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CVEO 2025 Q3 财报电话会议

Operator: Greetings, and welcome to the Civeo Corporation Third Quarter 2025 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Regan Nielsen, Vice President, Corporate Development and Investor Relations. Please go ahead. Regan Nielsen: Thank you, and welcome to Civeo's Third Quarter 2025 Earnings Conference Call. Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer; and Collin Gerry, Civeo's Chief Financial Officer and Treasurer. . Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain anything other than historical information, please note that we're relying on the safe harbor protections afforded by federal law. These forward-looking remarks speak only as of the date of our earnings release and this conference call. We undertake no obligation to update or revise these forward-looking statements, except as required by law. Any such remarks should be read in the context of the many factors that affect our business, including risks and uncertainties disclosed in our Forms 10-K, 10-Q and other SEC filings. I'll now turn the call over to Bradley. Bradley Dodson: Thank you, Regan, and thank you all for joining us today on our third quarter 2025 earnings call. I'll start with some key takeaways for the quarter and then summarize our consolidated and regional performance. After that, Collin will provide further financial and segment level details. And I'll conclude with our prepared remarks -- I'll conclude our prepared remarks with our updated 2025 guidance and preliminary outlook -- qualitative outlook for 2026 by region. We'll then open the call up for questions. There are 3 key takeaways from the third quarter results: one, continued significant progress on the current share repurchase authorization. Two, our Australia business continues to grow both in our owned villages and in our integrated services business; and three, the Canadian cost-cutting measures bear fruit, and our focus now turns to putting our mobile camp assets to work. I'll start with the significant progress we've made toward completing our expanded share repurchase authorization. During the quarter, Civeo repurchased approximately 1 million common shares, bringing our year-to-date return of capital to shareholders to $52 million. With this progress, we've completed 69% of our new buyback authorization as of September 30, 2025. We remain confident that share repurchases are a compelling use of capital, especially during broad equity market volatility. Given the accelerated buybacks and our recently completed acquisition, our net leverage ratio as of September 30, 2025, was 2.1x, and we're comfortable with that. Our accelerated repurchase activity is consistent with our prior commitment to completing the current authorization as soon as practical. As previously stated, we intend to use no less than 100% of annual free cash flow to achieve this goal. We've obviously spent more than that, and we'll continue to spend more than that in our 2025 free cash flow buybacks this year. Turning now to the operational results for the quarter. Overall, the third quarter results were consistent with our expectations and reflected our outlook conveyed on our prior earnings call. In Australia, we remain focused on growing our integrated services business and capitalizing on our newly acquired villages in the Bowen Basin. Revenues in the region increased 7% year-over-year and adjusted EBITDA grew 19%. Notably, we completed the integration of our recently acquired villages in the Bowen Basin. So the third quarter of 2025 was the first full quarter financial impact from these 4 villages. Looking ahead, based on current customer discussions, we expect Australian occupancy in our owned villages to soften modestly in the fourth quarter due to typical fourth quarter seasonality with the holidays and softness in outlook for met coal pricing and demand exhibited by recently announced customer headcount reductions. Despite these near-term headwinds, we are confident in our Australian business. We have a strong contract position in our owned villages that will support good continued cash flow. In our integrated services business, we remain on track to reach our goal of AUD 500 million of revenue by 2027. And we continue to seek opportunities to expand into non-resource natural resource markets. While conditions -- in Canada, while conditions in the region remain challenged given oil prices and ongoing macroeconomic headwinds, our ability to drive year-over-year gross profit expansion in the face of continued pressures is a testament to the success of our cost reduction strategy implemented to date. We have taken decisive action to position our Canadian business to be more profitable in response to changes in oil sands customer sentiment and operational strategies, and we are pleased with the benefits they are seeing as a result. Initial actions have included an overall headcount reduction of approximately 25%, [indiscernible] certain underutilized lodges to reduce carrying costs and streamlining field-level operations to align with current demand levels. In the third quarter, this work allowed us to bring direct field level cost in Canada down 29% year-over-year, reduced indirect operating overhead costs by 23% and as a result, increased gross profit by 35%. From here for our Canadian business, our key focus is to capture the potential increase in demand for mobile camp assets in support of various Canadian infrastructure projects. Overall, we are executing on our strategic priorities in each region. Our Australian business continues to do well with year-over-year growth in both the owned villages and integrated services. And while our Canadian -- while the Canadian headwinds remain, we know this market well, and we're working with our strategic partners to understand how we can continue to support them as they capitalize on evolving opportunities in the country. We are taking decisive action to apply our resources where our customers need them in the region. And as a result, we're positioning Civeo for long-term resilience and cash generation. With that, I'll turn it over to Collin. E. Gerry: Thank you, Bradley, and thank you all for joining us this morning. Turning to the income statement. Today, we reported total revenues in the third quarter of $170.5 million with a net loss of $0.5 million or $0.04 per diluted share. During the third quarter, Civeo generated adjusted EBITDA of $28.8 million and operating cash flow of $13.8 million. The year-over-year increase in adjusted EBITDA was primarily driven by the benefits of cost cutting in Canada, contributions from the Australian acquisition completed in May of 2025 and higher occupancy in the legacy Australian-owned vs. Third quarter revenues from our Australian segment were $124.5 million, up 7% from $116.6 million in the third quarter of 2024. Adjusted EBITDA was $26.7 million, up 19% from the $22.5 million in the third quarter of 2025. The increase in revenues and adjusted EBITDA was primarily driven by the recently completed acquisition of 4 owned villages. The year-over-year increase was offset by the impact of a weakened Australian dollar relative to the U.S. dollar, which decreased revenues and adjusted EBITDA by $3 million and $0.6 million, respectively. Australian-owned village billed rooms in the quarter were 763,000 rooms, up 18% from the third quarter of 2024, primarily due to our recently completed acquisition. Our daily room rate for our Australian owned villages in U.S. dollars was $77 which decreased from $79 in the third quarter of 2024, primarily due to the weakening of the Australian dollar. Turning to Canada. We recorded revenues of $46 million compared to revenues of $57.7 million in the third quarter of 2024. Adjusted EBITDA for the segment was $8 million, an increase from $3.4 million in the third quarter of 2024. As noted, the year-over-year adjusted EBITDA increase was primarily driven by the implementation of cost reduction measures offsetting lower billed rooms and revenues. During the third quarter, billed rooms in our Canadian lodges totaled 383,000, which was down from 484,000 in the third quarter of 2024. Our daily room rate for the Canadian segment in U.S. dollars was $100, flat with the third quarter of 2024. Turning to our capital structure. Civeo's net debt as of September 30, 2025, was $176 million, a $22 million increase since the June quarter of 2025, attributable to the significant progress made on our share repurchase authorization in the quarter. Our net leverage ratio for the quarter was 2.1x as of September 30, 2025, with total liquidity of approximately $70 million. We have allocated $48.7 million to share repurchases year-to-date. We remain comfortable maintaining a net leverage ratio in the 2x range on a go-forward basis. As we look at capital allocation, on a consolidated basis, CapEx or capital expenditures for the third quarter of 2025 were $5.6 million, down from $7.5 million during the third quarter of 2024. Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages. As noted, during the third quarter of 2025, we repurchased approximately 1 million shares through our share repurchase program. We continue to believe that repurchasing Civeo shares presents a value-enhancing opportunity. We've made great progress on our current share repurchase authorization, and we will continue to opportunistically execute on our plan moving forward. With that, I'll turn it back over to Bradley. Bradley Dodson: Thank you, Collin. I would now like to turn to a discussion of our full year 2025 guidance on a consolidated basis, including the underlying macro and regional assumption. We are tightening our full year 2025 revenue and adjusted EBITDA guidance. Updated 2025 revenue guidance is $640 million to $655 million of revenues and adjusted EBITDA guidance of $86 million to $91 million. We are maintaining our full year 2025 capital expenditure guidance of $20 million to $25 million. I'll now provide the regional outlooks and corresponding underlying assumptions. In Australia, occupancy in our owned villages remains strong. 3 of our Bowen Basin villages continue to be effectively operating at full capacity, and we're seeing strong occupancy across the remainder of our owned village portfolio. Even when accounting for the expected impacts of weakening met coal prices and recent customer layoff announcements, we expect healthy, albeit modestly softer occupancy in our owned villages in the fourth quarter. As it relates to our Integrated Services business, we are encouraged by the strong margin performance we have delivered throughout the year, and we will continue to focus on cost-effective execution. We expect to continue building on our strong momentum for the remainder of 2025 and beyond as we work towards our goal of achieving AUD 500 million of integrated services revenue by 2027. In Canada, we continue to navigate the difficult operating environment in the oil sands region, which is exacerbated by lower oil prices and broader macroeconomic uncertainty. As a result, expected billed rooms in the fourth quarter of the year is expected to be relatively in line with third quarter. That said, we remain encouraged by the results of our Canadian cost-cutting initiatives to date and expect to continue to benefit from these going forward. I will now provide a preliminary outlook for 2026. In Australia, our outlook for 2026 is relatively similar to what we experienced in 2025 with potential for modest softness in our owned village occupancy due to commodity price volatility and customer layoff announcements. That said, we expect that any softness in our legacy owned villages will be largely offset by the full year impact of our May 2025 Village acquisition. In our integrated services business, we expect to continue advancing towards our $500 million revenue goal for 2027 through our strong sales pipeline. In Canada, we expect the aforementioned headwinds in the oil sands region to continue to negatively impact lodge occupancy. However, at this point, it feels like occupancy is stabilizing such that we expect next year's lodge occupancy to be flat to slightly up in 2026 when compared to the full year of 2025. In the near term, our focus is on mobile camp deployment. We are optimistic that we will see increased utilization of our mobile camps in North America towards the end of 2026. Our optimism is underpinned by strong bidding activity tied to continued public support at both the federal and provincial levels for infrastructure projects in Canada and increased demand in the U.S. for a wide range of infrastructure projects. Civeo's attractive asset base, demonstrated capabilities and strong relationships position us well to capture these growth opportunities as final investment decisions are made by our customers. While several of these projects we are bidding on have estimated project approvals scheduled for 2026, we would not expect to see a material financial impact from these projects until 2027. In the immediate term, our focus remains squarely on managing what we can control, executing on our cost reduction initiatives, enhancing operational efficiencies and aligning our resource base with demand. We are confident that we have the right plan in place to continue mitigating these headwinds while orienting the business to capitalize on growth opportunities to drive increased cash flow from our Canadian operations. Regarding capital allocation, we will continue to opportunistically repurchase shares and use no less than 100% of our annual free cash flow to complete our current share repurchase authorization. After this authorization is complete, we intend to use no less than 75% of annual free cash flow to buy back shares. We remain comfortable with our net leverage ratio in the 2x range moving forward. With that, we're happy to take questions. Operator: [Operator Instructions] And our first question will come from Stephen Gengaro with Stifel. Stephen Gengaro: So Bradley, you might get mad at me for asking this. But when you package the guidance you gave for '26 together, it feels like it all sort of equates to something that's kind of flattish year-over-year. I mean, is that in the ballpark of what you're seeing? Bradley Dodson: No. I think it will be up year-over-year. Still working through the budgeting process. Obviously, it remains dynamic in both markets. In Australia, there have been customer announcements of headcount reductions, and that has impacted our outlook for some of our -- for our occupancy in our owned villages. But we have a very strong contract position. And so while we do see some softness in occupancy in our own villages, as I've said to investors previously, Australian-owned villages occupancy is modestly softer to flat year-over-year with the benefit of the full benefit of the 4 villages we acquired in May. So another 4 months of contribution from that. We expect that integrated services will show top line growth [ 25 ] to [ 26 ] and continued strong margin performance. In Canada, as I mentioned, we expect lodge occupancy. It feels like it's stabilizing, but it's pretty dynamic right now. And so we'll certainly give an update in February when we do full year results on the fourth quarter call. But right now, as we sit here today on Halloween, I expect Canadian lodge occupancy to be flat to up [ 25 ] to [ 26 ]. And then the key will be if some of these infrastructure projects, and these are pipelines, LNG facilities, highline transmission projects and some infrastructure projects in the U.S. if these get -- if the projects get greenlighted by our customers and then we win the work, there's opportunity to put our mobile camps to work, which right now are really not contributing to the 2025 results. So overall, I expect '26 to be up and still trying to quantify what -- how much it will be up. Stephen Gengaro: Great. The other question I had, you touched on this a little bit. When you talk about the mobile camp assets and the ability to redeploy, are you talking about Canada and the U.S.? And are you looking at things in the U.S. that are connected to some of these newer energy opportunities around lithium mining and maybe data center related. Are any of those things in your opportunity set? Bradley Dodson: Yes. I would -- you highlighted it, Stephen, and thank you for doing that. I would say that this is the busiest that I can remember in recent history in terms of our bidding activity in North America. We have approximately 2,500 mobile camp rooms that are readily deployable and another roughly 1,000 that are currently attached to our oil sands lodges that we could redeploy anywhere in North America. In Canada, it's mostly LNG related, pipeline related, infrastructure related in Western Canada and looking to also deploy them in Eastern Canada. We can also deploy them into the U.S., and the team is actively pursuing things like you mentioned, like data centers. Stephen Gengaro: Great. And just one final one. When you think about capital allocation longer term, right, and you've done a great job returning a lot of capital. Is there a preference for incremental expansion/acquisitions versus buybacks? Or is it just going to be kind of on a project-by-project basis? Bradley Dodson: Well, we've committed to completing the current authorization to buy back 20% of the shares, which is about 2.6 million shares as soon as practicable and using no less than 100% of free cash flow -- annual free cash flow to do so. That being said, if there are opportunities that are economic that are supported by customer contracts and if there are attractive bolt-on acquisitions, we'll continue to look at that, obviously, continuing to weigh the fact that we want to stay around 2x levered or no more than that. And so right now, there are opportunities to deploy incremental capital for growth purposes, but nothing that will overextend the balance sheet. Operator: And our next question comes from Steve Ferazani with Sidoti & Company. Steve Ferazani: Appreciate the detail on I wanted to ask about the growth opportunities in Australia because you noted the softening of met coal prices and some of the -- I think you highlighted chances to build out integrated services beyond the natural resources market. Can you talk a little bit about the opportunities and challenges in that market to hit that $500 million mark? It seems more difficult than it might have seemed a year ago. And does that need to include M&A? Or are there ways to do it outside of your more traditional met coal or iron ore markets? Bradley Dodson: Well, I didn't mean to leave you with the impression that it was more difficult. I feel as good about our ability to hit the $500 million target by 2027 today. In fact, I feel better about it today than I did a year ago. The team has done an amazing job of capturing new work with customers, capturing market share in some cases, expanding our customer base, expanding our geographic footprint within Australia and integrated services. Originally, when we bought the Action Catering business, they were in Western Australia. We've now expanded that into South Australia and most recently expanded into Queensland, where our -- the vast majority of our own villages exist. So the ability to leverage that infrastructure is nice and important and to better serve existing Queensland customers. So I believe that we can hit the $500 million target with the kind of funnel of sales opportunities that the team has -- we can hit that hit target by 2027 in the resources market. Right now, I think we can do it organically. Can could it be enhanced by acquisitions? Possibly. But in terms of -- it is going to get more difficult to win additional resources work because we're on the radar screen of bigger competitors now, plain and simple. So what we're trying to do is take what we believe to be our core competency, which is we think we take care of people well. We make sure that they're safe, that they're well fed and well rested and ready for the workday. So are there other verticals that we can do that in. And we're in the early stages of evaluating that. where we've got the team looking at it and hope that in, I'd say, the next year or 18 months, we'll have some progress there. Steve Ferazani: Excellent. On the mobile camp side, we can certainly see plenty of opportunities that appear to be out there, particularly in Canada, and I'm sure there's a lot we don't see that you're pursuing. The timing of it is always, I know, really challenging, particularly for the larger projects. Realistically, is this probably more of a 2027, 2028 and beyond story? Or are there real chances in 2026? Bradley Dodson: It will all depend on our customers getting to final -- positive final investment decisions sooner rather than later. Are some of them still striving to get to a positive FID by year-end 2025? Yes. Do you handicap and say that probably slip into the early '26 or the first half of '26, that's probably pretty reasonable. So it depends on when the projects get approved. Sooner is better, then why I'm confident in our competitive positioning, we still got to win the work then thereafter. I think that right now, there will be some contribution from increased mobile camp work in 2026. It's likely second half weighted. And even if you handicap some of the expected timing of project approvals, 2027 looks like a good year. And to your point, beyond, these are largely construction projects that are expected to take 2 to 4 years to complete, and that would be a good utilization opportunity for our mobile camps. Steve Ferazani: Yes. Great. This looks like it will be your second year in a row where CapEx comes down. That being said, now that you've closed some of the Canadian lodges and you've had some larger investments like adding WiFi accessibility. When we think about CapEx moving forward, should -- outside of winning some large project awards, should this be the high level moving forward that you're investing this year? Bradley Dodson: No. I think it's always reasonable to think that CapEx is around USD 25 million on a consolidated basis. And to your point, because there's always -- we did some WiFi upgrades in Australia this year. There's still some work to be done there in terms of upgrading our WiFi. There's always one-off projects. I think the team globally is very pragmatic about deploying capital and CapEx. We go through a process that's kind of here's what the have to have are, here's what are the good to have and here's the nice-to-have items, and we prioritize those, both looking first and foremost on maintaining safe operating locations and then enhancing guest experience. So I think [ 25 ] is a safe number to use year in, year out. It would include some discretionary items in that number usually. But from there, higher numbers than that would be dependent on customer commitments and growth projects. E. Gerry: And if I could just supplement on that, what Bradley mentioned the nice to haves. I just want to remind the audience the way that we think about that is today's nice-to-have's are tomorrow's have to have's, and they could be a little bit more expensive if you wait. And so that's the balance. Bradley Dodson: Great point. Yes. That's a very good point. Steve Ferazani: When we think about those mobile camp opportunities, particularly if they're 2 to 4 years, does that require significant CapEx? Bradley Dodson: Great question. To put some numbers around it. We've got, as I mentioned, 2,500 mobile camp rooms readily deployable, another 1,000 that we can pull off that are currently on our oil sands lodges. So of those 3 -- roughly 3,500 rooms, our bidding activity, we bid out those fourfold. Now we don't expect to win all of that work, but we're exceedingly busy. Now there are probably half a dozen to a dozen infrastructure projects that we're tracking that could kick off in the next 12 to 18 months. It all depends on how those get sequenced. If they all hit at the exact same time, yes, we'll need some more CapEx. Will it be warranted? Absolutely. It will be... Steve Ferazani: I think I would complain about that. Bradley Dodson: No, I don't think they will. So to put kind of -- if things are evenly spaced, it's probably let's call it, $5 million to $10 million of incremental CapEx. If everything hits at once, it's probably $25 million to $30 million. But I think I am confident that if everything hit at once, people will be more excited about that than worried about the CapEx. E. Gerry: Yes, Steve, if we win a project, there's going to be a de minimis amount of capital but it's marginal relative to the project. The real capital outlay would be required if we had to start going out and buying new rooms in excess of the 2,500 to 3,500 that Bradley quoted. Steve Ferazani: Which would be a great problem. Operator: [Operator Instructions] And we'll go next to Dave Storms with Stonegate. David Storms: Just thinking through your goal of [ 500 ] in integrated services in Australia. How do you feel about your current staffing levels there? Just trying to think through what might be the bottlenecks as you march towards that goal. Bradley Dodson: Good question. I would say that staffing in Australia continues to be a challenge. Is it better than it was a couple of years ago? Absolutely. I think that's a combination of a general recovery in the country from COVID and the efforts of our team, our people and culture team in terms of recruitment. We're the biggest issue in -- for us is around chefs, but it's around labor in general. And we've had a program for the better part of 5 years to recruit international chefs to come in to Australia. We're making some progress there. So I would say that it is -- continues to be a challenge, but one that is not getting necessarily worse, but it's still not back to pre-COVID levels. So we've made some adjustments to our rosters and our travel allowances that has helped with attracting and retaining people, but it remains a focus for our team. But I don't believe that it would be -- if we win work, we'll find the people. David Storms: Understood. That's great color. Thinking about the cost cutting in Canada, specifically the field level streamlining, how much of this could maybe be applicable to Australia? Could we see a similar margin expansion there if some of that was more plug and play? Or is that more specific to Canada, the cost cutting? Bradley Dodson: It's more specific to Canada. A lot of it is -- we made some big strides with cold closing a couple of locations, which helps the carrying cost there. There has been some streamlining of the operating level headcounts. So this is something, quite frankly, that we started executing on this time last year. As you know us well, Dave, I mean, we started to see occupancy in Canada in the second half of last year just start dropping as customers look to reduce maintenance work, overall cut headcounts and try and localize people as opposed to have them be fly in, fly out. That's -- as I mentioned in our prepared comments, that feels like it's stabilizing at this point. Again, as we sit here today, we think Canadian lodge occupancy will be flat to up 2025 to 2026. And I think Australia there, it's a different cost structure. Obviously, the climate is very different between Northern Canada and Australia, particularly Queensland, and that presents a different cost structure. So always looking for efficiencies in our operations, and that is just always ongoing. It's not a one-and-done type thing. And -- but I don't think it's analogous between what we've done in Canada and what we could do in Australia. David Storms: Understood. That makes perfect sense. And that does kind of just bring me to my last question here. With you mentioning in your prepared remarks that it feels like Canada is stabilizing, how much more cost-cutting initiatives should we expect there? And is there, I guess, a potential for any of that margin to be given back as you maybe start getting a little busier in Canada? Bradley Dodson: Well, being tied to commodities and having cyclical upturns and downturns, cost cutting is something that our team is very -- it's just part of our DNA. You have to be able to make cost-cutting decisions. I think we moved quickly in the last half of last year and early part of this year. You saw how that bore fruit in the third quarter results. There are -- we will continue to work on our cost structure, but the easier things to get accomplished have been done. Are there other things that take more work to implement? Yes, and we're working on those. I would hope we get them done by year-end or close to it, but this is an effort that there is a new reality in the Canadian oil sands in terms of activity levels, spending levels, occupancy levels. And we're adjusting to that. We're not expecting that this is going to be a temporary change. Customers are operating in a different fashion. They're getting rewarded by their investors for cutting costs and reducing CapEx. And ultimately, that means fewer people and fewer opportunities for occupancy in our lodges. E. Gerry: And if I could supplement, the focus for the last roughly year, maybe 9 months has absolutely been on the cost-cutting side. And what Bradley said, we're not done, but we are shifting focus. I mean the fundamental -- the best thing we can do for our Canadian business is grow revenue. On a go-forward basis. And so we do see opportunities, and we are pushing the team to focus on that bid pipeline that we have in place with -- while we round out our cost-cutting initiatives. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Bradley Dodson for closing comments. Bradley Dodson: Thank you, and thank you, everyone, for joining the call today. We appreciate your interest in Civeo, and we look forward to speaking with you on our fourth quarter earnings call, which we expect to happen at the end of February. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

