits and generally in life risk. But as you will see in protection, we also have pretty good trends. imagin, as mentioned in the previous quarter, we're planning to give you a brief update on representation. Continuous nice growth and number of clients, market share, particularly in payroll business volume, half of our net new client acquisition comes through imagin -- sorry, half of our gross client acquisition comes through imagin. And just to remind you, it's at this stage, a full-service bank with obviously stronger component of customer funds, but also many other products, including lending, which is not typically what you see in neobanks compared to imagin. It's been a year where we've not only focused on growth. Remember our strategic plan, we talk about two pillars. It was growth and transformation. And here, you have a few initiatives. Obviously, the world continues to change very quickly. And we're planning on taking advantage of that. We're not on the defensive. We have to defend our positions, but we think there are great opportunities in the current environment and launch of the portals and Facilitea Coches, which by the way, we won a gold award a couple of days ago in the Qorus Banking Innovation Global Award, which is very nice, and we won another three and bank in the world that has won more awards at these prestigious event. Facilitea Casa growing nicely. We have, by today, already 1 million visits to our platform. So a successful example. Generacion + [indiscernible], which is at the beginning of a very significant project targeting sort of seniors. Tap To Pay, Apple Pay Later, VidaCare, all cases where we are actually leading the industry in Spain. Stablecoin consortium, another one, and the cash back program, which we have just launched is another example. I just want to make sure you have the feeling that it's not just about the current quarter or the current year. We're spending money and planning to make sure that growth not only stays but accelerates in the future. Loan book, 5% growth, and the stock of mortgages quite remarkable, 10% plus in consumer lending, business lending 4.5%. Obviously, very good trends. I won't spend more time because I mentioned it before. Loan origination, new production, strongly as the market is in residential mortgages, consumer lending and new business lending. So pretty good trends and trends that we see for the time being certainly staying with us. Customer funds, strong performance, 6.9% year-on-year, I think pretty balanced look at figures on deposits and wealth management. There is, again, in this case, a seasonality impact. That's what you see deposits coming down quarter-on-quarter. But certainly, when we look at details and the trends, they are much better than they were in the third quarter of last year. So nothing to worry about those numbers. They are actually good numbers once you adjust them. And when you look at a comparison of how we're doing in terms of deposits, Spain obviously outpacing the Eurozone by an ample margin, but CaixaBank further gaining market share there is a great sign. The off-balance sheet business, wealth management doing very nicely. And you can see that the -- our market share continues to be much bigger than even our two main peers combined, 29% versus 24%. You really almost need to add the third peer to get to our market share, which is obviously a reflection of the kind of franchise we have in wealth management, which has been actually doing very nicely this quarter and this year. Protection insurance, as I mentioned, again, strong growth, 12.7% in total premium. And as you can see, both life-risk and non-life doing very well. I mentioned the life-risk market shares. You can see here a similar on some of the key non-life market shares, again, doing very nicely. So a key part of our business and one where we have, again, delivered a pretty good quarter. Vis-a-vis our strategic plan, obviously, there's a big gap, all of it in our favor. Market is helping, there's no question. We actually at least have that ability to identify this trend and hence, focus on the growth opportunity that we had at hand. And we're doing much better. And as you heard before, also doing better than the market gaining market share. All that gives us quite a lot of confidence. Obviously, capital distribution is a key part of what we do. Based on increase in earnings per share, we have, as I mentioned, set the interim dividend at the maximum of the range that we had announced in our dividend policy. And got recent approval for another EUR 500 million share buyback. Well, we haven't yet finished the sixth share buyback. So we have share buybacks for some time now and a strong capital position give us confidence that we will continue in this direction. Javier? Javier Pano Riera: Okay. Thank you. Thank you very much, Gonzalo, and good morning, all of you. Well, from my side, as always, the details on the P&L and balance sheet. I have to say that all trends are in line with our expectations, if not better. So we are quite a bit. Here, you have the consolidated income statement. Net income pro forma, the quarterly accrual of the 2024 banking tax, you may see EUR 1.445 billion. That is flattish year-on-year. If we move to the revenue front, well, as I mentioned, NII, we had already the trough in the second quarter. As you may see, up by 1.4% on a quarter-on-quarter basis. Revenues from services despite being in the third quarter quite seasonal, we have had a really strong quarter also. You may see up by 6.2% year-on-year, flattish quarter-on-quarter, but that's remarkable, precisely due to that seasonality. The main driver being wealth management on the back of strong inflows, also markets doing well. You may see here year-on-year up by close to 12%, quarter-on-quarter also up. Protection insurance on a growing trend, underpinned by commercial dynamism. And then finally, banking fees, flattish on a year-on-year basis, quarter-on-quarter, impacted by seasonality with strong CIB this year. On other revenues, the most remarkable, I would say, is that in the third quarter, we have strong positive seasonality from SegurCaixaAdeslas, something that is very well known. Expenses, nothing to say, on track to meet our guidance for the year. And on cost of risk, you know that we have fine-tuned our guidance for the year to less than 25 basis points. So also on track to meet our improved guidance. On the tax line on the P&L, you know that beyond the corporate tax, we have the banking tax and also, as in recent quarters, we have some DTA write-ups. With that, an overview on Portugal. For the first 9 months of the year, EUR 351 million net income. Volumes are doing even better than in Spain. So as you may see, volume growth up by 8.5%. Relentless market share gains across the key businesses, I would say. Efficiency circa 40%. Profitability is just shy in terms of RoTE of 20%, NPL 1.5% and with nice coverage, 85%. And -- well, a significant milestone because we had this quarter disposal of 14.7% of the stake in BFA, the Angolan stake. Well, this is equivalent to circa EUR 100 million. And as I say, a significant milestone, an IPO in Angola. So with that, our stake is now 33.4%, not major or not material impact on P&L or solvency from that disposal. With that, let's move to the details. NII, as I was saying, here you clearly see the drop from the second quarter. And on the right-hand side, on that usual quarterly bridge, you may see that still, let's say, client yields having a negative impact as we still have a negative index resets on the floating rate loan book. This is a trend that will still continue for a few quarters. But in any case, this is more than compensated by volumes. You may see business volumes and also the ALCO this quarter, we have increased the size of the fixed income portfolio by EUR 2.6 billion net because we had also some maturities. And also we have increased hedges by EUR 5 billion to EUR 58.5 billion outstanding. Below, you have the customer spread, slightly over 300 basis points. The evolution of yields, the back book yield of the loan book, 355 basis points, down 20 basis points, but also the cost of client funds also down to 49 basis points, including -- excluding, in this case, hedges and foreign exchange. Well, in any case, we expect a clear acceleration of NII on the -- from the second half of next year. A zoom on our deposit base, client deposit base. Here, you have the evolution of average quarterly balances. You may see steady growth, but the most remarkable is the mix precisely. That improvement in volumes of noninterest-bearing deposits, you may see, on average, the third quarter up by circa EUR 7 billion. It's true that also we have some increase of interest-bearing balances. In this case, remember that is not only retail, it's also corporate SMEs because we do more business. So also, we have some increase on that. But in any case, the weight is very well contained, as you may see, a gradual reduction 26.8% weight of interest-bearing balances. At the same time, we'll continue to reduce the cost of our interest-bearing deposits. Now standing at 1.66%, significant reduction in the quarter, as you may see, with a strong correlation with the evolution of the overnight rate as we have, as you know, circa 50% of those interest-bearing balances fully indexed and the major part precisely to the overnight rate. Changing gear, we move to revenue from services, up by 5.7% year-on-year for the first 9 months. The main driver, as commented, wealth management, up by 13.4% for the first 9 months, also an accelerating trend on protection insurance, up by 4.2% when adjusted by a positive extraordinary on the last year and flattish fees, which is, I would say, quite remarkable. And you may see on the chart on the right, precisely, that this year, we have had almost no negative impact from seasonality. So really strong trends on that front. A few words on costs, up by 5.2% year-on-year, on track to meet our guidance. Remember, for costs up by circa 5%, cost-to-income below 40%, which is, by the way, well below the peer average. Asset quality and loan loss charges, asset quality really strong. You may see here NPLs trending down this quarter by EUR 300 million. I would say almost everything is organic, that reduction with the NPL ratio also trending down 2.27%. And you may see across the different segments that there is a broad-based improvement, so not anything part of our loan book to worry about, honestly. The coverage up by 3 percentage points in the year to 72% and we still keep our unassigned collective provisions unchanged for the year, EUR 341 million. On the right-hand side, cost of risk, loan loss charges, 24 basis points on a 12-month trailing basis. So remember that we have fine-tuned and slightly improved our guidance for cost of risk to less than 25 basis points. So we are set to meet that guidance comfortably. Liquidity, the same picture as every quarter, ample liquidity sources, EUR 229 billion and a liquidity coverage ratio at 200%, 199%. 148% for the net stable funding ratio. The loan to deposits is not moving at all. It's really stable, 86%, as we are growing on lending, but also we're growing on deposits almost at the same pace, so quite nice. And you know that the liquidity ratios are well above our peer average basically due to a strong and stable deposit base composed mainly from stable retail deposits and wholesale operational deposits. Capital, we are already deducting the seventh EUR 500 million share buyback, minus 21 basis points. From there, we have plus 67 basis points capital accretion that includes net income plus DTA consumption, then we have minus 8% from organic risk-weighted assets, that's basically lending. And from there, minus 38 basis points, dividend accrual at 60% plus AT1s and just minus 3 basis points from other impacts. That results into a CET1 ratio of 12.44% by the end of the quarter. On the right hand side, additional details, you know that we are still executing the sixth share buyback. We are today announcing this interim dividend close to EUR 1.2 billion, which is EUR 0.1679 per share. And the seventh share buyback, EUR 500 million set to start at some point after we finish the sixth one. Bottom right, well, you know that the stress test results was just released a few days after our second quarter results presentation. Here, you have the CET1 drawdown under the adverse scenario for the case of CaixaBank is minus 162 basis points. And you may see here that compares extremely well versus our comparables. And finally, this upgrade on guidance, fine-tuning as there is only one quarter to end the year. So NII now expected to come down by circa 4%. And then we have cost of risk expected to be less than 25 basis points and return on tangible equity circa 17%. So thank you very much and ready for questions. Marta Noguer: Yes. Operator, can you let in the first question, please? Operator: The first question is from Maks Mishyn, JB Capital. Maksym Mishyn: I have two questions from my side. The first one is on loan book growth. It keeps on accelerating nicely, and we seem to be gaining market share across the board and even in mortgages. Some banks indicate that the market environment is very competitive there. And can you please share your thoughts on why you think you need to grow there? And the second one is on provisions. What was the reason for the quarter-on-quarter increase? Do you think that the 25 basis points that you expect for 2025 could also become the number for 2026? Or is there any reason it could increase? Gonzalo Gortázar Rotaeche: Thank you, Maks. On loan book growth, indeed, we're doing very nicely, I'd say, in terms of market share, we're gaining market share, as I mentioned, on the business front and consumer lending. In mortgages, we're not gaining market share. Actually, market share year-to-date has decreased by 10 basis points. It doesn't mean that we're not doing a lot. That's why we have this strong increase in loan production. But we're doing a bit less than our fair share, I would say, given that it's only 10 basis points, in line with our fair share. And yes, this is a very competitive business. When you look at the numbers that banks disclosed at the ACB, you actually see that the Spanish mortgages are the cheapest in Europe currently, in terms of new production, around 2.5%. So it is indeed a business that only makes sense as long as, a, you have the ability to fund it from an ALCO point of view because now the market has moved mostly again to fixed rate mortgage. And there, you will see that different banks have different capacity to add long-term fixed rate mortgages. Obviously, given that we have a disproportionate share of transactional deposits, and you can see that because of our payroll market share close to 36%, 37%. We're obviously very well positioned there. And in terms of having that in our book because it is a natural hedge and all the banks do not have the same sort of long-term duration of liabilities. So not to the same extent, I would say. And second, most importantly, obviously, to get the numbers to an attractive return, you need to cross-sell other products. And that cross-selling is absolutely critical. If you look at our franchise and how we do our business and the market shares we have in insurance, in particular, but obviously, not just insurance, you are, I think, in agreement probably with us that we do cross-selling better than the average in the market so that we have a natural competitive advantage there. We are only doing mortgages as long as they make sense. We don't have any particular sort of extra point to grow in mortgages. It's just doing the business when we think it is attractive. And in the case of mortgages, obviously, it needs to incorporate both things, the ability to fund long-term fixed rate and the willingness because it fits in your ALCO portfolio. And then secondly, that ability to make it profitable as sort of an overall relationship with the client. But again, skipping away from mortgages. The key point is growth is actually in consumer lending and on the business front, particularly on the SME front, which are the two most attractive margin opportunities in the market. That's where we're growing market share. So we're extremely pleased with our loan growth is going absolutely in the right direction. Second point was on provisions, and I'll let Javier comment on that. But I think generally, we're seeing no change in the very good trends we have in asset quality, what you've seen also in the sort of early doubtful loans, i.e., sort of less than 90 days, we continue to see very good trends. We haven't used, obviously, the overlays, as you said. We keep reducing the nonperforming loan numbers. So mathematically, you see these this kind of change. I think going forward, this is a trend. If we manage to keep bringing down our NPLs, coverage will increase for the industry generally. You remember before the sort of great financial crisis in 2005, 2006, coverage ratios in the industry were above 100 because you had very -- and actually didn't make that much sense because most of the provisions or significant part of provisions were not covering actually nonperforming loans, but all the risks of exposures potentially becoming nonperforming loan. So we'll see. But still, I think at this stage, it's very nice to see that we have a very low cost of risk, 20 basis points annualized in the quarter and still that is not affecting the quality of our coverage. It's quite the opposite, we are increasing that coverage. Then quarter-by-quarter because this is lumpy sometimes. So there may be portfolio sales and write-offs and et cetera, you may have some volatility. But I think the trend is these levels are probably the ones that we will see for the next few quarters. With that, I'm afraid I've gone into most of it, Javier. I'm sure you have things to add. Javier Pano Riera: No. On cost of risk, well, we are quite a bit on the evolution, and you just saw that we were upgrading our macro views in general. Well, the dynamics in the economy, both Portugal and Spain are so good. So we are working on our budget for next year as we speak, but I don't foresee major changes on the levels of loan loss charges for next year, honestly. So obviously, unless there is an external shock, no, but let's assume that this is not the case, and the situation continues to do as well as is the case currently. I would say that you can count on no major changes. We'll fine tune obviously, when we will comment in January, but the assumption is that it's going to be in line. Marta Noguer: Thank you, Maks. Operator, next question, please. Operator: The next question is from Ignacio Ulargui of BNP Paribas Exane. Ignacio Ulargui: I just have 2 questions, if I may. One, looking to the other side of the balance sheet to the deposit growth. If I just look to Page 20, you are clearly exceeding the target of deposit growth that you were aiming in the plan. Just wanted to see how you think about deposit growth going forward in '26 and '27. The second question, I think that Javier, you touched a bit upon this on the call, but I wanted to look to the reinvestment of the ALCO. Some of your Southern European competitors are investing around 2.6% the bond maturities have a 1.6%, 1.5%. ALCO. How should we think about the phasing of that reimbursement in the NII over the coming 3 years? Gonzalo Gortázar Rotaeche: Thank you, Nacho. I'll maybe take the first question on deposits. There are 2 main factors. One is the trends in the market and then it's how do we do in terms of relative performance, market share. On both fronts, I feel very confident at this stage. So we're definitely going to be outperforming the expectations that we had in our strategic plan. The market is still showing significant growth in disposable income. Our estimate for next year is again another 2% of gain in terms of real disposable income, so 2 percentage points above inflation. And the savings rate is sustained pretty high across -- actually across Europe, certainly also in Spain, where it used to be much lower. I think there might be a slow sort of gradual decrease. But at this stage, it doesn't seem that the numbers are going to be very different. So as long as we are in a growing market, then it's up to us. And what we're seeing this year is, I mean, we have the machine and 100% of its functionality. And actually, the quarter passes the further quarter, the more confident we become. This is a virtuous circle. It's a great organization we have. And undisputed leadership in Spain, over 50% larger than our competitors and now it seems that, that position is going to stay for the foreseeable future, very stable, that's a great advantage. We have the team very focused, and we have been doing greatly this year, particularly in the non-remunerated part, which is obviously one that creates the highest value. I say the outlook is very positive for next year. And certainly, if the macro -- the macro numbers continue to be there, which is our expectation, not just for the next year but for the following months. So pretty good momentum and likely to be sustained. Javier Pano Riera: Okay. If I may, Ignacio. On the ALCO reinvestments, well, you know that in order to manage our NII sensitivity, we are basically using both swaps and bonds. This quarter, we have added to both on a net basis in the case of bonds because we had also some maturities. You know that you have a slide on our presentation on the appendix with plenty of details on the yield of all maturities per year or even per quarter for hedges. So you can count on rolling over those fixed income maturities for sure. So we need to do so in order to keep that sensitivity, let's say, contain it within our targets. And you are right, no? So the average yield is 1.5%. So any reinvestment basically from 4 to 7, 8 years is usually the maturities. We are investing in it's going to be accretive. And more specifically, what is maturing until the end of this year is having a 0% yield. Next year, we are having close to 9 billion maturities at a yield of 0.4%. So you may see that this is clearly accretive. And this is part of the reason beyond commercial volumes where we are quite a bit on NII for '26 and '27 and beyond because this is an additional tailwind. I mentioned NII sensitivity. I would like to take the opportunity to note that we have slightly changed our NII sensitivity target to 7.5% to a parallel shift of the yield curve. This is no changes in practical terms, but it's basically allowing for some additional hedging flexibility precisely to accommodate faster volume growth, generally speaking. And keep in mind that we are disclosing sensitivity for the period 12 to 24 months. What we have benchmarked that we see that our peers are usually giving sensitivity for the first year, so 0 to 12 months. If you think about our sensitivity for those 0 to 12 months it's circa 4%. So pretty much in line with what everything is disclosing. It's a more asset view. The view that we are giving us you. So basically, please note that. So we are going to be opportunistic here depending on basically the spread between swaps and the sovereigns. We are using to add to the portfolio. And depending on that, we are more keen to use swaps or fixed income. The shorter the maturities usually, we tend to use swaps because you capture a narrower margin. So it will have a wider margin at longer maturities. Operator: The next question is from Francisco Riquel, Alantra. Francisco Riquel: Yes. My first one is a follow-up on the first question from Ignacio. So I see demand deposits are growing 7% year-on-year, time deposits are flat. So can you comment on customer behavior in a lower interest rate environment. Your strategic plan was based on a stable deposit mix. And I wonder if you see upside here. And if you can also update on your guidance for deposit costs, both with and without hedges. And my second question is customer spread. I see is proving resilient in Spain above 3%, but Portugal has fallen to below 2.9%. So you are growing faster in Portugal than Spain. So I wonder if you have noticed increased competition in this market or if it is related to different speed of balance sheet repricing, so you can give guidance for customer spread in both countries? Gonzalo Gortázar Rotaeche: I will just say an introductory word, I'll let Javier deal with it. But in terms of this mix between time deposits and demand deposits. Obviously, as interest rates have come downwards the pressure to move from side deposits to demand deposits is more or less disappeared. We're also seeing to some extent, the balances invested outside like T bills and others, generally in the systems that are coming back to the balance sheet. But clearly, there is potential to do better there. This year is -- it has been the case. But anyhow, Javier knows this inside out. Javier Pano Riera: Well, on customer behavior, I think that basically, we are being successful on 3 fronts here. So first thing we are being able to pass on lower market rates to our -- to the cost of our interest-bearing deposits. You know that almost 50% of that is indexed, so it's pretty much automatic. So there's not much commercial effort on that front. While we do that at the same time, we are growing nicely on noninterest bearing. And that growth on noninterest-bearing is not because is flows coming from interest-bearing so it's not like we are parking, let's say, whole money on noninterest-bearing that eventually will move from to another part of the balance sheet or even to outside the bank. So it's not the case. So it's basically operational balances, more clients, well, close to 400,000. As you could see in a year, more clients or more payrolls, more everything. So at the end of the day, you have more operational balances at 0 cost. And while we do all that, at the same time, we are being able to grow on off-balance sheet solutions, on wealth management solutions being mutual funds or being savings insurance. So the pace of inflows into those products is approaching EUR 1.5 billion per month, which is quite significant. While at the same time, we keep growing on noninterest-bearing and keeping our interest-bearing pretty much stable. So I think that we have -- we are mastering honestly, this -- all that. We have the right incentives internally, obviously, client first and the right fund transfer pricing system and is working nicely, honestly. And we think that this trend is going to continue. So we are quite a bit on this business. On the customer spread, yes, we are above 300 basis points. I think that eventually, we're going to be slightly below 300 in early part of '26. That does not mean that we are going to have NII pressure because you know that there are other parts volumes plus ALCO that are more than compensating that. And you asked about differences with Portugal, it's a different dynamic because first, you have a larger percentage of interest-bearing balances on deposits. It's approaching, now its circa 45%. It was 47%, now it's 45%. In the case of Spain, it's below 30%. Also there is a clear difference and as such, also considering that on the asset side, Portugal has a larger percentage of floating rate loans or mortgages, for example, in Portugal are fixed rate to maturity is not that commonly used as in Spain. So you have, at the end of the day, a little bit more NII sensitivity in Portugal than in Spain. Hence, the impact on the customer spread are not exactly happening at the same time. But in any case, Portugal NII is set to stabilize and set to grow soon also. Keep in mind also that in terms of our ALCO activity, although we have an ALCO in Portugal, we tend to manage our NII sensitivity more at group level. Hence, all strategies and ALCO hedging, et cetera, is more thinking about the broader view, not particularly in the case in Portugal. So thank you, Paco. Operator: The next question is from Ignacio Cerezo of UBS.. Ignacio Cerezo Olmos: First one is on -- I mean, the indication Javier has been given around the NII in 2027 based on volume and yield curve developments, if you can do a mark-to-market or update us on that number? And the second one is kind of a recurring question. Actually, we ask you every now and then. But is there any possibility of artificial intelligence investments kind of creating a bit of a cost angle emerging at some point in the next 2 to 3 years? Or you think the cost growth actually is going to remain around that mid-single-digit region for good? Gonzalo Gortázar Rotaeche: Thank you, Ignacio. I'll take on the second one, maybe and Javier can provide an answer for the first one. AI definitely. We have now increased our investment spend significantly in this plan that you're seeing with, as you say, mid-single digits growth this year and also a faster than sort of trend growth next year. We start to see clear benefits from 2027 onwards. The main emphasis now for us is to make sure there is wide adoption of the technology, which at this stage, I would say, we're doing very well, every single area I wouldn't say every single employee, but almost. But certainly, every single