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ACA 2025 Q3 财报电话会议

Operator: Good morning, ladies and gentlemen, and welcome to the Arcosa Third Quarter 2025 Earnings Conference Call. My name is Boe, and I will be your conference call coordinator today. As a reminder, today's call is being recorded. Now I would like to turn the call over to your host, Ms. Erin Drabek, Vice President of Investor Relations for Arcosa. Please go ahead, Ms. Drabek. Erin Drabek: Good morning, and thank you for joining Arcosa's Third Quarter 2025 Earnings Call. With me today are Antonio Carrillo, President and CEO; and Gail Peck, CFO. A question-and-answer session will follow their prepared remarks. A copy of the press release issued yesterday and the slide presentation for this morning's call are posted on our Investor Relations website, ir.arcosa.com. A replay of today's call will be available for the next 2 weeks. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for 1 year on our website under the News and Events tab. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non-GAAP measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10-Q expected to be filed later today. I would now like to turn the call over to Antonio. Antonio Carrillo: Thank you, Erin. Good morning, everyone, and thank you for joining us today for a discussion of our third quarter results and the outlook for the rest of the year. Let me start with a few key takeaways on Slide 4. Q3 was a record quarter for Arcosa. We delivered double-digit revenue and adjusted EBITDA growth with all 3 segments contributing to our strong results. Revenue increased 27% and adjusted EBITDA grew 51%, both excluding the impact of the divested steel components business. Likewise, our record adjusted EBITDA margin of 21.8% was a 340 basis points improvement over the same period last year. We believe our third quarter performance is a testament to the strength of the portfolio optimization strategy we have undertaken over the past few years, highlighted by the accretive contribution of the $1.2 billion Stavola acquisition, which we closed a year ago. The strength of our business model is underscored by the free cash flow generation and debt reduction we delivered during the third quarter. The team did a great job with particular focus on disciplined cash management. As a result, we ended the quarter with a leverage ratio of 2.4x, putting us 2 quarters ahead of our stated plan to return to our 2 to 2.5x leverage target within 18 months of the Stavola acquisition. We are extremely proud of this progress. Now that we are back within our target range, we will continue to take a balanced approach on capital allocation, investing in the business to drive growth while maintaining a healthy balance sheet. Moving next to an update on our business units. Within Construction Products, third quarter adjusted segment EBITDA was a record $150 million and margin expanded 300 basis points. Stavola led our significant third quarter growth and was highly accretive to segment margin. The acquisition performed well in this first year, delivering $105 million in adjusted EBITDA, a 35.2% margin for the 12 months ending in September 30. Overall, we saw higher ASPs and higher volume in the aggregates business, leading to double-digit unit profitability gains. Engineered Structures continues to deliver strong organic performance, benefiting from increased demand in our utility structures business and higher volumes in our wind tower business. In the third quarter, we increased adjusted EBITDA by 29%, expanding margins by 240 basis points. with significant tailwinds in the U.S. power market remains robust and our backlog in utility and related structures is at record levels. Additionally, we received new wind tower orders, improving our near-term production visibility while we wait for an anticipated uplift to demand in 2027 and beyond. The barge business executed well, generating double-digit revenue and adjusted EBITDA growth with margin increasing 190 basis points. Our barge backlog is up 16% year-to-date, and we have production visibility for both hopper and tank barges extending well into the second half of 2026. Our outlook for the remainder of the year remains very positive. Overall, demand trends are favorable, and we believe our U.S.-focused operations are well aligned with long-term infrastructure and secular power market drivers. We have increased the midpoint of our 2025 adjusted EBITDA guidance range and anticipated 32% year-over-year growth, reflecting strong accretion from Stavola as well as double-digit organic expansion. To wrap up, the third quarter performance reflects steady progress in executing our strategic priorities. And with a stronger balance sheet, we're once again in a position to look at potential M&A opportunities as well as organic investments as we seek to further enhance long-term shareholder value. I will now turn over the call to Gail to discuss our third quarter results in more detail. Gail? Gail Peck: Thank you, Antonio. Good morning, everyone. I'll start with Construction Products segment on Slide 10. Third quarter revenues increased 46% and adjusted segment EBITDA increased 62%, which reflects record quarterly performance for the segment. Margin expanded by 300 basis points to 29.7%. The growth was led by the accretive contribution from Stavola, which has now completed a full year with Arcosa. For our aggregates business, freight-adjusted revenues increased 28% and adjusted cash gross profit increased 38% during the quarter, expanding margin by 330 basis points. Total volumes increased 18%, largely due to the addition of Stavola. We were pleased to see organic volume growth for the first time in several quarters as weather was generally favorable throughout the quarter. Monthly volume was relatively stable throughout the quarter, indicating steady market demand. On a unit basis, freight-adjusted average sales price per ton increased 9% and adjusted cash gross profit per ton increased 17%. Organically, aggregates pricing was up mid-single digits. However, unit profitability declined compared to last year. The decrease was primarily due to production downtime at a few natural aggregates locations negatively impacting cost absorption during the quarter. The root causes largely related to unplanned equipment repairs have been addressed, positioning us for improved performance in the fourth quarter. Normalizing for the unabsorbed costs, organic adjusted EBITDA for aggregates would have been up mid-single digits for the quarter. Turning to specialty materials and asphalt. Revenues more than doubled, primarily reflecting Stavola's asphalt business, which performed well during the quarter. In specialty materials, revenues increased high single digits as strong growth in lightweight aggregates was partially offset by a slight revenue decline in specialty plaster, which was comping against a strong volume quarter in the prior year period. Adjusted EBITDA and margin expanded year-over-year, both in total and on an organic basis. Finally, revenues and adjusted EBITDA increased in our trench shoring business, while margin declined slightly due to mix. Moving to Engineered Structures on Slide 11. In the third quarter, segment revenues increased 11% with the contribution split between utility and related structures and wind towers. Within utility and related structures, which represented 69% of segment revenues, third quarter revenues increased 8% due to double-digit volume growth and mid-single-digit pricing expansion in utility structures, partially offset by lower steel price pass-through. Within wind towers, revenues increased 20% due to higher volumes from our New Mexico plant, which was ramping up production in the third quarter of last year. Adjusted segment EBITDA increased 29% and margin expanded 240 basis points to 18.3%. The earnings growth and margin expansion were primarily driven by higher revenues and operating improvements in our utility structures business. We ended the quarter with a record backlog for utility and related structures of $462 million, up 11% year-to-date as we continue to see strong order activity. Our production visibility for this business is supported by our reported backlog as well as customer reservations for future capacity. For wind towers, we received orders of $57 million during the quarter, which improves our production visibility in 2026. We ended the quarter with backlog of $526 million, which also reflects the revaluation impact of adjusting backlog into 2026 from 2028. Turning to Transportation Products on Slide 12. Inland barge revenues were up 22% and adjusted segment EBITDA increased 36%, excluding the divested steel components business from the prior year period. The growth was driven by higher tank barge volumes, while hopper barge volumes were roughly flat. Margin for the business improved by 190 basis points, primarily driven by improved mix and operating leverage in our tank barge operations. During the third quarter, barge orders totaled $148 million for both hopper and tank barges, reflecting a book-to-bill of 1.5. Our barge backlog at the end of the quarter totaled $326 million, an increase of 16% year-to-date, and our current production visibility extends well into the second half of 2026. I'll now provide some comments on our cash flow performance and leverage position on Slide 13. Third quarter operating cash flow was $161 million, an increase of 19% year-over-year and up more than 150% sequentially as we planned for higher cash flow in the back half of the year. Working capital was a $23 million source of cash in the quarter even as revenues increased 25%. CapEx for the third quarter was $40 million, bringing year-to-date CapEx to $101 million, down $35 million year-over-year. For the full year, we continue to expect CapEx of $145 million to $155 million, which implies a slightly higher rate in the fourth quarter as we are investing in our plant conversion and placing deposits for long lead time equipment items within utility structures. Free cash flow for the quarter was $134 million, an increase of 25% year-over-year. We allocated $100 million to reduce the outstanding balance on the Stavola acquisition term loan, which is prepayable with no penalty. As Antonio mentioned, we are pleased to achieve our stated leverage goal at an accelerated pace. We ended the quarter at 2.4x net debt to adjusted EBITDA. And looking ahead, we expect to remain within our target range. Our liquidity remains strong at $920 million, including full availability under our $700 million revolver, and we have no material near-term debt maturities. I will now turn the call over to Antonio for an update on our outlook. Antonio Carrillo: Thank you, Gail. I will now turn to Slide 15 to review our guidance. As evidenced by our third quarter and year-to-date results, the strategy we have executed for the last 7 years of allocating capital to our growth businesses, improving our cyclical businesses and simplifying the portfolio has created a resilient platform with significant long-term growth potential. Our portfolio is now strategically aligned around businesses with durable demand fundamentals and compelling end market positions. Our key growth businesses continue to demonstrate strong performance, while our cyclical businesses benefit from solid backlog visibility and a strong foundation for continued growth. Given our year-to-date performance and confidence in our outlook for the rest of the year, we have adjusted our full year 2025 guidance ranges, tightening forecasted revenues to a range of $2.86 billion to $2.91 billion and adjusted EBITDA to a range of $575 million to $585 million. At the increased midpoint, this implies 32% adjusted EBITDA growth in 2025, normalizing for the divestiture of steel components business. Turning to Slide 16 for a discussion on our outlook for the business segments. Beginning with Construction Products, we're optimistic about the future, supported by attractive long-term demand fundamentals. Stavola continues to perform in line with expectations and the seasonally stronger second and third quarters demonstrated its premium financial attributes. Infrastructure demand drivers underpin the stability of Stavola's results, and we remain confident in the pipeline of work for both aggregates and asphalt in the New York, New Jersey market, now our second largest market. In Texas, our largest aggregates market, public infrastructure demand remains fundamentally healthy. While highway lettings are trending off peak levels, the outlook for state spending growth over the next several years is very positive and remains at historically elevated levels. More broadly, we believe infrastructure is on solid footing, and we expect it to be a catalyst for 2026 volumes. In our shoring business, which serves early phase public and private infrastructure works, third quarter order activity was above last year's level and our customers remain confident. On the private side, we're encouraged by the secular nonresidential trends, including U.S. energy infrastructure build-out, onshoring activities and the data center investments. Additionally, warehouse activity continues to positively inflect. Our construction materials platform is well located in favorable geographies with attractive population dynamics and long-term growth drivers that will benefit from a recovery in single-family housing. At the start of the year, we were hopeful to see an uptick in residential volumes in the back half of the year, but this has not materialized. With the recent Fed action and the potential for additional rate cuts, we now see a prospect of a single-family housing recovery in 2026. For full year 2025, we remain on track for high single-digit pricing growth in aggregates. Turning to volumes. Year-to-date volumes were up 7%, benefiting from Stavola and offsetting mid-single-digit organic volume decline. Looking at the full year, we now expect high single-digit volume growth, a slight step down from our prior guidance. On the third quarter, we were encouraged by the reversal in declining organic volume trends and ended the quarter with strong volume growth in September. We expect modest fourth quarter volume growth, assuming normal weather and no adverse impacts from the government shutdown. Moving next to Engineered Structures. I'll begin with a few comments on the U.S. power industry, which is the driver of our utility structures and wind tower businesses. The expansion of data centers and the rise in electricity consumption across the U.S. are driving significant and sustained increase in power demand. Meeting this growing need will require leveraging all available sources of power generation and significant investments in the transmission and distribution infrastructure. As I've said before, this is an exciting time to be serving the U.S. power industry, and we believe our Engineered Structures platform is strategically positioned to benefit in this new era of power growth. Turning first to wind towers. Wind energy is now cost competitive with other major power sources, even in the absence of tax credits and can play a critical role in meeting future energy needs quickly and efficiently. We have received orders from 2 customers totaling approximately $117 million, of which $60 million were received after the quarter end. At the same time, we shifted a portion of our 2028 backlog into 2026. This improves our production visibility as we now have backlogs for all 3 facilities for '26 and '27. We're still early and continue to work with our customers on additional orders. What is important is that we have good visibility across our platform, and we have time to continue to work with our customers on production schedules that allows them to prepare for growth in 2027 and beyond. Moving to utility structures. We continue to see accelerating demand underscored by our record backlog as utility customers continue to increase their investments in transmission and distribution infrastructure. During the third quarter, we made good progress in the conversion of our wind tower facility in Illinois to produce large utility poles. Production in this facility is scheduled to begin in the second half of 2026. We expect our new galvanizing facility in Mexico to complete its first dip in the first quarter of 2026, which will improve our cost structure and enhance margin. We remain confident in the durability of demand supported by long-term power trends, increased utility CapEx and the strategic network of alliance customers. As the utility market grows, the flexible and strategically located network of facilities within our Engineered Structures platform provides us with the ability to adapt and increase capacity without significant capital investments. Turning to Transportation. The aging U.S. barge fleet creates a favorable replacement cycle, which is expected to extend over the next several years. Strong order activity in the third quarter has significantly improved our production visibility for 2026, extending beyond the typical outlook we have at this point of the year. This improved line of sight for both hopper and tank barges reinforces our confidence in sustained demand through the cycle. In closing, as we enter the fourth quarter and turn our attention to fiscal year '26, we remain confident in the strength and future potential of our core markets. With an optimized portfolio and favorable macro dynamics, we are positioned -- we have positioned Arcosa for sustained long-term growth and value creation while focusing on operational excellence and disciplined capital allocation. We are now ready to take your questions. Operator: [Operator Instructions] We'll go first this morning to Trey Grooms of Stephens. Trey Grooms: Congrats on the great quarter. I guess, first off, you gave us some pretty good color, but I didn't know if maybe you could dive in a little bit more around the puts and takes around the full year revenue and EBITDA guidance adjustments or kind of just tightening those ranges a bit. Any more color you could give us on those puts and takes, please? Gail Peck: Sure. Trey, this is Gail. I'll take that. As you saw in our release and in our comments this morning, we made some adjustments to the full year guide with just 1 quarter left. It reflects the strong year-to-date performance that we've had through the first 9 months, and we expect a good quarter in Q4. So we tightened the revenue guidance just a little bit. I think that reflects a very small slight step down. That would be coming from construction as volumes -- on the organic side for the year have not been as strong as we would have thought at the start of the year. All that being said, slight adjustment to revenue, we're looking at strong double-digit revenue growth year-over-year. On the EBITDA side, we did raise the midpoint about $10 million. We now see $580 million of EBITDA for the year. As Antonio said, that's 32% growth year-over-year. As we think about the fourth quarter, this will be our first quarter with 100% organic as Stavola has anniversaried in the third quarter. And we're seeing strong double-digit growth in the fourth quarter. It is a seasonal quarter for Construction. So you do see Q4 step down. We do have Stavola in the New York, New Jersey MSA, which is very weather-dependent in the fourth quarter. So you see some seasonality, a normal step down in Q4. And we're really excited to close the year strong. We have excellent production visibility with our backlog on the manufacturing side. You do have 2 holidays in the fourth quarter, and sometimes that has an impact. But we're really excited to end the year strong, pleased to raise the midpoint of our guidance and conclude a very strong record year for Arcosa. Trey Grooms: That's super helpful. Just kind of following up on that. On the Construction business, you mentioned some inefficiencies with some of your legacy aggregates businesses with some production downtime at a few locations. Is that going to continue into the fourth quarter? Is that playing a role at all? Or is that largely behind you? Antonio Carrillo: Trey, it's Antonio. I think that's largely behind us. As you increase the number of facilities, and we're still -- we've grown a lot, but we're not the size of some of our larger peers. So 1 or 2 facilities that have a problem still reflects in our -- creates a little volatility for us. And that's what you saw. I think we're largely over that. And every day, we get better as a company, and that's what we try to do, become better every day. Trey Grooms: If I could switch just to Engineered Structures, just real quick. The margins there, very impressive margin improvement. You mentioned pricing and some operating improvements in utility. So if you could maybe talk about some of those drivers and how you're thinking about the margin outlook and kind of sustainability of those margins as we look forward. Antonio Carrillo: I'll take that, Trey. So when you look at what happened in the third quarter and what's been happening this year, both businesses, the wind tower business and the utility structures are performing very, very well. On utility structures -- I'm sorry, on wind, we started the year. We've been ramping the Belen facility in New Mexico last year. So when you compare -- last year, we had excess cost compared to this year. But overall, the team has done a fantastic job ramping up facilities. And we are very good at building wind towers when we have a continued -- a very, very steady production cycle, which is what we have right now. And that's why we're excited about the visibility we get with the new orders for 2026 and '27. It gives us very good line of sight. On the utility structures, demand continues to be strong. We've been increasing our capacity. As Gail said, volume grew double digit, and we've been growing volume double digit for the last 7 years. So this is a very, very good run that we're getting in increasing capacity, and we've become good at it. Our plants run very well. As always, when you have a larger business, you have things that are always working well and sometimes they're not. We still have things that we need to improve in our business. We're not done. And so we have some plants that are doing better than others. But I'm very excited about where we are. Our team is doing a very good job. And Gail mentioned, we have placed orders for additional equipment because we need to continue to expand our capacity. We will see going forward, the Illinois facility as we start hiring people will start going through its ramp-up. But it's part of the growing pains, and we're just excited with where we are. Gail Peck: And I might add, Trey, on to that, just coming back to the start of your question. And when you really look at the year-over-year growth, as Antonio said, wind was ramping, we finished that ramp earlier in the year. So the year-over-year growth is really coming from the strength in utility and related structures. So very pleased to see that. At nearly 70% of segment revenue, that's an important driver of our performance. Operator: We go next now to Julio Romero at Sidoti & Company. Julio Romero: I wanted to start on Construction Products. Antonio, you mentioned for full year '25, you remain on track for high single-digit pricing growth in aggregates. Can you just talk about the pricing outlook within aggregates as we head into '26? And I'm not asking for guidance, but just kind of high-level thoughts there. Antonio Carrillo: Sure. I think, as you know, this business is a very local business. And every one of our locations has different dynamics. But I think overall, we're positive about where we're seeing demand, especially on the infrastructure side. So I think as long as we continue having this -- and we mentioned that we had -- Gail mentioned in her script that we had consistent volumes during the quarter, which was a very good sign and recovering volume growth is a very important price of the pricing dynamic -- very important part of the pricing dynamic. We've been able to raise price throughout several quarters with volume declining. Now that volume seems to be recovering, I think pricing should be something that we can continue to pass through to our customers. We are in really good locations, great geographies, and that also helps. And I think if we're able to get some recovery in '26, late '26, sometime on housing, that will help even more. So we're optimistic about where we are on pricing. We're optimistic about where we're seeing the volume based on what we saw in the third quarter. And I think we're in a really good position. And very important, I think Stavola really changed the dynamics of our business. Gail Peck: I might add, just, Julio, as you think about the cadence of pricing, we have full year pricing guide of high single digit for Arcosa in 2025. That's total pricing. We did indicate that organic pricing was up mid-single digit in the quarter. Stavola does anniversary. So fourth quarter will be all organic. So we do expect a slight step down to that year-over-year rate in the Q4 with somewhere near more of that organic rate that we achieved in Q3. So as we look to 2026, as Antonio said, we still see pricing trending on the high side of historical averages. Julio Romero: Okay. Very helpful there. And congratulations on reaching your target leverage 2 quarters ahead of schedule. You weren't kidding when you said you'd have cash flow accelerate in the second half here. Can you just talk about capital allocation going forward? How are you thinking about perhaps more debt reduction versus further growth initiatives? Antonio Carrillo: Sure. So first of all, I think what you said is exactly how we thought about it. When we went through Stavola, it was a large acquisition for us, but we had a really good visibility on our cyclical businesses backlog and on the growth businesses performance. And that's what gave us the confidence to go for a larger acquisition. And that's why when we talk about our backlogs, the visibility is so important. On capital allocation, we mentioned we want to keep our balance sheet. We want to continue to improve. Even though we are within our range, I personally would like to be lower in that range to have more flexibility as we move forward. So my goal would be to try to get lower in the range of 2 to 2.5x leverage. On the other hand, we are -- we've been working for the last several months on filling our pipeline of bolt-on acquisitions, and we are -- we have opportunities out there, and these things happen sometimes when you want them, sometimes when they just happen. So we now have the flexibility of taking advantage of those opportunities and continue to focus on bolt-on acquisitions, which have been very, very accretive to Arcosa numbers. So I want to continue doing that, both on the aggregates and the recycled aggregates. On the organic growth side, we have opportunities. We're investing in the facility in Illinois to convert it from wind to transmission. I mentioned we are finally finishing out our galvanizing facility in Mexico. And we have opportunities based on depending on the strength of the transmission tower business. We always have opportunities to continue to invest. We are ordering additional equipment to continue to grow the business as we see demand strength accelerating. So I think you will see a combination of both organic and inorganic capital allocation in terms of M&A and organic growth going forward and hopefully continue to reduce our debt to the lower end of our range. Operator: We'll go next now to Ian Zaffino of Oppenheimer. Ian Zaffino: Congrats on all the wind tower orders. I guess I just wanted to ask also, what is the outlook, I guess, for incremental orders there? And what was the decision to accelerate the backlog? Walk me through kind of those dynamics, was this all on because of you're trying to figure out your production schedules? Was this driven by the customers' decision? Maybe just some color around there as well. Antonio Carrillo: Sure. Thank you, Ian. So let me give you a big picture. As I mentioned in my remarks, the wind industry is competitive now with other sources of power to -- but it's been attached to tax credits for a long, long time. And it seems that after '27, the industry is going to go to a market-driven economy like it probably should be, and we're happy it goes there because we are now competitive. But we have 2 years to get there. And you've seen all the policy changes during this year that have created uncertainty. So the way to bridge these 2 years, which -- our base case scenario is that these 2 years will accelerate as we get closer to end of 2027. Historically, developers and the whole industry accelerates to try to capture as much tax credits as possible before they go away. We needed to bring that backlog to try to capture as much as possible for our customers that need these towers. And 2028 is going to be a different environment. 2028 is going to be an environment that I'm very optimistic about because the U.S. needs the power. Prices of power are going up and the industry is competitive. So we will have a very good industry in 2028 and beyond. But for the moment, we had the backlog. We agreed with our customers to move forward part of the backlog. And at the same time, we got new orders. So I think we're in a really good position. We're not full for '26 and '27. We're still working with customers to try to accommodate additional orders and to figure out the needs of many of our customers as they go through this period of tax incentives still being present. So I'm optimistic we're going to get additional orders, but we're still early. We're just at the end of October, early November, and we have time for this to materialize over the next several months. Ian Zaffino: Okay. And then as a follow-up, I guess your 2 nongrowth segments are doing very well. And we've kind of -- you've been very patient here waiting for them to ramp and really to hit either mid-cycle or above. And kudos to you guys, you've done a very good job in doing that. Given where they are at this point and given that you want to shift your business more into growth, is there anything kind of on the horizon that you're now thinking of as far as capital allocation and moving more aggressively into growth businesses and away from those nongrowth businesses that are kind of now actually performing very well? Antonio Carrillo: That's a good question, and that's a question that we are always debating. And I would tell you that Stavola changed the dynamics of Arcosa. We now have a business that's a lot larger than we were a year ago. And that has helped, let's say, put us on a better footing to be able to continue to move our portfolio. It's always -- we just have to decide when we want to continue to simplify the company. I will tell you one important step that we took this quarter was achieving our leverage ratio. Those cyclical businesses provide a lot of cash. So we needed those businesses to be able to help us delever as we bought Stavola. Now that we are continuing to move ahead and we are reducing our leverage ratio to our target, I think we'll be in a good position to continue to move forward with the simplification of the company, but those things take time, and there's never a perfect time to do it. We'll just have to continue to evaluate it. Operator: We go next now to Jean Van Diest (sic) [ Jean Veliz ] of D.A. Davidson. Jean Paul Ramirez: I want to start with the wind business. Are you anticipating additional wind orders beyond what you've discussed here today? And do you need to see additional orders for us to assume a sort of stable contribution from wind in 2026? Antonio Carrillo: So we have -- as I mentioned before, we're still early. We're working with our customers. I hope we can get additional orders. And I'm optimistic about where I see '26 and '27. We now have good visibility for our 3 facilities, as I mentioned in my remarks. So -- but we have time. I think we don't provide guidance at this time of the year, but we have time, and we're optimistic about where we are with our customers. So we'll know more over the next few weeks and months. Gail Peck: Yes. And I guess I would just add as it relates to '26 and your question. We feel very, very comfortable where we are at this point of the year, and we have good coverage of our '25 revenue run rate. We're not there at 100% yet, but we have very good coverage at this point of the year. Jean Paul Ramirez: Got it. And moving on to Engineered Structures. Can you provide an update on timing of capacity investments you're making in Engineered Structures? And when do you expect that to begin to ramp up and contribute to growth? Antonio Carrillo: I mentioned that during the second half of the year, we'll start ramping up that production. And that starts -- hopefully, by the end of the year, it should be done. And we -- I think it's going to start contributing positively probably in '27. Jean Paul Ramirez: And are you guys filling that capacity? Antonio Carrillo: Yes. Yes, we're working with our customers to fill it up. And the reason we're expanding is because we have the demand from our customers. We're really seeing accelerating demand in utility structures, and that's why we're doing this expansion and why we're evaluating additional expansion based on conversations with our customers. Operator: And we'll go next now to Garik Shmois of Loop Capital. Garik Shmois: Just to start, a couple of questions on barge. Just given the improvement in orders... Operator: Garik, I'm sorry to interrupt you. We're having a hard time hearing you. Garik Shmois: Sorry, is this better? Operator: Yes. Please go ahead. Garik Shmois: Okay. Sorry about that. So a couple of questions on barge to start. Just given the improvement in orders, are you seeing an inflection in hopper orders as well as tank? I'm wondering what you're hearing from your customers just regarding the ramp in the replacement cycle being sustainable moving forward? And if you can speak maybe to the type of margins you're seeing on the new orders coming into backlog. Antonio Carrillo: Yes. Absolutely. The big picture is barges need to be replaced, both tank and hopper. When you look at the replacement cycle, I'm convinced over the next several years, I think we're going to have a long cycle. I'm not sure if it starts today or tomorrow or a week from now, but we believe our capacity is very, very valuable because we will need all our capacity to be able to meet this replacement cycle. And we are pricing our barges like that. So we're not giving our capacity away if we wanted to fill the plants and I gave cheap prices to every one of our customers, we will have to fill them -- we could fill them up tomorrow for the next several years. But we're not doing that. We're selling our barges at the price we think they deserve and with good margins. And I'm a big believer in the barge business for the next several years being on strong footing. We have received orders for both hopper and tank barges. And I won't tell you it's -- people are lining up for hundreds of barges, but we see solid demand. We see solid demand for barges going forward, and we have really good visibility in our backlog. We said we're deep into the second part of the year next year. And for this time of the year, that's not common for us. No, we normally don't have that visibility that we have today for 2026. Garik Shmois: Okay. That's helpful. I wanted to ask on aggregates and organic volumes. I think you mentioned that you're starting to see modest growth here in the fourth quarter. Wondering if you can unpack where that is. Is that certain regions are starting to perform better? Or is it more of a function of end markets improving? I'd be thinking more nonresidential and infrastructure. But just any help on where you're seeing some of the inflections on organic aggregates demand? Antonio Carrillo: Yes. I will tell you. So starting by markets, I think in Texas, and over the last year, I think with residential being slow, we've strategically targeted more infrastructure business, and that takes us time to continue to move into that market from a more residential oriented, especially in Texas and in the West. So I think infrastructure continues to be solid, and that's where we're seeing good volume demand -- good volume growth. Residential, as I mentioned in my remarks, we expected the second half to see an uptick, and we didn't see that. So we continue to inflect into more infrastructure focus. We're really excited about some of this -- the reshoring, all the power built infrastructure, all the data centers, we are seeing good volume there. And we are still seeing relatively weakness in the Gulf market. But we see very, very good potential for '26 with LNG and some other projects that have been delayed. So I think as we move into 2026, and we've shifted more into infrastructure that will give us a solid footing and more consistent. I think on the nonresidential side, we're optimistic of what we're seeing. And then hopefully, sometime in the '26, we get some uptick in residential. So overall, very positive. Stavola specifically, a lot more focused on infrastructure. So assuming there's no impact from the federal funding, I think we should be in really good shape. Operator: Thank you. And ladies and gentlemen, that will conclude our question-and-answer session for this morning. So that will bring us to the conclusion of today's Arcosa Third Quarter 2025 Earnings Conference Call. Again, we'd like to thank you all so much for joining us this morning and wish you all a great day. Goodbye.