area has a number of projects, and some of them are finalized. So those are in design stage. Others are in work in progress. And we have a team centralized that sort of prioritizes make sure that we are sort of doing products that are compatible that I can't talk among themselves and benefiting, obviously, from the scale that we have and from working with certain providers like Salesforce or Gemini or CoPilot, Microsoft, et cetera. So this is working at full speed. I have the sense that we're moving forward very well. We have a wide adoption in the organization. And we clearly have sort of use cases where the productivity impact is very obvious. Others are going to take some time. Very often, what we will aim to is to be able to do things internally rather than outsource them. And hence, we will capture a very efficient cost saving in due course. But this is not going to happen. Certainly it's not happening this year, where we're having more spend and savings. And I think you're not going to see that start until 2027 and then onwards. But generally, obviously, this is something that is very much debated everywhere, whether AI and the productivity gains from AI, who is going to appropriate them. A lot of these opportunities are going to be appropriated by clients, is -- is the nature of sort of business loss that obviously, as we become more productive and more competitive, our competitors will, at the same time, clients will be more demanding in terms of what they can expect from banks and banks, the good banks will be offering it. And hence, the appropriation of these sort of economies and productivity gains is going to be, to a large extent eventually running to clients, no. Like it has been in the past, if you think of mobile, et cetera. But we feel we are sort of at the vanguard. And hence, we will certainly be able to keep some of these gains and what is more important as long as we are a step or 2 ahead of others. I think we're going to be giving a better customer experience, bringing innovation faster to the market. And hence, also gaining in terms of additional revenues, which is, to me, the name of the game long term, the market share and the number of clients that we keep and the ability for us to sell them the services we're selling now and others. Javier Pano Riera: Well, in terms of 2027 NII. Well, first '26 where we are now very clearly seeing that it's going to be above fiscal year '25. So this is our view currently on the back of what volumes. But I would say that it's important also to say listening yesterday to the ECB press conference. It looks also that ECB is more a bit in terms of downside risk from the macro point of view. So I think that clearly the bottom and rates is also here to stay. And well, that makes us also more confident to give you guidance. We were mentioning that EUR 11.5 billion mark for NII for '27. We see really very clear upside to that currently. So we are quite a bit for '27, honestly. Probably we'll have to wait until our resource presentation in January to be more specific on that, but our view is that we have very, very clear upside into that figure. All in all, substantial upside compared to our initial views on over the strategic plan view. Remember that we were envisaging EUR 11 billion NII in '27. And now we clearly see this figure coming much earlier than expected. Operator: The next question is from Alvaro Serrano of Morgan Stanley. Alvaro de Tejada: A couple of really follow-up questions. On mortgage pricing, everyone is complaining about the pricing, but it obviously remains very competitive. The question is more, have you seen any sort of changes in behavior lately, obviously, the merger is not happening anymore between BBVA and Sabadell. We have seen some sort of banks saying they're raising pricing but have you observed that in the last few weeks is one question. And second, also a follow-up maybe for you, Javier. You -- I didn't fully follow the logic as to why you've increased the NII sensitivity now to 7.5%. Is it your -- do you think the next move in rates eventually will be up? Or are you just looking for a better moment to increase the hedging because you continue to create a lot of liquidity. So -- or maybe this is another reason that I missed? Gonzalo Gortázar Rotaeche: Thank you, Alvaro. On mortgage pricing and generally pricing in the market. With respect to the impact of the failed takeover. I think it's too early to say. I haven't seen any particular change from that point of view, but I wouldn't expect it necessarily. These things take time, even mortgages from sort of making an offer to actually getting the mortgage close. It's a long period, sometimes 2, 3 months. So we will have to see generally when the market is so competitive and so intense in terms of price pressure, I think eventually it tends to -- even if it will stay very competitive, it usually tends to at some point, sort of lean towards a more sort of rational pricing, we'll see. I think, the impact of rates coming down and now the sort of the general core being steeper than it was 12 months ago. And as all these things stabilized and credit growth continues to take place, and hence, there's impact on liquidity and particularly on capital as -- and I'm not talking only about mortgages, you may see that actually margins on the asset side get a bit more rational. But it's not easy to forecast. This is not anyone in control. This is a market, it's a very competitive one, we'll have to see. Javier Pano Riera: Well on NII sensitivity, we are allowing for some small additional hedging flexibility to accommodate a faster volume growth. So that's basically the message. Think about that. So this is a forward-looking measure. So in order to estimate your sensitivity 1 year from now, you need to work with assumptions -- your best assumption on volumes going forward, which is going to be the composition of your balance sheet 1 year from now, okay? What is happening is that we are outperforming those views constantly. So we are -- what we simply do is to get a little bit more latitude in order to have some more room to decide on our hedging as we are having this outperformance constantly. So it's very simple. In practical terms, nothing is changing. Keep in mind that this is an asset view of NII sensitivity because it's the sensitivity 1 year from now. It's not usually what other peers are reporting that are reporting the sensitivity as from today for the next year. And if what I am providing today you is that the sensitivity is circa 4% as we speak. So pretty much in line with what everyone is disclosing. Operator: The next question is from Britta Schmidt, Autonomous Research. Britta Schmidt: Just coming back to the volumes. They are generally ahead of the plan also for wealth management and protection insurance. So do you have any view as to whether in principle that could be positive for the CAGR for revenue from services included in the plan. My second question will be on operational risk. Is there anything that you would track for RWAs in Q4? And how you're thinking more broadly about the development of operational risk also in the P&L with regards to more digital risk and cybersecurity risks? And then the last question is on Portugal. What expectation do you have regarding tax rates in Portugal? And any view on the discussion around a potential sector contribution to the budget? Gonzalo Gortázar Rotaeche: Thank you, Britta. On the latter one on tax rate in Portugal, obviously, we'll have to see how things develop. And Obviously, it won't have a material impact on the group, given the relative weight of Portugal, but we'll have to see what is eventually done. On volumes, obviously both, on balance sheet, off balance sheet protections everything in terms of volumes is running ahead of the strategic plan. I would be very inconsistent if I wouldn't say that should translate into better CAGR over the 3-year period. As long as we continue to sustain these levels, we should be doing better than the strategic plan on both fronts. So how much better obviously is the question and -- there will be time to discuss certainly expectations for 2026 and then 2027. And at some point over the next few months, most of you will start looking into 2028, and we will discuss in 2028. And that I'm sure Javier can develop looks good as well, particularly on NII because we'll have a similar trends. Operational risk, a general question is, is it going to be increasing? Obviously, I don't think so. But whether -- what's the impact on the fourth quarter, that's more rather than trend specific, which Javier will explain. Javier Pano Riera: Well, for operational risk, you know that we have this impact on risk-weighted assets for the fourth quarter. We think that it's going to be in line with last year. It's going to be less than 15 basis points in our view. And I have to say also that as we are talking about the fourth quarter risk-weighted assets, we are have in the pipeline a few SRT transactions that will settle into this quarter. So this is going to have a positive impact probably more or less offsetting that impact on risk-weighted assets from operational risk. To be -- yet to be confirmed as we are finishing those transactions, but broadly in line with the impact from operational risk. Operator: The next question is from Borja Ramirez, Citi. Borja Ramirez Segura: I have 2. Firstly, on corporate loan growth. If I understood well, you seem to be preparing your balance sheet for stronger loan growth. I would like to ask this is mainly related to higher corporate investment and opportunity for corporate loans. So that will be my first question. And then my second question would be on NII, please. If I calculate the Q4 NII for this year, based on your guidance, it seems to be around EUR 2.7 billion. If I analyze that assume 4% balance sheet growth. For next year, I get to EUR 11.3 million of NII for 2026. This is above consensus, and this does not include the benefit from repricing of ALCO or deposit hedges. I would like to ask if this calculation makes sense from a technical point of view. And also, if you could indicate what is the benefit in NII for next year from repricing ALCO or the deposit takers, please? Gonzalo Gortázar Rotaeche: Thank you, Borja. On loan growth, we have, obviously, the ability to grow our loan book because we were very liquid. You know that both from LCR, but particularly net stable funding ratio among the highest. Structurally, we're very liquid. And Spain generally is not very levered. And when you've seen, for instance, the numbers for these third quarter GDP, the 2.8% growth behind those numbers. As I mentioned before, you have an investment component of GDP growing at 7.6% and year-on-year. And of this part equipment was up 11%. So now somehow we have this CapEx cycle going on. We've been talking about whether this would happen for many years. And now it is happening. And hence, there is a very significant opportunity here. It is also an opportunity in consumer lending. I mentioned that SME and consumer lending are the 2 areas where we're gaining market share in a large -- or a relatively large amount case 30, 40 basis points, so there are 120 basis points in consumer lending. And also precisely the more juicy parts, not necessarily the ones that require more funding in terms of size, but the ones that have the best returns. And on the corporate front, more sort of a larger enterprise and CIB business, the reality is that we're being very active. This is a place where we have been and I don't think we've mentioned it today. But obviously, you know that our CIB fee business has been doing very well or Javier mentioned it indeed. And we see an opportunity there as well going forward. So it's good across the board today and somehow previous days because of various comments here and there, the headlines are being taken by the mortgages and the pricing, the realities were we're growing most and certainly where the returns are more attractive is in these 2 parts of the business, consumer lending and SMEs, together with CIB. So that is something that we expect to see because once you unleash this CapEx cycle, this has some pretty good inertia. Javier Pano Riera: Hi Borja. Well, we are refraining today to give you a specific figure for 2026 NII guidance. What I said is that it's going to be clearly above '25. That's pretty clear. How much needs to be seen. So we are still working on our budget. We have to fine-tune a few things and we'll come up with more specific guidance in January. As per your numbers, first thing, keep in mind that still the first half of the year we have some negative repricing on floating rate loans in general. This is going to be more than compensated by other parts of basically volumes and also ALCO, but keep in mind that this is why we say, okay, there is an acceleration from the second half because that repricing process will already be ended. And consequently, we have a clear acceleration on NII. Keep in mind also that there is some seasonalities in first quarter last day. So I will not say that you can extrapolate exactly the same quarterly evolution for every quarter. So let's see, honestly, I think that there is not -- there are not many banks already giving guidance for 2026. In our case, we are giving already plenty. So let's reconvene on in January. Operator: The next question is from Miruna Chirea, Jefferies. Miruna Chirea: I had 2, please. The first one was on customer spreads, which you were guiding that you expect in the first half of 2026 to stabilize somewhere around -- somewhere below 200 basis points. Could you please discuss if you think that there is some scope for the spreads to expand into the end of the year as maybe you are growing high -- you are growing stronger in higher-margin corporate loans and consumer credit than in mortgages. And then my second one, please, was on margin. Could you please give us a sense of what the returns are in the margin versus the traditional bank? So any sort of color that you could give us in terms of the difference in margins, the cost to serve clients and the cost of risk between margin and the traditional bank would be helpful. Gonzalo Gortázar Rotaeche: Thank you, Miruna. You want to start with... Javier Pano Riera: Yes. Well, as I was saying to the previous question, we still face some negative index resets on floating rate loans on the first half of next year. So this is adding some pressure on customer spread. It's going to be slightly below 300 basis points but not much. And yes, eventually, over time, this may recover. We have to see lending but also deposits to what extent also we can keep pushing down our average funding cost as we have not probably because we push down our interest-bearing yields, but probably because we have a larger wave of noninterest-bearing deposits. And as a consequence, we can slightly bring down our average customer funds, funds costs. So we have to see, so, I would say, conceptually, you are right. So over time, we should marginally gain on the customer spread. But it's going to be in any case hovering around 300 basis points. So that would be my best guess. The back of the envelope numbers are approximately 150 basis points coming from the loan book, EUR 150 million from deposits. So if you assume like 2% rates, market rates, so this is 350 yield on assets and, let's say, EUR 50 million on deposits. So this is back of the envelope, we can fine-tune that once we give you guidance for next year, but this is the broad message. Gonzalo Gortázar Rotaeche: Yes. And [indiscernible], I would highlight the following. Cost to serve is definitely much lower you would guess that I have to say it's different than other pure neo banks because we are increasingly putting together let's say, people and assigning relationship managers to the top of the pyramid because we have them and we have them to give service from our what we used to call in touch, the remote service, now we call it connector, to clients that are mostly digital of CaixaBank and we started about a year ago, something to offer a relationship manager to imagin clients, sort of experiencing how that would go, and we found that or inviting our emerging clients loved it. So they would call and answer the call and when we would offer that we would assign a relationship manager they would love it. And then you have all these call me, call back, et cetera, follow up that we're doing also remotely to imagin clients. But all in all, it's very much more efficient cost to share on the bank. But again, we're trying to make sure that the clients of imagin, if they want to they also have a physical remote always. And obviously, they can visit a branch if they want. That's by the finish in the case. And our branches obviously are very keen to bring imagin clients on board. So imagin benefits from the fact that we have a branch network, it works nicely. So all in all, cost of service is lower and client and business acquisition is faster. And that's why we have a much more sort of well-balanced and grounded set of products and services and our balance sheet looks much more like a bank than rather just I'm selling a time deposit that's very high or some of the things, as you've seen in many of the new entrants in Spain and elsewhere. So it's very different. The returns of the whole operation are attractive because the margins are not generally very much in line with the operation at CaixaBank. It's about a better sort of -- or a better -- it's a more specific sort of way of serving clients that is more appreciated by a certain part of the population. And that look and feel of being part of our community, which we are -- which we're doing. But as a result of similar margins and a lower cost of share, obviously, the profitability is very attractive, and it has nothing to do with some of the neo banks that have been sort of losing money for a while. We obviously spend time -- spend money and time and effort in client acquisition with a very significant success, but we actually monetize that relationship very quickly. So it's a very sustainable and growing business model and one that I think it's fairly attractive. Remember that we are not -- imagin, is not incorporated as a separate subsidiary, so we do not have proper sort of financial results in P&L. What we have is internal management accounting, which we follow very closely. And to a large extent, also finally, it depends on what do you do with the excess funds because even if we have a significant part of our activity on the asset side, imagine it's still very -- sort of has a very large surplus of customer funds and rather than having an ALCO run at the margin level, which will make any sense. Obviously, those funds are investors as part of the global ALCO group and how you do all these assignment of pricing and margins would enter the bottom line. So that's why we're not getting into that. But the qualitative is lower cost to sales, same margins, obviously very attractive business. Operator: The next question is from Sofie Peterzens at Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So basically, a follow-up on the volumes. I mean the volume outlook is good, but are there any restrictions or a limitation for CaixaBank to do grow volumes and -- what I mean is, basically, are there any kind of funding restrictions, you have too much market share in some products that you can't grow any further? Or if you have any capital constraints anything that we should be kind of mindful of around the volume growth and anything that could limit that? And then my second question would be around kind of the competition from fintech players we're seeing, press articles that some of the fintechs want to grow very significantly in Spain. I know you commented just on imagin, but how do you see competition from fintechs? Gonzalo Gortázar Rotaeche: Right. On volumes, I would say, no limitation. On second part, you mentioned about index plans or -- fintech, sorry. Sorry, the sound here is not to some reasons it wasn't great. Fintech, obviously, this is great to have them. They are obviously forcing traditional banks to rethink the way they do things, and it's for the benefit of the client. So as a society, I think we should be very happy. As a bank we love it in the sense that our business is much more interesting because we need to keep constantly reinvent and rethink what we offer to clients and the way we offer our products to clients. So I'd say it's a welcome development. Obviously, it's welcome as long as you think you have the tools and the ability to compete and we certainly think we are. When you look at the penetration of neo banks, you'd see some of the statistics on particularly Revolut and Trade Republic growing strongly this year, it used to be in '26, now it's not growing, it will depend. But the other one that is growing very nicely is imagin. We have 9% share of payrolls and imagin and when you look at the others, I'm not going to get into the detail because obviously, we don't like to mention names and figures of competitors but the others are -- none of them is any close to 1% on the latest figures of primary banking relationships. So they will obviously try and gradually, and I'm sure, to some extent, they are already doing it, try and gain clients to become their primary bank rather than start with 1 or 2 or 3 products, and that's the name of the game. And the name of the game for us is to make sure that we offer the same experience, the same kind of relationship, and there's no reason why we shouldn't be doing it. And I don't usually refer to awards. But again, at this Qorus Banking Innovation Awards globally, again, imagin won the gold, so the first position in customer experience accounting, for instance, which and the beating and this was a category for neo banks. So we have -- obviously, we have things that others do better. We're not better in every single product services, et cetera, where we're not, we are very realistic. We follow the market. We try to obviously make the necessary adjustments to what we do to get there. And this is constant. We have a huge advantage. When I was referring previously to imagin and the fact that we now have relationship managers that you can rely on. And you have real people you can talk to if you have a customer service complaint or problem, you can even walk into a branch. If this works well, as long as you want to stay digital, 100% digital, you stay and you have a great digital experience. But if you need something else or somebody else do something else that works, sort of, in the right way. I think we have a huge advantage. And imagin is -- but precisely now starting to position itself and say, it's a digital bank, but those people, there's heart behind us and you have a problem, you need to talk to someone or you would need to upscale on certain products, you don't understand and you don't want to talk just to the robot AI. We're going to have all of this. It's not the word saying this is not important. This is critically important. We're going to have all of this. But we can have all of these and more. And hence, we think we're in the long run going to be winners, but it's a nice and intense sort of competitive battle which we're doing. With imagin and obviously, when I talk to imagin, I talk about imagin, CaixaBank is doing the same things with a different, sort of look and feel, but the reality, is positioning is very strong and actually imagin has now the highest relevance in as a brand in Spain and, huge loyalty and hence, we have, I think, a pretty relevant competitive advantage now vis-a-vis other incumbent traditional banks, thanks to having the ability to play in 2 ways. Operator: The next question is from Andrea Filtri, Mediobanca. Andrea Filtri: Yesterday, the ECB de facto approved the launch of the digital euro. How do you envisage this new entrant to impact you? And how would you factor it in your next business plan? Do you think you can actually make money out of it as well? And could you also give us your reasons for not having pursued by Novo Banco? Finally, just a very quick follow-up. How long do you think you can maintain overlay provisions for? Gonzalo Gortázar Rotaeche: Okay. Well, let me start with digital euro. We've been following this closely as many of you know, we actually were the sole bank that cooperated with the ECB in the first sort of work around the prototype for the digital euro in a P2P solution, and we'll continue to have an open line because we have a conviction that this digital euro is very likely to go ahead. And obviously, it has the potential to transform a number of areas. It has the potential, we don't have perfect visibility. We don't know exactly how much it will impact, if there is still some time, as you know, the plan is now for some time in 2029, probably the summer. This has been delayed as we, I think, discussed our view was it will happen, but it will take place later. So that's why -- we didn't discuss that much in this business plan or 3-year plan that will finish in 2027. Obviously, in the next one, it will have some implications. What is eventually going to be the role of the digital euro, we'll see, obviously, the limits that finally deciding on it are important, are important because obviously, there will be more or less sort of liquidity moving on to the digital euro, depending on the limit. How successful it is going to be, it depends to a large extent on the private sector as well. If the private sector develops real cross-border payment initiatives like Pan-European Bizum, where, obviously, now there's a lot of cooperation we are now in -- already with Italy and Portugal together and there's sort of discussions with Nordics and with Vero. And I think we should have an equivalent sort of instant payment mechanism that works well across the union -- and this could -- and probably should leave together with, at the same time, digital euro public, which has other benefits. What would the role of the stable coins be by then, programmable money. I would guess that certainly, they would be using more business applications as the digital euro as of today is focused on the retail front. And fortunately, because we've been speaking about the strong case uses for a wholesale digital currency, the Central Bank digital currency, the wholesale euro. Now we have the Pontes and Appia project, both mid and long term to develop those initiatives. And again, we are actively cooperating with representatives of us in one of these initiatives. So overall, over this, how exactly it will play out. We'll have to see, Andrea, I think it has the potential to be very relevant. It may not be that much if the private sector has developed other alternatives. We cannot run the luxury of getting it wrong and thinking this is not going to be relevant and then finding it is. So, it's so critical and core to our strategy that we will are going to be there. And there is certainly -- our hope is that we're going to be making money, obviously. There's no question we're going to be able to do things differently and obviously offer also a different client experience. There will be if, in the case of the digital euro, some costs associated to it. So be it. I think at this stage, even if it's not final, it looks like we're moving in the right direction in terms of using the current infrastructures and positioning the digital euro as a payment initiative mostly, which is where I think it makes more sense. But again, there are even broader and I think larger users in the wholesale side, those will be also a significant component. So we'll see. And obviously, for the next 3-year plan, certainly, we'll have further discussions about what's happening in the payment space and the digital euro. With respect to a question on acquisitions, we do not comment on acquisitions names. We didn't do it. We're not going to do it past the situation. It is our duty to assess opportunities when they appear in our core markets. But we always say the bar is very high for us. We have a great business. We have a great business in Spain and in Portugal, and looking at our results this quarter is a good proof of that. So when we do any analysis the bar needs to be very high. And obviously, that means what is the opportunity attractive. Does it have synergies, can we execute? And then what's the price where this is a real return because we have plenty of things to do in Spain and Portugal organically. And obviously, any M&A is always a distraction. So you need to make sure that it's a very clear case for that to happen. If there's no very clear case, then obviously, you're not going to be seen as there. Javier Pano Riera: And then there was a final question on overlays. Well, eventually, it will be used. Honestly, we don't have an exact time line for that. But over time, that's the base case. But we don't have a specific calendar honestly. Operator: The next question is from Pablo de la Torre Cuevas, RBC Capital Markets. Pablo de la Torre Cuevas: The first one is a follow-up on loan growth in Spain. And I know it's a smaller portfolio for you, but public sector loans are growing above 14% year-on-year and one of your peers have actually recently noted how it expected growth in this segment to accelerate from here. So I was wondering if you could help us understand your expectations in this segment and how we should think about the loan growth there in the context of your Investor Day loan growth targets of around 4% as well. The second one is on fees. And overall, the trends there seem pretty positive and in line or better with your targets, but it seems like growth in banking fees, specifically continues to lag other areas. So could you please just elaborate on when you expect the loan growth -- the fee growth there to converge towards your target growth rate? And what, in your view, needs to happen for you to achieve this? Gonzalo Gortázar Rotaeche: Thank you, Pablo, on maybe briefly, and Javier, you take it from there, but loan growth of the public sector, margins are very low, usually -- and this gets usually moved by fairly large transactions. Very often as a result of auctions and sort of public solicitation, et cetera. We do not think of us like coming a specific target there, we're going to be there if the numbers work out. And there's very often the alternative of public debt, which is traded and hence, liquid and you obviously want a pickup for that lack of liquidity than usually maybe there's a difference in rating. And if you move to the sort of regions or to the local council. So I don't think it's going to make a lot of difference or numbers. And we're not going to be particularly pushing, but we're not going to be away from it either. We need to take decisions on a more opportunistic basis for the large transactions. And for the more sort of relationship based, I think those are going to be more stable. Javier Pano Riera: Yes. Thank you, [indiscernible] just to add that on that front is to some extent, like an alternative to ALCO in some cases because it's public sector, so it's alternative to fixed income. And well, at least in our case, we have like a strong, let's say, common view with CIB that usually takes care of the new origination, also from the ALCO in order to assess whether it's a good opportunity and actually may go in the same direction as our ALCO decisions. On fees, on banking fees, I think that we have been commenting already from -- for quite a long time that there is like an underlying pressure on that path. On recurring banking fees, basically, pressure on maintenance fees on current accounts, on debit cards, some areas, some areas in payments also to some extent, subject to some pressure. Now we have instant payments. So the key here is to be able to more than compensate that with our usual strengths that you know very well, which is wealth management, protection insurance and well, and lately, I would say that we have been commenting that also this year with an increase, let's say, regularity of the CIB business. So I think that's the key because at the end of the day, this is kind of underlying pressure on those, let's say, fees related to products with low added value. And our view is set to continue. Obviously, we try to defend ourselves as best as possible but I would not say that this is going to bring us a big turn around anytime soon. But the key I insist is to be able to compensate -- more than compensate clearly because we are targeting -- this is why we put together all that, what we call revenues from services now that includes wealth, insurance plus, let's say, traditional banking fees because you need to get the broad picture of the 3 big buckets. And you know that we are targeting mid-single-digit growth for the combined but probably the part that is going to be lagging is going to be recurring banking fees. Operator: So the last question is from Cecilia Romero Reyes, Barclays. Cecilia Romero Reyes: My one was on capital. At your Capital Markets Day, you mentioned that your CET1 target will increase to 12.5% from the current 12.25%. The difference between your target and your MDA level of SREP or SREP is above the European average. Could you consider maintaining the CET1 target at 12.25% next year, taking into account your current view on capital requirements, growth needs, et cetera? Gonzalo Gortázar Rotaeche: Thank you. Javier, do you want to take it? Javier Pano Riera: Well, the short answer is no. So we are moving our target to 12.5%. What is behind that is the is basically the countercyclical buffer that is kicking off next year in Spain, Portugal. So we had a clear view on that. We want to be conservative on our capital targets. And in any case, we think it's quite a good buffer, as you mentioned, but comfortable one. So I think that also investors appreciate that. So no, there are no plans to keep that at 12.25%. Marta Noguer: Thank you, Cecilia, and thank you all for joining us. That's all we have time for today. Have a nice weekend and Happy Halloween. Gonzalo Gortázar Rotaeche: Thank you very much. Javier Pano Riera: Thank you.
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.
Operator: Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy's Conference Call for Third Quarter 2025 Results. My name is Shannon, and I will be your coordinator for today. [Operator Instructions] I would like to remind everyone that this conference call is being webcast and recorded today, Friday, October 31, 2025, at 11:00 a.m. Eastern Time. Today's discussion may include certain forward-looking information, oil and gas information and non-GAAP financial measures. Please refer to the earnings and operational update press release we issued yesterday for important advisories and disclaimers with regard to this information and for reconciliations of any non-GAAP measures discussed on today's call. Finally, this earnings call is the property of Gran Tierra Energy, Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy. I will now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Gran Tierra. Mr. Guidry, please go ahead. Gary Guidry: Thank you, Shannon. Good morning, and welcome to Gran Tierra's Third Quarter 2025 Results Conference Call. My name is Gary Guidry, Gran Tierra's President and Chief Executive Officer. And with me today are Ryan Ellson, our Executive Vice President and Chief Financial Officer; and Sebastien Morin, our Chief Operating Officer. On Thursday, October 30, 2025, we issued a press release that included detailed information about our third quarter 2025 results, which is available on our website. Ryan and Sebastien will make a few brief comments, and then we will open the line for questions. I'll now turn the call over to Ryan to discuss our financial results. Ryan Ellson: Thanks, Gary. Good morning, everyone. First, I would like to highlight an announcement made last week relating to the prepayment agreement we closed, which represents a new prepayment facility backed by our Ecuadorian crude production. The initial advance will be $150 million with the potential for another $50 million once our Ecuador acquisition closes and we reach 10,000 BOE per day in Ecuador. It's a 4-year structure price of SOFR plus 3.8% and includes a 3-month grace period on principal before amortizing evenly over the remaining term. Importantly, the commercial terms or sales price are an improvement to our previous crude oil sales contract. Overall, this agreement strengthens our balance sheet and gives us added financial flexibility at a very competitive cost. In addition, we increased our current facility secured by our Canadian assets to $75 million and equally important, moved from a 1.1 structure to a 2-year structure with maturity in October 2027. Now on to the quarter. During the third quarter of 2025, Gran Tierra averaged 42,685 BOE per day. That's up roughly 30% from a year ago, driven by our Canadian acquisition and continued success from our exploration in Ecuador. Production during the quarter was temporarily impacted by unusual and externally driven events across our operations, including the land slide in Ecuador, which impacted the main export pipelines in the country, requiring us to shut in production and trunk line repairs at the Moqueta field group, which resulted in the field being shut in for the quarter. The pipeline repairs took longer than anticipated due to ongoing heavy rains through July and August. All pipelines are restored as of October 10. We want to emphasize that these volumes represent deferred barrels rather than lost production, and we already are seeing a strong recovery with current production averaging 45,200 barrels of oil equivalent per day. Based on the deferrals, we are forecasting the lower end of our production guidance range. The underlying assets continue to perform well, and our teams remain focused on ongoing optimization and maximizing production efficiency and cash flow with an expected exit rate of 47,000 to 50,000 BOE per day. From a cash perspective, it was a solid quarter where we generated $48 million of operating cash flow, up 39% from Q2. We ended the quarter with $49 million in cash and net debt position of approximately $755 million. In terms of pricing, we saw improving differentials across South America, especially in Ecuador, which helped offset some of the impact from temporary facility downtime and pipeline outages. On the capital side, we invested $57 million that focused mainly on high-return projects in Colombia, Ecuador and Canada. So overall, despite some temporary production headwinds this quarter, we're expecting a strong finish to the year, which sets up for a strong 2026. With production already back above 45,200 barrels a day and the added liquidity from our new prepayment agreement and increase and extension of our Canadian credit facility, we're in a great position to finish 2025. The 2025 capital program was primarily focused on fulfilling exploration commitments, which resulted in numerous material discoveries. We also invested in facility expansion in Suroriente, including gas to power, which provides us with sufficient process capacity to increase production in the field and lower costs. With substantially all commitments behind us, the focus turns to free cash flow and deleveraging from our large diversified resource base. We released our 2026 budget in mid-December, which will include a decrease in capital expenditures and emphasis on free cash flow generation. I'll now turn the call over to Sebastien to discuss some of the highlights of our current operations. Sebastien Morin: Good morning, everyone, and thank you, Ryan. The third quarter highlighted continued operational strength across our entire portfolio with solid execution in Ecuador, Colombia and Canada despite some temporary external challenges. In Ecuador, we had another strong quarter, achieving record production greater than 5,000 barrels of oil per day in August and greater than 6,000 barrels of oil per day in early October with the delivery of the Conejo A-1 exploration well, which was drilled on budget and successfully tested both the Hollin and Basal Tena sands, flowing over 1,300 barrels a day of 26.9 degree API oil under normal natural flow conditions. We plan to reenter Conejo A-1 later this quarter and install the final completion and selectively test each zone to optimize long-term production. We also recently cased and cemented the Conejo A-2 well, targeting multiple prospective reservoirs, including the Basal Tena and Hollin. The well discovered 41 feet of net reservoir with an average porosity of 14% in the Hollin formation, suggesting a well-connected reservoir with high deliverability potential over the full Conejo structural trap. In addition, we also confirmed a new oil discovery at Chanangue-1, which was a legacy well drilled in 1990 and suspended in 1992 that we reentered to test the bypass Basal Tena interval. It's currently producing 600 barrels a day on jet pumps and has opened up a new follow-up drilling opportunities on the eastern side of the block. With the delivery of the Conejo A-2 well, Gran Tierra has completed all of the exploration commitments in Ecuador, and we are now well positioned to continue to increase production into the development phase and establish [Audio Gap] and help sustain stable field output. At Cohembi, the waterflood continues to deliver excellent results. The production from the northern area has more than doubled, up roughly 135% from 2,800 barrels to 6,700 barrels a day. Total field production recently reached over 9,000 barrels a day, the highest since 2014. We are now executing the final 6-well drilling program to continue to ramp the field production and extend the Cohembi field boundary, including an exploration well to the north as part of the agreed carry program under our contract extension, which we expect to complete by the end of the first half of 2026. In Canada, we drilled and brought 2 additional Lower Montney wells on stream in September, both performing at or above expectations. That brings our 2025 activity at Simonette to 4.0 gross or 2.0 net wells. Stepping back, what really stands out this quarter is the progress we've made in advancing our technical capabilities and field execution from the exploration success we had in Ecuador to optimizing mature waterfloods in Colombia and efficiently scaling our Canadian program. Our focus remains on disciplined execution and continuous improvement to ensure our assets deliver strong value over time. As Ryan summarized, we had several unplanned production deferrals. Although our average production for the year will be at the lower end of our annual guidance, we'll finish the year strong with an expected exit rate between 47,000 and 50,000 barrels of oil per day. I will now turn the call back to the operator, and Gary, Ryan and I will be happy to take questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from the line of David Round with Stifel. David Round: First one, just on Suroriente, please. You seem to have seen and experienced a very sudden production response there, I mean, positively. So great to see. Can you just talk about though, please, just sort of what exactly has happened as that program has been going on over the course of this year? What of the new production is due to new wells? What is waterflood? And how sustainable is it, please? Sebastien Morin: Yes, I'll take that one. So in a phasing approach, really, it was the start of injection on the North pattern, where we're injecting essentially 5,000 barrels of water per day in that North pattern on Cohembi-25. The other catalyst was well upside. So we had a few really key workovers. The one well just south of the pattern in Cohembi 20 was upsized, and that went from 500 barrels a day gross to over 2,000. So that one is included in the North pattern. So now as pressure comes up and we continue to increase our injection, we're seeing some really amazing performance from that sand. Just to recall, those are essentially Darcy sand. So the response is very quick. David Round: Okay. And then if I think about the production number you've put out there at the moment, I mean, how do we think about that sort of just conceptually going into next year with continual drilling? I mean, is that sort of a base and we should be looking at higher than that? Sebastien Morin: I think that's extremely fair what you just described. That's exactly where we're going. So with the extra 6 wells that we're putting into the field, we expect to continue to increment that production from here. Gary Guidry: Production and reserves. David Round: Okay. Great. And then just the second one, please. Just on the prepayment facility, how does that work in terms of availability once the repayments start? Ryan Ellson: Yes. It's -- so effectively, you draw the cash at the beginning of the entire amount, the $150 million and then just repay those funds over the course of the 4 years. David Round: Okay. Over the course of 4 years. And is it fairly linear in terms of how... Ryan Ellson: It is. It is. So effectively, every time we do a lifting in Ecuador, we'll pay back a portion of the money borrowed. Operator: Our next question comes from the line of Joseph Schachter with SER. Josef Schachter: A couple of questions for me. Congratulations on getting Ecuador up to 6,000 in October. You have on Slide 26 of your presentation that the potential could be between 11,000 and 19,000. Does that include the last 2 wells, which have been very encouraging? So guidance potentially would be to the higher end. And the question is what time line were you using to get to that? And do you need to put waterflood in? Do you have enough water? Maybe just give me a guidance of how Ecuador grows. Gary Guidry: Yes. Joseph, the answer to your question is the guidance on that slide does not include the Conejo discovery to the Northwest. And the guidance is based on waterflood of the Bassal Tena. We're in a very good position here that we have a water source in the stacked pays that we have in the Hollin and the T Sand. And so everything is in place to do that. We're working through the field development plans with the ministry in Ecuador. And now that we fulfilled all of our commitments this year on exploration in Ecuador, we're moving to the development phase. And so that will start occurring next year, during 2026. Josef Schachter: Okay. The debt issue, it fore seems to be the overhang, the market's reaction today down to a new 52 low disappointingly. Just for the levers, maybe, Ryan, do we need $75, $80 Brent? Do we need Ecuador over 10,000, 11,000 BOE a day? Do we need some noncore sales of your nonoperated assets in Canada? Where do you see getting that debt? Is a debt to 1 target something that will happen before the end of the decade? And how do you see the levers to get there? Ryan Ellson: Yes. No, that's a great question. And I think one of the things we want to emphasize in the press release and our opening remarks is now with the exploration commitments and a lot of the Suroriente commitments behind us, it really sets us up the stage for generating free cash flow. We're laser-focused on generating free cash flow in 2026 and beyond. I think if you look at this year's capital program, there's about $150 million in there between exploration and facility expansion and gas to power, et cetera. So I think with that behind us, when we come up with our budget in mid-December, you'll see the focus on free cash flow. We'll continue to look at how to optimize the portfolio as far as asset sales and whatnot, but that will just be incremental deleveraging. Our base plan is deleveraging as much as possible through our base operations. Josef Schachter: Okay. In some of the cases like the drillers, [ Precision and Ensign, they kind of gave targets to the market and to investors, we're going to knock off $100 million, $150 million, and they brag when they get there. Are you guys going to be willing to start throwing numbers like that so that people can see guideposts? And yes, you're heading in the right direction. Therefore, your valuation, which is trading at less than 1x cash flow in Canadian dollars and much below your 1PPD -- 1P reserves that you show in your presentation, the new one at USD 19.51. Is that the kind of thing where we can show the debt holders are now giving the equity value to the shareholders by doing something like that? Ryan Ellson: Absolutely. When we come out with our budget in '20 -- December, there will be a clear road map. Operator: Gentlemen, there are no further questions at this time. Please continue. Gary Guidry: Thank you, Shannon. I'd once again like to thank everyone for joining us today. We look forward to speaking with you next quarter and update you on our ongoing progress. Thank you. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. Third Quarter 2025 Financial and Operating Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead. Brian Ector: Well, thank you, Michael. Good morning, and welcome to Baytex's Third Quarter 2025 Earnings Call. I am joined today by Eric Greager, our President and Chief Executive Officer; Chad Kalmakoff, our Chief Financial Officer; and Chad Lundberg, our Chief Operating Officer. Before we begin, please note that our discussion today contains forward-looking statements within the meaning of applicable securities laws. I refer you to the advisories regarding forward-looking statements, oil and gas information and non-GAAP financial and capital management measures in yesterday's press release. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. And after our prepared remarks, we'll open the call for questions from analysts. Webcast participants can also submit questions online. With that, let me turn the call over to Eric. Eric Greager: Thanks, Brian, and good morning, everyone. Q3 was a strong quarter for Baytex. We delivered record production in the Pembina Duvernay, generated robust free cash flow, supported by the strength and reliability of our Canadian heavy oil and U.S. Eagle Ford operations and made further progress on debt reduction. Pembina Duvernay set a new quarterly production record averaging just over 10,000 BOE per day, driven by strong well performance from the third pad we brought on stream in September. We also completed a land swap to consolidate our Southern Duvernay acreage and commission new gathering and midstream infrastructure with Gibson Energy, both of which will support more efficient development as we scale up. Our heavy oil and Eagle Ford assets continued to deliver steady volumes and strong cash flow. Heavy oil production grew 5% quarter-over-quarter, while volumes in the Eagle Ford were up 3%. Commodity prices remained soft in the third quarter with WTI averaging approximately USD 65 per barrel, but our strong operational execution and cost discipline enabled us to generate $143 million in free cash flow and reduce net debt to $2.2 billion. With that, I'll turn the call over to Chad Kalmakoff to discuss our financial results. Chad Kalmakoff: Thanks, Eric. Third quarter financial results were solid. Adjusted funds flow was $422 million or $0.55 per basic share. Net income for the quarter was $32 million, and we generated $143 million in free cash flow after $270 million in exploration and development expenditures. We returned $17 million to shareholders through our quarterly dividend and reduced net debt by $50 million, bringing net debt at quarter end to $2.2 billion, as Eric noted. Our financial position remains strong. We have significant financial liquidity with over $1.3 billion in undrawn credit capacity on our credit facilities and our first note not maturing until April 2030. Our capital allocation framework remains unchanged. 100% of our free cash flow is directed to debt repayment after funding our dividend. Based on year-to-date results and the forward strip for Q4, we now expect to generate approximately $300 million in free cash flow for 2025. This compares to our previous forecast of $400 million, with the change largely attributed to lower commodity prices during the second half of the year. There is no change to our production guidance, and we expect to reach $2.1 billion of net debt at year-end. I'll pass it on to Lundberg -- Chad Lundberg to provide more details on our operating results. Chad Lundberg: Thanks, Chad. We saw strong operating performance in Q3. Production averaged 151,000 BOE per day, with liquids making up 86% of the mix. We invested $270 million in exploration and development and brought 69 wells on stream, keeping us on track with our plan. In the Pembina Duvernay, production averaged 10,200 BOE per day, up 53% from last quarter. The third pad from our 2025 program came online in September with 2 wells delivering strong 30-day peak rates averaging 1,300 BOE per day per well. The third well encountered casing issues during completion and was subsequently abandoned. We are committed to accelerating full commercialization of the asset, targeting 18 to 20 wells per year by 2027 and ramping production to 20,000 BOE per day by 2029. In addition to our progress in the Duvernay, we continued to expand our heavy oil platform. Heavy oil averaged 47,300 BOE per day, up 5% from Q2. We brought 20 net wells on stream and expanded our core land base in Peace River and northeast Alberta. Our heavy oil inventory now totals approximately 1,100 locations, supporting approximately 10 years of drilling at our current pace. Eagle Ford production remained steady at 82,800 BOE per day, with oil production up 3% from last quarter. We brought 15.6 wells on stream while achieving a 12% improvement in drilling and completions costs. We continue to see strong results from the refracs completed last quarter. Those wells are performing in line with expectations and are informing our plans for an expanded refrac program in 2026. Overall, operational execution across the asset base remains strong, underpinned by our commitment to health and safety of our workers and the communities in which we operate. Let me turn the call back to Eric for his closing remarks. Eric Greager: Thanks, Chad. Our third quarter results demonstrate Baytex's ability to create value across commodity price cycles. The Pembina Duvernay continues to drive our Canadian growth potential, bolstered by recent consolidation efforts and infrastructure advancements that support future development and operational flexibility. At the same time, our heavy oil and Eagle Ford assets continue to deliver reliable results and cash flow. Our capital discipline and our consistent performance demonstrate our ability to execute through market volatility, maintain financial flexibility and position our company for long-term value creation. Brian, back to you. Brian Ector: All right. Thanks, Eric. Before we open the line for questions, I want to address the recent news reporting regarding our U.S. Eagle Ford assets. As a matter of policy, we do not comment on speculation. Our focus remains on consistent operational execution, capital discipline and maximizing value. We ask that analysts' questions remain focused on our third quarter results and published guidance. And operator, we're now ready for questions. Operator: [Operator Instructions] First question comes from Phillips Johnston with Capital One. Phillips Johnston: My first question is on the $24 million of acquisitions that you executed here in Q3. I'm guessing that was spread out across the 3 areas mentioned in the release. Should we assume that -- I guess, the question is, was there any material production that came with the transactions? Or was it all undeveloped acreage? Eric Greager: Phillips, it's Eric Greager here. Thanks for the question. It was all undeveloped land, focused in the Ardmore area, that's Cold Lake oil sands Mannville stack development; in the Peace River oil sands Pekisko area, that one is quite a bit bigger. So the Ardmore was about 4.5 net sections, and the Peace River oil sands at Pekisko area, about 40.5 net sections. That's in the heavy oil business. And then, in Spartan, likewise, focus just -- sorry, in Pembina Duvernay, likewise, it's just our areas in the South in what we call Gilby, and that was an area that was prior checkerboarded. Phillips Johnston: Okay. Great. Makes sense. And as you mentioned, we saw a nice uptick in your heavy oil production. It was up 7% in Q2, and then, up another 5% or so here in Q3, and that was after 3 sequential quarterly declines. Can you talk about what's driven that growth? And what we should expect for Q4 and into 2026? Eric Greager: Yes. It's a little early for 2026, but what I would say is we continue to execute the 2025 plan. It's really been, but for the change we made in May after -- in April, May, after Liberation Day after our Q1 announcement, it's really been executing our plan. So we lay out our capital profile based on breakup and anticipation of some breakup impacts to access. And if breakup is light, then that creates optionality in the plan. But we're really simply executing the plan, and we're seeing stronger performance across all of the assets really based on the capital investments we're making. So it's really steady execution of the plan, Phillips, with a little bit better performance than maybe we had originally communicated to the market, which is pretty consistent with our conservative guidance style. Operator: And your next question comes from Luke Davis with Raymond James. Luke Davis: Doing some good work in Canada. I'm wondering if can you just provide some parameters sort of by asset in terms of what you expect those to look like, say, over the next 3 to 5 years. And have you kind of contextualized that in the current commodity price environment versus something a little bit more favorable, call it, mid-cycle price? Eric Greager: Sorry, what assets did you say? Brian Ector: Canadian, general. Eric Greager: Okay. Yes. Luke, it's Eric again. Yes. So look, I think 2026 commodity pricing is anyone's guess, but if things go into the 50s, we're probably looking at a plan that is more conservative. That is what you would expect, and I think what any producer of a commodity would do, something that's probably closer to flat. If prices move higher toward mid-cycle through 2026 and into 2027, then naturally, we would lean in because there's a lot of value to pull forward for shareholders. I'm sure that's what you would expect me to say. The assets are just performing really well. I mean, we've got strong geology teams working all across our heavy oil fairway, the engineering teams and our long history across our large heavy oil fairway means the hit rate is pretty good on exploration and development. And in Duvernay, it's just been a really strong year in terms of fracture complexity, completion uniformity, well performance on the whole, and we couldn't be more pleased with the results across our Duvernay as well. So across the Canadian portfolio, it just feels really good. Our Viking assets run steady and flat and are extremely reliable in terms of their input and output factors. So that's the way I would characterize it. Luke Davis: All right. That's helpful. I'm wondering also if you could just dig into the Duvernay a little bit more. Well performance looks very good. I'm wondering if there's anything that you can tweak going forward, and how you'd expect sort of the productivity parameters to change? And then, you did abandon 1 well, so I'm wondering if you can just flesh out some of the issues you had and maybe some learnings coming out of that. Eric Greager: You bet, Luke. I'm going to pitch it over to Chad Lundberg here for that one. Chad Lundberg: Great. Thanks. Two parts to your question, so I'll address the hole first. This was an issue that resulted from the construction of the well really on the upfront drilling. So it's something to do with the casing and the cement. We believe it's an isolated incident and that we will have it resolved for our programs forward. So I think that's the key thing is we believe it's isolated, and go forward, we've figured it out. Your second question, just on Duvernay performance, so yes, year-over-year, we've seen a strong improvement in IPs. As everybody knows, we're curiously declining the wells to try to understand how that relates to EURs. We think we have a high chance of seeing an improvement in EURs as well. When you really think about how we constructed this year, we're trying to understand completion efficiency and just our ability to deliver sand and energy into the formation. We think we made big strides this year and that, that some of these results are a direct result of that. As we think about programs forward, we're not done. And I don't know if we'll ever be done. These things are a continuous improvement cycle. But we do have more improvements that we're working through at this point in time that we're excited to deploy through 2026 and see where the results take us. Operator: This concludes the question-and-answer session from the phone lines. I'd like to turn the conference back over to Brian Ector for any questions received online. Brian Ector: Thanks, Michael. We had a couple of questions come in on the webcast, but I do believe they've been addressed through the analysts' Q&A already. So I think with that, we are going to wrap up today's call. I'd like to thank everyone for joining. And thanks again for your time, and have a great day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Hello, and welcome to Zillow Group's Third Quarter 2025 Financial Results Call. [Operator Instructions] Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Brad, you may begin. Bradley Berning: Thank you. Good afternoon, and welcome to Zillow Group's quarterly earnings call. Joining me today to discuss our results are Zillow Group's CEO, Jeremy Wacksman; and CFO, Jeremy Hofmann. During today's call, we will make forward-looking statements about our future performance and operating plans based on current expectations and assumptions. These statements are subject to risks and uncertainties, and we encourage you to consider the risk factors described in our SEC filings for additional information. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. Please review the cautionary statement and additional information in our earnings release, which can be found on our Investor Relations website. This call is being broadcast on the Internet and is available on our Investor Relations website. A recording of the call will be available later today. During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA and adjusted free cash flow, which we refer to as free cash flow. We encourage you to read our shareholder letter and earnings release, both of which can be found on our Investor Relations website as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. We will open the call with remarks followed by live Q&A. And with that, I will now turn the call over to Jeremy Wacksman. Jeremy Wacksman: Good afternoon, everyone, and thank you for joining us. I'm pleased to share that Zillow delivered another excellent quarter, thanks to continued momentum across both our For Sale and Rentals operations. For Q3, we reported strong revenue growth, EBITDA margin expansion and positive GAAP net income. In the housing market that's bouncing along the bottom, Zillow continues to outperform both our outlook and the broader industry, showing the strength of our execution and the durability of our strategy. Delivering growth while managing costs keeps us on track toward our 2025 targets of mid-teens revenue growth, expanding EBITDA margins and positive full year GAAP net income. Zillow has earned its success because we are a consumer-focused product-led company transforming the way people move. For consumers, that means a simpler, faster, more transparent way to buy, sell or rent a home. For real estate professionals, it means more effective tools to grow their businesses. And for our shareholders, it means sustained growth driven by innovation regardless of where we are in the housing cycle. We are delivering the seamless digital end-to-end experience that consumers and increasingly the real estate industry expect and depend on. And we deliver innovation quickly across our ecosystem and across the customer journey. In Q3 alone, that included adding virtual staging to the super listening experience in Zillow Showcase, enhancing messaging functionality and debuting the Zillow app inside ChatGPT. I will dig into our latest launches in a few moments, but first, I'll walk you through our Q3 results, which show how well our strategy is working. Total revenue increased 16% year-over-year to $676 million in Q3, exceeding the high end of our outlook range. For Sale revenue increased 10%, outperforming the broader housing and mortgage markets, which continue to bounce along the bottom. Within For Sale, residential revenue grew 7% and mortgage revenue grew 36%. Rentals revenue grew 41% year-over-year with 62% year-over-year revenue growth in multifamily. Together, this revenue growth, along with effective cost management helped us generate EBITDA of $165 million, above the high end of our outlook range and EBITDA margin expanded more than 200 basis points year-over-year. The combination of revenue growth and cost discipline also resulted in positive net income of $10 million in Q3. Our consistently strong performance reinforces the fact that Zillow can grow regardless of what the market is doing. What drives our success and differentiates Zillow from everyone else in our category is consistent execution on our integrated transaction strategy, relentless product innovation and a focus on consumer and partner experiences. Our success starts with our brand, which is loved and trusted by both consumers and real estate professionals. Our apps and sites had 250 million average monthly unique users in Q3, and we are a strong partner for the residential real estate industry. Agents who use at least one of our products, whether that's Premier Agent, Follow Up Boss, ShowingTime+, Showcase or dotloop, are responsible for an estimated 80% of U.S. residential real estate transactions. Our brand strength and quality product offerings feed our broader Zillow ecosystem and give our partners a powerful edge in building their businesses as they operate where consumers are and deliver the experience consumers want. We take the strength of our brand and audience seriously, always looking for ways to meet consumer needs in an ever-evolving and competitive landscape. The latest demonstration of that principle launched this month, the Zillow app in ChatGPT. Consumers searching for homes in ChatGPT can explore listings, maps, photos and pricing directly in the Zillow experience and can seamlessly continue on to Zillow's website or mobile app to book a tour, connect with an agent or learn about financing. It's another new doorway directly into our ecosystem, just like when we built one of the first apps for mobile. Being early matters. And as we learned then, first-mover advantage pays off when technology transforms how people use the Internet. We are currently the only real estate app inside ChatGPT, a testament to the speed and technical depth of our teams as well as our near 20-year track record of using AI to build innovative, data-driven consumer-first products responsibly. We are still in the very early innings of how AI will transform consumer experiences, but we strongly believe that the critical differentiators between those that succeed and those that get left behind in our category will be user experience, quality of audience, unique insights and providing integrated transaction services instead of just top-of-funnel lead generation. We feel incredibly well positioned to take advantage of the AI transformation given how unique our strategy is. Now I'll dive deeper into how our consumer-first product forward thinking has shown up across our business and helped us grow in Q3, starting with For Sale. Our For Sale revenue is consistently outperforming the broader market as we deliver strong revenue growth and continue to drive share growth relative to the total industry transaction value. We're executing well on our For Sale strategy to make buying, selling and financing easier for consumers and agents alike. Zillow is built for where the industry is going, not where it's been. We've moved beyond home search and become a diversified transaction-focused platform that integrates the disparate steps of the housing journey, connecting with an agent, touring, exploring financing options and more and equips agents to successfully guide consumers through it. We continue to scale our immersive listing experience, Zillow Showcase. More than 50 brokerages have adopted Showcase as a go-to marketing solution to help agents win more listings and sell homes faster. These enterprise partnerships spanning leading national brands, regional powerhouses and innovative independents reflect industry recognition that Showcase gives agents and sellers a measurable edge in today's housing market. As of the end of Q3, Showcase was on 3.2% of all new listings in the U.S., up from 2.5% last quarter and more than double our share versus a year ago. And in Q3, we launched AI-powered virtual staging on Showcase listings. This new feature uses computer vision to restyle rooms instantly with just a tap, letting buyers picture a home's potential while giving agents who use Showcase another way to make listings stand out. Whether a buyer starts by virtually walking around homes with Showcase, instantly booking an in-person tour and connecting with an agent or exploring their financing options, Zillow provides the right support at the right moment in their journey. With products like BuyAbility, a powerful tool from Zillow Home Loans that helps buyers shop based on what they can afford, we're making financing simpler and more transparent and improving how we identify high-intent buyers in the process. BuyAbility has enrolled 2.9 million people since it launched after surpassing 2 million last quarter. These buyers are more knowledgeable and ready to act when they connect with an agent through Zillow. In addition, we introduced a verified digital pre-approval and began rolling out a new borrower application designed to get shoppers quickly to a real decision and improve loan officer efficiency. These updates are live now on our website and coming soon to our apps. We also just rolled out major enhancements to our proprietary messaging system that lets buyers communicate directly with their agent and with loan officers from Zillow Home Loans within the Zillow app, thanks to an integration with Follow Up Boss. Buyers can now co-shop with a partner or co-buyer right inside Zillow, sharing homes, comparing favorites and staying aligned in one place. We expect keeping homebuyers better connected will deepen engagement, help real estate professionals provide better service to their clients and ultimately boost transaction rates. We are the company that is innovating rapidly to apply new technology where it matters most, improving the customer journey and helping real estate professionals succeed in the age of AI by giving them the tools and insights they need to serve clients better, work more efficiently and grow their businesses. As part of that effort, we've continued to invest in a growing set of features within Follow Up Boss. Recent updates include real-time call transcripts, smart summaries that recap each connection's recent communication with suggested next steps and custom Zillow Home Loans pre-approval letters for buyers who request one, each integrated directly in the Follow Up Boss system, giving agents richer context and helping them communicate faster. All of this innovation comes together and brings our For Sale strategy to life in our enhanced markets, where we're connecting high-intent movers with high-performing professionals and delivering a more integrated transaction. In Q3, 34% of connections came through the enhanced market experience, up from 27% last quarter and on our way to our midterm goal of at least 75%. Virtually all Zillow connections in the enhanced market experience are now managed through Follow Up Boss, enabling better collaboration amongst buyers, agents and loan officers. We're also seeing double-digit adoption of Zillow Home Loans across enhanced markets, a clear sign the integrated experience is delivering value as we help consumers get home. As that integrated experience expands, we're updating our invite-only pay when you close program for top-performing teams. This month, we announced Zillow Preferred, the next chapter for our Flex program that recognizes partners for delivering outstanding customer experiences and provides them access to dedicated support and growth tools. Zillow Preferred builds on the foundation of Flex and the new name helps ensure shoppers know they are connecting with a preferred partner of ours. As we expand the integrated experience in our enhanced markets to the majority of our connections, we expect our preferred program to grow in tandem. Earlier this month, we also introduced Zillow Pro, a membership that brings together Zillow's most impactful tools and services into an integrated AI-powered suite that helps growth-oriented agents scale their businesses. Zillow Pro helps agents more effectively serve all their clients in their sphere, not just those they connect with on Zillow. With features like My Agent, client insights flow into Follow Up Boss and agents can see what their buyers are eyeing on Zillow, invite any customer to connect on Zillow and keep their branding visible across Zillow as those clients shop. Zillow Pro also enables real-time touring for clients an agent found off of Zillow, unified messaging and property sharing among co-shoppers and premium profiles that let agents customize how they show up on Zillow. Over time, top-performing Pro users become eligible for Zillow Preferred. Zillow Pro gives agents the data, tools and brand reach they need to uncover opportunities, work smarter, deepen relationships and drive more transactions. It also expands the serviceable addressable market of our housing super app to more agents and all consumers. Given that agents who use our products touch an estimated 80% of U.S. residential real estate transactions, we have a strong partner base to sell Zillow Pro into. We look forward to rolling it out across the country throughout 2026. Now I'll update you on rentals, where we're seeing some of the strongest growth and momentum across Zillow. Just like in For Sale, we're focused on speed, transparency and innovation on behalf of consumers and partners. As a reminder, our strategy in rentals is twofold. First, we are building a comprehensive 2-sided marketplace of homes for rent, giving renters a single trusted destination to find every type of property from single-family homes to large apartment complexes. Second, we are modernizing the transaction experience for renters and property managers alike, streamlining how they connect and handle applications, leases and payments. This strategy works because it solves real pain points. Renters get transparency, efficiency and trust, property managers get better qualified applicants and higher ROI. And because renting is where nearly every mover starts, our progress here is expanding the top of Zillow's housing funnel and creating durable growth across the business. We are executing well on this strategy and accelerating revenue growth as a result. Rentals revenue increased 41% year-over-year in Q3, primarily due to a 62% increase in multifamily revenue. In Q3, Zillow Rentals had 2.5 million average monthly active rental listings, ranging from single-family homes to large apartment complexes. This includes 69,000 multifamily properties listed on Zillow. That's almost double the 35,000 we had 2 years ago, and there is room to expand with an estimated 140,000 total multifamily properties across the country. Multifamily is a key growth driver, and we're expanding both our property count and wallet share as more large property managers choose to upgrade to more comprehensive advertising packages with us. As proof of the real value we add for our multifamily partners as we deliver high-intent qualified renters to fill their vacancies, Zillow Rentals ranks #1 in partner satisfaction in our category for return on marketing investment. Our multifamily listing syndication agreements with Redfin and Realtor.com are benefiting consumers and property managers by expanding the reach and visibility of rental listings online, helping more renters see more available units on more sites and helping property managers connect with qualified applicants more efficiently. Beyond cultivating a comprehensive marketplace, we're innovating quickly to make renting simpler, fairer, more transparent and more affordable. This quarter, we expanded our cost transparency features across the Zillow Rentals network, showing renters a full breakdown of move-in and monthly costs and providing calculators to help them estimate total expenses before applying. This helps cost burden renters plan accurately and in turn, property managers get more qualified serious applicants. Many renters on Zillow can also reuse a single secure rental application across listings, saving time and cutting repeated fees, an example of how Zillow reduces friction and makes renting fair. We also announced a new partnership with Esusu, the leading rent reporting platform to help renters build credit through on-time rent payments. This collaboration expands credit building access nationwide, allowing any renter, not just those who pay rent through Zillow, to have their payments reported to major credit bureaus, strengthening their financial footing as they prepare for the next step. This partnership is another example of Zillow's broader effort to help renters and buyers access and afford housing. Finally, we recently launched Listing Spotlight, a premium listing option that gives single-family rentals and smaller buildings the highest exposure to this category available on Zillow. Building a better experience for renters and property managers has earned us strong rental traffic over the past few years with about 35 million average monthly unique visitors in Q3. As we execute on our twofold strategy in Rentals, we expect continued acceleration in year-over-year revenue growth in Q4, supported by growing inventory and partner adoption. The path to our $1 billion-plus annual rental revenues opportunity is clear, and we're confident in our ability to keep delivering value for consumers and partners. Our strong results in both For Sale and Rentals show how Zillow is successfully innovating on behalf of consumers and real estate professionals across the housing journey. As we continue delivering excellent results, we're also aware of the external noise that has gotten louder in recent months, and we're confident in our ability to execute through it just as we have the past few years whenever the volume has turned up. We're all eyes forward on building a marketplace that expands visibility and choice, promotes fairness and broad access and empowers consumers and the real estate professionals who serve them. Solving their problems is what ultimately matters. That's what enables success in the modern era and the AI-driven future. That's what drives results, and that's exactly what Zillow is doing with this quarter as the most recent example. We'll keep executing with discipline, delivering value for consumers and partners and leading the industry toward a more transparent consumer-first future. We have a strong brand, a lightning fast innovation cycle and consistently excellent execution. Thanks to that steady focus and execution, we are on track toward our full year 2025 goals of mid-teens revenue growth, expanding EBITDA margins and GAAP profitability with year-over-year revenue growth expected to accelerate in Q4. 2024 and 2025 have proven our strategy works, and we are proud of our ability to grow our revenue while also expanding margins. What's most encouraging is that our execution is setting us up for what we believe will be sustainable, profitable growth well into the future. We're excited about our opportunity to unlock $1 billion of anticipated incremental revenue in For Sale just by rolling out our integrated transaction playbook to more people in more places, even in a flat macro housing environment. The momentum we're seeing in enhanced markets indicates we're on the right track towards capturing that opportunity. And Zillow Pro is well positioned to meaningfully expand our potential for growth in For Sale. We also see a clear path toward our $1 billion-plus annual Rentals revenue target and a much larger business beyond that as we build our comprehensive 2-sided marketplace. Behind our strong financial performance is a clear mission, helping millions of people get home and supporting the professionals who make that possible. As a beloved consumer brand and a trusted partner platform, we're proud of the work we're doing to make the housing journey simpler, more transparent and more integrated. With that, I'll turn the call over to our CFO, Jeremy Hofmann. Jeremy Hofmann: Thanks, Jeremy, and good afternoon, everyone. We delivered strong results in Q3 that exceeded our expectations and are well positioned to continue delivering strong performance as we execute on our strategy in 2025 and beyond. Q3 revenue was up 16% year-over-year to $676 million, which was above the high end of our outlook range. Our better-than-expected revenue performance, combined with effective cost management, delivered EBITDA of $165 million also above the high end of our outlook range. Q3 EBITDA margin was 24%, more than 200 basis points higher than a year ago. Our trailing 12-month EBITDA as of the end of Q3 grew 29% year-over-year as we continue to scale revenue and control costs. We reported GAAP net income of $10 million in Q3 as a result of these efforts. For Sale revenue grew 10% year-over-year in Q3 to $488 million, roughly 500 basis points above the mid-single-digit residential real estate industry growth as reported by the NAR and tracked by Zillow. This was also well above the purchase mortgage origination volume growth for the industry, which we estimate was roughly flat. Purchase mortgage origination volume is noteworthy because the majority of Zillow buyers purchase their home with a mortgage. Within the For Sale category, residential revenue grew 7% to $435 million. Of note, residential revenue year-over-year growth accelerated 100 basis points from Q2 to Q3 despite a 400 basis point tougher comparable quarter-over-quarter. We saw contributions to this growth broadly across our agent and software offerings and within our new construction marketplace. Agent offerings include Zillow Preferred, formerly Flex, market-based pricing and Zillow Showcase. Software offerings primarily include Follow Up Boss, dotloop and ShowingTime+. Within the For Sale revenue category, mortgages revenue was up 36% year-over-year in Q3 to $53 million. Our mortgages strategy is making it easier for more buyers to choose financing through Zillow Home Loans, which is the main growth driver of our overall mortgages revenue. Purchase loan origination volume grew 57% year-over-year to $1.3 billion. Turning to Rentals. Q3 revenue was $174 million, with growth accelerating to 41% year-over-year. Rentals revenue comprised 26% of our total company revenue in Q3, up from 21% a year ago. This increase was driven primarily by our multifamily revenue, which grew 62% year-over-year, up from 56% year-over-year growth in Q2. Our value proposition to multifamily property managers and execution by our sales force to both win new properties and upgrade to more comprehensive packages is evident in our Q3 results. We increased the number of multifamily properties on our apps and sites by 47% year-over-year, reaching an all-time high of 69,000 multifamily properties as of the end of Q3, up from 64,000 properties at the end of Q2. As a reminder, we measure our multifamily property count as 25-plus unit buildings and do not include our industry-leading long-tail properties, which is a significantly larger count. When you include these long-tail properties, Zillow Rentals had 2.5 million average monthly active rental listings in Q3, the most in the category. Our Rentals offering is clearly resonating in the market today. By expanding our listings across more sites and apps through trusted platforms, including Redfin and Realtor.com, we are helping provide more visibility into available properties, a simpler search experience and the option to shop on the platform of renters' choice. For multifamily operators, we offer a compelling value proposition by providing efficient and cost-effective alternatives to reach more potential renters through the largest rental audience. The quantity and quality of high-intent renters on our platform has allowed us to expand our wallet share with property managers. We expect this formula to continue to drive growth in Rentals towards our $1 billion-plus annual revenue target. Q3 EBITDA expenses of $511 million were slightly favorable compared to our outlook. We drove leverage on our total fixed costs, which grew 5% year-over-year compared to total revenue growth of 16%. This includes share-based compensation expense, which was down 8% year-over-year in Q3. The results of our cost discipline continue to be evident as we expanded our EBITDA margins by more than 200 basis points year-over-year. The combination of revenue growth and cost discipline is also yielding robust cash flows. During the first 9 months of 2025, we generated $295 million of free cash flow, a 28% increase compared to the same period a year ago. We began reporting free cash flow as a new metric this quarter. We plan to do so going forward to help you all better understand the effectiveness of our strategy and execution and our ability to consistently generate cash from our core operations. We ended Q3 with $1.4 billion of cash and investments, up from $1.2 billion at the end of Q2. Program to date share repurchases have been $2.4 billion at a weighted average price of $48. We are very pleased with the program and expect to be opportunistic in share repurchases going forward. Turning to our Q4 outlook. We expect total revenue to be between $645 million and $655 million, implying a year-over-year increase of 16% to 18%. We expect For Sale year-over-year revenue growth in Q4 to be in the high single digits. We expect residential revenue growth similar to Q3 and mortgages revenue growth of approximately 20% with continued purchase origination volume growth of over 40%. We saw an accelerated number of loans that closed in late September, resulting in outperformance in Q3 mortgages revenue versus our expectations. In aggregate, we expect mortgages revenue to grow roughly 30% for the second half of 2025. Our guidance reflects our expectation that challenging housing market conditions and macro uncertainty will continue. We expect our Rentals revenue growth to accelerate in Q4, increasing more than 45% year-over-year, driven by further multifamily revenue growth acceleration. We continue to expect the Redfin partnership to be accretive to EBITDA dollars in the second half of 2025. For the full year, we continue to expect Rentals revenue growth to be approximately 40% for Q4, we expect EBITDA to be between $145 million and $155 million, representing a 23% margin at the