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ACX.MC 2025 Q3 财报电话会议

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.

199天前Insight Analytics约5分钟阅读

EEX 2025 Q3 财报电话会议

Operator: Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Emerald Holding Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Erica Bartsch, EVP of Strategy and Communications at Emerald. Please go ahead. Erica Bartsch: Thank you. Good morning, everyone, and welcome. Before we begin, let me remind everyone that this call will include certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This includes remarks about future expectations, beliefs, estimates, plans and prospects. In particular, the company's statements about projected results for 2025 are forward-looking statements. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. For a discussion of these risks, uncertainties and other factors, please refer to the company's SEC filings, including its most recently filed periodic reports on Form 10-K and Form 10-Q as well as the company's earnings release, all of which can be found on the company's Investor Relations website. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, management will discuss non-GAAP measures, which it believes can be useful in evaluating the company's performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. The reconciliation of these non-GAAP measures to their most comparable GAAP measures can be found in the company's earnings release, which is available on the company's Investor Relations site. As a reminder, this conference is being recorded, and a replay of this call will be available on the company's Investor Relations website through 11:59 p.m. Eastern Time on November 7, 2025. I would now like to turn the call over to Mr. Herve Sedky, President and Chief Executive Officer. Please go ahead. Herve Sedky: Thank you, Erica, and good morning, everyone. I'll begin our call today with a review of our third quarter performance, followed by a discussion of our strategic initiatives. I'll then turn things over to David Doft, our CFO, to run through our financials. Throughout the year, we've executed with discipline and consistency across the portfolio, advancing the strategic priorities we set at the start of 2025. Through the first 9 months of the year, we delivered solid growth in revenue and adjusted EBITDA, along with solid organic growth, underscoring the strength and resilience of our increasingly diversified model and the progress we're making toward our long-term objectives. The third quarter, historically both our smallest and softest period, unfolded largely as expected. During the quarter, we strengthened our portfolio with the acquisition of Generis, a leader in peer-to-peer executive events and advanced innovation initiatives to enhance the customer experience and drive scalable efficiencies across our operations. With Generis, Emerald's portfolio now spans an even broader mix of high-growth sectors, strengthening our resilience across market cycles and reducing exposure to slower growth verticals. Combined, these actions reflect our commitment to building dynamic, high-impact platforms that help businesses connect and grow in an increasingly complex marketplace. Based on our progress to date, we are increasing our full year 2025 guidance to reflect the Generis acquisition and narrowing our guidance range given our increased visibility as we approach year-end. David will provide more details on this in a moment. Stepping back from our results, what continues to define our business is focus, consistency and the power of live engagement to drive growth. Live events remain one of the most reliable ROI channels for B2B decision-makers. In fact, Harvard Business Review has found that face-to-face requests are 34x more effective than e-mail at generating action. And in a recent Center for Exhibition Industry Research survey of more than 9,000 exhibitors and attendees, 70% agreed that in-person meetings are a highly effective way to build and maintain customer relationships. We saw this dynamic firsthand at this October's Advertising Week in New York, one of our flagship events. The show delivered record-setting attendance and engagement this year, a strong affirmation of the appetite of high-quality in-person experiences that drive business results. At Emerald, our customers continue to prioritize face-to-face engagement as a core part of their sales and marketing strategy, recognizing the efficiency, credibility and measurable ROI live events deliver compared to digital and other channels. We see this as a structural feature of our business, and it reinforces Emerald's position as a trusted partner, helping businesses connect, meet, learn and transact more efficiently. A clear indication of that strength is our pacing for 2026, which reflects sustained customer confidence across our portfolio. We're seeing solid rebooking momentum for the first half of 2026, reinforcing the confidence our customers have in the value and reach of our portfolio. Ongoing exhibitor renewals and strong forward bookings highlight the resilience of our model and demonstrate that live in-person engagement remains a critical and effective growth channel across industries. Our international business also continues to make measured progress and remains an important long-term growth opportunity for us. While international exhibitors represent roughly 10% of total revenue, our exposure is balanced across regions with no material concentration risk. We're seeing continued momentum in markets such as Italy, Germany, the United Arab Emirates and Brazil, signaling growing global interest in accessing the U.S. market. As trade conditions stabilize, we anticipate a more constructive environment heading into 2026, and are encouraged by progress in this week's trade negotiations in Asia. Beyond financial performance, the third quarter underscores how Emerald continues to lead with customer connection and thought leadership. We're actively advancing our technology initiatives with the launch of an AI-powered event agent across selected shows. The platform automates many of the attendee interactions before, during and after the event. This marks an early step in how we're using AI to simplify the attendee experience and create more meaningful interactions on sites. This tool will help exhibitors and attendees access key event information in real time, improving service, simplifying setup and enhancing the overall customer experience. We're looking to expand this and other AI-driven platforms across our events later this year and into 2026. At the same time, we're sharpening our go-to-market execution through more strategic selling efforts and greater centralization of our marketing functions. These initiatives are designed to strengthen brand consistency, improve lead generation and create a more scalable commercial engine across the portfolio. For example, to demonstrate the value of live engagement, we recently brought senior marketers and business leaders together in a curated setting to showcase how in-person connections accelerate ideas, partnerships and growth. These experiences not only reinforce our customers' belief in the power of live events, but also highlights Emerald's role as a trusted partner driving innovation across the industry. Our continued focus to diversify the portfolio into higher-growth sectors that leverage Emerald's scale and best practices are strengthening the business and positioning us for sustained performance next year and beyond. With the completion of the Generis purchase in August, we've now executed 3 meaningful acquisitions this year, which advance our strategy to build a high-growth portfolio of live experiences that connect business people in attractive end markets and deliver measurable ROI to customers. This isn't about any single transaction. Rather, it reflects a deliberate and disciplined pattern of growth. Emerald remains a highly attractive acquirer of B2B events executing a focused strategy to optimize our portfolio, expand into additional high-value verticals and creating premium experiences that connect businesses operating in dynamic industries. Through Generis, we gained a leader in peer-to-peer executive event space. Generis hosts 11 events across the U.S. and 6 in Europe annually, engaging senior decision-makers through high-impact insight-driven formats, peer-to-peer connections and curated one-to-one meetings. With this addition, Emerald will host more than 50 peer-to-peer events annually, further solidifying our position as a premier platform for high-level results-oriented networking. At the same time, our efforts to build a centralized platform to deliver events at scale allows us to invest in new technologies and capabilities to make all of our events stronger. It also allows for a seamless sharing of best practices, scale cost benefits and improved margins over time. Moving forward, we will continue to take a strategic and selective approach to M&A, identifying opportunities that drive meaningful growth and long-term value for shareholders while enhancing the experience and outcomes we deliver for our customers. To sum up, our teams continue to execute with focus and consistency, advancing our strategy, deepening customer engagement and driving operational efficiency. The fundamentals of our business remain strong, and we're confident in our ability to deliver on our full-year commitments and build momentum into 2026. With that, I'll turn the call over to David to review our financial results. David Doft: Thank you, Herve, and good morning. Let's begin with a review of third quarter financials. The third quarter is by far our smallest, accounting for approximately 16% of pro forma full-year 2025 revenue based on our guidance range. Total revenue in the quarter was $77.5 million compared to $72.6 million in the prior year quarter. Reported Organic Revenue, which excludes the impact of acquisitions, scheduling adjustments and discontinued events, was down 6.8% year-over-year. As our seasonally soft this quarter, the Q3 decline primarily reflects the effects of ongoing construction at the Las Vegas Convention Center and to a lesser extent, some tariff headwinds, both of which specifically affected our largest event of the quarter and were anticipated in our guidance range. This event alone had an approximately 6% negative impact on Organic Revenue in the period. It's important to note that our overall exposure to tariffs at Emerald is quite limited. However, because this was our smallest quarter and our largest event in the quarter has some tariff exposure, the effect was more visible in the period than it would be on a full-year basis. Also, if we assume the recently completed acquisitions of This is Beyond and Insurtech were part of the portfolio in Q3 2024, Organic Revenue in Q3 2025 would have been down 2.9% compared to the prior year quarter. Note that Generis did not host any events in the third quarter, and therefore, we did not recognize any revenue from the transaction in the quarter, while absorbing about $1 million in costs related to Generis' SG&A. Year-to-date, total revenue was $330.7 million, an increase of 13.3% versus the prior year, primarily due to revenue from acquisitions and higher Organic Revenues. Year-to-date, Organic Revenues increased 1% year-over-year. The acquisitions of Generis, This is Beyond and Insurtech would have increased Organic Revenue growth to 4.3% year-over-year had they been part of our portfolio during the first 9 months of last year. Adjusted EBITDA was $12.8 million in the third quarter compared to $12.5 million in the prior year period, an increase of 2.4%. The increase was primarily driven by higher operating income from our events and continued management of underlying costs. Year-to-date, adjusted EBITDA totaled $90.8 million as compared to $68.6 million in the prior year period, an increase of 32.4%. The improvement was driven by strong revenue growth, particularly from the acquired businesses and ongoing focus on optimizing margins. Turning to our expenses. On a reported basis, SG&A was [$51.3] million in the third quarter versus [$40.8] million in the prior year quarter. Year-to-date, SG&A was $152.5 million as compared to $135.8 million in the prior year period. The increase in both periods is largely due to incremental expenses from acquisitions, higher stock-based compensation, remeasurement of contingent consideration and elevated legal and consulting costs related to our transactions. Underlying cost increases remain muted. In Q3, free cash flow was slightly negative as compared to a $6.7 million inflow in the prior year quarter. I want to note that free cash flow in the quarter was impacted by the timing of payables tied to one of our large shows where cash was paid to a vendor as early July this year versus June of last year. This timing shift resulted in a high single-digit million outflow in the third quarter, but had no impact on our year-to-date underlying cash generation. Additionally, as was the case in both the first and second quarter, underlying free cash flow in the third quarter would have been stronger than reported given the timing of recent acquisitions. Specifically, the Generis acquisition closed ahead of their second half events and most event-related cash was collected prior to the transaction, thus flowing to Emerald through a purchase price adjustment rather than through standard collection of receivables. As a result, those inflows are not reflected in reported free cash flow and cash from operations minus CapEx. We believe this is important context when evaluating the free cash flow conversion and strength of our cash generation. Our year-to-date free cash flow is similarly impacted by the acquisition of Generis in Q3, and this is beyond the Insurtech Insights in the first half of the year for a total of $30 million and from $5.5 million of fees related to our January 2025 refinancing of our debt that flows through the financials. Year-to-date, this impacted our free cash flow by $35.5 million, which we believe should be taken into account to understand the cash generation of the underlying operations of the company. Shifting to our balance sheet. We had $95.4 million in cash as of September 30 versus $156.4 million as of June 30. This is after funding the Generis acquisition, which closed in the third quarter. Our total liquidity is $205.4 million as of September 30, including the full availability on our $110 million credit facility. As of September 30, our net debt to covenant EBITDA ratio was 2.96x slightly below our sub 3.0x financial policy target following the acquisition of Generis. As we move forward, we continue to be committed to disciplined capital deployment across M&A, organic growth, managing our leverage and shareholder returns. In the third quarter, we repurchased approximately [116,000] (sic) [116,094] shares of our common stock at an average price of $4.87 per share under our share repurchase program. Since the beginning of the program in 2021, we have repurchased a total of 17 million shares of our common stock for $70 million. In recognition of our continued financial strength, Emerald's Board of Directors recently approved an extension and expansion of Emerald's share repurchase authorization, allowing for the repurchase of up to $25 million of our common stock through December 31, 2026. At the end of the third quarter, we had $20.3 million remaining available under the prior share repurchase authorization. The Board also declared a quarterly dividend of $0.015 per share. This decision underscores our commitment to returning value to shareholders while maintaining a balanced approach to capital allocation. Finally, as Herve noted, we have adjusted higher and narrowed our full-year guidance range to $460 million to $465 million in revenue and $122.5 million to $127.5 million in adjusted EBITDA to reflect the Generis acquisition, align with our year-to-date performance and provide a more focused outlook for the remainder of the year. As we have shared before, this outlook factors in the potential impact of tariffs. In summary, we're executing with financial discipline, maintaining a strong balance sheet and driving consistent performance in line with our expectations, all while progressing well in our efforts to strategically improve our portfolio for sustained profitable growth in the future. We remain confident in our ability to deliver on our full-year guidance and create long-term value for our shareholders. With that, we'll open the call for questions. Operator? Operator: [Operator Instructions] Your first question comes from Barton Crockett with Rosenblatt. Barton Crockett: Congratulations on the growth in Advertising Week. One of the things that just listening to you kind of walked through what's happening that I was wanting to explore was some of the commentary around tariffs and international. David, I think you mentioned something about a $6 million impact that I think you attributed to tariffs, but you're also talking about the construction in Las Vegas. And I just want to clarify, was that inclusive of both of those things? Or was that just a tariff impact? David Doft: No, that's inclusive of both of those items. The tariff impact is actually the lesser of the items in that impact. We've been talking all year, maybe even longer about the issues around the construction of the convention center, particularly related to larger shows that are in multiple halls that used to be side-by-side, but now are split on the opposite side of the convention center and it created a really difficult customer experience. And so following the first of those events, which really was last year, there was some pretty negative pushback that impacted our bookings for this year, both earlier this year as well as in this quarter. Thankfully, the construction is on track to be completed by the end of this year, which is great, which means that next year, our events will be able to go back to their normal structure and having halls next to each other, which will meaningfully improve customer experience again. So we're enthusiastic about cycling this impact next year. But unfortunately, it's something we've had to manage for the last few quarters. I think we've talked about it probably on every earnings call. And in this quarter, again, because it's such a small quarter, I know we're emphasizing that a lot, but it's true, and we had a large event that was impacted, it abnormally impacts our overall reported growth rate. But the bulk of the issue was related to the customer experience issues and kind of compounding over a couple of shows. And then the tariff issue was a bit more minor, but it was real for this particular event and a couple of others at Emerald, but not broad-based across the portfolio. Barton Crockett: Okay. All right. So you were spending some time talking about your international attendance around 10% of your total. And there was -- tariffs did factor to some degree into the discussion. So I'm just wondering, overall, this year, this kind of unusual trade environment, how much of an impact has that had, would you say? And does it feel like now that the world has kind of gotten accustomed to this whole tariff -- I mean, this whole kind of approach of trade policy in the U.S. that, that might be a bit of a tailwind as we go into next year? Are you getting that sense? Herve Sedky: Yes. So, this is Herve. So in terms of the impact of tariffs, we factored that into our plans for 2025. We had -- as we provided guidance, we had expected that tariffs would have some impact. And the reality is that in some markets, we have been impacted. So countries like China and Canada, we've definitely seen an impact. But as I mentioned in my prepared remarks, we've seen a -- and our international sales team has done a really good job of driving business from other markets that are looking to expand in the U.S. and to take advantage, quite honestly, of entering the U.S. market. And so the net effect of tariffs is a very manageable impact for our business overall, but we're definitely seeing in a handful of markets. David Doft: I think you're right, Barton, as we cycle this year, we're hopeful that next year is a bit more normal. I think it's too early to say that it's a tailwind, but I think the year-over-year change shouldn't be as meaningful. And I think for 2 reasons, right? One is the cycling of it and the uncertainty. And obviously, you take the hit upfront, there's not necessarily incremental hits, especially if things start getting incrementally better, and we're hopeful it will based on surely a little bit of movement this week with some of the Asian countries, though admittedly not fully where everyone wants it to be. But also, as Herve alluded to, the effort by our international sales team to reach into other markets to fill the gap will actually be a really nice benefit for us in the long term. And we've been talking about investment into our international reach for sales into our U.S.-based shows for a couple of years before the tariff issue was really an issue. So we already have been expanding meaningfully our international agent network, which are commission-based agents not on our payroll, but who are actively selling our events into dozens of markets around the country. I think we're up to about 100 of these agents. 2 years ago, I think we had 40. So that's more than double the number of people that are out there. And we haven't seen as much of the impact because of the tariffs of the benefit of that. But we see it in the underlying data in the reach into these other countries. And so if some of the more impacted countries from tariffs begin to normalize, then we should have that sort of tailwind. It's just -- it's a little difficult to know exactly when that's going to happen, but we are hopeful that at least the incremental hit will be there next year, which by nature is a benefit to our growth rate in 2026. Barton Crockett: Okay. And then, David, one other question I had within -- so I see obviously, your updated guidance range for 2025 to include the Generis acquisition. if that acquisition hadn't happened, would you be in a place where you would be reiterating the former guidance that you had? Or if you can update on that, that would be interesting. David Doft: Sure. So we are absolutely within the guidance range, excluding generics. It is the lower half of the range, to be clear. And there is some of the guidance impact on revenue, and it's more the mid part of the range on EBITDA. So we're tracking well on profitability. There's been a little bit more of the revenue volatility as we feared could happen, which is why we created the range we created. So it's all still within that range. But it is the lower half of revenue and kind of more mid-ish on -- or even mid to upper on EBITDA. Barton Crockett: Okay. And then in terms of the Generis impact, is this -- is this just like 6 months of Generis, so maybe the full year impact of Generis would be larger next year? David Doft: Correct. So Generis, their events are largely split between first half and second half. We closed the deal in the middle of August. So we'll have 4.5 months of Generis, but they have no events from June through September. So their third quarter this year, no revenue. So it's all expense. So we didn't miss out anything in the second half on revenue, and there'll be some events in the fourth quarter that we'll benefit from. But ultimately, the first half of the year is about $10 million of revenue that we didn't get from Generis, that we'll get next year. Operator: Your next question comes from Allen Klee with Maxim Group. Allen Klee: Yes. Just following up on you're mentioning that there was -- there will be $10 million incremental revenue from Generis next year. If we look at all the acquisitions you made in 2025 and you didn't make them all on January -- none of them on January 1. How much revenue did they have in 2025 that you were not able to recognize because of the timing of when you acquired them? David Doft: For the other acquisitions, it's de minimis. All of their events happened post close. There might have been a couple of dollars of online digital revenue, but not even $0.5 million. So it's basically 0 pre-close. So there's not going to be a pro forma benefit of incremental revenue in '26 for Beyond and Insurtech, only Generis has that by now. Allen Klee: Okay. And then following up on the Las Vegas construction comments. Is there a general sense of like over the whole year, how much of an impact that's had on your financial results so that we could think about maybe that recovers next year? David Doft: It's a little difficult to be precise on that admittedly. But we get a lot of customer feedback that's qualitative about why they may not come back or skip a version or 2 of the show. And this was the dominant factor in the declines at this show that -- and so we're -- it makes sense to talk about it, like we know it's real. There were a lot of complaints and people say, I'll wait until the construction is done to come back because it really did impact the experience. And with that, the ROI. And these shows are about ROI. But we know based on the prior years that the event was healthy and delivering. And so this is really the key change that took place -- that led to the changing dynamic and performance of the event. It's hard to give a precise number. It's a few million dollars if you back into the math. Allen Klee: Okay. And then you talked about your AI-powered tool. Could you maybe give an example so we can kind of understand what it's projected to do? Herve Sedky: Sure. So the AI-powered tool that we just launched and that we will be scaling across our events over the next few months is really an agent and an agent that allows our customers to interrogate and basically get answers to both exhibitors and visitors to anything that they need around the entire customer journey. So instead of going to the website and reading all the material or reading exhibitor manuals and going through a lot of data, we basically simplified that experience through this agent. And that's essentially what we've just rolled out. David Doft: And I think it's hard to comprehend the magnitude of the complexity sometimes of managing a trade show experience. The manual, Herve, is often a 50-page document with specifications and rules that are required by the venue, required by insurance, and required by -- obviously by us. So if we can make that simpler for people to interact, it's actually a huge timesaver and satisfaction driver when you can eliminate like frustration and how to deal with that. Allen Klee: Okay. Just -- I know you've been on a journey of -- what's the right word, to have -- do things across the -- everything that you have through one process to get scale and savings. Any update on those efforts? Herve Sedky: I think we're progressing well. We call that internally our platform strategy, and we're progressing really well, and we're seeing the evidence of that as we acquire businesses and are able to incorporate them into the broader Emerald. So there are a couple of things that we see immediately. One is the best practice sharing. We were able to learn from businesses that we buy. One of the benefits of buying businesses, of course, is the great sectors that they're in, their growth profile. But another one is that there are some really good learnings that we can take and then deploy across Emerald and vice versa. There are some things that we have at Emerald that have been extraordinarily successful that we're able to quickly implement within the acquired companies. So that's a massive benefit of the platform. And the other one is really cost and efficiency, as you'll see through a very disciplined management of our SG&A that as we acquire companies, that is something that we have very well under control. David Doft: Yes. I think the acquisitions have kind of muddied the water a bit in the reported financial -- but if you peel out the business that we've won in the last couple of years, underlying SG&A at Emerald is kind of flattish for 3 years now. So we're getting a lot of leverage out of the organization. And as we continue to scale, we expect that leverage to continue and drive incremental dollars to the bottom line and thus higher margins. It will take us some time with these new acquisitions because they're overseas, and we didn't have previous scale presence overseas to integrate that and drive the incremental savings out of those dollars. But when we buy things in the United States and we operate in our core market, which is the vast majority of our business, we're already seeing meaningful leverage and expect that to be more and more apparent in the coming couple of years as the growth of the business translates more into bottom line growth.. Allen Klee: You're talking about acquisitions. I'm just curious on the M&A environment, any comments on just how much is potentially out there now relative to in the past? And how you -- do you think valuations are -- where valuations are relative to where they've been? Herve Sedky: Yes. I haven't seen a major change in valuations. And the opportunities are there. I mean, I obviously won't go through much detail, but the pipeline is strong, and we are actively exploring a handful of opportunities. So we'll continue to keep you updated as we make progress. But I feel very confident in our ability to continue to grow through M&A. It's one of the important growth levers that we have, not the only one, but an important one and one that we'll continue to use. David Doft: Yes. As you know, Allen, a very key component of our strategy that we've articulated over the last few years has been around portfolio optimization, which is at its core, the reshaping of our portfolio to continue to enhance our exposure to more growth areas. And probably the best evidence of the progress we've made, particularly in the last year is the pro forma organic growth versus the reported organic growth at Emerald. And you can see, despite the -- obviously, those issues, the convention center and tariffs this year and all of that, that's impacting some of the legacy brands at Emerald. But at the end of the day, we feel great about investing into exciting fast-growing industries when we can find the #1 show that gives us very high visibility to accelerated growth longer term. And you could see what that could do for the overall Emerald performance. And that strategy continues to be at the core of what we do here. And we're very active, as Herve said, we have a deep pipeline, and we continue to look for exciting opportunities to bring [indiscernible]. Allen Klee: Yes. I saw in your slide deck, now I don't see it, but here it is, 90% of trade shows hold market-leading positions within their verticals, which is quite impressive, just your positioning. I was curious, they're not a large part of your business, but any update on commerce and content segments? Herve Sedky: Yes. I think on -- both on content and commerce, it's an evolution of both businesses. So on the content side, as you know, it's been an area that has been an anchor to our growth. And so we have been investing and continuously shifting that business from relying on advertising to being more of a lead gen model, and we're making some very good progress, especially in the last few months, which I'm very, very happy about. We'll report about that in the coming quarters. And then on the commerce side, we really shifted our focus to one of profitability, and we've made some material progress in terms of really driving a profitable commerce business, whereas it went from unprofitable to breakeven to now contributor to EBITDA, which we're very, very happy with the team's progress on that front. Operator: There are no further questions at this time. I would now like to turn the call over to Herve Sedky for any closing remarks. Herve Sedky: Well, thank you. And to wrap up, thank you all for your time and participation. As I mentioned, I'm really pleased with how we performed to date this year with how sales are trending for the rest of the year and into early 2026. Importantly, we're on track to meet the 2025 goals that we set at the beginning of the year, even as we manage the volatility at some small number of events and stay mindful of the broader economic pressures that we discussed. That's the benefit of our increasingly diversified portfolio. That said, I'm generally excited about what's ahead, continue to see our strategy and investments pay off with more value to our customers with new opportunities for our teams and strong EBITDA growth for our shareholders. And so with that, I thank you for joining and wish you a great day. Operator: Ladies and gentlemen, this concludes today's call. Thank you for participating. You may now disconnect.

199天前Insight Analytics约5分钟阅读

MTZ 2025 Q3 财报电话会议

Operator: Hello, and thank you for standing by. Welcome to MasTec's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Chris Mecray. You may begin. Chris Mecray: Good morning, and thank you for joining us for MasTec's Third Quarter 2025 Financial Results Conference Call. Joining me today are Jose Mas, Chief Executive Officer; and Paul Dimarco, Chief Financial Officer. We have prepared slides to supplement our remarks, which are posted on MasTec's website under the Investors tab and through the webcast link. There's also a companion document with information and analytics on the quarter and a guidance summary to assist in financial modeling. Please read the forward-looking statement disclaimer contained in the slides accompanying this call. During this call, we'll make forward-looking statements regarding our plans and expectations about the future as of the date of this call. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K, as updated by current and periodic reports, includes a detailed discussion of risks and uncertainties that may cause such differences. In today's remarks, we'll be discussing adjusted financial metrics reconciled in yesterday's press release and supporting schedules. We may also use certain non-GAAP financial measures in this conference call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measures can be found in our earnings press release, slides or companion documents. I'll now turn the call over to Jose. Jose Mas: Thanks, Chris. Good morning, and welcome to MasTec's 2025 Third Quarter Call. First, some third quarter highlights. Revenue for the quarter was just shy of $4 billion, a 22% year-over-year increase. Adjusted EBITDA was $374 million, a 20% year-over-year increase, and this growth performance was the highest level since the first quarter of 2024. Adjusted earnings per share was $2.48, ahead of consensus by nearly $0.20. And despite a revenue record quarter, backlog at quarter end was $16.8 billion, a roughly $325 million sequential increase with every segment delivering backlog growth. In summary, we exceeded guidance across each of our revenue, EBITDA and EPS metrics, representing a strong period of execution for MasTec. This strong result is, in part, a testament to the scale and diversification we have achieved for MasTec over time, and we are excited about our outlook for the balance of the year and beyond, given clearly positive market conditions across all end markets we serve. I'd like to point out some further highlights about our quarter. Our Communications segment grew revenues 33% year-over-year. And EBITDA increased 38%, all organic. And EBITDA margins for the segment improved 40 basis points compared to last year's third quarter. Our Clean Energy and Infrastructure segment grew revenue by 20% year-over-year, and EBITDA improved 36%, virtually all organic. EBITDA margins for the segment improved 100 basis points compared to last year. Our Power Delivery segment grew revenue 17% year-over-year, and EBITDA increased 21%, all organic. EBITDA margins for the segment improved 30 basis points compared to last year despite a difficult year-over-year storm emergency response comparison that tends to be very profitable. These 3 segments make up our non-pipeline segments, which grew revenues by 22% for the third quarter compared to last year, EBITDA by 31% and achieved a 60 basis point improvement in EBITDA margins, again, virtually all organic. We highlight this because of the significant investments we've made to diversify our business and position us to participate and benefit from the changing landscape of both power generation and delivery. Our solid execution across these segments, coupled with the expectations of significantly improved pipeline market as natural gas plays a much larger role in future energy generation, position MasTec for continued growth and strong financial performance. MasTec's total backlog remained very healthy in the third quarter, reaching another record level despite significantly increased volumes burn experienced during the period. Third quarter backlog increased 21% year-over-year and was up slightly sequentially with a book-to-bill ratio of 1.1x. While the sequential backlog included a solid 8% increase from our Pipeline segment, our visibility in that segment is considerably better than backlog suggests. We continue to expect further backlog growth in the current quarter and to end the year at another record level. Turning to some segment highlights. In our Communications segment, the telecom infrastructure market remains dynamic. Our customers are making significant and growing capital investments to support broadband delivery across the country to replace older cable delivery systems, and more recently, to enable enhanced artificial intelligence applications. Third quarter revenue easily exceeded our planned contribution from nearly all of our top 10 customers, with higher capital spend seen in multiple regions across wireless and wireline construction, resulting in an impressive 33% growth rate versus prior year in the quarter. As expected, margins reached double digits and increased 140 basis points sequentially as well as 40 basis points versus the prior year. Still, the 11.3% EBITDA margin leaves room for improvement as investment requirements for growth moderate. We believe we continue to have significant margin opportunities looking forward. MasTec's wireless business continues to see solid growth from both geographic expansion and providing new and broader services to existing customers. On the wireline side, demand strength continues to be supported by substantial broadband infrastructure build-out by legacy telecom players, cable operators, as well as newer entrant fiber overbuilders. This race to connect consumers to broadband fiber continues, and we are well positioned to execute deployment nationally. Further, middle-mile broadband build-outs have emerged as an additional growth driver for years to come, and hyperscaler CapEx associated with the data center build-out is contributing to this additional growth for fiber deployment. Our contract with Lumen, which has begun to ramp up in recent months, is anticipated to drive solid and visible growth for our business in 2026. Turning to Power Delivery. While third quarter financials were solid, profit and margin year-over-year comparisons were impacted in the period by a lack of storm-related restoration services against a more normal comparison in the prior year as well as lower than planned volume from our Greenlink project due to permitting related delays as has been reported in the press in recent weeks. We have factored both changes into our full year outlook as well. Despite these challenges, we expect our Power Delivery segment to achieve double-digit growth in both revenues and EBITDA for full year 2025. Further, our bullish stance on overall grid investment demand remains undiminished, and feedback around load growth and capital spend projections by our power delivery customer remains very positive. Implied requirements for grid investments in the coming years are substantial. We see ongoing growth of anticipated power demand set against an aging infrastructure that does not meet either the capacity or the physical location of the sources of incremental supply and demand. We continue to expect large CapEx commitments across transmission, substation, distribution as well as new generation capacity. Third quarter backlog for Power Delivery increased 11% versus the prior year quarter and increased slightly from second quarter despite an increased burn rate. Post quarter end, I'm pleased to announce that our transmission and substation group within our Power Delivery segment was awarded its second largest project ever, trailing only Greenlink project in size. We expect the project to start in mid-2026 and to be added to backlog by year-end. We will discuss this project in more detail on our year-end call. Turning to our Clean Energy and Infrastructure segment. While adjusted EBITDA increased 36% year-over-year, I'd also like to highlight that we have more than doubled our EBITDA from the segment versus the first quarter, demonstrating the considerable progress we've made during 2025. Renewables demand remained very healthy in the period, and we were pleased with execution for the business, which saw significant growth both year-over-year and sequentially, while meeting our margin target of high single-digit, consistent with the prior quarter and improved from the prior year as we continue to benefit from enhanced focus on execution and working closely with our trusted partners. Our Industrial and Infrastructure business continue to show collective growth with execution on key projects showing results and reflected in strong margin outcomes. We are excited about future growth here from both ongoing transportation and other infrastructure opportunities and from substantial growth potential related to data center build-outs, including both civil work as well as behind-the-meter power infrastructure. Overall, backlog for Clean Energy and Infrastructure of $5 billion increased 21% from the prior year and 2% sequentially with a book-to-bill of 1.1x. This included a 9 straight sequential increase in renewables backlog. It's important to note that reported backlog is only estimated 18-month backlog. A number of our recent wins have been for projects with late 2026 starts, where only a portion of the estimated revenue is included in backlog. While our renewable growth will be driven mostly by solar, we've been very successful in securing wind projects for 2026 and beyond. We believe we are well positioned at current backlog levels for strong continued growth in this segment. Turning to our Pipeline Infrastructure segment. We saw revenues increase 20% year-over-year as we returned to growth after lapping the challenging comparisons of the wind down of the MVP project. The third quarter represented the best margin performance for the year for our Pipeline segment. While still down from the previous year, we expect continued margin improvements and expect our fourth quarter to be the highest margin quarter of the year in this segment, setting us up very well as we enter 2026. This margin improvement, coupled with expected revenue growth, creates significant opportunities for earnings growth in 2026 and beyond. Total Pipeline backlog increased 8% sequentially to $1.6 billion and more than doubled from the same period a year ago. We added more than $600 million of new bookings in the period and saw a book-to-bill ratio of 1.2x despite the higher level of burn. Third quarter backlog saw the inclusion of our activity on the Hugh Brinson project, which actually started in the third quarter. We don't normally call out specific projects on our calls, but this project is a good example of how pipeline work is being awarded today. While rumors of our involvement in this project started in the first quarter, we received final signed contract documents just this quarter and physically started work shortly thereafter. I say all this to highlight that while backlog is an important metric in this segment, our visibility into future work is far greater than just backlog. There are a number of projects that we will build starting in 2026 where final contract documents may not be completed and thus not reported in our backlog until close to project kickoff as all variables get included in final contractual documents. We remain optimistic and confident in both the short- and long-term growth outlook for our Pipeline segment. Gas-fired generation will be a critical source of incremental baseload power generation for decades to come. And our customers are getting ahead of the process to supply this important demand source while also meeting the needs of near-term LNG export demand growth and continued demand at the consumer level to replace fuel oil and other sources. In summary, we are pleased with our third quarter results and maintain strong confidence in expected growth based on drivers and powerful demand drivers across each of our businesses. In addition, we are continuously looking for ways to optimize our operating model to generate the best possible margin outcome, and we see multiple levers to achieve better margins as we look ahead. We remain very excited about the opportunity for MasTec and our investors over the coming years. As always, our enthusiasm for the outlook is grounded in execution and in the hard work of every person on the MasTec team. I'd like to thank all of our people for their continued commitment to our corporate values of safety, environmental stewardship, integrity and honesty, all while serving our customers diligently and ensuring the delivery of a great work product. Thank you, all. I will now turn the call over to Paul for our financial review. Paul? Paul Dimarco: Thank you, Jose, and good morning. As Jose mentioned, we are pleased with our strong third quarter results, driven by continued sequential volume improvement and solid execution across our operating segments. Looking ahead, our customers continue to highlight a growing need for MasTec's broad service offerings to meet their infrastructure development goals, giving us high confidence in the growth trajectory of our business across all 4 operating segments. Infrastructure investment needs across communications, energy and power sectors as well as civil and commercial infrastructure remain in the strongest position we can recall and reinforces our positive outlook for years to come. Now looking at our third quarter segment performance. Our Communications segment continues to produce substantial and robust growth with revenue of $915 million, topping our forecast notably in the third quarter, generating 33% year-over-year growth. The business remains well positioned to leverage strong demand for both our wireless and wireline service offerings, including an increasingly diverse customer set seeking to deliver broadband telecom infrastructure to both residential and commercial end users. Third quarter EBITDA margin was 11.3%, an increase of 40 basis points versus 10.9% in the prior year and a notable 140 basis point increase from the second quarter. We've reduced our full year margin guidance slightly to reflect the investments made to support our strong organic growth rates. The overall telecommunications end market and our visibility remains strong with third quarter backlog totaling $5.1 billion, a small increase sequentially despite the record quarterly revenue in the period. MasTec's Power Delivery segment also continues to post significant growth with a 70% increase in third quarter following a similar year-on-year growth rate in Q2. We continue to see strong growth opportunities across the country through our diverse service offerings that enable our customers to invest in upgrades and new capacity across the U.S. power grid. Our updated guidance does reflect a lower level of activity than previously expected on Greenlink in the fourth quarter as our customer works through isolated delays due to permitting. We are actively constructing other components of the project, and we expect that to continue. EBITDA margin of 9.4% for the third quarter increased 30 basis points from the prior year and 70 basis points sequentially, but fell below our low double-digit forecast for the period. While an encouraging result in most respects, the outcome was impacted by project mix versus our forecast. We continue to expect improvement in the margin performance of our base business over time through continued strong execution, operating leverage and project mix. In our Clean Energy and Infrastructure segment, total revenue for Q3 of $1.4 billion represented a strong 20% increase from the prior year and a similar 21% increase sequentially as our renewables business ramp continued as planned. Overall, segment revenue was about in line with our third quarter target with renewables meeting forecast while growing almost 50% year-over-year on record demand for new renewable power installations. Third quarter CE&I EBITDA increased 36% year-over-year, significantly outpacing the revenue increase as margins in this segment increased 100 basis points to 8.5% as well as 110 basis points sequentially. Renewables margin was stable sequentially as expected at solid single-digit levels -- high single-digit levels, while we captured anticipated operating leverage across Industrial and Infrastructure from higher volume and strong operating execution. CE&I backlog, which totaled just over $5 billion, benefited from solid new bookings across all business verticals, contributing to 21% increase from the prior year third quarter and a 2% sequential increase. We have substantial renewables backlog in place now to support a strong 2026 outlook, which we expect to show solid growth versus 2025. Our Industrial and Infrastructure business are also well positioned to continue to win work in the balance of the year to support a higher backlog at year-end and ongoing volume growth into 2026. Turning to Pipeline Infrastructure. Third quarter revenue of $598 million was an impressive growth rate of 20% from prior year and an 11% increase sequentially as the business ramps from volume lows seen in the first quarter. The pickup is inclusive of a broad-based increase in gas pipeline work nationally, though the beat versus plan of over $20 million was led by New York ramping -- new work ramping in the Southern regions. EBITDA for the quarter of $92 million with a 15.4% margin met guidance of mid-teens for the segment. The comparison to the prior year on a margin basis remains challenged by the current ramp of new work versus the prior year outcome, positively impacted by project closeouts. Pipeline backlog of approximately $1.6 billion increased 8% sequentially and 124% from the prior year, with new awards totaling over $600 million in the quarter, offset in part by increased burn rates. We again saw diverse project awards, including the large job Jose I mentioned as well as a number of smaller midstream project wins in the period. As Jose noted, we're pleased with the overall strong demand set and opportunity pipeline and other -- sorry, in Pipeline and have received significant verbal awards that we expect to convert to backlog in the coming periods as we get closer to construction start dates, usually within 30 days of mobilization. As a result, the impact of new awards to our Pipeline backlog may be less pronounced than in other segments. Our excitement for this oncoming investment cycle continues to accelerate, and we foresee solid growth in our Pipeline segment for 2026 and beyond. Regarding our overall progress on margin expansion, we are pleased with the consolidated result of 9.4% in the third quarter, which was a really strong 160 basis point improvement from 7.8% in the second quarter and a fairly dramatic lift from the starting point of 5.7% in Q1. The margin progression we have now recorded comes from our continued focus on operating productivity and cost management as well as solid operating leverage as our volume has increased. We have noted an expectation of full year double-digit margin as our midterm objective, so we still have some work to get there. Our third quarter results, while improved, were generated by project mix and productivity that is, as of yet, still not fully optimized. The bottom line is we continue to expect annual positive margin progression, which will continue to be a primary focus for MasTec. Regarding our updated consolidated guidance, our supplemental guidance document for segment and other financial guidance details is now posted to the IR website. We are increasing 2025 full year revenue guidance to $14.075 billion with adjusted EBITDA of $1.135 billion, slightly above the low end of our previous guidance. Our revised outlook reflects higher than previously anticipated levels of Communications and Pipeline activity, offset by lower Power Delivery revenue than previously expected due in part to timing of activity on Greenlink in Q4 as our customer works through the isolated permit delays. Adjusted EPS is forecasted to be $6.40, up 62% versus 2024. We generated cash flow from operations of $89 million in the third quarter and free cash flow of $36 million, slightly below our expectations. Our strong sequential revenue growth and associated higher working capital investment as well as higher capital expenditures to accelerate growth impacted these results. We continue to expect $700 million to $750 million of cash flow from operations for 2025, assuming DSOs average around the mid-60s for the year. We ended the quarter with total liquidity of approximately $2 billion and net leverage of 1.95x, and we expect further leverage improvement by year-end given earnings and cash flow expectations. As I noted last quarter, our strong balance sheet provides us significant financial flexibility to pursue a disciplined return-focused capital allocation strategy. Our top priority remains supporting our robust organic growth opportunities through investments in equipment and capacity expansion where we see compelling returns. We will also continue to evaluate opportunistic accretive acquisitions that complement our existing service lines, consistent with our long-standing approach. In addition, we maintain a share repurchase authorization and will deploy capital to buybacks opportunistically. This concludes our prepared remarks. I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Ati Modak with Goldman Sachs. Ati Modak: I guess, Jose, on the Pipeline backlog, thank you for all the color. Curious if you're able to directionally guide to the level of revenue that these projects and ongoing conversations could lead to for '26? And maybe you can give us a sense of what that backlog growth looks like in the near term given all these conversations. Jose Mas: One of the reasons we really tried to highlight a specific project on today's call was to kind of talk about the change that we're seeing in how pipeline work is being awarded. I remember years ago, when we would have these calls, we would talk a lot about book and burn. And the reality is that the business the way it is today, it's almost returning to that level. We've got commitments from customers on specific jobs. They want to leave the books open to kind of get all the details of the project done by the time they sign a contract. We're, quite frankly, ready to start construction, which is very favorable from a risk profile perspective, where it doesn't work because it doesn't give the Street great visibility into our backlog. But conversely, we do have that visibility, right? So when we talked about the strength of our pipeline market, we're more optimistic today than we've been. On our last call, we talked about reaching or exceeding historical high levels of revenue. I can tell you today, we're more confident about our ability to achieve that now than we were then. It's not for '26. This is not a '26 story. I think we'll grow the business double digits in '26, but really the growth is going to be substantial in '27 and beyond from what we're seeing from the projects that have been committed to us, and it's extremely exciting. Again, from a margin perspective, it's a business that we struggled with on a year-over-year comparison this year because of the closeout of MVP and the lower revenue levels. We're going to see that business get back to a strong margin profile in Q4. It obviously had significant improvements in Q3 at 15.4%. We expect to do a lot better than that in the fourth quarter. And that bodes really well entering '26 and beyond. So we're excited about our margin potential in the business, and we're more excited about the revenue opportunities for beyond '26 and into '26. So exciting times. Ati Modak: And then I know you gave the color on the capital allocation strategy. So I guess on the organic growth side, can you remind us what the CapEx level should be on a run rate basis as we consider the opportunities out there? And then also on M&A, I mean, I know you've spoken about a third transmission line capability down the road and need for M&A around that. But curious if given what's going on in the market, you would look at something on gas power generation as well. Paul Dimarco: This is Paul. I'll start with the CapEx question. So in the near term, with the outlook we have for Pipeline, which is our most capital-intensive end market, you can expect CapEx to run in front of depreciation a little bit, right? So depreciation is running about $300 million right now. You should expect it to be north of that, probably around $350 million going into '26, but it depends where the growth comes from. Obviously, we have other segments that are much less capital intensive. So that's kind of a near-term, maybe '26, '27 view. Jose Mas: On M&A strategy, I'd say a couple of things. I'd say our focus hasn't changed. We will be more active in the M&A space going forward. As it relates to power generation, I think we've historically had an Industrial business that we've done some projects. We haven't really done combined cycle. I don't know that that's an area that we would get into. At the same time, one of the fascinating things about our business today is I think everybody is being asked by customers to really look at different things and different opportunities, which creates new opportunity revenue streams for all of us in the space. And I think you'll see MasTec pick up its share of that as well. Operator: Our next question comes from the line of Jamie Cook with Truist Securities. Jamie Cook: Congrats on a nice quarter. I guess my first question, Jose, can you just talk about the permitting issues with Greenlink and how that impacted your guidance? Should I just assume that's a change in your Power Delivery revenues and then like the potential risk that you see on Greenlink in 2026 and the potential to offset that? So that's my first question. My second question, obviously, a lot of large work out there across multiple segments. You're on Greenlink, Hugh Brinson, you won another pipeline job. Just wondering, I guess, across each segment or across the company, given your -- the number of employees you have today and the size of your company, how many large projects do you feel comfortable taking? Do you [ know you mean at one time ], just given the risk profile of larger projects just from an operational execution standpoint, just how you're thinking about that? Jose Mas: Jamie, I think you got a lot of questions into that one question, but let me try to start from the top. Jamie Cook: Okay. Jose Mas: Look, our fourth quarter change is primarily Greenlink. That's what it is, right? We're at the lower end of the range that we had originally put out for Q4. The difference between the low end of our range and the high end of our range for Q4 was about $30 million of EBITDA. That's all coming out of our Power Delivery business for the most part, and that's the big change. As it relates to Greenlink, we've said a lot historically. We've -- it was an incredible win for our company. We're really excited to be working with the customer. Obviously, they're facing some challenges on permits, quite frankly, that were originally issued and are now being reviewed. We've said that we expected the run rate on that project to be $300 million to $500 million a year over a number of years. We gave more clear guidance over time on '25 of $375 million to $425 million. The truth is that for '25, we're going to end up -- it's more like somewhere in the $250 million range. So it's a significant difference from what our expectations were of ramp in the second half of the year. With all that said, that project will be built. It's an exciting project. We will build it. We're hoping that the time schedule doesn't really change from a completion perspective, which is just going to increase the load on that project over the coming years. We announced today another transmission substation job within that business, which is the second largest award we've ever gotten within that group. That will help, obviously, in 2026. We're hoping that that's additive to what we would have done with Greenlink, but at a minimum, it will significantly help offset it if that becomes the case. We expect Greenlink activity to increase in '26 versus '25 from current levels. So the story in our mind is really solid. It's intact. When you talk about large projects, I think it's almost important to really -- I'm switching subjects now to the large project part of your question. I think it's important to kind of think about different businesses, right? We don't really have large projects in Communications. In Pipeline, for the most part, it's a project-oriented business. We don't have projects like MVP anymore. The projects will be smaller in scale, which were a lot more like the projects we've historically built. So I think we have an enormous amount of comfort as should our investors relative to that. When you think about our Clean Energy and Infrastructure business, it's -- we've got a nice maintenance business there, our Infrastructure