midpoint of our outlook range. EBITDA expenses will decrease from $511 million in Q3 to an estimated $500 million in Q4 due to normal seasonality. For full year 2025, we continue to expect to deliver mid-teens revenue growth. We expect fixed cost investments to grow modestly with inflation while investing in variable costs ahead of revenue to drive future growth, primarily in Rentals and additional loan officers and Zillow Home Loans. We are on track to deliver expanded EBITDA margins and positive net income for the full year 2025. As an early read, we expect 2026 to have similar growth and EBITDA margin expansion as we have had the last 2 years. We are planning for the macro housing environment to continue to bounce along the bottom in 2026 as well. As we look even further out, we are confident in our mid-cycle targets for $5 billion in revenue and 45% EBITDA margins in a normalized housing market. We have continued to execute on the integrated transaction experience for both consumers and agents. As of Q3, this includes continued expansion of our enhanced markets with 34% of connections now going through the experience and increasing showcase adoption to 3.2% of all new listings. This also includes rapid growth in Rentals with 69,000 multifamily properties advertising with us as of the end of Q3. As Jeremy mentioned earlier, we recently announced the upcoming launch of our Zillow Pro offering. Through Zillow Pro, the expansion of our serviceable addressable market sets us on a path to engage more customers and more agents. We plan to beta test Zillow Pro in the first half of 2026 and to expand nationwide over the second half of next year. We expect a very modest incremental contribution to revenue from Zillow Pro in 2026. In the near term, we will focus on demonstrating value for the product and incorporating learnings to support continued innovation. To close, we are successfully executing on our strategy, are on track to meet our full year goals and are very excited about the opportunity ahead of us. We believe we have the right investments in place to support our strategy and are delivering strong growth while maintaining a disciplined cost structure. That formula is driving expanding margins and positive GAAP net income. And with that, operator, we'll open the line for questions. Operator: [Operator Instructions] Our first question will come from Ron Josey with Citi. Ronald Josey: Maybe, Jeremy Wacksman, I wanted to ask a bigger picture question for you just on all the news around AI and commentary around Zillow apps on ChatGPT. You talked about ChatGPT and app just being a new doorway to Zillow. And what I wanted to hear a little bit more is just the integration here, the risk, the opportunities of being that first mover on newer platforms. And then as newer doorways open, Zillow does have 250 million uniques, obviously, right? And so how do you balance your current traffic with these newer doorways with potentially having to spend more on brand awareness? Jeremy Wacksman: Yes. Thanks for the question, Ron. I mean we think about this as really pure opportunity. We're excited about the partnership integration we did with OpenAI to be the first real estate app and one of the first apps in this new paradigm. I think you should expect other providers to build out similar ecosystems. And this is really similar to other platform shifts that create expansion into leading brands. Think about as search exploded, think about as mobile exploded, and we were early on to the mobile platform as well. And just look at how brands like ours developed in those shifts, right? Mobile wasn't a replacement. It was additive. It was more time spent. It was incremental use cases. It was easier for us to start to build a more digital transaction than you had in desktop search and the browser only. So we think of it the same way. That's why we kind of call it another new doorway directly in. And then to your question on brand, I mean, I think that's why we feel so fortunate we have a great strong brand that consumers want whenever you get these new opportunities, it's an opportunity to be additive to that. And when our core base, 80% of our traffic comes to us brand direct. And the data and the platform and the software that we offer, those differentiators to create this really unique experience, I think, get strengthened by these platform shifts. So I know there's a lot that is written about, well, what does this mean for acquisition? It will, for sure, be an opportunity for all of us to tap into more customer demand in more new ways. But we're also equally excited about the ability to build AI into Zillow. As you know, we've been doing that for the last 20 years and really accelerate that effort the last 3 or 4 as these capabilities have come online. And so building more native capabilities into the software for our consumers and for our agents to make the transaction experience better, to make it more seamless to create more of that one-stop shop for buyers and sellers and for their agents, that's really the opportunity. So you're always going to see us lean in and be early. We're really fortunate that we can do that, and it's a tremendous testament to the technology teams we have at Zillow that we were able to do that here. And we think this is a really, really great platform shift for us to take advantage of. Operator: Our next question will come from Dan Kurnos with Benchmark. Daniel Kurnos: A couple. We've obviously done a lot of work on the Marriott court cases. Clients are particularly focused on the recent FTC suit. So maybe it would just be great to get your perspective on any impacts and how you think it plays out? And then separately, the other hot topic with investors is somewhat related, Compass proposed acquisition of Anywhere. So antitrust concerns aside, maybe your views on any potential disruption if agents choose or are forced to take their 3-phase marketing program or if anyone else bandwagons on their efforts to grow the private marketplace listings. Jeremy Wacksman: Yes. Maybe I'll try and hit both of those, and Jeremy hop on with anything I missed. With respect to the FTC case, we've been syndicating multifamily property listings to Redfin for about 6 months now. We're seeing the benefits to both consumers and property managers. You see more consumers can see more listings on all of our sites. An interesting stat is renters on Redfin now have access to 3x the number of rental properties they had when Redfin was trying to acquire those on their own. So it's very pro consumer. And then it's also very pro property manager. As a result of the syndication agreement, property managers are seeing increased ROI. As we said earlier, we're #1 in partner satisfaction for return on investment. And while we are excited about that ROI we deliver today, there's a ton of room for growth. We hear regularly from our large property managers that we are the strongest advertising channel, as they're thinking about their very complicated advertising mix, yes, they advertise on Zillow, other apartment sites, but they also advertise on Google, on Facebook, on Instagram, on TikTok, they market their own property websites. And so being a growing source of high ROI advertising for them, we feel great about that. So to us, it's obviously pro consumer and pro property manager, which makes it pro competitive, and we look forward to making that case as the process plays out. And then on the proposed merger, we don't really see any concerns to our business. We do see maybe more noise around hidden listings and the potential to push more hidden listings on to sellers and to buyers and to harm consumers. And so for us, our listing standards which help ensure that agents do right by their sellers. And if they're going to market a listing, they make that listing broadly available to all buyers. We continue to see the vast majority of the industry align with those standards. And we've always advocated for open, fair and transparent access. That's why we always have the most listings. Most folks want their listings on the Internet. They don't want to put the Internet back in the box. And we expect that behavior to continue because agents are trying to do right by their sellers and help their sellers sell their home. Operator: Our next question will come from Brad Erickson with RBC. Bradley Erickson: I have 2. First, I guess, the residential business looks like it outgrew the market by a couple of points in Q3. Can you just lay out maybe any market forces that leaned one way or the other on the resi business during the quarter that netted out to that number? And then second, can you just talk about what's embedded from a market growth perspective in the Q4 guide? And then I have a follow-up. Jeremy Hofmann: Yes, Brad, it's Jeremy Hofmann. I'll take that one. Yes, we were definitely pleased with the outperformance in Q3. For Sale grew 10%, which outperformed the housing market by about 5%. And then obviously, the mortgage market was flat. So pleased to be able to keep taking share. When we zoom out, our For Sale line has outperformed the industry by 20% over the last 2 years on a 2-year stack. So that's great as well because that's what we tend to focus on more than quarterly fluctuations. On the residential front within For Sale, I'd note that the revenue accelerated from Q2 to Q3. So we went from 6% growth in Q2 to 7% growth in Q3 despite a 400 basis point more difficult comp. So I think that's an interesting thing for you all to just keep eyes on and part of the market dynamics. And obviously, Q4 is probably an easier comp for the housing market comparatively. So when we look at what we're doing, we're pretty consistently outperforming the market. We're doing it over multiple periods and feel like the way in which we're doing so is pretty consistent. The enhanced markets are performing well. Zillow Home Loans continues to grow share alongside that enhanced market expansion. Showcase is expanding really nicely. Follow-up Boss is getting in the hands of more people across our agent base. New construction is doing well as well. So it's a really nice formula, and it's one that we're looking forward to continuing to roll out in Q4 and then into 2026. Bradley Erickson: Great. And then just a follow-up on Zillow Pro. You mentioned in the prepared remarks just several points of kind of value add. Can you maybe just expand a bit on kind of where the biggest sort of value unlocks come from with Pro? And then also just how does that get monetized? Or how do you envision that getting monetized over time? Jeremy Wacksman: Yes, I can take that. I mean I think, first, just to outline what Zillow Pro is because it is new, and we just did announce it. it's effectively an evolution of our software platform for agents. So it's a membership, it's a bundle so they can get access to all of our software. And that includes Follow Up Boss, right, the software that almost every preferred agent is using now. That includes premium branding on Zillow so premium profiles and consistent branding. That includes expansion of a feature called My Agent, which allows them to connect with all of their clients. And so previously, agents could use My Agent for Zillow clients that they had on Zillow, but now they can invite their clients from their database or their sphere of influence to connect with them and become their My Agent on Zillow and get access to great real-time client insights from us about those customers. So it really bundles all this together, and you want to think about that as a way we are trying to help them just run their business better, right? We're always going to try and help them deliver for our customers, right? But we want to help them deliver for all their customers. And then the last piece on Pro is it ends up being the pathway to Zillow Preferred, right? Zillow Preferred is the subset of agents and teams that we're trusting to handle our customers. We're going to continue to grow that audience of agents and teams as we go from 34% of our customers getting that experience to 75% plus. And this is the great way in. Many folks who are on Zillow Pro and using this stack of software will become eligible to be part of Zillow Preferred as well. So we see these things working really well together. And we're really excited, as Jeremy said, to test and learn with our initial beta customers early in the year and then roll it out throughout '26. Operator: Our next question will come from Nikhil Devnani with Bernstein. Nikhil Devnani: When you step back and you think about the longer-term opportunity with the Zillow Preferred program, how do you think about the impact on your share spread over time? Would you expect to see a widening gap as these markets scale and the cohorts mature there? And specifically, I'm thinking about the delta between residential and TTV. Jeremy Hofmann: Yes, I'll take that. Thanks, Nikhil. I would think about it as the expansion of Zillow Preferred is really a testament to what we're doing in the enhanced markets and how well we feel like those are going. So as we expand the enhanced markets, we will expand Zillow Preferred in tandem. And then with respect to outperformance, I think the outperformance has been strong. We expect it to continue to be strong. I would expect it from both the residential perspective and from the For Sale category as well. So much of the enhanced market experience really comes from that integration of our preferred agent base and Zillow Home Loans. And when we think about the customer experience we're building, the ability to drive conversion, the ability to drive adoption and ultimately take share, that's where we have so much confidence in not only 2025, but really towards that mid-cycle target of $1 billion of incremental revenue regardless of what the housing market does. Nikhil Devnani: And maybe if I could follow up on Rentals. You've talked about wallet share gains on the back of the increased distribution with Redfin and Realtor. It makes for a compelling sales pitch as well for your customer base. So do you think about needing to run that business any differently from a sales strategy perspective next year if this arrangement is being kind of questioned by the case? Or is it business as usual? Just wondering how we should think about how you guys run the business in Rentals in 2026. Jeremy Hofmann: Yes. I'll take that one as well. It's business as usual. Jeremy laid out how we feel about the defenses we have, and we're looking forward to sharing those perspectives. But in the meantime, business as usual, I think we're really proud of what we've done in Rentals over the past couple of years, and we're confident in our ability to grow strongly in 2026. One of the questions would be why do we feel good? I think 2025 just set us up really well, right? Property growth has been strong. We grew properties in Q1 and Q3 by 5,000 a quarter. We had that spike of about 9,000 added in Q2, and we expect to grow properties nicely in Q4 even with typical seasonal patterns. And we're actually translating all that supply growth into accelerated revenue growth throughout the year. So we grew revenue 33% in Q1, 36% in Q2, 41% in Q3, expect 45% plus growth in Q4. Supply is in a great spot. And then you're right, we've added a lot of value to property managers on the demand side because of our organic traffic and those syndication agreements, right? Each of the 69,000 properties is getting more exposure across Zillow Rentals, Trulia, HotPads, StreetEasy, Realtor.com, Redfin, ApartmentGuide and Rent. So that just puts us in this really nice position to continue to grow properties, continue to see advertisers upgrade to higher packages and continue to drive really, really good ROI. Jeremy Wacksman: And. Yes maybe just to add to that as like to zoom out and Jeremy touched on multifamily. If you think about the Rentals marketplace overall, obviously, multifamily is a big part of the revenue growth driver right now. But the strategy of building this 2-sided marketplace with all available listings or as much as we can and building the transaction experience for the renter, there's a ton of opportunity beyond that $1 billion-plus revenue target we've talked to you all about as you think about attracting even more renters and having them consume more content from, yes, multifamily, but also long tail. So I think if you zoom out and look over the last couple of years, that strategy has been working incredibly well. We were growing building count and growing audience all along the way, and it's obviously accelerated this year. But we feel great about that strategy. And yes, we feel great about multifamily revenue growth and its contributor to the midterm target, but we're not done there. We see a fantastic business beyond that as we layer on more value for the renter and for the property manager and the long-tail landlord. Operator: Our next question from Tom Champion with Piper Sandler. Thomas Champion: One question we get a lot is on the various components of residential revenue. And I'm wondering if you could just talk about the segment, the broad categories around agent software, new construction marketplace, what kind of rolls up into that number? And Jeremy, your point on the revenue acceleration was very interesting. So just curious if there was any 1 or 2 components that might have driven that. And then just really super quick, Jeremy Hofmann, if you could talk about headcount and investment into next year. I understand it's probably still in planning process, but I think you provided some early comments on '26. Just any preliminary thoughts there. Jeremy Hofmann: Yes. Thanks, Tom. I'll take both of those. So I'll take the For Sale relative outperformance first. Yes, it was a really good quarter. I think we've had a really good year so far. I'm really quite pleased with the team's ability to accelerate revenue into a tougher comp. So all of that does feel quite good. With respect to drivers, I would think of them as the enhanced markets are performing well. So we went to 34% of all connections at Zillow are now in these enhanced markets, and that's well on our way to the 75% target that we are marching towards in those mid-cycle targets. Zillow Home Loans is growing really nicely, grew nearly 60% in Q3, and we're seeing double-digit adoption of Zillow Home Loans across the enhanced markets. So that feels quite good. And then you couple it with Showcase expanding nicely. Showcase is 3.2% of all new listings today. That's more than double a year ago. And obviously, it's still early. We're learning a ton. We've only been selling the product for about 18, 20 months at this point, but plenty more to come there. And then Follow Up Boss, just getting in the hands of more people, and we just keep building better and better features to make the software more and more interesting to agents. In our Preferred base, it's in nearly everybody's hands, and the business has just done really well since we acquired it. So we're really pleased there. That's all doing quite well on the existing homes front. And then new construction team has just executed nicely. They've been able to show up for partners quite well in a challenging time and really nicely complement the rest of the For Sale business. So that's really a good formula. And then with respect to costs in 2026, the way we're thinking about it is actually pretty similar to '24 and '25. I think revenue growth formula is pretty similar. We grew 15% in '24. We're on pace for mid-teens in 2025. We think that's a good way to think about '26. And we think the expansion of margins in '24 of 200 basis points, '25, we're on track for solid margin expansion, and we think that's a good way to think about '26 as well. With respect to the cost base, you're going to hear more of the same from us. We are planning to keep fixed as flat as possible and fight inflation, but there will obviously be some inflation and headcount is going to stay pretty flat on the fixed side. And then on variable, where we see opportunities, we will invest. We've done that in Rentals, I think, quite nicely. I think we've done it well in Zillow Home Loans. And where we see these really outsized growth opportunities, we will go run at those. But the fixed cost discipline allows us to really get leverage and grow profits faster than revenue. And when you think about that together with marketing, which we dial up and down based on what we see in the market, it all nets out pretty nicely to solid revenue growth, ability to expand margins and then GAAP net income comes in there as well because as we hold our fixed costs flat with inflation, we get a lot of leverage on stock-based comp. So stock-based comp was down 8% year-over-year this quarter. We expect it to be down 10% year-over-year for 2025. And that's just a function of the fact that 90% of our stock-based comp charge really sits in that fixed bucket. So you'll hear much of the same for us, I think, in 2026, and it's a testament to the strategy and execution that the team has been able to deliver. Operator: Our next question will come from Lloyd Walmsley with Mizuho. Lloyd Walmsley: I just wanted to ask about sort of the back and forth of the funnel between the agent and Zillow Home Loan side. I think it's clear how in enhanced markets, agents can be helpful in making consumers aware of Zillow Home Loans. Where -- in terms of the other direction, people coming in, whether that's the viability calculator or otherwise, are you seeing a good flow from people who come in through the mortgage funnel and attaching them to an agent? And is that an opportunity you guys are focused on at this point? Jeremy Wacksman: Lloyd, I'll take this, and welcome back to the call. We think about them as more similar than different, to be honest. I mean you hit it right. If a consumer is interested in touring homes, whether that's virtual or booking a real-time tour and they start with an agent, making sure a Zillow Home Loans loan officer is ready for that agent and can be a choice for that customer, that's a big part of the growth. We can do that in enhanced markets, and that's how we're rolling out this formula is giving access to more and more agent teams, a Zillow Home Loans team for them to work with for us to earn their trust as one of their choices for Zillow Home Loans. But that works in reverse, right? So the set of customers that might be shopping financing or asking affordability questions, they're using viability, and that's a good proxy, right? So viability is up to now 2.9 million people have enrolled and used it and found their viability number. That's up from 2 million last quarter. Some of those folks are ready right away to go get preapproved. And we now have a digital preapproval they can do and a loan officer can help them, and that's the path they want to go down. But many of those folks end up doing that and then shopping. And so it really is not that separate funnel, right? So many of those viability customers just go tour. They're just a more high-intent customer, and they're more interested in Zillow Home Loans because they've started the process with us. And so it makes that conversation more natural for that agent to recommend Zillow Home Loans. So we see both those things kind of growing together over time. And if you just put the loan officer hat on, that's how a loan officer would think about it. These are just customers coming to Zillow. They're learning the financing answer, they're finding the home they want to buy and the loan officer is there to help nurture them along in partnership with the agent whenever they're ready and whenever they find the house. So for us, we will work on both products from a consumer experience standpoint, but they really are kind of 2 sides of the same coin more and more. Operator: Our next question will come from Dae K. Lee with JPMorgan. Dae Lee: First one for Jeremy Wacksman. Following up on your comments on the ChatGPT integration, I understand that mobile transition was an incremental for you guys. But with ChatGPT, there is kind of like an intermediary sitting between you and the consumers kind of helping you make that connection. So like when you view the consumer journey for users who start their home search in ChatGPT versus those who start directly on Zillow, are you seeing or are you expecting any differences in engagement or monetization potential? And do you expect these users to eventually come back directly to Zillow or continue engaging through ChatGPT? And I have a follow-up. Jeremy Wacksman: I mean I think it's really early to try and prognosticate how this all plays out. But I will say, if you think about like what framework could you use to think about that question, the actions you want to take in this category typically lend themselves to a very bespoke category experience. It's a very long-duration shopping cycle for a very large emotional asset where you have to make very almost regulated decisions and need regulated help to make that decision, right? If you're going to buy, you have to get in touch with an agent, you have to work with a loan officer or most people will do those things to make a very complicated financial decision. And the complications of the industry itself require a ton of local specific data and a ton of software to work through all those steps. So all of that to us says building GenAI into that platform is how we're going to make it easier, faster, better. Consumers are going to start and ask questions everywhere the way they always have. That's kind of, I think, where the -- does this feel like an app store or does this feel like a search engine question plays out. But once you start browsing and shopping, you ultimately raise your hand to want to transact and having a bespoke native kind of vertical experience is how most people are going to want to transact. They want this one-stop shop, and it's more about how can GenAI help enable that one-stop shop for them when they're ready. So we think about it as increased exposure. And we also think about it as like new ways to build that vertical experience because you now can interact with an intelligent piece of software that listens to you and remembers you and his patient. And so we're very excited to wire that up inside of Zillow. But that's why we're so excited about this. It's yet another way for us to start to build this more integrated transaction, which is what this category has desperately needed. Dae Lee: Got it. And then as a follow-up to Jeremy Hofmann. When you look at Zillow Pro and Zillow Preferred, like how should we think about like how that could change the monetization potential of your platform and profitability potential of your platform? And when you gave us an early view on 2026, does that early view include meaningful contribution from these products? Jeremy Hofmann: Yes, I'll take that. Thanks for the question. I would think about the $1 billion mid-cycle target in For Sale coming from Preferred. Pro is really on top of that. So I don't expect any meaningful changes to the way we monetize in Preferred. I think it's working quite well, and we expect to continue to roll it out steadily over the next couple of years as we march toward those targets. And then with respect to Pro, we don't expect it to be much of a contributor from a revenue perspective in 2026. We think 2026 is a year where we do a bunch of beta testing first half of the year, start to roll it out nationally second half of the year, but we're going to really focus on adoption and learning. And then ultimately, we have, I think, a really interesting opportunity to sell Pro over time and really expand our SAM. But 2026, I wouldn't be expecting huge revenue contribution. Operator: Our last question will come from Ryan McKeveny with Zelman. Ryan McKeveny: One on Showcase. So good growth and expansion of listing share. You also called out the AI-powered virtual staging rollout in 3Q. I guess any initial uplift you would say to the overall listing share based on the virtual staging? And I know that's early days, so maybe not. But maybe you could speak more broadly about virtual staging. And should we think of that offering as somewhat unique to the Showcase offering? Or could that be something of broader application over time? Jeremy Wacksman: Yes, Ryan, I'll take that. So on Showcase broadly, 3.2% of new listings, we feel great about. We're constantly testing ways to drive more adoption and how to help build it into the workflow of teams and agents that are working through listings. You're asking them to capture media differently in many ways. And so that's part of why so much of our tech focus is on how to make that easier. And then you're right to call out, we're also improving the product while we're growing adoption, right? So we added AI-powered virtual staging this quarter. We added SkyTour last quarter, which is this fantastic generative AI ability to fly around with all the drone media we capture. We've added listing dashboards. So we continue to add capabilities. With AI-powered virtual staging specifically, yes, we definitely could see that coming to more types of listings over time. I think we wanted to