business. But at the same time, there are more projects there. You should feel comfortable with the level of performance in that business. Again, we've doubled profitability since the first quarter. So I think people should have comfort around that. When we talk about Power Delivery, it's a $4 billion segment. Of that business, 80% to 90% of that business is maintenance driven. It's MSAs. It's working for utilities every day. It's working on distribution lines. It's working on substations. So it's a very recurring predictable business. We've highlighted the project end of that business because it's where we were the smallest, right? Greenlink was really the first of many projects that we felt could grow our project orientation around that market. So let's take a step back. 17% revenue growth in the quarter from a revenue perspective in Power Delivery, 21% EBITDA growth. For the year, we're expecting 13% growth in Power Delivery, 13% EBITDA growth. That's important because that's despite Greenlink not having the activity that we expected. Had Greenlink had the activity, obviously, those numbers would be a lot bigger. The project portion of our Power Delivery business is one of the biggest growth potentials that MasTec has. It's one that we need to cultivate and build. Again, it doesn't risk the portfolio because it's such a small percentage of MasTec's overall business, but it is important to the growth of our Power Delivery business. So I'd say all this to say, we're very excited about Greenlink. We're very excited about what the opportunity means. We're very comfortable with our ability to execute on that project at a high level. We're super excited about our next win that we'll talk about more on our next call and what that means to MasTec and quite frankly, potentially future wins that exist. So I think our investors should have tremendous comfort around how we've grown the business, how we've thought about the projects, how we thought about the risk profiles and the opportunities that they bring to MasTec. Operator: Our next question comes from the line of Philip Shen with ROTH Capital Partners. Philip Shen: Just wanted to check in with you guys on next year. Is -- do you think $8 of EPS is still on the table for next year? Or can we assume that this has potentially moved higher after your recent wins? Jose Mas: Philip, thanks for the question. A couple of things, right? When you look at consensus out there, we haven't given guidance. Consensus today is 10% revenue growth on a year-over-year basis, 20% EBITDA growth on a year-over-year basis. We've said that consensus relates to north of $8 a share, which is 25% EPS growth from '25 to '26. I'd tell you today, we're really comfortable with where consensus sits. We're working really hard to obviously continue to grow and build our business. But I think just where consensus stands, right, 10% revenue growth, more than 20% EBITDA growth, those are fantastic statistics, right. And a company that's done most of its growth on an organic level, that's nothing to sneeze at. We're proud of that. We hope to do better. But yes, we're comfortable with where the numbers sit today. Philip Shen: Great. That's very helpful color. And then shifting to margins. It sounds like next year, the margin expansion narrative is very much on the table. I just wanted to touch on Q4 specifically. Can you help us understand the basis point impact from OpEx investments versus gross margins -- gross margin percentage? Is the gross margin percentage holding up in Q4? Jose Mas: Yes. The way we think about it, right, is, again, we've had really high levels of growth. And unfortunately, with really high levels of growth, you have certain investments that are made to execute on that growth. And not all of our growth is same-store sales, and we've kind of used that example historically where -- same stores is a lot easier to grow with because you already have an office, you have people and you're just incrementally growing revenues, which is what you want to do to increase margins over time. But we've expanded in a lot of new geographies. We've opened a lot of new offices. We're working for new customers. And those require more investments. And I think that when you look at the margin profiles that we've laid out from the beginning of the year, we've got some puts and takes. Some businesses are doing better, some are doing slightly worse. I think it's all driven by that, right? So we've made significant investments to the growth profile. Those investments will pay off. I can tell you that as a company, one of our major focuses is definitely our margin improvement. We think we've got room, quite frankly, across all of our businesses. Again, when we think about fourth quarter, we think the major change is really what's happening in Power Delivery. If you look at -- we've had some questions overnight around Communications and their margins. The reality is if you look at EBITDA dollars on where we guided versus where consensus was, it's no different. We just have a little higher revenue. And again, that talks to the impacts of investment in growth. So we're really comfortable where we're at. We know we can do better, which I think is a positive. We've got to execute on that. But we feel really good about where our business stands and the opportunities ahead of us. Operator: Our next question comes from the line of Steven Fisher with UBS. Steven Fisher: Congrats. Just a follow-up on that last question, but maybe more specifically to the Communications segment. I mean it seems like there really is a broadening set of opportunities there, and you did call out some of the investments that you're making. Can you just talk about the shape of those investments? Kind of is there a lot more that you need to go? Or are you sort of at the peak point of that? And just how the margins can evolve there over the next year or 2? Jose Mas: Thank you, Steve. I'd highlight a couple of things. First, margins improved 40 basis points year-over-year to 11.3%, which is one of the highest levels that we've had in a long time. When we think about fourth quarter, we're showing almost 100 basis point improvement on a year-over-year basis for the quarter. Also, we think, really solid. So I think we're headed in the right direction. We've -- at the end of the day, that business is going to grow almost 30% on a year-over-year basis, which is just a staggering number, again, organically. And a lot of that has to do with investments in new geographies. And those investments are harder because you're opening new offices, you're either moving people or hiring new people, and it takes longer for those investments to translate into earnings, right? So I think we've been doing that for a long time. We're seeing the results of those earlier investments already in our numbers or we wouldn't be able to hit these, right? So it's a lot of the stuff that has been done more recently that's having the negative impacts or really the drag. And again, we're working our way through that. We have opportunities for further growth in 2026. The market is really hot. I think that with all of the changes that we've seen in the government, and I know we've talked about BEADs for a really long time, but I actually now believe that BEADs is going to have a pretty significant impact on our business and our customers because of how it's changed in the profile of customers it's going after it. So I feel really comfortable that that's going to be a further growth driver as we think in '26. But everything that's happening with data centers and AI and the need for fiber and the middle-mile fiber growth that we're seeing is just providing tremendous opportunity for us across the country. As we obviously increase in size, the growth requirements moderate because we're in a lot more places, a lot more geographies. So again, we feel really good about the progress that we made this year in the growth of that business and really what it's going to translate over time. Steven Fisher: And if I could ask a follow-up on the Power Delivery side. I know you talked about not having as much revenue on Greenlink this year, and that's taking some of the profits down. But I guess on the bigger picture about the project itself, does this delay impact the overall expected profitability for the whole project? Or is it just a pushout in timing? And then the bigger picture question is, as this translates to sort of a thought on risk for overall transmission projects that you're going to be taking on over the next couple of years, how should we think about the risk approach that you're taking there? Is this sort of like a reminder that you should be kind of very prudent in the risks you're taking on in these transmission projects? Jose Mas: Steve, I think we've got to be prudent in all risk that we take in all jobs in all of our businesses. And I think that's where I think we've been great stewards of MasTec in really understanding the risk profiles that we're committing to and contractually protecting ourselves against those. As it relates to Greenlink, again, we're working with our customer. We have a high level of confidence in both our and our customers' ability to get that project done and to get it done safely and timely. We do not expect any impact to profitability whatsoever on that project over the period other than obviously it being in different periods than what we originally expected. So our -- again, our confidence and our excitement around Greenlink is unchanged. We expect it to be a very successful project for both our customer and MasTec. And again, we'll provide more updates as they come. But we don't expect any negative impacts in '26 other than from a revenue perspective, what it could be to what it ultimately is, and it's just going to compress the time line. Operator: Our next question comes from the line of Andy Kaplowitz with Citi. Andrew Kaplowitz: Jose, Quanta yesterday talked about a total solutions opportunity for hyperscalers. We know you don't have the same exact portfolio as them, and you talked about not being particularly excited to combine cycle, but you do have significant capability to help data center customers. So what's the probability that we'll see something like that, like a total solution set of projects for MasTec starting in '26? And could you update us on the journey to $1 billion that you originally discussed you could do with data center customers? Jose Mas: So I'd answer the first part of your question just by saying very high, and I'd answer the second part of your question by saying I think that, obviously, data centers offer an incredible opportunity to companies like MasTec in our industry. We're involved in a number of different things already when you think about what's happening on power, when you think on what's happening on fiber directly for data center builders, right? We're looking at -- we've been working on the civil side for a long time. We've talked about it. We're working on the infrastructure side. But I think our ability to take a larger role and a more important role as we think about those projects on a future basis and really capture a higher percentage of that revenue, again, is extremely high. Andrew Kaplowitz: Great. And then could you give a little more color into what's going on in Clean Energy? I think 8.5% EBITDA margin is a high watermark for MasTec. I understand Q3 is a seasonally good time of the year, but do you think margin on an annual basis can continue to push higher in that segment? And you did lower your revenue outlook slightly in the segment, though you're still going to do double-digit growth. So how are you thinking about growth across Clean Energy going into '26? Jose Mas: Again, great quarter, 20% revenue growth. More importantly, 36% EBITDA growth for the quarter. We pretty much beat our margins every quarter there relative to what we've guided. I think we're somewhat conservatively guided for Q4. Hopefully, we can do that again. Business is doing really well. Again, our Clean Energy and Infrastructure business is a combination of renewables and infrastructure. I think if you think about the Infrastructure business, it's obviously a slower grower. That's a business that if we're growing at 10% a year is really solid. So our renewable business is obviously growing much faster than that. We're sitting on the highest level of backlog we've ever had in the business. We expect backlog to again increase in Q4, incredible opportunities in front of us. A lot of backlog post the 18-month period where we don't even report. So we're feeling really comfortable about where that business is headed. I think it's going to continue to help drive significant growth in our Clean Energy business, and our margins have improved. We're hopeful we can sustain that and over time, improve on that. So all around, we're feeling really comfortable where we stand there and the opportunities for '26 and beyond. Operator: Our next question comes from the line of Justin with Baird. Justin Hauke: Great. I guess I've got 2. One is just a really quick one. I just wanted to confirm just on that Hugh Brinson project. Is the full value of that project in backlog? It looks like, I guess, supposed to complete at the end of '26. So I just wanted to ask that. And then my second question is just on the cash flow. Obviously, last year was a huge cash flow year. You've got pretty big guidance here for the fourth quarter ramp. And just curious what are the contributors to that moving pieces that drive the 4Q cash flow number? Jose Mas: So I'll cover the first part of the answer. The answer is -- on the mainline, the answer is yes. There's pieces of that project that are potentially not in backlog yet. Paul Dimarco: And then cash flow is just a function of the revenue cadence, right? So we're forecasting revenue to contract sequentially in the fourth quarter. I think expect a little bit of DSO improvement, we've got a little bit of degradation up to 69 days in Q3 that we expect to come back down to the mid-60s. So the combination of those 2 is really what drives the release of the working capital investment in Q4. Operator: Our next question comes from the line of Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Just wanted to follow up on my friend, Steve Fisher's question here a moment ago. Can we go back to the comms business? Can we talk about the bifurcation, what's the growth in the wireline versus wireless? And what's being implied for 4Q '25 here? Just, what's the cadence? Should we expect that to continue here when you think about that 33%? Or how are you thinking about that persisting? I hear a little bit of mixed commentary. I would love to hear how you break it out, especially in light of this Lumen contract. Jose Mas: Sure. I mean there's no question that today, our wireline business is bigger than our wireless business. It's been the case for some time. Our wireline business is growing faster than our wireless business. Our wireless business is predominantly -- our biggest account there is AT&T. So obviously, their project to their Nokia-Ericsson swap-out was a big driver of that. That project started for all intents and purposes in the fourth quarter of 2024. So that has been a driver -- a helpful driver in our [indiscernible] growth. Comparisons there get a little bit harder in Q4. So we've moderated our revenue growth in Q4 versus what we've been achieving for the first 3 quarters. With that said, our wireline business is growing very rapidly. So I think -- I don't have the exact number, but I believe our revenue growth in the third quarter is estimated to be in the mid-single digits. And again, something that we're hoping to beat. But again, feel really good about where the business is and where it's headed. Julien Dumoulin-Smith: Got it. All right. So fingers crossed on beating that number there, perhaps handily. And then maybe just on backlog real quickly, just to talk about this real quickly. I mean it almost seems like there's a shadow backlog emerging here, if you want to call it that for Pipeline. Can you speak to a little bit of like how to size that up? I mean, relative to the $1.5 billion-ish of backlog you have in the Pipeline business? Any kind of order of magnitude? Any way to think about it? Obviously, [ ET ] got other projects like DSW coming up here. I mean, anything that you can kind of point to that you'd flag. And maybe in a similar fashion, transmission project awards seem to be heating up here as well. Do you have -- you kind of alluded to sort of shadow backlog or opportunities there as well, if you can speak to it. Jose Mas: So I think the best way we've been able to do that, right, is to talk about future revenue potential in Pipeline. And what we've said is, which is something that we would never have said a year ago or even probably 6 months ago is we now see the ability to exceed historical high revenue levels in that business. To kind of remind everybody, historically, our high years in that business were about $3.5 billion in revenue. We're guiding at [ $2.2 billion ] this year, and we now have a path to meet or exceed historical levels. I think that's the best way to kind of frame where we see the opportunity, again, not for '26, but for beyond. So I think -- and I feel better about the opportunity to do that today than I did last quarter. As it relates to transmission, to be clear, today, we announced another win within that segment of our business, which will be substantial, which is important and it's something that will kick off in the middle of '26. We'll give more details on that project on our next call, but we think a really important fact, we said a long time ago, we expected to win something else in late '25, early '26. I think it's something else that we're now able to deliver on. And again, we'll talk about that more on our next call. Operator: Our next question comes from the line of Marc Bianchi with TD Cowen. Marc Bianchi: I wanted to ask about the backlog and maybe similar to -- or along the lines of what Julien's first question was there. But if we look at -- maybe rewind 18 months and look at where kind of backlog was at that time, the ultimate revenue that you delivered, you had sort of like 64% coverage of that revenue over the following 18 months here. And as I look forward from today and you look at the composition of backlog, is there any reason that we shouldn't think about that ratio of conversion or backlog coverage being a whole lot different? You mentioned the Pipeline where maybe that's turning to a bit more of a book and burn type of aspect. So just curious if there's any comments around that comparison? Jose Mas: Marc, it's a good analysis. I mean I think as we think about it, obviously -- I think historically -- in our history, there's been a few periods where we've continually beat backlog quarter-over-quarter-over-quarter. Backlog at times, tends to be lumpy as you win awards. The fact that we've been able to deliver continued growth in backlog to me is as meaningful as any of the percentage statistics you can come up with. I think it definitely shows where the business is headed. So again, we feel really good about where we stand. We think that with all that said, I think there's a lot of opportunity to further increase backlog and further help that. So I do think that backlog is a reflection over time of where your business is headed. And I think over time, we've delivered great backlog results, which will translate into further revenue growth. So whether I can pin down the specifics on whether the historical percentages are going to play out exactly the way they did, to be honest, I haven't done that math. It might be interesting to do offline, but I haven't done it. But I can just generally tell you that we see momentum in our business. It's supported by our backlog growth and more importantly, supported by the opportunities that we see coming. Marc Bianchi: Okay. Great. And I guess just the other one back on Communications. So the '24 was a down year, '25 was a recovery year. What do you think as a placeholder for '26 growth? Do you think this business could do double-digit growth, top line growth in '26? Jose Mas: Yes. Operator: Our next question comes from the line of Brian Brophy with Stifel. Brian Brophy: Just following up on some prior discussion. In the past, you've talked about having the capacity for 2 large transmission projects at once. Obviously, it sounds like we're going to hit that here next year. But you've also made a lot of investments on the headcount side. Curious if you're still thinking 2 projects is kind of the limit? Or how you're thinking about potentially adding capacity on the transmission side to take on more? Jose Mas: There's no question in our minds that we're going to continue to build that business to take on more projects and to have the ability to take on more projects simultaneously. So you start with 1, you build the 2, you eventually get to 3, right? So you can't put -- you can't get ahead of yourself. Again, we're excited about where we stand and the potential that we have in that business. There are other opportunities out there that we're also interested and we're evaluating. So we expect over time to definitely win more. Brian Brophy: Okay. And then also following up on some of the prior discussion. It sounds like combined cycle is a little bit less interesting. But how do you guys think about potential opportunities on the single cycle side in gas? Jose Mas: Brian, it's a huge opportunity. Obviously, there's a lot going on. We do play in that space today, albeit at a smaller level. It's a question that we've constantly got to answer, how much are we willing to invest, how much -- it's -- look, it's a very different business than what we've historically done. Risk mitigation in that business is the entire business because there is -- there are risks associated with that business that we don't typically see in other parts of our business. So understanding that and really managing towards that in my mind is the difference between a great project and a bad project. So we're looking at opportunities, definitely an area that we will engage in, but we will be cautious in our engagement around that. Operator: Our next question comes from the line of Brent Thielman with D.A. Davidson. Brent Thielman: Great. Just one more for me, really, just on the Pipeline side. Jose, you mentioned this change in how some of these things are being awarded. Can you just talk a little bit about maybe relative to past cycles, the competitive environment, is it different? Are the potential economics on these projects different than past cycles, especially as you seem to pretty close to the customers talking about these long-term engagements? Jose Mas: So Brent, I think that there is no difference in the earnings opportunity historically, right? I think we've really performed at a really high level historically. I don't think we're sitting here saying that we've got tremendous opportunity to improve on that, but we definitely have opportunities to get to that. And that's a significant difference from where we've been over the course of the last really 2 years. So -- again, not just because of the revenue opportunities, but because of our ability to execute at a higher margin level in those businesses probably what excites us the most. And there's no reason that we shouldn't be able to deliver at historical levels. I also think we're working with our customers. We've got a lot of long-term relationships. We're not here to take advantage of our customers and try to make all our money on one job. We're going to work with our customers to hopefully get a significant size of their plans and their capital that they spend. And in that, we want to make a fair margin. We want to make a historical margin, but I don't know that we're necessarily looking at elevated margins. Operator: Our next question comes from the line of Liam Burke with B. Riley Securities. Liam Burke: Jose, you're talking about specifically telecom, but I guess it can go across your businesses that you're moving into new geographies and opening new offices. Is that your existing customer pulling you into that market saying, "Hey, we need you?" Or are you just identifying the market, and that's where you decide to invest? Jose Mas: I think it's both new and existing customers, right? Obviously, I think we've done a good job at increasing our share of business with existing customers, especially as we look at a holistic approach across all of the businesses that we offer. The truth is that in today's world, a lot of our customers can use a lot of different MasTec services. I think we've done a good job at cross-selling those services and putting us in a position to build for those customers differently than we have in the past. On top of that, again, I think we are -- especially as you think about Power Delivery, we are newer in the space as we've really made a huge push in that business post 2021. So I think our brand recognition has significantly increased in that business, and we're getting a lot more opportunities from new customers because of it, and we will help deliver for those new customers. So I think it's a combination of both. Whether it's for an existing or a new customer, if you're opening a total new geography, it's really not that much different in terms of the investment in the payback. But the decisions that we've had to make, right, or do we do this organically or do we do this through M&A. And I think that for the time being, we've decided to do most of that organically, which I think over time has higher return profile, and I think we've executed to that. And I think going forward, you'll see a mix of that. Liam Burke: Great. And just quickly on renewables. You said that it was heavily weighted towards solar this year, but your order flow is looking towards wind in 2026. Is that new build? Or is it just upgrades and maintenance? Jose Mas: Yes. So Liam, to be exact, what we said was we expect our renewable growth to be driven by solar because that's what's growing faster. So the bulk of our business today and in the future will continue to be solar. I think we highlighted wind because there's been a lot of questions about how the wind business is doing and where the future of the wind business is. And I can tell you that it's an important part of our portfolio. Between what we put in backlog and what we expect to put in backlog here for the fourth quarter, we're going to end up with 3 of the 4 largest jobs in MasTec's history on the wind side, which is just -- in today's world, somewhat of a staggering statistic. I think it bodes really well to the longevity and really the strength of the wind business in addition to what we're doing on the solar side. So we just wanted to highlight it because I think so much gets talked about solar, but I actually think there's a pretty healthy wind business out there that we've done a good job at cultivating and growing, and that was really the only purpose for the comments. Operator: Due to the interest of time, we have time for our final question. That question will come from Maheep with Mizuho. Maheep Mandloi: This is Maheep from Mizuho. Just a follow-up on the previous question. Could you talk about like the battery storage business, talked about wind and solar, but any thoughts on the growth in that segment for you? And separately, just on the Pipeline side, any thoughts on labor constraints, if any, in any part of the business for you? Jose Mas: Yes. So the first part of the question, I mean battery storage is becoming a much larger part of our entire portfolio. The majority of our projects today have some sort of battery opportunity related to them. And I think that business has grown really nicely for us in 2025 and definitely been a growth driver for the business this year and one that we expect for next year. I think the second part of the question, I missed the end, but I think it was around pipeline constraints. I think -- when we think about the business, it's obviously been a very radical change on what the expectation of the pipeline market was going to be in '25 versus at this point last year. And I think that our customers obviously have decided to make significant investments. Those investments take a little bit of time. So one of the reasons that I think that we talked so heavily about back into '26 is because I think it's taken that amount of time to get engineering, permitting and materials in line to be able to execute on those projects. So while I think that there were some constraints early on in this year to get that cycle going at the level that it wants to be as an industry, I think we're getting through that, and we'll see that activity start to really pop second half of '26. Operator: Thank you. I would now like to turn the call back over to Chris for closing remarks. Chris Mecray: Thank you. That concludes today's call. Thank you for participating. And as a reminder, please visit our website for a replay and transcript of the call, which will be posted when available. Thank you. Operator: Thank you for your participation. You may now disconnect.

199天前Insight Analytics约5分钟阅读

LYC.AX 2026 Q1 财报电话会议

Operator: Good day, and thank you for standing by. Welcome to Lynas Rare Earths Quarterly Results Briefing. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lynas Rare Earth. Please go ahead. Unknown Executive: Good morning, and welcome to our investor briefing for the September quarter of FY '26. Today's briefing will be presented by Amanda Lacaze, CEO and Managing Director. And joining Amanda today are Gaudenz Sturzenegger, CFO; Daniel Havas, VP, Strategy and Investor Relations; Chris Jenney, VP, Sales and Market Development; and Sarah Leonard, General Counsel and Company Secretary. I'll now hand over to Amanda Lacaze. Please go ahead, Amanda. Amanda Lacaze: Thanks, Jen, and good morning, everybody. Thank you all for joining us this morning. And I am sure because I actually have a sneak preview that there are many questions. There are many in the queue already. So I will keep my introductory comments relatively short. I expect many of you will want to talk about the various geopolitics. We do live in an interesting world, don't we. But I want to start by talking about our business performance because we had a strong quarter in terms of business operations. The operating cash flow at about $55 million positive, was a really pleasing return to a more -- what we would see as a better level. And we see that, that as we look at current market settings gives us quite a deal of confidence as we move forward. Of course, we saw -- we are still seeing some runoff, particularly associated with the major projects, particularly Mt Weld, but that should mostly be flushed through the system by the end of this calendar year. That strong operating cash flow, of course, reflects sales. I know that everyone likes to get very focused on production numbers. And of course, we are very focused on production numbers. But what actually matters is what we sell. We don't bank tonnes, we bank dollars. And so we had a good quarter in terms of sales at $200 million for the quarter, the best in several years, reflecting both the higher volume and also the higher prices that were achieved during the quarter. Production at just over 2,000 tonnes of NdPr and sort of very positively nearly 4,000 tonnes in total. I thought it was quite interesting that we had a number of sort of -- we've seen a number of comments about, well, it was a bit less than what was expected. But then when I really interrogated those, we're talking about less than 100 tonnes being the difference between expectation and performance. Put that in perspective, it's about 4 days production for us. So we had our production where we wanted our production to be. It served all of our key customers without creating any supply side pressure or causing us to need to sell ahead of finalizing a number of agreements on which we are working. With respect to the heavies, and I may regret the fact that -- no, on the heavies, we have, for the first time, disclosed the amount of Dy, Tb. And once again, I read some commentary about it being a bit lower than was expected. And I would remind everyone that the way that we have characterized the Dy, Tb -- so we've got at Malaysia at present is it was really an opportunity sort of development for us. We had some mixer-settlers available. It's just a small circuit which is selectively separating a portion of the Dy, Tb, not even all of it within the SEGH that we produce alongside our current NdPr, but sufficient to test the market ahead of our larger expansion. I would also just to assist people to understand this, we're not actually selling our SEGH into the market at all, at present we are stockpiling it ahead of future processing capability. And then in response to some of the questions I've had about sort of sales volumes and how quickly do they come online. Some are done and dusted. Others, this is a new product and customers have certain qualification periods. Suffice to say that in terms of testing the market, we have identified extremely strong demand and we have also identified a preparedness to pay because of the scarcity of the material from outside China sources. And of course, that is the reason why it is the first of our -- towards 2030 projects that we will be bringing online, which is the full-scale HRE separation facility. And to do the full-scale separation requires us ultimately to put in a new building, put in new mixer-settlers, precipitation, filtration and tunnel -- and furnaces. So -- but we -- as I think everybody who follows us knows, we are always keen to move as quickly as we can. And so we have looked at what are opportunities to incrementally increase production as we move forward with the larger plan. And that includes doing some work with our current FX configuration, which would allow us to bring samarium online, samarium production online in the first half of 2026 calendar year. And samarium is an element which is in demand at present. We require those customers who need it to finalize some agreements with us on price. As I said, the little circuit that we've got at present is sufficient to have given us an opportunity to test the market. And as we think about how we derive value from our heavies, it is a combination of the margin just on that sale of the heavies. But bear in mind, it's relatively small market. The total outside China market for Dy, we estimated about 400 tonnes. So there's a certain amount which comes from just the pure margin on sales. And more beneficially really in the medium to long-term is the ability to bundle it with our other products in a way that serves customers' total needs rather than them having to have multiple suppliers. During the quarter, operations ran very smoothly. At Mt Weld, we operated on our old plant for most of the quarter as we were completing our commissioning activities for the new plant, which are progressing to plan. And we had a pretty exciting time where as we're bringing on our new gas hybrid renewable power station, we were able to run the plant for, I think, close to a week or on 100% renewable power only. And that's pretty exciting for everybody in Lynas. In Kalgoorlie, as we've identified, we made certain flow sheet adjustments, which are now delivering results. And we expect now to be able to progressively ramp up production in very good order. And at the LAMP, running very smoothly. But as we've indicated in the release, we will be doing these tie-in works for Sm and SX during this quarter. That alongside some of the continuing market volatility means that we are going to manage our production rates very carefully and may trim that to accommodate some of that tie-in work because we see the early production of samarium as being very valuable. During the quarter, many of you who are on the call participated in our capital raise, which sets us up for the next stage of growth, creatively known towards 2030. We've already disclosed some of the areas where we will be utilizing that funding, the HRE -- new HRE plant in Malaysia being the most significant. And then we've also released 2 magnet non-binding MOUs, but I can assure you that we are progressing to definitive documentation of those MOUs as quickly as possible. We are also continuing to negotiate long-term supply agreements with key end users in each of the sort of key categories. So magnet buyers most certainly, but also electronics. I mean this is a high demand market and particularly in terms of micro capacitors, significant growth and a preparedness to pay for quality, which Lynas can deliver. So then turning a little to the geopolitics and the issue -- the effect on the market. And I say again that we are managing carefully and sort of managing risk as we look into this very volatile market. But lets suffice to say that rare earth has -- well, in our view because we think rare earth is the most important thing, we wake up thinking about it in the morning and go to bed thinking about it at night. But it's definitely got the attention that it deserves from various different governments. And as you look at some of the announcements that have been made, you can see that for now, the key focus has been on some of the development projects. And I would offer the view that this is because they are relatively easy for governments to execute with their current funding instruments. Every government has something like our EFA or has other sort of [indiscernible] or other sort of debt funding capability. But some of the other sort of policy initiatives are a little more complex and will require governments to think about some different systems to be able to support it. But I would assure you that governments do understand that this is not a simple supply side fix, even though some of the announcements may lead you to think that they think that right now. There is a recognition that -- there is a market failure, which is shown in the price and also in the development of processing capability, including metals and magnets outside of China. And it's actually a little less about resource, but resource has a very long lead time, but it is more about market failure. And I think as everybody who's even sort of a passing observer would know, the MP deal does address all these elements. It addresses the issue of market failure with the price for. It addresses the issue of market value and processing with its support for the development of magnet making in the U.S. And I think that it seemed to come out of nowhere, but MP was facing an existential crisis as a result of the tariffs and trade restrictions between China and the U.S. and sort of the timely implementation of that there was important. But I think that what we're seeing right now is many governments who are actually working together, we're looking forward to hearing some expected outcomes from the G7 to ensure that the policy settings are right and that the like-minded governments are aligned in their approach. And I think governments also understand that there is no use pouring capital into this sector if the businesses can't be profitable in the long-term. And of course, that is the importance of getting the policy settings right, particularly on price. For Lynas, yes, because as I said before, we always like to get things done yesterday. Working with government can sometimes be a little frustrating because things take the time that things take. However, I would remind everyone that as the only proven operator in the current proven supply chain, we have options and we have value. And we will not spend that value cheaply. But whilst the market continues to be volatile, we will manage prudently. And I would simply point you to our track record of ensuring that we do get full value from whatever dynamics we see in the market. So for us, as we look at this, we see a good quarter in terms of performance, the uplift in price because we are a current producer, is flowing through into our bank accounts immediately. And we continue to see the international focus on the rare earths market is ultimately a very positive thing for Lynas and look forward to sharing with you in the future some better outcomes in that space. So with that, I'm happy to take questions. Operator: [Operator Instructions] First question comes from Daniel Morgan from Barrenjoey. Daniel Morgan: A question -- my first question is just on production volume, which was slightly down sequentially quarter-on-quarter. Just looking to understand that a bit more. Is that a reflection of demand being still patchy? Is it you're looking to negotiate offtakes and so why -- let's not produce a lot and go into inventory? Or is it -- three, there has been some disruption to the operations from tie-ins at Mt Weld, some modifications to fixed volume -- fixed quality at Kalgoorlie, et cetera. Can I just understand how -- volume, how are you looking to set the business near term? Amanda Lacaze: Yes, Daniel, we produced almost exactly what we intended to produce. So yes, you're right. I think it was 80 tonnes, 70 tonnes less than it was last quarter, but somewhere around about that 2,000 tonnes was we were very comfortable with that. It was not -- there were no significant operating disruptions and certainly not from the newer assets. And yes, we don't -- we never see value. I mean, we carry a little bit of inventory, but we never see value in producing a lot of product for inventory. And this was sufficient to ensure that we met customer needs across all geographic markets. So we do continue to make sales to, of course, our Japanese customers, but also to customers in China and in the rest of the world. But we were able to serve all of that and there were no issues with Mt Weld. Kalgoorlie, as we said, we had operating at lower rates as we did make some flow sheet changes there, which now appear to be doing exactly what we planned for them to do and the lab worked very -- exactly according to plan. Daniel Morgan: Sorry, just to clarify, should I take that as 2,000 tonnes a quarter as sort of where the business should sit for the near-term until something changes? Amanda Lacaze: I think we will -- I think the market is so volatile right now, but we will be cautious about sort of even giving that vague of guidance, Daniel. Suffice to say that we will ensure that we are continuing to meet the demand of all of our strategic customers and are working on developing new sales agreements. Operator: Next, we have David Deckelbaum from TD Cowen. David Deckelbaum: Congrats on all the exciting announcements out there. I wanted to follow up just to talk about the heavies facility in Malaysia and the priority around samarium. Is that informed by just process flow sheet? Or is that where you see the highest value products coming out of the heavy mix? Or is it in response to extremely near-term potential around offtake agreements? Amanda Lacaze: It's mostly about demand. So the highest demand materials of the Dy and Tb. Unfortunately, we can't significantly increase that production until we put in that new circuits. The samarium we can do by making a change to one of our circuits, which adds an additional outlet. And so given that there is significant demand for samarium in some very targeted sectors, we think that we can do that without causing too much disruption to production. So that would mean that instead of having to wait until 2027 for that material, it will -- it should be available in the first half of next year. But it definitely is an in-demand material, but we are finalizing relevant price agreements on that as we speak, which are an important part of us sort of deciding to proceed on this pathway. Operator: Next question, we have Jonathon Sharp from CLSA. Jonathon Sharp: Amanda and team, congratulations on yesterday's announcement, definitely a big positive. And my understanding is that this will likely open doors to other customers, not just with heavies, but also NdPr. So really should help with those NdPr sales as you ramp up, which is positive, but that's not my question. My question is around incremental cost of processing the heavies, specifically in the solvent extraction separation phase. Now I know you're not going to tell us what the costs are. But so maybe I'll ask it another way, what proportion of total unit costs of the heavies within the solvent extraction? I would imagine it's quite low. Amanda Lacaze: Okay. So there are no -- with what we're doing right now, there are no significant incremental variable cost to the separation of the heavies, right? Because we had -- the circuits were already in place. They already had -- we did have to load those, but that's already been done sort of in the back half of last financial year. And the contribution to cost of running that circuit and running the furnaces and product finishing is not significant. So really, this is giving us a almost -- this tiny little circuit gives us a bit of a free kick. When it comes to the bigger facility that will come into operation in 18 months' time, once again, we would see that it's not going to be -- there will be some incremental costs, but what we're basically doing is today, we process or up until sort of May, we process the HEG. It goes through solvent extraction and then it goes through product finishing, the wet cycle and then into the -- and is [ confined ]. And so what we're doing is that we won't be using those facilities, and we will be able to use what we've freed up there for other products. And it will be simply going through the different facilities. So we have the capital cost of all of the new mixer-settlers. We will have the capital cost of first fill of those loading them with material, but the incremental cost to process will be relatively small. Jonathon Sharp: Okay. I'd love to know the amount, but I know you're not going to tell me, so I will jump back in the queue. I have another question later. Operator: Next, we have Chen Jiang from Bank of America. Chen Jiang: My question is for your price realization for this quarter. Well, in AUD, $54 per kilogram, but you have heavy rare earths produced for this quarter. For example, the European so-called benchmark for terbium is around $4,000 per kilogram. That's like 4x versus China's price, right? And the same as dysprosium. I'm wondering what happened to your price realization for this quarter? NdPr quarter-over-quarter in China was up 26% and then you have heavy. So if you can provide us any color on the heavy price, how does that work, the European price versus China price as well as your NdPr price? Like I'm not saying that NdPr price jump realized in your revenue. Amanda Lacaze: Sure. Okay, okay. First of all, the heavies pricing, right, you can see we made 9 tonnes, right? Even if we sold every one of those 9 tonnes for, I don't know, $10,000 a kilo, it is not going to move the dial on the average pricing yet, right? So let's just put that aside. And then on the NdPr, as we've explained previously, some of our major customer contracts are reference an end of prior month price. So when the price is going up, we tend to lag it a bit on the way up. And when it's coming down, we lag it on the way down. So you have not seen the full value in this quarter of the uplift in price during the quarter. And that's just a reflection of the way that our pricing contracts operate. Chen Jiang: Can I have a follow-up, Amanda? Just on what you commented on -- on the NdPr. So the weaker than expected realized price is because your pricing contracts lagged a month or 2 and then you have increasing NdPr price. And then for the heavies, which means you quoted some amount, but are you achieving the sort of the European price versus the price... Amanda Lacaze: I'm not even sure where you're getting the European price from. We are achieving on the products that we have sold to date, we are very pleased with the price, and it is not pegged to -- it is -- each of the prices is a customer-specific price and negotiated with each customer on a commercial and confidence basis. But it is not anything even vaguely like the inside China price. It is -- as we said, the market demand is strong, and we have a great deal of flexibility in choosing to whom we sell and at what price we sell. Operator: Next, we have Paul Young from Goldman Sachs. Paul Young: Amanda, another question on the heavy rare earth circuit. Just trying to understand from a -- first of all, thanks for providing the production data. It does take a while for the heavies to work through the circuit a couple of quarters. So I understand there's a lag there. But just trying to understand the capacity and production from a modeling standpoint, what we should be throwing in the models. And I know that you did have -- or you do have, sorry, 1,500 tonnes of SEG capacity. And this announcement, the $180 million, you're achieving another -- you'll get 3,000 tonnes of heavy rare earth oxide products. So just wanting to understand, is this incremental? So at the end of this, are we getting 1,500 tonnes, and 3,000 tonnes to 4,500 tonnes of total capacity of heavies oxides? Amanda Lacaze: No, no, no. We won't -- we will have the one outcome, which is the tonnage that we were talking about yesterday. It is not additive to the tighter little Dy, Tb circuit that we have in place right now. Once we put in the new facility, right, we will then free that circuit up and we will use it productively for some other purpose. Paul Young: Yes. Understood. Okay. That's helpful, Amanda. Just a Part B to that then. Just with Mt Weld, when you look at on the go forward, when Mt Weld fully ramped up and you look at the Duncan or when you look at the assemblage and the heavies coming through, whether you campaign that or not? Can Mt Weld under the expanded scenario or the expansion, I should say, fully feed that heavy circuit? Or will you have -- at what percentage? And will you have spare capacity to take, I guess, a third-party on clays in Malaysia? Amanda Lacaze: Yes, yes. Okay. Excellent question, Paul. We could high grade -- I've got quotation marks around in the air here, but high grade for the heavies at Mt Weld, which would mean that we would deplete them faster, of course, if required to 100% feed that circuit. But between now and when that circuit comes online, we have a number of things that we need to do to improve. We will -- we -- our recoveries on heavies are not at the same rate as our recoveries on light because we haven't