start with the listing experience where we have the native software built and learn and build from there. But over time, just like we want to see Showcase technology on more than 5% to 10% of listings over time, we've given you all that as intermediate-term targets. But the goal is really to create a more interactive listing experience on all listings. Photos and text are just not going to cut it. And that's what Showcase shows everybody, and that's why you're seeing the rapid growth of Showcase even in these early innings because this is just a better way for buyers to consume content. That's why buyers spend more time with it. That's why sellers and listing agents want it because ultimately, they're trying to get the homes sold faster and they're trying to win the next listing, and they can use Showcase to do both of those things. Ryan McKeveny: That's great. And then just one final one. A couple of questions ago, you were asked about the different mortgage funnels. You called out in the shareholder letter, the loan pre-approvals within Follow Up Boss. That sounds interesting. Should we think of that as kind of additive or new to the potential funnel on the mortgage side? Or is that more -- just a more efficient way of doing things that had historically been done seemingly in a different way? Any thoughts there would be great. Jeremy Hofmann: Yes. Thanks, Ryan. I'll take it. I would think of it as really just making the experience better for the shopper, the agent and the loan officer. It's a really nice integration. And if you think about what a shopper is looking to do, that shopper wants a really tightly coordinated team between its loan officer and real estate agent. And we think building functionality that helps that integration work in Follow Up Boss, which is where these agents tend to run their businesses is beneficial for all parties in the transaction. So that's the way I would be thinking about it. Operator: This completes the allotted time for questions. I will now turn the call back over to Jeremy Wacksman for any closing remarks. Jeremy Wacksman: Great. Thank you all for joining us today. We really appreciate your continued support. We are very excited for what's ahead and look forward to speaking with you again next quarter. Operator: Thank you for joining Zillow Group's Third Quarter Financial Results Call. This concludes today's conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to SiriusPoint Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, and a replay is available through 11:59 p.m. Eastern Time on November 14, 2025. With that, I'd like to turn the call over to Liam Blackledge, Investor Relations and Strategy Manager. Please go ahead. Liam Blackledge: Thank you, operator, and good morning or good afternoon to everyone listening. I welcome you to the SiriusPoint Earnings Call for the 2025 third quarter and 9 months results. Last night, we issued our earnings press release, 10-Q and financial supplements, which are available on our website, www.siriuspt.com. Additionally, a webcast presentation will coincide with today's discussion and is available on our website. Joining me on the call today are Scott Egan, our Chief Executive Officer; and Jim McKinney, our Chief Financial Officer. Before we start, I would like to remind you that today's remarks contain forward-looking statements based on management's current expectations. Actual results may differ. Certain non-GAAP financial measures will also be discussed. Management uses the non-GAAP financial measures in its internal analysis of our results of operations and believes that they may be informative to investors in gauging the quality of our financial performance and identifying trends in our results. However, these measures should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. Please refer to Page 2 of our investor presentation and the company's latest public filings with the Securities and Exchange Commission for additional information. I will now turn the call over to Scott. Scott Egan: Thanks, Liam, and good morning, good afternoon, everyone. Thank you for joining our third quarter and 9 months 2025 results call. The third quarter was another successful quarter of delivery for SiriusPoint. A strong underwriting performance, deliberately targeted growth, the announcement of 2 MGA disposals, Insurer, Reinsurer of the Year at the Insurance Insider U.S. owners and an upgrade to positive outlook from S&P, means there is a lot to be pleased about. Our ambition remains the same, keep building on the progress and momentum whilst targeting sustained levels of best-in-class performance. The third quarter was another step along the road on that journey, and we remain completely focused with no room for complacency. In terms of specifics, our core combined ratio of 89.1% delivered an 11% increase in underwriting income versus last year, aided in part by no catastrophe losses in the quarter. We achieved a strong operating return on equity of 17.9%, significantly ahead of our across-the-cycle 12% to 15% target range. More importantly, our year-to-date operating return on equity of 16.1% is still outperforming our range despite the heightened first half losses from the California wildfires and aviation. Therefore, we would not describe the first 9 months as being quiet as, in fact, our catastrophe losses are over $50 million higher than prior year. This puts our 16.1% operating return on equity into context and is an important proof point of the improvement in the quality of our earnings. In addition to our strong financial delivery, the third quarter also saw significant execution on the rationalization of our MGA investments. We announced agreements for the sale of our 100% stake in Armada and our 49% stake in Arcadian for combined total proceeds of $389 million, valuing them together at around 15x EBITDA. Upon closure of these deals, over $200 million of off-balance sheet value will be recognized in our book value, representing a per share increase of approximately $1.75. Finally, the quarter also saw our third outlook upgrade of the year with S&P upgrading our outlook to positive, joining the previous upgrades from AM Best and Fitch. We have added a new slide this quarter linked to delivery against our ambition to become a disciplined underwriter with a low-volatility portfolio. Slide 10 shows our combined ratio volatility against our peers over the past 2 years. This demonstrates the significant progress we have made in managing the volatility of our underwriting, both at an individual risk level and across the portfolio. We talk often about our disciplined approach to portfolio management of risk. And as you can see, since our turnaround and reshaping, we now rank amongst the top performers over the past couple of years. Our aim is to continue to build this track record. We have now delivered 12 consecutive quarters of underwriting profits and 18 consecutive quarters of favorable prior year development. I also want to spend a few moments talking about the strong top line momentum we have within the company. Gross premiums written grew double digit again in the quarter at 26% year-over-year. This is now our sixth consecutive quarter with a double-digit growth profile. This was driven in large part by strong growth within our Insurance & Services business and particularly from our Accident & Health, Surety and attritional Property books of business. In particular, I want to highlight our Accident & Health division. This business acts as a volatility shock absorber within the wider underwriting portfolio given its short tail and low volatility characteristics. It also boasts a long track record of high capital returns. Our Accident & Health division allows us to take disciplined risk in other areas that still remain within our guide rails to achieve a low volatility portfolio overall. It also has the added advantage of being less correlated to wider P&C pricing cycles. This division accounts for almost $1 billion of gross premiums written on an annualized basis and forms a significant part of our company. Elsewhere, within our Insurance & Services business, we are seeing strong growth from Surety, which, like Accident & Health, is less correlated to wider P&C pricing cycles. Premiums here are derived via the MGA distribution channel. Turning specifically to look at the premium we write via the MGA distribution channel. Again, we have included an additional slide in the quarter to share more details on our approach. Slide 13 focuses on the length of the relationship linked to the derived premium. In short, we are more careful with newer partners. Whilst they make up approximately 1/3 by number, they only make up 9% of our overall MGA premiums. We tend to have higher premium volumes with more mature partners, where we have gained greater historical experience. Around 90% of our overall portfolio comes from partners who we have had a relationship with for 3 years or more. We think this seasoning is an important part of our approach to risk taking. Our selection process, which declined around 80% of opportunities presented, seeks out partners who want to form deep long-term relationships. Looking at our existing relationships in the last year, we have continued writing business with 97% of the partners we have previously onboarded over a year ago. This demonstrates our ability to seek out those partners who we will work with on a long-term basis and those who share our underwriting and risk philosophies. In addition to our cautious approach to risk taking in the early days of a relationship, we also apply the same logic to our reserving. Under our risk-based approach to reserving, newer relationships are generally reserved above pricing projections to account for uncertainty from limited performance experience. Lastly, we have profit sharing features in place for around 87% of our MGA partners, driving alignment of interest linked to underwriting performance. Coming back briefly to the sale of our MGA investments. As I mentioned earlier, this quarter saw us reach agreements to sell 2 MGA investments, Armada and Arcadian. Importantly, we also signed long-term capacity deals with them both until 2030 and 2031, respectively, on existing economic terms. Armada, the most material to our book value, remains on track to close in the fourth quarter and Arcadian remains on track to close in the first quarter of next year. We reaffirm our commitment to a long-term ROE across the cycle target of 12% to 15% post these disposals. IMG is now our only 100% owned MGA, generating roughly $50 million of net service fee income on an annual basis. As a reminder, the carrying value on our balance sheet is $70 million. IMG is a key part of our wider Accident & Health ecosystem, generating around 25% of the Accident & Health underwriting division's premium as well as a healthy MGA margin in its own right. We are excited about the future of IMG and announced last week the appointment of a new CEO, Will Nihan, who joins us from Travelex. Finally, our capital remains strong, and our third quarter BSCR ratio improved to 226%, which is within our target range as we continue to deploy capital to support the organic growth opportunities of the business. Of course, we expect this to increase post the closing of the MGA transactions I have mentioned. As we think ahead on capital given these sales, we are taking a look at our capital stack and more specifically, our hybrid debt instruments. When we conducted the buybacks related to the CMIG shareholder agreement, we increased our leverage. Jim will cover this in more detail, but with the Series B Preference shares having a rate reset coming up in February '26, we have an opportunity to reduce leverage to pre-CMIG agreement levels whilst reducing our financing costs meaningfully. Before I pass across to Jim, I also wanted to highlight that last month saw the company earn another award, this time Insurer Reinsurer of the Year at the U.S. Insurance Insider Honors Awards. This follows our Program Insurer of the Year award, which we received in May at the Program Manager Awards. Whilst they don't mean anything in and of themselves, I think we can take them as further proof points of our progress. So I will finish where I always do. I'm incredibly proud of the team and the commitment, desire and determination they have shown again so far this year. As I reflect back on my third anniversary as CEO, our progress is strong, but it could not be done without our biggest asset, our people. I am grateful to all of them for what they have done and what they do every day, and I am excited about our future. Our collective aim is to continue our upward trajectory to become a best-in-class specialty underwriter. With that, I'll pass across to Jim, who will take you through the financials in more detail. James McKinney: Thank you, Scott. Turning to our third quarter results on Slide 16. In the third quarter and for the first 9 months of the year, we delivered excellent financial results on a consolidated basis and in each of our segments. Our diverse portfolio continues to showcase profitable premium growth with low volatility and highly attractive lines of business. At 89.1%, the core combined ratio is strong and broadly in line with the previous year. The combination of higher premiums, a strong core attritional loss ratio, lower expense ratio and no catastrophe losses produced core underwriting income of $70 million. This is an 11% increase from the third quarter of 2024 and our 12th consecutive quarter of positive income. These items are a testament to the team's strong execution, disciplined underwriting and focused capital management. Moving to net service fee income. We benefited from a 22% increase in year-over-year service revenues as well as net service fee income increasing 47% to $10 million. The investment result is $73 million. It includes the full impact of the actions taken during the first quarter to support our repurchase activities. Net investment income continues to benefit from a supportive yield environment, and we remain on track with our full year guidance of net interest income between $265 million and $275 million. Operating net income is $85 million. This excludes nonrecurring items such as foreign exchange losses. On a per share basis, this increased by 41% to $0.72. We previously referred to this metric as underlying net income, but have renamed it this quarter to better reflect the nature of this metric as the business moves past its repositioning history. Net income for the quarter was $87 million, a strong year-over-year improvement from $5 million last year. In summary, our third quarter results demonstrate our ability to profitably grow a low volatility portfolio and create meaningful value for all of our stakeholders. Moving to our 9-month results on Slide 17. Themes are consistent with the third quarter. Strong execution, disciplined underwriting and focused capital management is producing profitable growth. Gross written premium, net written premium and net earned premium grew 16%, 19% and 18%, respectively. Growth was particularly strong in the third quarter. We expect fourth quarter premiums to be more in line with the growth produced on a year-to-date basis. Common shareholders' equity increased $273 million to $2 billion, resulting in diluted book value per share ex AOCI growing 13% or $1.83 to $16.47. Moving to Slide 18 and double-clicking into our underlying earnings quality. Our underwriting first focus continues to deliver strong underlying margin improvement. The attritional combined ratio chart on the left-hand side of the page strips out the impact from catastrophe losses and prior year development as these inherently vary over time. We believe this metric is useful to examine the quality of our underwriting income. Our 90.9% core attritional combined ratio in the first 9 months of the year represents a 1.8 point improvement versus the prior year period of 92.7%. All facets of the ratio improved. The attritional loss ratio improved 0.9 points. The acquisition cost improved 0.2 points and the OUE improved 0.7 points. Important to note, we continue to benefit from scale from our earned premium growth. For the full year, we remain comfortable with our previously stated expense ratio expectation of 6.5% to 7%. The right-hand side provides a bridge from our underlying earnings quality to our core combined ratio. This displayed 3 points of favorable prior year development in the first 9 months, partially offsetting 3.5 points of catastrophe losses that relate entirely to the first quarter California wildfires. Turning to our Insurance & Services segment results on Slide 19. Gross written premium increased $186 million or 49% to $562 million in the quarter, driven by strong growth within all of our specialties. Year-to-date, gross written premium increased $367 million or 26% to $1.8 billion. The Insurance & Services segment achieved a combined ratio of 90.1%. This is a 2.3 point improvement from the prior year quarter. This was driven by a 2.3 point decrease in the loss ratio and a 2-point decrease in other underwriting expenses, partially offset by a 2-point increase in the acquisition cost ratio. The improvement is due to improving risk selection and a shift in business mix. Double-clicking on our Accident & Health book of business. A&H provides us with a stable source of underwriting profit and a strong double-digit return on capital. During the first 9 months of the year, premiums for this specialty grew 24% and now accounts for 45% of the segment gross written premium. For the areas we focus on, the pricing environment continues to meet our risk return requirements. We continue to see growth opportunities within this specialism. Turning to casualty. Year-to-date premiums have increased by 4%, driven by strong rate offset by decreased volumes. In the first half of the year, we allocated capital towards other opportunities that have more attractive underlying margins. Subsequently, in the third quarter, we saw growth opportunities within select general liability subclasses, Overall, there are many classes we remain cautious on due to pricing challenges, notably public D&O and commercial auto, where, as previously indicated, we have substantially reduced premium and exposure. In terms of casualty pricing, we continue to benefit from rate in excess of trend, particularly in excess casualty that has seen mid-double-digit rate increases. Our priority is the bottom line over top line. If conditions change, we will not be afraid to take decisive action to ensure appropriate underwriting margins. Other specialties continue to see strong growth, highlighted by Surety and Environmental. Both of these lines have seen strong year-over-year and quarter-over-quarter increases in premiums. Within Marine & Energy, rate trends are similar to those described in the second quarter. Cargo and haul generally saw single-digit rate decreases. Rates for marine liability are firmer, ranging from flat to low single-digit rises. Energy liability rates remain positive and averaged 5%. Last, premium for our Property specialty are strong on both a third quarter and year-to-date basis. This is driven by growth from our international business, where we are writing select opportunities mostly in the U.K. This business has a controlled volatility profile with a focus on lower limit residential and SME properties protected by XL reinsurance for larger events. Moving to our Reinsurance segment results on Slide 20. This quarter, gross written premium decreased by $5 million or 2% to $310 million. We saw growth in casualty, offset by a decrease in aviation premium with Property premium broadly flat. Trends were similar on a net written premium basis. On a 9-month basis, gross written premium increased by 1%, while on a net basis, premiums written decreased by 3%. The combined ratio for the quarter increased by 3.3 points to 87.9%. The result was driven by a 1.2 point improvement in the acquisition cost ratio, offset by a 4.4 point increase in the loss ratio, largely the result of decreased favorable prior year development. Double-clicking into casualty reinsurance. Gross written premium increased 7% in the quarter. It is down 2% for the 9 months. Casualty reinsurance continued to benefit from positive rate that exceeded trend. Aligned with our fourth quarter 2024 guidance, we reduced exposures on structured deals and certain casualty classes at 1/1. This is a result of underwriting discipline and our ability to allocate capital to the best opportunities. Other specialties saw gross written premium decreased by 10% this quarter. Year-to-date, we are up 6%. The reduction is the result of reduced aviation premium. We remain cautious on this specialty as we seek further rate increases to achieve rate adequacy, particularly with major airlines. A majority of major airline renewals occur in the fourth quarter. Our capital allocation to this area will depend on rate achieved and price adequacy. Elsewhere in other specialties, credit and bond pricing continues to be pressured stemming from favorable historical results and ample market capacity. Within property reinsurance, premiums were flat in the quarter with softening in excess of loss largely offset by an increase in demand for surplus relief via quota share. Here, carriers are driving additional demand, specifically for secondary perils coverage, following market expansion resulting from the improved market conditions and regulatory environment. For the first 9 months, premiums are roughly flat with reinstatement premiums from the California wildfires offsetting premium reductions. We will continue to monitor rate adequacy in property reinsurance and be disciplined capital allocators. Slide 21 shows our catastrophe losses versus peers and the reduction in the volatility of our portfolio. Following portfolio actions taken in 2022, we have materially decreased our catastrophe exposure in order to deliver more consistent returns to our shareholders. The charts show how we reduced our catastrophe losses in 2023 and '24 and have continued on this path in 2025. Catastrophe losses in the first 9 months represent 3.5 points of our combined ratio and were largely driven by the first quarter California wildfires. We have a comparatively low loss ratio, demonstrating the benefits of our diversified portfolio. I would like to take a moment on behalf of all of SiriusPoint to send our thoughts to all those who have been affected by Hurricane Melissa earlier this week. At present, we expect this to be a manageable loss with our net exposure in the affected regions around $10 million. Moving to reserving. Our strong history of prudence is shown on Slide 22. Favorable prior year development in the quarter stood at $9 million for the core business versus $30 million in the prior year quarter. It is important to consider our consolidated result here as this includes the business we have put in runoff. We had favorable prior year development on a consolidated basis of $9 million, marking the 18th consecutive quarter of favorable prior year development. Our track record of consecutive favorable releases well exceeds the average duration of our insurance liabilities of 2.8 years, highlighting our prudent approach to reserving. Additionally, we show here the strong level of protection we have on each of these loss portfolio transfers that were completed in 2021, 2023 and 2024. Turning to our strong investment result on Slide 23. Net investment income for the first 9 months of the year was $206 million, down slightly from the prior year period as a result of a lower asset base following the settlement of the CM Bermuda transaction in the first quarter. We reinvested over $900 million this quarter with new money yields continuing to be in excess of 4.5%. The portfolio continues to perform well, and there were no defaults across our fixed income portfolio. We remain committed to our investment strategy, which focuses on high-quality fixed income securities. 83% of our investment portfolio is fixed income, of which 99% is investment grade with an average credit rating of AA-. Our overall portfolio duration remained at 3.1 years, while assets backing loss reserves remain fully at match and are at 2.8 years. Moving on to Slide 24, looking at our strong and diversified capital base. Our third quarter estimated BSCR ratio increased 3 points to 226%. Our capital position remains strong and contains sufficient prudence as shown by the stress test scenario of a one in 250-year PML event. Moving on to our balance sheet on Slide 25. We continue to have strong balance sheet with ample capital and liquidity. During the quarter, the debt-to-capital ratio fell to 23.6%, driven by an increase in shareholders' equity from net income offset by weakening of the U.S. dollar-Swedish krona exchange rate, increasing the value of our debt issued in corona. Our debt-to-capital levels remain within our targets. We continue to have strong liquidity levels, including $662 million of liquidity available to the holdco following the final payment of $483 million to CM Bermuda in the first quarter. As a reminder, in the first half of the year, both AM Best and Fitch revised our outlook to positive from stable, whilst Moody's and S&P affirmed our ratings. During the third quarter, S&P also revised our outlook to positive from stable. We believe our balance sheet continues to be undervalued in relation to the consolidated MGAs, which we own. During the quarter, we announced the sale of Armada, which will increase book value by roughly $180 million upon close. We also announced the sale of our 49% stake in Arcadian. This will increase book value by roughly $25 million to $30 million upon close. Following the sale of these MGAs, we reaffirm our commitment to producing 12% to 15% ROE across the cycle. We expect to use the proceeds to redeem the $200 million of preference shares that we have outstanding at their upcoming rate reset. On a pro forma basis, using the proceeds from the sale to redeem the preference shares would reduce our leverage ratio, including preference shares from 31% to 24%. This will enhance our credit profile and reduce our cost of debt. With this, we conclude the financial section of our presentation. This quarter saw a continuation of strong double-digit growth in our top line, while delivering a core combined ratio in the high 80s that contains continued attritional loss ratio improvement. This is our seventh consecutive quarter of attritional loss ratio improvement. Operating return on equity for the quarter of 17.9% contributes to a 9-month operating return on equity of 16.1%. We are on track to deliver another year with a strong return on equity at or above our 12% to 15% across the cycle target. We have built a strong track record of delivery, and this quarter's result further validates the significant progress we have made on our journey to becoming a best-in-class specialty underwriter. With that, I hand the call back over to the operator. We can now open the lines for questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Phillips with Oppenheimer & Company. Michael Phillips: First of all, congrats on the quarter, and I appreciate the slide -- the new slide, Slide 13, is nice to see. I'm so glad you guys added that. Question on, I guess, insurance and kind of to Jim's last couple of comments on the attritional loss ratio improvements. You've taken it nicely down from mid-60s to now teasing 60, low 60s. And I assume part of that -- a good part of that is because of the mix shift in the company in that segment. I guess, so as we think about continued probably mix shift A&H, Surety and different things that you're really growing in and think about that line item for the attritional accident year loss ratio, it seems like are we teasing to get below 60% as we look forward is the question. Scott Egan: Michael, thanks very much for the question, and thanks for your comments at the beginning as well. Jim, you can jump in a second as well. Look, I think, Michael, the way I think about it is, obviously, we've done a lot of the hard work over the past few years, which was really reshaping the portfolio. Obviously, because of the profile of our distribution, sometimes when we win a new MGA relationship, that can see things sort of move. But I wouldn't expect any material movements, if I'm honest with you, as we sort of look out and over. Our ambition is always to reduce it, obviously, all of our ratios. But obviously, we have to take into account the environment as well. So I would say, look, it's more sort of now, Michael, to be honest, rather than sort of incremental moves. But obviously, if that mix shift changes because we are making decisions or because we win sort of new relationships, then obviously, we'll be very clear in our guidance. But Jim, do you want to add anything beyond what I've said? James McKinney: No, I think that's well said. I think at this stage, we're likely -- it's a mix shift element. What would be clear is our targets from an ROE perspective and our commitment that we're earning appropriate returns on the deployment of capital. And so I would think about us continuing to optimize and to grow that as the real focus point. Scott Egan: And Michael, I'd just come back to that as well because one of the things, for example, in something like reinsurance as we look into some of the more structured products, if that mix shift changes, obviously, you can be quite a shift in terms of sort of loss ratio, acquisition cost, et cetera. But look, for us, we'll go after where we think there's the most value. If we pull back in certain areas, we'll be very clear on what and why, but always with good first principle, which is number one, underwriting principle. And I think Jim captured it perfectly for me, which is, look, we think of it holistically in ROE and don't just sort of pull one particular lever, and we can sometimes see value in different areas, which obviously would shift between acquisition cost and loss ratio. And obviously, OUE, much smaller number. But ultimately, we've made great progress in that over the last few years. So look, we'll be as transparent as we possibly can be. And look, hopefully, the slides helped a bit as well, and thank you for your comments in that regard. Michael Phillips: I guess given the pretty significant jump in insurance growth this quarter, I know last year is when I think you took out $90-some million. So I know we're apples-to-apples from this year to last year. But just help us think about how we can, I guess, model the premium growth going forward. Was there any anomalies in this quarter in either A&H or Surety that kind of led to the pretty significant growth this quarter? Scott Egan: Not anomalies. I definitely wouldn't describe them as that, Michael. I mean what can happen, obviously, is we can win new relationships. And obviously, that can impact it. Obviously, we've tried to be clear over the last few quarters, I hope, where we can say we've been sort of leaning into. So I think you can see the difference between our gross growth and our net written growth. And obviously, there's a linkage to the earned premium, which is still to come, which I think is the point that Jim often makes. So look, I think what you could expect subject to market conditions, profitability and a few other assumptions is our ambition is to make sure that we seize the relationships that we bought in, in the 1- to 2-year segment on the pie chart. But obviously, that will be subject to us being satisfied with the sort of underwriting performance and obviously, market conditions, but I think that's effectively what we would be looking into. There's not really any anomalies per se. But Jim, do you want to add anything? James McKinney: Yes. I would just say, Michael, maybe just thinking a little bit about trends, as Scott indicated, no anomalies from a quarter perspective or in a year-over-year that you'd take a look at. It's been a pipeline that has been growing and the strength of our relationships have been growing that have enabled what we've seen from a quarter growth perspective. I would highlight, and we tried to call this out, when I think about what growth might be, for example, in the fourth quarter, we're thinking that it will be much closer to what we experienced maybe year-to-date, recognizing that the fourth quarter tends to be or sometimes is a little bit slower than maybe kind of what your first quarter or some of the other quarters might be from just an overall kind of seasonality perspective and just where we see policies being written. Michael Phillips: And that comment was more on insurance, correct, just to be clear. James McKinney: Yes, it was. Operator: [Operator Instructions] We'll pause a moment to allow for any other questions. Mr. Blackledge, there are no other questions at this time. I'll turn the floor back to you for final comments. Liam Blackledge: Thank you, everyone, for joining us today. If you have any follow-up questions, we will be around to take the call, or you can e-mail us on investor.relations@siriuspt.com. Thank you for your ongoing support, and I hope you enjoy the remainder of your day. I will now turn it back over to the operator to wrap up the call. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. Third Quarter 2025 Financial and Operating Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead. Brian Ector: Well, thank you, Michael. Good morning, and welcome to Baytex's Third Quarter 2025 Earnings Call. I am joined today by Eric Greager, our President and Chief Executive Officer; Chad Kalmakoff, our Chief Financial Officer; and Chad Lundberg, our Chief Operating Officer. Before we begin, please note that our discussion today contains forward-looking statements within the meaning of applicable securities laws. I refer you to the advisories regarding forward-looking statements, oil and gas information and non-GAAP financial and capital management measures in yesterday's press release. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. And after our prepared remarks, we'll open the call for questions from analysts. Webcast participants can also submit questions online. With that, let me turn the call over to Eric. Eric Greager: Thanks, Brian, and good morning, everyone. Q3 was a strong quarter for Baytex. We delivered record production in the Pembina Duvernay, generated robust free cash flow, supported by the strength and reliability of our Canadian heavy oil and U.S. Eagle Ford operations and made further progress on debt reduction. Pembina Duvernay set a new quarterly production record averaging just over 10,000 BOE per day, driven by strong well performance from the third pad we brought on stream in September. We also completed a land swap to consolidate our Southern Duvernay acreage and commission new gathering and midstream infrastructure with Gibson Energy, both of which will support more efficient development as we scale up. Our heavy oil and Eagle Ford assets continued to deliver steady volumes and strong cash flow. Heavy oil production grew 5% quarter-over-quarter, while volumes in the Eagle Ford were up 3%. Commodity prices remained soft in the third quarter with WTI averaging approximately USD 65 per barrel, but our strong operational execution and cost discipline enabled us to generate $143 million in free cash flow and reduce net debt to $2.2 billion. With that, I'll turn the call over to Chad Kalmakoff to discuss our financial results. Chad Kalmakoff: Thanks, Eric. Third quarter financial results were solid. Adjusted funds flow was $422 million or $0.55 per basic share. Net income for the quarter was $32 million, and we generated $143 million in free cash flow after $270 million in exploration and development expenditures. We returned $17 million to shareholders through our quarterly dividend and reduced net debt by $50 million, bringing net debt at quarter end to $2.2 billion, as Eric noted. Our financial position remains strong. We have significant financial liquidity with over $1.3 billion in undrawn credit capacity on our credit facilities and our first note not maturing until April 2030. Our capital allocation framework remains unchanged. 100% of our free cash flow is directed to debt repayment after funding our dividend. Based on year-to-date results and the forward strip for Q4, we now expect to generate approximately $300 million in free cash flow for 2025. This compares to our previous forecast of $400 million, with the change largely attributed to lower commodity prices during the second half of the year. There is no change to our production guidance, and we expect to reach $2.1 billion of net debt at year-end. I'll pass it on to Lundberg -- Chad Lundberg to provide more details on our operating results. Chad Lundberg: Thanks, Chad. We saw strong operating performance in Q3. Production averaged 151,000 BOE per day, with liquids making up 86% of the mix. We invested $270 million in exploration and development and brought 69 wells on stream, keeping us on track with our plan. In the Pembina Duvernay, production averaged 10,200 BOE per day, up 53% from last quarter. The third pad from our 2025 program came online in September with 2 wells delivering strong 30-day peak rates averaging 1,300 BOE per day per well. The third well encountered casing issues during completion and was subsequently abandoned. We are committed to accelerating full commercialization of the asset, targeting 18 to 20 wells per year by 2027 and ramping production to 20,000 BOE per day by 2029. In addition to our progress in the Duvernay, we continued to expand our heavy oil platform. Heavy oil averaged 47,300 BOE per day, up 5% from Q2. We brought 20 net wells on stream and expanded our core land base in Peace River and northeast Alberta. Our heavy oil inventory now totals approximately 1,100 locations, supporting approximately 10 years of drilling at our current pace. Eagle Ford production remained steady at 82,800 BOE per day, with oil production up 3% from last quarter. We brought 15.6 wells on stream while achieving a 12% improvement in drilling and completions costs. We continue to see strong results from the refracs completed last quarter. Those wells are performing in line with expectations and are informing our plans for an expanded refrac program in 2026. Overall, operational execution across the asset base remains strong, underpinned by our commitment to health and safety of our workers and the communities in which we operate. Let me turn the call back to Eric for his closing remarks. Eric Greager: Thanks, Chad. Our third quarter results demonstrate Baytex's ability to create value across commodity price cycles. The Pembina Duvernay continues to drive our Canadian growth potential, bolstered by recent consolidation efforts and infrastructure advancements that support future development and operational flexibility. At the same time, our heavy oil and Eagle Ford assets continue to deliver reliable results and cash flow. Our capital discipline and our consistent performance demonstrate our ability to execute through market volatility, maintain financial flexibility and position our company for long-term value creation. Brian, back to you. Brian Ector: All right. Thanks, Eric. Before we open the line for questions, I want to address the recent news reporting regarding our U.S. Eagle Ford assets. As a matter of policy, we do not comment on speculation. Our focus remains on consistent operational execution, capital discipline and maximizing value. We ask that analysts' questions remain focused on our third quarter results and published guidance. And operator, we're now ready for questions. Operator: [Operator Instructions] First question comes from Phillips Johnston with Capital One. Phillips Johnston: My first question is on the $24 million of acquisitions that you executed here in Q3. I'm guessing that was spread out across the 3 areas mentioned in the release. Should we assume that -- I guess, the question is, was there any material production that came with the transactions? Or was it all undeveloped acreage? Eric Greager: Phillips, it's Eric Greager here. Thanks for the question. It was all undeveloped land, focused in the Ardmore area, that's Cold Lake oil sands Mannville stack development; in the Peace River oil sands Pekisko area, that one is quite a bit bigger. So the Ardmore was about 4.5 net sections, and the Peace River oil sands at Pekisko area, about 40.5 net sections. That's in the heavy oil business. And then, in Spartan, likewise, focus just -- sorry, in Pembina Duvernay, likewise, it's just our areas in the South in what we call Gilby, and that was an area that was prior checkerboarded. Phillips Johnston: Okay. Great. Makes sense. And as you mentioned, we saw a nice uptick in your heavy oil production. It was up 7% in Q2, and then, up another 5% or so here in Q3, and that was after 3 sequential quarterly declines. Can you talk about what's driven that growth? And what we should expect for Q4 and into 2026? Eric Greager: Yes. It's a little early for 2026, but what I would say is we continue to execute the 2025 plan. It's really been, but for the change we made in May after -- in April, May, after Liberation Day after our Q1 announcement, it's really been executing our plan. So we lay out our capital profile based on breakup and anticipation of some breakup impacts to access. And if breakup is light, then that creates optionality in the plan. But we're really simply executing the plan, and we're seeing stronger performance across all of the assets really based on the capital investments we're making. So it's really steady execution of the plan, Phillips, with a little bit better performance than maybe we had originally communicated to the market, which is pretty consistent with our conservative guidance style. Operator: And your next question comes from Luke Davis with Raymond James. Luke Davis: Doing some good work in Canada. I'm wondering if can you just provide some parameters sort of by asset in terms of what you expect those to look like, say, over the next 3 to 5 years. And have you kind of contextualized that in the current commodity price environment versus something a little bit more favorable, call it, mid-cycle price? Eric Greager: Sorry, what assets did you say? Brian Ector: Canadian, general. Eric Greager: Okay. Yes. Luke, it's Eric again. Yes. So look, I think 2026 commodity pricing is anyone's guess, but if things go into the 50s, we're probably looking at a plan that is more conservative. That is what you would expect, and I think what any producer of a commodity would do, something that's probably closer to flat. If prices move higher toward mid-cycle through 2026 and into 2027, then naturally, we would lean in because there's a lot of value to pull forward for shareholders. I'm sure that's what you would expect me to say. The assets are just performing really well. I mean, we've got strong geology teams working all across our heavy oil fairway, the engineering teams and our long history across our large heavy oil fairway means the hit rate is pretty good on exploration and development. And in Duvernay, it's just been a really strong year in terms of fracture complexity, completion uniformity, well performance on the whole, and we couldn't be more pleased with the results across our Duvernay as well. So across the Canadian portfolio, it just feels really good. Our Viking assets run steady and flat and are extremely reliable in terms of their input and output factors. So that's the way I would characterize it. Luke Davis: All right. That's helpful. I'm wondering also if you could just dig into the Duvernay a little bit more. Well performance looks very good. I'm wondering if there's anything that you can tweak going forward, and how you'd expect sort of the productivity parameters to change? And then, you did abandon 1 well, so I'm wondering if you can just flesh out some of the issues you had and maybe some learnings coming out of that. Eric Greager: You bet, Luke. I'm going to pitch it over to Chad Lundberg here for that one. Chad Lundberg: Great. Thanks. Two parts to your question, so I'll address the hole first. This was an issue that resulted from the construction of the well really on the upfront drilling. So it's something to do with the casing and the cement. We believe it's an isolated incident and that we will have it resolved for our programs forward. So I think that's the key thing is we believe it's isolated, and go forward, we've figured it out. Your second question, just on Duvernay performance, so yes, year-over-year, we've seen a strong improvement in IPs. As everybody knows, we're curiously declining the wells to try to understand how that relates to EURs. We think we have a high chance of seeing an improvement in EURs as well. When you really think about how we constructed this year, we're trying to understand completion efficiency and just our ability to deliver sand and energy into the formation. We think we made big strides this year and that, that some of these results are a direct result of that. As we think about programs forward, we're not done. And I don't know if we'll ever be done. These things are a continuous improvement cycle. But we do have more improvements that we're working through at this point in time that we're excited to deploy through 2026 and see where the results take us. Operator: This concludes the question-and-answer session from the phone lines. I'd like to turn the conference back over to Brian Ector for any questions received online. Brian Ector: Thanks, Michael. We had a couple of questions come in on the webcast, but I do believe they've been addressed through the analysts' Q&A already. So I think with that, we are going to wrap up today's call. I'd like to thank everyone for joining. And thanks again for your time, and have a great day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning, and welcome to the Reinsurance Group of America Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jeff Hopson, Senior Vice President, Investor Relations. Please go ahead. J. Hopson: Thank you. Welcome to RGA's Third Quarter 2025 Conference Call. I'm joined on the call this morning by Tony Cheng, RGA's President and CEO; Axel Andre, Chief Financial Officer; Leslie Barbi, Chief Investment Officer; and Jonathan Porter, Chief Risk Officer. A quick reminder before we get going regarding forward-looking information and non-GAAP financial measures. Some of our comments or answers may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ from expected results. Additionally, during the course of this call, the information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation and quarterly financial supplement, all of which are posted on our website for a discussion of these terms and reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation, which again is posted on our website. And now I'll turn the call over to Tony for his comments. Tony Cheng: Good morning, everyone, and thank you for joining us. I am delighted to share that we have had a very strong third quarter, as demonstrated by the continued successful execution of our strategy as well as the record financial performance we delivered. Let me open with a few key highlights. Firstly, we reported record operating EPS, excluding notable items, of $6.37 per share. These results were strong and above expectations. We had excellent performance overall with particularly good results in Asia Traditional and EMEA and U.S. Financial Solutions. Our diversified global platform continues to deliver significant long-term value. Secondly, we are seeing a positive contribution from the Equitable transaction, which closed this quarter. Thirdly, new business momentum remains strong, as evidenced by our premium growth and capital deployment into in-force transactions. We are seeing good year-to-date contributions from across our geographies. Our competitive advantages continue to differentiate RGA, leading to good new business results, a robust pipeline and the ability to be selective on the opportunities we pursue. Next, during the quarter, we repurchased $75 million of common shares. We will continue to balance investing our excess capital into the business and returning it to shareholders in a manner that allows us to execute our strategy and meet our financial targets over time. Finally, we continue to make progress on other strategic initiatives, including the utilization of Ruby Re and the successful execution of in-force management actions. All of these position us for continued long-term success. Let me now provide a few more details on the quarter, including highlights from across our regions, starting with North America. We continue to exceed our new business targets for the traditional business, driven by our strong underwriting capabilities. We closed a significant number of new deals in the quarter and reached a record number of underwriting applications. One of these deals was an enhancement of our strategic underwriting program with a digital solution that enabled us to partner exclusively with a key client that has a strong brand and a large distribution footprint. These initiatives differentiate RGA and represent an increasing portion of our U.S. business. This is yet another example of what RGA has done for over 50 years and continues to do its best, which is to be innovative and the leader in underwriting. Also, as indicated, the Equitable transaction closed in the quarter, and we recorded a full quarter of earnings in this period. Results were in line with our expectations. The asset portfolio repositioning is progressing as planned, and our previous guidance on the expected future earnings remains unchanged. Along with the financial gains, the partnership is yielding strategic benefits through increased underwriting services, product development, asset management and participation in our Ruby Re sidecar. The depth and breadth of this partnership is one example of the win-win opportunities for the benefit of both RGA and our clients. Moving to Asia Pacific. The region continues to perform very well. Traditional results were particularly strong this quarter, continuing its trend of excellent growth and bottom line results. We continue to delight our clients by staying at the forefront of innovation and helping them navigate evolving strategic needs. Our strategy in Hong Kong is to deliver holistic solutions combining product development, capital solutions and technology-enabled underwriting capabilities. We recently won the prestigious Hong Kong Federation of Insurers' Outstanding Reinsurance Scheme Award. Recognizing one of these holistic solutions. We expect this to lead to repeat transactions of this nature in Hong Kong. In addition, we've been able to leverage these strengths across the region. This was best demonstrated in Mainland China where recent regulatory changes allow participating critical illness products like the ones in Hong Kong to be sold. RGA co-developed a first of its kind critical illness combination product, and early sales performance has been strong. In Korea, RGA remains the market leader in product innovation. Building on the success of last year's cancer treatment product, which launched with 19 clients, we introduced the second-generation version of this product, and our clients have already sold over 1 million policies, demonstrating the strong market demand. Finally, in the EMEA region, RGA remains a clear market leader, and Q3 results reflect that. We successfully closed multiple transactions across the region and across a range of product lines. The strong client satisfaction from RGA executing on our promises will lead to repeat opportunities. In addition, we closed a market-first transaction in Switzerland. This follows our success in Belgium last year in a similar market first and shows Continental Europe is opening up to asset-intensive reinsurance. I firmly believe we are best positioned in this market, and our innovation will continue to drive growth in the region. Reflecting on the activity from across the globe, I am very pleased with our Traditional business results. Traditional business premiums are up 8.5% year-to-date on a constant currency basis, with good growth across regions and we can rely on this business year in, year out, giving us a strong foundation for continued earnings growth. Now with regards to transactions, we have deployed $2.4 billion of capital year-to-date. This comprised of $1.5 billion into the Equitable transaction and $900 million of capital into over 20 other transactions spread around the globe. These are high-quality transactions that don't always make headlines due to their more modest size, but are equally important as they form a regular base of business that we can also rely on year in, year out. They leverage our long-standing client relationships, our strength in biometric risk and often our repeat transactions that are well within our sweet spot. As you can see from these examples, the new business success in all 3 regions are the result of our now well entrenched Creation Re business approach. This approach proactively provides holistic and innovative solution, leveraging our competitive advantages and often leads to exclusive and repeat business. Over the past 2 years, this approach has driven expected lifetime returns of all new business across the company above our target range. Looking forward, our new business pipeline is strong across all 3 regions, and we will continue to select the best opportunities based on our expected returns, risk appetite and other strategic considerations. Another highlight is that the value of in-force business margins increased by 16% over the past 3 quarters. This is a measure of our efforts to create long-term value through new business and other management actions and indicates our success in building a sustainable and successful future. Finally, it is very gratifying that we can provide an attractive combination of organic growth and are in a strong capital position that enables us to fulfill our healthy pipeline and return a meaningful amount of capital to shareholders. So to sum up, we have had an excellent third quarter with many highlights. We are well positioned in the right markets with the right teams executing with the right strategies and have full confidence that the best is yet to come. I will now turn it over to our CFO, Axel Andre, to discuss the financial results in more detail. Axel Philippe Andre: Thanks, Tony. RGA reported pretax adjusted operating income, excluding notable items, of $534 million for the quarter or $6.37 per share after tax. For the trailing 12 months, adjusted operating return on equity, excluding notable items, was 14.2%. Results were strong this quarter and above expectations. Momentum across our business remains good, and we saw notable strength in Asia Traditional and EMEA and U.S. Financial Solutions. As Tony mentioned earlier, we closed the Equitable transaction and recognized a full quarter of income. Results for the block continue to be in line with expectations. As a reminder, this block is expected to have a highly diversified sources of earnings, split roughly between fee income, underwriting margin and investment spread. This is one of the reasons the transaction was so attractive to us. Given the diversified sources of earnings, this is immediate earnings impact as well as incremental ramp-up as some of the assets are repositioned. The portfolio repositioning is on track and was approximately 75% complete at the end of the quarter. The remainder will occur over the next 6 to 9 months. During the quarter, we deployed $233 million of capital into in-force transactions in addition to the previously announced $1.5 billion into the Equitable transaction. We also completed $75 million of share repurchases at an average price of $184.58. Our capital position remained strong, and we ended the quarter with estimated excess capital of $2.3 billion and estimated deployable capital of $3.4 billion. The effective tax rate for the quarter was 19.6% on adjusted operating income before taxes, below the expected range of 23% to 24%, primarily due to the jurisdictional mix of earnings. We still expect a tax rate of 23% to 24% for the full year. Our Traditional business premium growth was 8.5% year-to-date on a constant currency basis, which has benefited from strong growth in the U.S., EMEA and APAC. Premiums are a good indicator of the ongoing vitality of our Traditional business, and we continue to have strong momentum across our regions. Turning to biometric claims experience, as outlined on Slide 9 of our earnings presentation, Economic claims experience was favorable by $5 million in the quarter, primarily driven by APAC and Canada, partially offset by the U.S. Traditional segment. The corresponding current period financial impact was unfavorable by $50 million. Claims experience in U.S. individual life and group were modestly unfavorable. As discussed last quarter, our expectation was that the group business overall will be approximately breakeven for the second half of the year, and that remains true. Over the longer term, economic claims experience for the total company has been favorable by $277 million since the beginning of 2023 when we more fully emerged from COVID. As a reminder, the favorable economic experience that has not been recognized through the accounting results will be recognized over the remaining life of the business. I'll now make a few comments on the notable items reported in the period, which relates to the results of our annual actuarial assumptions review, the overall economic impact of the assumptions update is positive from a long-term value perspective and future run rates. As presented on Slide 7, the impact is split into 2 components: a negative $149 million current period impact due to LDTI cohorting and a positive $600 million impact to long-term value. Said another way, if LDTI did not exist, the total impact is a benefit of $450 million. These updates will increase annual run rates by $15 million, gradually increasing to $25 million annually by 2040. Moving to the quarterly segment results on Slide 6. The U.S. and Latin America Traditional results reflected modestly unfavorable claims experience, partially offset by the favorable impact from in-force