managed for that over many years, to be fair. And they do perform differently right from the float circuit in Mt Weld through to Malaysia. So we will be -- I want everyone to always understand we are thoughtful in the way that we manage these things. And so there's no point in sort of mining more heavies, but then having it report to tailings because we haven't actually optimized our processing. And we've got time to do that before the new plant is operating in Malaysia. So that's the first thing for us to do. But our preference would be that, that facility will take feedstock from -- and absolutely, our preference is from developed ionic clay deposits in Malaysia in addition to the feedstock coming from Mt Weld. And so we have a team whose job is to work with various Malaysian partners on that development process. The Malaysian ionic clay, all indications are that it will perform in the same way that the ionic clays in Southern China or Myanmar and Laos perform, and we see this as being an excellent opportunity to further contribute to Malaysian economic development. And also because as we know, ionic clays will typically give us a higher sort of proportion of heavies and so therefore, suitable for feeding into this new plant. So that's a very long answer to your question, Paul, which was, yes, we could, if we had to serve it out of Mt Weld, but our preference will be that we have at least 2 feedstocks and potentially more if any other projects come online into that facility. Operator: Next, we have Mitch Ryan from Jefferies. Mitch Ryan: You called about -- just can you comment on the cost pressure as you move consumables supply chain away from China? How long do you expect until your supply chain is completely independent? And could you help us understand sort of what percent of your cost base do those consumables currently represent? Amanda Lacaze: Yes. So we are -- we have been working on this since the first trade spat that started in April because China is quite nuanced in its use of non-price controls alongside the price controls that it's used over time. And so we have identified alternate supply sources for all inputs in our facilities, both consumables and also equipment. We, at present, see that there will be some cost penalties associated with those, but we won't see those in this financial year because of the way that we've managed inventory in particular. So given how much things can change at present in the rare earth world on almost a daily basis. I'm disinclined to provide a cost forecast, Mitch, for sort of 9 months' time. But we are confident in our ability to source relevant materials without crippling the business. I wouldn't want to be trying to build a new rare earth facility, however, just right now with no access to any China equipment at all. When we built Kalgoorlie, we did make a decision not to put any Chinese equipment in it. It's probably got to probably on the equipment cost, cost us probably about 25% to 30% more than if we had Chinese sourced equipment. So I think this will be a bit of a challenge for some of the new projects coming -- proposing to construct over the next little while. Mitch Ryan: And just given that comment, I assume, therefore, that the heavy rare earth circuit that's being proposed, Malaysia will also apply the same strategy. Amanda Lacaze: Sure. Yes. Well, Ryan, I can assure you this that if we went to a Chinese supplier today and ask them to ship to Lynas a new piece of kit of some sort that they would probably say, thank you very much, but our production line is full, if they were being polite. And if they weren't being polite, they just say no. Operator: Next, we have Reg Spencer from Canaccord. Reg Spencer: I'd like to ask about a topic that seems to be getting everyone breathless at the moment, and that's price floors. We know that such things have been floated with respect to the Australian critical minerals reserve, and we all have to think that Lynas would be a candidate to get some such floor pricing. What do you think -- what kind of impact is that going to have given that you are working on additional supply contracts independent of Asian Metals Index. And aside from the Japanese contracts, what kind of impact on pricing should we be thinking about? I'm really just trying to figure out where the base level pricing or reference point should be for your main product being your NdPr? Amanda Lacaze: Yes. Good question, Reg. I think that governments do recognize, as I said in my opening comments, that it's one thing to put the capital on the ground to build a project. The next challenge is to make it work. But it's all together another thing for that to become a profitable business, and to become a profitable and sustainable business, it needs to have pricing -- a functioning market in terms of pricing. So I think governments absolutely do understand this. And they also understand that whilst it's important to support and we support this development of the industry over time, I mean the ultimate remedy for all of this is to have an outside China industry of sufficient scale to balance out the inside China capability. But today, there is only one -- there is a functioning supply chain, and Lynas is at the heart of that supply chain. And so therefore, ensuring that policies are put in place, which support that supply chain success is really important. So I think, as you said, Reg, it is highlighted in a number of the announcements. I think we look here in Australia, and we see that the government is not fearful of taking action to support or to intervene where industries are at risk. But I think that what we've got is a number of governments who are seeking to make sure that whatever they do is aligned and ultimately constructive. Having said that, our view would be that the MP deal sets the flag -- goal posts here, that would be a better way to describe it wouldn't. And I mean the goals, not the behind. Reg Spencer: I have a follow-up associated question to that, but I'll take that offline and pass it on. Operator: Next, we have Austin Yun of Macquarie. Austin Yun: Just a quick one. As you point out in the opening remarks, MP is not a full solution for the U.S. government. I'm conscious that you do have a project in the U.S. right next door and feeding into this heavy risk demand. keen to get an update on that discussion and a lot has happened in the last few weeks. Does the current market condition provide a bit of support to accelerate that project? Amanda Lacaze: We have referenced this in the report, and we also did use a carefully considered form of words when we went to the market for the capital at the end of August. We -- where we are at present is that there is significant uncertainty as to whether we will proceed with that facility and if so, in what form. But we continue to work with the DOW and in particular, on offtake agreements, which will ensure that the DOW has the materials, which are critical for their applications. And that Lynas is in a position to be able to gain benefit from capability and that includes the construction of the plant in Malaysia. I think I've talked previously about sort of the fact that when we are doing something ourselves on our own sites, we're able to deliver projects much more quickly than on any other scenario and much more cost effectively. And ultimately, that's why we've made the decision to sort of focus our attention on delivering the new plant in Malaysia. Bearing in mind, that a lot of our engineering and design work that we've undertaken over the past 4 or 5 years actually feeds in very productively to that. And it's well worth remembering also that it remains that the key markets for rare earths remain in East Asia and Southeast and East Asia. And so it also remains that the location of our processing facility in Malaysia is really fit for purpose. Operator: Next, we have Matthew Hope from Ord Minnett. Matthew Hope: Just wanted to circle back to the NdPr pricing. Certainly, with your discussion about what was happening in the market, you're referencing China. And again, I think you indicated your Japan contacts are linked to end of month prices in China. Just wondering, is there any mechanism to start to delink from China, because China pricing is obviously quite different from the rest of the world in most products and even NdPr seems to be a bit lower than what's outside China. So is there any mechanism to sort of renegotiate those or change them? Or do they roll off over time? Amanda Lacaze: We can change them, but customers have to have a preparedness to pay. And right now, notwithstanding everything which is written, most customers have an option to source magnets from outside China or magnets from inside China and still 90% of them are sourced from inside China. So we are able -- on occasion, we would say that -- we often talk about this is probably 3 segments of customers; one who understands that they should embrace a risk-based pricing model because of the risk to their business of having to shut down. And bear in mind, there are at least a couple of [ crass ] lines that shut down in April, May this year as a result of the new licensing regime in China. There's a group of customers who are continuing to assess and recognize they probably need to do things differently. And then there's a fairly substantial group of customers who think that they keep their fingers crossed and their eyes closed and wish very hard that this will all go away and they'll be able to just continue to use cheap materials from China. We're working through those groups. And of course, our primary focus is on the first group, which is the one to recognize that risk-based pricing, which is fair pricing is something that they need to embrace within their business. And we are progressively sort of working on various different agreements with those customers. But across the market, well, you're just going to have a different price outside China from the one inside China is -- that's not something -- that's something which will rely upon customer performance and potentially policy settings. The various governments can influence that pretty quickly with -- and we've seen it with some of the sort of settings, for example, U.S. defense industries can't use material sourced from China from the 1st of January 2027 under the DFARS Act. So I mean, governments can do it, but not all customers outside China understand that, if they want ongoing supply that they need to pay a fair price. Matthew Hope: Right. Okay. And just in the Dy, Tb, noted what you said about the recoveries being lower and the fact that the circuit is very small. So does that mean that the sort of 9 tonnes of Dy and Tb that we -- that's produced in September quarter, is that kind of normalized? Or is it still got a fair way [indiscernible] to actually ramp up? Amanda Lacaze: It's got some upside to that, Matthew. Operator: Next, we have Rahul Anand from Morgan Stanley. Rahul Anand: Look, a lot of my questions have been asked, but I still have one which I wanted to touch upon, which is the Malaysian ionic clay deposits. Could you help us perhaps understand sort of how much you've looked into them? I'm sure you've looked at them a lot given your land plant. But I want to understand in terms of -- firstly, in terms of the processing side of things, I would believe that the processing costs are lower, but then some ionic clays can be problematic as well in terms of acid use and obviously, carbonation, et cetera. How do these things sit? And then why has Malaysia sort of not been able to do that themselves in the past and kind of has struggled in terms of volumes? Amanda Lacaze: Yes. So we're quite progressed. We have announced one MOU with the client state government. And the deposits which are sitting in Malaysia either it's not quite as easy as it is in Australia where the Crown owns all of the minerals under the ground. Some of them are owned by the state. Some of them are owned privately. Some of them are owned by the Royal families. So we're sort of working through that process and where relevant are executing agreements with the relevant owners. Now we're in Pahang, so sort of the states sitting on the East Coast of Malaysia are particularly attractive to us, a, because they appear to have the right sort of geology and b, because of their proximity to the plant. In terms of the ability to process and upgrade that material and why haven't the Malaysians done it to date, fair bit of that material has previously gone into China for processing. And so there's not been sort of the same focus on domestic processing. But last year, the Malaysian government recognizing the value of this and introduced a moratorium on the export of unprocessed rare earth materials with the objective of encouraging more development in this sector. And as I said, very responsive, therefore, to Lynas as sort of a company with skills in this area. But the more general comment about why hasn't it been done is because not very -- many people know about processing rare earths. Lynas is one of the very few firms outside of China that does know how to do it. And so that's really the partnership that we're looking to develop in Malaysia, and we see it as a highly prospective opportunity for future feedstock for particularly the heavy circuit, but those plays also -- not only will they bring us heavies, but they will bring us additional NdPr as well. Operator: Next, we have Regan Burrows from Bell Potter Securities. Regan Burrows: A lot of questions have been asked. Just one on, I guess, the broader market dynamics. Obviously, the governments around the world, especially in the Western world are supporting a lot of these projects, and we're seeing a lot of companies state that they will come online within the next couple of years and add supply to the market. I'm just curious on your view, is there enough room for everyone to be feeding into the ex-China market? And how does that sort of infer your thinking around capacity expansions up to that 12,000 tonne per annum rate? Amanda Lacaze: Thanks, Regan. I don't actually spend much time thinking about them. I've got more than enough time to think about our own business. I think that the earliest date that anyone is even sort of suggesting is, I think late '27, and I would be surprised if there's anything come into the market at scale at that time. But the more substantive question is, is there demand outside China? Yes, there is. Can it be served with the industry structured the way that it is today? Well, actually, it could be serviced via -- in terms of resource by sort of current operators, that is Lynas and MP. However, it is the metal and magnet steps that need to significantly grow to be able to serve the outside China demand. But industry forecasts are for continuing growth, and there is no reason to suppose that it won't continue to grow somewhere in the -- certainly in the high-single or low double-digit numbers on an annualized basis. So there's going to be much demand. And as I said in my earlier comments, the best thing for everybody is for there should be critical mass in the outside China industry. But it is really important, and I think that governments do understand this, there is still a big gap between where we are today and getting to a stage where there is a large functioning outside China industry. And in the meantime, it's incumbent on them to protect the current functioning supply chain and Lynas is at the center of that. So yes, look, there's demand. It's just a case of making sure that there's capability in all stages of the value chain. Regan Burrows: And so if you see, I guess, that -- call it last, but if you see that supply into the market, does that, I guess, shape your thinking around capacity from lab and your business? Amanda Lacaze: I think not particularly, no. We run our own race. We focus on customers that we seek to acquire and anyone who wants to chase us, that's fine, but we run our own race. Operator: Next, we have Scott Ryall from Rimor Equity Research. Scott Ryall: Thanks very much for the detail you've offered today. I'm looking, I guess, a bit more at the future. When you did your equity raising at the time of the full year result, which if you can believe it is only 2 months ago, almost to the day, you gave some splits around the uses of the funds, particularly in those growth areas of add resource scale, increase downstream capacity and expand into the metal and magnet supply chain. You gave some indicative splits there. And I'm just wondering if you have adjusted any thinking given such a lot has happened in this sector over the last 2 months as to where the best incremental returns on capital for Lynas are across those growth areas over the next 5 years as you work towards your 2030 strategy plays, if anything has changed materially? Or as you say, you're still running your own race? Amanda Lacaze: No, nothing has changed materially. I think that what we've said and we said then was the first project that we would bring back to the market would be the heavies, and we have done that. And it is -- and that is because it is absolutely a gap right now in the non-Chinese market. There's been a lot of questions today about -- and I've responded and maybe be a little bit harsh on some customers. But whilst customers are still reliant upon China for their heavies, right? It makes it sort of tricky for them to be shifting their light sort of demand as well. So that's why the heavy has been absolutely front and center for us in terms of development, and we can have that operating and we have an excellent track record in terms of execution. We can have that operating, we expect in calendar 2027 with some of -- as we said, the product earlier. And that we think will be really important in terms of our overall product offering into the market and giving customers confidence to switch their supply chains. So it remains Top of the Pops. And then because it's not just about the margin on the heavies, but it is about the NdPr that goes with it. And then we look at that and we say, okay, so we've got capacity there, and you would have noted that we probably got a bit of headroom in that capacity. So that means that the next thing, which is really important for us to nail is, additional complementary feedstock sources, right? We ultimately are a minerals and minerals processing company. So we live or die on the quality of our resources. And so adding more to that is sort of the next priority, very quickly followed by ensuring that there are -- that there is the opportunity for us to sell that into non-China processing facilities, both metal and magnet making. So the 3 areas remain exactly the same with the priority being, as I've just described, but that is really pretty much what we said 2 months ago. I think you would all be very disappointed notwithstanding everything which is going on sort of geopolitically, if 2 months after a capital raise, I said to you, "Oh no, all the cars are in the air and we're going to change everything." You would be, what's going on. Don't they know what they're doing here. I think it is very easy to get distracted by the daily -- sort of the daily announcements. But if we try to change course every time a politician somewhere in the world has some sort of a thought bubble, then we would not be the business that we are today. So we understand the market. We understand what our customers need and that ultimately is the thing. You can't run a business on government funding [indiscernible]. You actually need to meet your customers' needs and be a supplier of choice. And we understand what are the policy settings that we want from government to make this a proper functioning market into the future. But -- so Scott, long answer, the short answer is what we said when we asked you to sign a check stands. Scott Ryall: I'm smiling and nodding with you. Amanda Lacaze: I see that it's 3 minutes past 12. So I'm not sure, Maggie, how many... Operator: One last question from Matthew is a follow-up. Would you like to take it? Amanda Lacaze: Okay. Yes, sure. Operator: So we have Matthew. Matthew Hope: Just a question on the Noveon MOU. Was the intention there just to sell more rare earths to Noveon? Or is it actually to get involved more like JS Link get involved in the entire magnet factory and the profits there from? Amanda Lacaze: So you know what? Chris Jenney, who's our Head of Sales and Market Development, is online, and he is working very closely with Noveon, and I'm going to let him answer that question. Chris Jenney: Thanks, Amanda. Matthew, yes, great question. Yes, it's early days. Noveon is a fantastic operator. They're the only existing magnet supplier into the U.S. with very aggressive growth plans. So we're working through them what is the best model, not just for commercial customers, but also defense customers. So we'll keep you updated as we progress. Amanda Lacaze: And Matthew, we will sell more product, and we potentially will engage directly in how to support the aggressive growth plans that Chris has articulated. Operator: Thank you, Amanda. We have no more questions. Amanda Lacaze: Well, once again, thank you all for joining us. The rare earths market continues to be an exciting place to operate. So yes, look forward to catching up with all of you in the near future. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