management actions. In our group business, as mentioned, results were approximately breakeven and in line with our updated 2025 expectations, and the block will be fully repriced by January 2026. The U.S. Financial Solutions results reflected the contribution from the Equitable transaction, partially offset by lower variable investment income. The results from the Equitable block were in line with expectations. For the full year, we still expect this transaction to contribute around $70 million of pretax income, increasing to $160 million to $170 million in 2026 and approximately $200 million per year by 2027. Canada Traditional results reflected unfavorable group experience, partially offset by favorable individual life claims experience. The Financial Solutions results in Canada were in line with expectations. In the Europe, Middle East and Africa region, the Traditional results reflected favorable underwriting margins. EMEA's Financial Solutions results reflected favorable longevity experience and continued growth in the segment. This segment continues to be a bright spot for us. Turning to our Asia Pacific region. Traditional had another good quarter, reflecting favorable claims experience and the benefit of ongoing growth. This segment continues to perform at a high level, a reflection of our excellent competitive position and our execution of value-added solutions to clients. Financial Solutions results were in line with expectations with a modest unfavorable impact from lower variable investment income. Finally, the Corporate and Other segment reported an adjusted operating loss before tax of $58 million, unfavorable compared to the expected quarterly average run rate. This was primarily due to lower variable investment income and higher general expenses. Moving to investments on Slides 10 through 13. The non-spread book yield, excluding variable investment income was slightly lower than Q2, primarily due to higher levels of cash for part of the quarter. The new money rate remains well above the portfolio yield, providing a tailwind to our overall book yield. Total variable investment income was below expectations by around $40 million, primarily due to lower real estate joint venture activity. Overall, our portfolio quality remains high and credit impairments are better than expectations for the year. Notably, we have zero direct exposure to the recent auto sector bankruptcies. Turning now to capital. Our excess capital ended the quarter at an estimated $2.3 billion and our deployable capital was an estimated $3.4 billion. It's important to note that we manage capital through multiple frameworks, including our internal economic capital, regulatory capital and rating agency capital. From a regulatory lens, we maintain ample levels of regulatory capital in the jurisdictions where we operate. Also, our strong ratings are important to our counterparty strength. Thus, we manage our rating agency capital to support these ratings. On a holistic basis, considering all capital frameworks, we are well capitalized. In the quarter, we successfully retroceded a midsized block of U.S. PRT business to Ruby Re and we are actively working on additional retrocessions. We still expect the vehicle to be fully deployed by the middle of 2026. Looking ahead, we will balance capital deployment into the business with returning capital to shareholders through quarterly dividends and share repurchases. Our intention remains to be opportunistic with share repurchases quarter-by-quarter, depending on our capital position, a forward view of our transaction pipeline and valuation metrics. Over the longer term, we expect total shareholder return of capital through dividends and share repurchases to range between 20% to 30% of after-tax operating earnings on average, consistent with our long history. During the quarter, we continued our long track record of increasing book value per share. As shown on Slide 17, our book value per share, excluding AOCI and impacts from B36 embedded derivatives increased to $159.83, which represents a compounded annual growth rate of 9.7% since the beginning of 2021. Moving to Slide 18. We provided an update on the value of in-force business margins, which significantly increased since the end of 2024, reflecting the very strong new business momentum. Overall, we believe this is an additional lens through which to assess the long-term earnings power of our business that will emerge over time, and we are pleased with the results. All in all, this was a great quarter with strong operating results. In addition, we continue to advance many strategic objectives. Our long-term strategy remains well on track, and we are confident in our ability to deliver on our intermediate-term financial targets. We continue to see very good opportunities across our geographies and business lines and remain well capitalized to execute on our strategic plan. We also believe we are in a position to return excess capital to shareholders through dividends and share repurchases. With that, I would like to thank everyone for your continued interest in RGA. This concludes our prepared remarks. We would now like to open it up for questions. Operator: [Operator Instructions] And your first question today will come from Wes Carmichael with Autonomous Research. Wesley Carmichael: First one was just on the U.S. claims activity in Traditional in the quarter. Just wanted to see if you would unpack current experience, if that's just normal volatility in your view, if there's any onetime-ish kind of items in there. Axel Philippe Andre: Yes, Wes. Thanks for the question. On the U.S. Trad side, so we had about $30 million of claims experienced from -- of negative claims experience on the individual life side, that's really kind of normal volatility. If you look at it on a historical basis, it's well below a standard deviation. So frankly, modest noise there. And then on the group side, as indicated last quarter, and consistent with the expectations that we had set, we had about a $20 million negative experience. Wesley Carmichael: Got it. And maybe sticking with that segment, U.S. Traditional in the current quarter. Were there any onetime items that impacted premiums? It looks like premium growth was a little bit softer there than the rest of the enterprise. And if so, what was kind of the underlying growth rate there? Axel Philippe Andre: Yes. So on the U.S. premium side, so in the quarter, we had an in-force action, so a recapture of a treaty, which resulted in a positive impact to the results of about $20 million. And so the flip side of that is that we didn't record the premiums that we would have got from that treaty. And so that's really the main driver for the reduction in premiums. Operator: And your next question today will come from John Barnidge with Piper Sandler. John Barnidge: There was a recent report in September from Swiss Re suggesting a mortality reduction from GLP-1 drugs of up to 6.4% in the U.S. and 5.1% in the U.K. How soon would it make sense to maybe recognize that benefit either on pricing or in your assumptions? Jonathan Porter: John, thanks for the question. This is Jonathan. So we haven't made any material changes to our assumptions due to anti-obesity medication, but the benefits from these medications have increased our confidence that our existing mortality improvement assumptions will be realized in the future. We've done some significant modeling and analysis, and we continue to believe that anti-obesity medications, including GLP-1s, will have a meaningful benefit on population-level mortality. And going forward, we'll continue to regularly assess the data and our model and expectations as to how this population improvement translates through to our insured book of business. Specifically for the study that you referenced, our analysis is generally aligned with a central estimate that Swiss Re has as well. So our numbers are consistent with their central estimate. I think the numbers you quoted were on the high end of their estimate. John Barnidge: Yes, those were the bull case outcomes. My follow-up, I believe the lift to annual run rate is $15 million over the intermediate term and would be expected to grow. To what level would it be expected to grow in the max year? Axel Philippe Andre: Yes. So thank you, John. So just to clarify, I think you referred to the impact of the actual assumptions update. As I mentioned, there's the accounting impact and there's the kind of long-term value impact, the $600 million, which will be recognized over time. That $600 million essentially will increase our run rates by $15 million next year, so annual increase of $15 million which then gradually ramps up to a $25 million increase to the annual run rate by 2040. Operator: And your next question today will come from Jimmy Bhullar with JPMorgan. Jamminder Bhullar: I had a couple of questions. First, just on your expectation for Ruby Re, you mentioned you expect it to be the pipeline to be filled or your -- whatever your intentions were in terms of business activity. What type of liabilities are you considering for the structure and obviously, there's a lot of demand for reinsurance or deals on some of these legacy liabilities. To what extent do those fit in your plans as well? And then I have a follow-up. Axel Philippe Andre: Sure. Thanks for the question. Yes, so Ruby Re, so we were pleased to see another transaction seeded into the vehicle this quarter. As you may recall, the vehicle was set up to really take in U.S. asset-intensive type transactions. In terms of -- we have a pipeline of transactions that we already have on our books that we're working through the process of seeding into the vehicle, which is why we're saying we have the confidence that we will be fully deployed by the middle of 2026. I think just taking a step back, we've mentioned that sidecars, third-party capital is a core component of our strategy. We expect in the future to be pursuing other sidecars and for that to be a nice supplement to our ability to deploy capital over time. Jamminder Bhullar: And then the type of liabilities include just annuities or like LTC VAs with living benefits as well? Axel Philippe Andre: So Ruby Re is really focused on relatively simple liabilities, what we call asset intensive. Those are things such as pension risk transfer. Other types of liabilities that have some biometric risks but that are relatively vanilla. As we explore new vehicles, further vehicles, we will also potentially open the aperture of liabilities. But I want to make clear that we focus on what -- where our expertise is. Our expertise is in combining the 2 sides of the balance sheet, the biometric risk and the asset side in the types of transactions that we have a track record of executing. So the intent is not to open new avenues that we have no expertise or track record in. Operator: And your next question today will come from Ryan Krueger with KBW. Ryan Krueger: I had a question on in-force actions. You've done a number of things over the last few years. I was just hoping to get an update on how far along you think you are at this point? And in the kind of opportunities that you still have going forward to do more actions on the in-force. Axel Philippe Andre: So maybe I can get started just in terms of the numbers and pass it on to Tony. So in-force actions, we've talked about it on a number of calls. We had significant contribution to earnings in 2023, 2024. If you recall, at the beginning of the year, when we talked about our intermediate-term financial targets, we said that we were expecting about $50 million a year of in-force actions. Of course, it's -- as we said, those can be lumpy. And so we -- at times, you can have a year where you are well above the $50 million, potentially below. This year, 2025, year-to-date, we're at about $45 million of cumulative in-force actions. So it's nice and on track and consistent with that run rate. And then we have a number of opportunities to continue to execute on in-force management actions throughout the book. Tony Cheng: Yes, Ryan, maybe just to add, this is a discipline that I would argue, started in the U.S. before, but it's very much around the globe. So even this quarter, we're seeing those actions, it's not just the U.S., it's across the globe. So that's the first point. And then the second point is, I want to emphasize, that's why risk management is so critical for us. We're all over the risk. And then it's a question of, okay, how do we -- once we fully -- as we fully understand the blocks of business, we then leverage off our strong partnerships with our clients to come up with true win-win solutions, oftentimes as we go through these conversations with our clients. It really hasn't impacted our ability to write new business with them. Sometimes it actually strengthens it because you're getting through potentially tough conversations in the right manner. So we're very delighted with our approach. And as Axel said, we continue to deliver on it. We don't -- it's not drawing up in any way. It's just an ongoing part of our business that we expect to continue to do going forward. Ryan Krueger: And then I had a follow-up. I guess going back to last quarter on the value in-force benefit to excess capital. It seems like there's been some skepticism from -- that this is not from you, but from others about if this is fully -- if that benefit is fully able to be deployed into growth going forward. So I guess I just wanted to just come back to that and confirm that like there's no restrictions on that. You have the full blessing from rating agencies, and that's a part of your capital that you can deploy now going forward? Axel Philippe Andre: Yes. So thanks, Ryan, for the question. So let me -- first, let me say that, yes, we -- this capital represents real capital that is available to be deployed into transactions. But let me take a step back and remind you, our excess capital is really across all 3 frameworks: economic capital, regulatory and rating agency. And we really look at what is the binding constraint. So we have at least that amount of excess capital from each of the following lenses since we take the binding constraints. I think everybody would recognize that from a regulatory capital perspective, that is capital that is there in the legal entities available to be deployed. Obviously, there's different regulatory frameworks and different legal entities, but real capital available to be deployed. So the recognition of this value of in-force to your point is from a rating agency perspective. I want to remind you that we recognize only a portion -- the value in-force for only a portion of our block. And even when we do, there's a significant haircut that is applied to that value of in-force within the rating agency frameworks. That value of in-force does amortize over the life of the business. But over time, we expect to add further to our store of value of in-force by looking at our in-force, the blocks that have not been evaluated by the rating agencies as well as new business. And just to point to one item, if you look at our value of in-force business margin exhibits in the presentation, the growth of that by 16% since -- over the first 9 months of the year, shows that there's a robust growth in our store of value of in-force and the potential to recognize that capital from a rating agency perspective. Tony Cheng: Ryan, let me just add one other point. I know you were referring to deployment into the business. With regards to, let's say, potential buybacks, we've indicated how much we're going to -- we're planning to return to shareholders. But just to answer your question, there is -- the only criteria we would look at beyond the strategic ones with regards to buyback would be, do we have sufficient liquidity and our leverage ratios? Otherwise, this capital is fully available to buyback. So I just want to add to Axel's comments. Operator: Our next question today will come from Wilma Burdis with Raymond James. Wilma Jackson Burdis: Regarding the U.K. mortality assumption review impact, are those claims that you're seeing today? Or is it more of a long-term expectation for higher mortality? And could you also just provide some color on what you're seeing in terms of U.K. mortality trends? Jonathan Porter: Wilma, this is Jonathan. Thanks for the question. So part of the assumption review this quarter, we've increased our expectation for future U.K. mortality, and that's resulted in an increase in future mortality claims and an offsetting decrease to future longevity claims. So this change in assumptions reflects ongoing excess mortality we're seeing in the U.K. population, which likely reflects challenges with the National Health System as well as a thorough review of recent experience in our own book of business. Under LDTI, as Axel mentioned, most of this U.K. mortality impact is recognized in the current period as the strengthening of reserves on capped cohorts and the benefits of the longevity business are deferred and amortized into future periods. So on a net economic basis, looking at both mortality and longevity combined and just looking at the U.K. specifically, it's actually pretty neutral. So that's given our balanced book of business. There's not much net economic effect of the changes. Wilma Jackson Burdis: Okay. Now that the -- second question, now that the Equitable block is closed, could you provide a little bit more color on your expectation for accounting smoothing on the mortality on that block? Axel Philippe Andre: Sure. Yes, sure. Thanks, Wilma. Yes, for the Equitable block, there will be accounting smoothing of volatility. We expect roughly about 50% of that block to be to -- to benefit from that smoothing of results over time. Operator: And your next question today will come from Alex Scott with Barclays. Taylor Scott: First one I had is just on the group headwind that you guys have had from the medical piece of things. Can you talk about what you're seeing there, the kind of repricing you're taking? And just any further commentary on the trajectory there? Axel Philippe Andre: Sure. I can start here. Look, on the group side, like we mentioned last quarter, it's short-term business, right? So it all gets repriced over the course of the year. And as we mentioned, we had started to take repricing actions by Jan 1, 2026. By Jan 2026, all of the block will be repriced. And so from there on, we have expectations of profitability for all segments of the group business. Taylor Scott: Got it. The second one I have is maybe a little bit more of a pointed question, so apologies in advance. But as we kind of go around and talk to industry participants and go to some of the conferences and so forth, one of the things that comes off, and I think -- look, I think some of the investors are hearing these kind of things, too, is that RGA is getting more competitive, getting more aggressive, maybe accepting lower IRRs to win business. And I think it's important to kind of hear your retort on it just because it does seem to be something that impacts your stock. And so I'd love to just kind of get your point of view on, is that just sort of [ sour grades ] because you guys are winning? Or is there more to it? I just want to see what your response is to those kind of comments that we're hearing. Tony Cheng: Yes, Alex, let me take that. Look, there's a lot there. Firstly, with regards to risk -- taking risk, there's been no change in our risk tolerance, our risk appetite, our processes, our leaders, our culture and we probably couldn't change it if we want it and why would we change it? It has been a huge competitive advantage for us in over 52 years. So -- and you can see it throughout the whole organization like even our business approach is all around discipline. Why do we just choose and select the business that we want, i.e., the business that is exclusive and plays to our strengths of local offices, our strengths of ability to do biometric and asset risk, our incredibly strong client relationships. It's purely because it is better quality business and in my mind, less risky than tendered business. And you see that not only in what we pursue, but also what we don't pursue. I mean, our name does not come up because we're not participating in many of the recent U.S. tenders for risks that are just not in our sweet spot. Number one, they're tenders. Like I said, we very much pursue exclusive transactions. And number two, they're not in our sweet spot. They're not the risks we like. So look, this has always been our approach. It will continue to be our approach. When I heard commentary like you suggested, it just took me back to the Asian days where when we started success 20 years ago. Of course, you're going to hear these things. That's what one would expect. We just follow our strategy, follow our culture. It hasn't changed and we're so excited about our future growth and our future returns that we can provide to shareholders. Operator: The next question will come from Suneet Kamath with Jefferies. Suneet Kamath: So if I think back to when we started talking about LDTI, I think the commentary was this was supposed to be a benefit to RGA because of the smoothing and if I just look at recent results, it just doesn't seem like that's playing out. You're getting more of the bad than the good. And I was just curious, is this just because there's a larger portion of your block that's in capped cohorts, and that's what's causing it? Or can you give us a sense of what percentage of your business is capped versus uncapped. Because I just don't think we're seeing the smoothing that we expected when we first started to talk about this. Axel Philippe Andre: Sure. Thanks for the question. Look, I think we still believe that LDTI is a benefit in terms of smoothing results over time. Now that may not play out quarter-by-quarter exactly. I think if you look at the presentation in the recent quarters or if you look at older presentations that have a longer track record, you'll see that in general, the impact that comes through on an accounting basis is less than the economic. So there's some level of smoothing and some reduction of the noise there. Nonetheless, you're correct that when -- for those capped cohorts, the results flow through immediately and in capped cohorts over time, you would expect that over time, there will be some portion of cohorts that are capped. And that will result, therefore, in a bit more volatility on the negative side. Jonathan Porter: Yes. And then Suneet, just to give you a number to size it for you, for our traditional business and total across the world, about 15% of our business is in capped cohorts. Tony Cheng: Suneet, just let me add one more point. I mean, look, these capped cohorts to us, like I said earlier, look, risk management is our DNA, our critical part, and therefore, these capped cohorts are obviously blocks we monitor very closely and a fertile ground for the in-force actions that you see us doing. And that's, as I said earlier, an integral part of our way of generating further profit and ROE. Suneet Kamath: Yes, No, that makes sense. And then I guess my second question is on the economic solvency in Japan. As I think about over the past couple of quarters, I think you guys have talked about that as an opportunity. But we're, I guess, a couple of quarters away from it actually being implemented. And I guess -- has it turned out to be the opportunity that you thought it was? Or were companies able to figure out solutions that didn't require RGA's capabilities? Just curious kind of where we sit there. Tony Cheng: Yes. No. Thanks, Suneet. Look, I would say the first inklings of it driving opportunities was probably about 5 or 6 years ago. So it's not just switched the light on, and it becomes relevant. I mean, the companies have been preparing for this for a number of years. And as a result, we've been able to win good business. And I'd say it's been the essential part of why you're seeing increased activity in Japan on coinsurance of blocks. I mean, we -- our partners in the market are both obviously the local companies as well as some of the multinationals or global companies. So there could be other tools available for some of the global companies, they may have internal reinsurers and so on. But for us, it has been a driver of opportunity. It continues to be. We're very selective once again on what we pursue, which will predominantly be those blocks of businesses that have both biometric as well as asset risk as well as usually, it's going to be with long-standing clients that we may have had decades-long relationships with on the biometric risk side. Operator: Our last question of the day comes from Tom Gallagher with Evercore. Thomas Gallagher: If I look at the earnings power in the quarter, and I adjust for, we'll call it, the accounting noise in the capped versus uncapped cohort, I sort of unwind that, you get about $7 of earnings power in the quarter. Now that seems well above the kind of levels that you guys have guided to if I think about glide path. Now I'm assuming there was like significant over-earnings in some of the segments versus what you think is trendable, but can you help kind of unpack $7 and maybe getting us back to a more reasonable trend line because that does seem quite high? Axel Philippe Andre: Sure. Thanks for the question, Tom. Yes. So when we think of kind of what are the pieces in the earnings this quarter, so I think we talked -- we mentioned the claims experience. So overall, about $50 million and then the offsetting impact of in-force actions, which across the globe in the quarter is about $40 million. So $40 million of positive to offset some of that $50 million negative. We mentioned the VII, which is a headwind of about $40 million this quarter. And then on the tax side, we had a benefit. So yes, look, this was a really good quarter. We're very, very pleased. I think a lot of the result of capital deployment of earnings coming up, coming online. We've talked about kind of the ramp-up of earnings with -- as we do the portfolio repositioning. Obviously, we had Equitable, the transaction, which is one example of that capital deployment, but it's a lumpy one, and it came in this quarter. It's very tangible. So yes, look, things are clicking well. And so we're very excited about the earnings growth trajectory from here on. Tony Cheng: Yes. And Tom, let me just add a couple of points. As we always say, and as you know, one quarter's results is just one quarter's results. So if you do a similar analysis for the year, we've had an excellent quarter. That's why we describe it that way. And for the year-to-date, we're having a very strong year-to-date relative to expectations. So I'd encourage you to just maybe look back over the 3 quarters. It's probably a better gauge of where we're at in terms of sustainable earnings power for '25. Thomas Gallagher: Good point, Tony. My follow-up is on -- have you considered any partnerships with alternative managers. We've seen multiple primary life companies enter into these partnerships. And I guess what I wonder is, with the asset-intensive business, kind of a critical part of your growth. I wonder -- and with a lot of the competitors for those types of deals seemingly having, we'll call it, pretty enhanced alternative strategies, whether it's private credit or other things. Is that something that you'd consider? Tony Cheng: Yes. Thanks for the question, Tom. Look, I'd say a few things. One is with regards to private assets, obviously, we do the bulk of it still internally, but we do have a number of external relationships where we feel it doesn't make sense for us to build the capabilities or they've got scale that we would not be able to achieve. So that's the fundamental principle in which we've been operating. But I really want to send you towards -- we don't compete on pure asset transactions. That is not our sweet spot. And to be honest, there's no point us really bidding too much on those types of blocks because we know our price probably will not be competitive. So that's why we always turn back to what have we -- does that asset transaction have material biometric risk, which obviously is our -- very much our sweet spot, is a leverage of relationships that we've maybe had for decades. So I really want to center that thought. Yes, we do a material asset reinsurance or asset-intensive reinsurance, but it always comes with biometrics. And a lot of the blocks, as I shared in my comments, are smaller in nature. They're not -- or more modest in nature. They're not always the headline grabbing ones because the ones that rely on those relationships and those partnerships, we're just servicing that client, that's asked us to help them for many, many, many years, and we continue to do that. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tony Cheng for any closing remarks. Tony Cheng: Well, thank you for your questions and your continued interest in RGA. Our strong quarter and continued growth in long-term value continues to fuel future growth and returns for RGA. And this ends today's call. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.