199天前Insight Analytics约5分钟阅读

TFII.TO 2025 Q3 财报电话会议

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's Third Quarter 202 Earnings Call. [Operator Instructions] Please be advised that this conference call may contain statements that are forward-looking in nature and subject to a number of risks and uncertainties that could cause actual results to differ materially. I would also like to remind everyone that this conference call is being recorded on October 31, 2025. Joining us on today's call are Alain Bedard, Chairman, President and Chief Executive Officer; and David Saperstein, Chief Financial Officer. I'll now turn the call over to Alain Bedard. Please go ahead, sir. Alain Bedard: Well, thank you for the introduction, operator, and welcome, everyone, to this morning's call. Last evening, we reported our quarterly results that shows additional progress with operating margins, especially for our U.S. LTL. In fact, across our entire company, the men and women of TFI International doubled down on our core operating principle, which is setting us up nicely for the eventual rebound in freight volumes. I'm also pleased with our free cash flow performance as this is always one of our top priorities. At more than $570 million year-to-date, this was slightly above the 9-month results from 2024. We use our strong free cash flow to strategically invest in the long term and whenever possible, return the excess to shareholders. Speaking of which, as you may have seen in our press release, yesterday, our Board approved a 4% increase in our quarterly dividend to $0.47 per share, suggesting a yield of close to 2%. Equally important, during and subsequent to the quarter, we repurchased additional shares, which I'll speak to in a moment and while maintaining a very solid balance sheet. With that, let's review our overall third quarter results. We generated total revenue before fuel surcharge of $1.7 billion, and that compares to $1.9 billion in the year ago quarter. In aggregate, we produced $153 million of operating income or a margin of 8.9%. We've recorded adjusted net income of $99 million as compared to $134 million in the third quarter of 2024 and an adjusted EPS of $1.20 is relative to $1.58 in the year ago quarter. Rounding out our consolidated results, our net cash from operating activities came in at $255 million, up sequentially, but down from $351 million in the same quarter last year. And finally, our free cash flow from the third quarter was nearly $200 million, also up sequentially. In addition, as I mentioned, this brought our year-end-to-date free cash flow to just over $570 million. So overall, when I look at our consolidated performance, first and foremost, I recognize the hard work of our team with everyone across our segments working to make the most out of a subdued freight environment and most importantly, setting us to capitalize on the next cycle. How do they do this? Well, they focus on long-held core operating principle, ensuring that quality of revenue and aiming for constantly improving efficiencies. Additionally, as we make meaningful progress on service improvement in U.S. LTL, it's gratifying to see the team recognized in this regard by leading third-party customer research firms. So we very much appreciate their hard work. Now, let's take a closer look at each of our 3 business segments, beginning with LTL. This quarter, our LTL operation represented 40% of segmented revenue before fuel surcharge, which was down 11% versus a year ago to $687 million. Notably, our U.S. LTL operation showed additional progress on margin for a second quarter in a row, producing a 92.2% OR, which matched the performance of a year earlier. Total LTL operating income of $78 million was up sequentially from the second quarter, but compared to $96 million a year earlier. Our combined operating ratio for LTL was 88.8%, and that's also improved sequentially, in fact, for the second quarter in a row, but still compared to 87.3% in the prior year third quarter. Our return on invested capital for LTL was 11.9%. Turning to Truckload. It was 39% of segmented revenue before fuel surcharge at $684 million, which compared to $723 million in the year ago quarter, with tariff impacts on steel and other commodities still waiting on freight volumes. Operating income of $53 million compares to $70 million last year, and our Truckload OR came at 92.3% versus 90.6%. Lastly, our Truckload return on invested capital was 6% for the quarter. Our third and final segment to discuss is Logistics, which produced $368 million of revenue before fuel surcharge or 21% of segmented revenue, and this compared to $426 million in the third quarter of 2024. Operating income came in at $31 million versus $49 million last year, and this represents a margin of 8.4% versus 11.4%. Our logistics return on invested capital was 14.6%. So next, I'll move on to our balance sheet, which remains very strong, benefiting from a free cash flow I mentioned of nearly $200 million during the quarter and more than $570 million year-to-date, which is stronger than last year. We end up September with a funded debt-to-EBITDA ratio of 2.4x. From this position of strength, we are able to not only pay our dividend, which I mentioned, the Board agreed to raise today, but we also repurchased a total of $67 million worth of shares during the quarter. That brought our total return of capital to shareholders to more than $100 million during the third quarter alone. As I mentioned at the outset, this is one of our key business principles to return excess cash to shareholders whenever possible. And I should add that subsequent to Q3, we also have repurchased an additional $17 million worth of share as we continue to effectively reduce our share count. So before we turn to Q&A, I'll provide a fourth quarter outlook. We expect fourth quarter adjusted diluted EPS to be in the range of $0.80 to $0.90. And we now expect full year net CapEx, excluding real estate, to be $100 million to $175 million compared to $200 million earlier. Similar to last quarter, I'll note that our outlook assumes no significant change either positive or negative in the actual operating environment. And with that, operator, David and I would be happy to take questions. If you could please open the lines. Operator: [Operator Instructions] Your first question will be from Ravi Shanker at Morgan Stanley. Ravi Shanker: So Alain, I would love your overall thoughts on the state of the LTL market today. Obviously, macro still remains pretty depressed, but you guys are taking idiosyncratic actions as well. So if you just could address kind of where do you think volumes are going? What do you think the pricing environment is like, that would be great. Alain Bedard: Yes. Well, very good question, Ravi. I think that like most of our peers so far, I mean, we're off to a very slow start in Q4 with all kinds of reasons. I mean, we have this special situation in the U.S. with the government shutdown and things like that. So I mean, we anticipate that probably in our guidance, what we have in there is Q4 versus Q3, okay, we'll probably see a deterioration of the OR between 200 to 300 basis points, okay, because of this slow environment, slow volume environment. Now going into '26, we're starting to have a feeling that after 3 years of very, very hard difficult freight recession, we believe that finally, all the effect of that Big Beautiful Bills and the fact that the consumer will probably get some tax refund, et cetera, et cetera, the investment, okay, that will probably take place in the industrial sector in the U.S., we feel way, way, way better about '26 than what we went through about 2025. Now we -- what we were able to do with TForce Freight, I think it's a confirmation that the new team is really all hands on deck. We've been working on our costs. We've also been working and improving our service. That's been confirmed by the famous Mastio report. We are improving. We still have a lot of work to do, but still we're heading in the right direction. And I'm very happy with the team, with what the guys are working on right now. We're looking at '26. We need to do some major investment in AI, okay, to help us reduce our costs and be more efficient, provide a better service. So in that regard, we have some projects that should take place in '26. So I mean, Q4 '25, difficult all over for us, I believe. But I think that finally, the sun is going to start coming up in '26. Ravi Shanker: Understood. That's really helpful. And just you very quickly addressed that as well. But if you can just talk about the progress you made with kind of fixing some of the internal initiatives in the LTL business. How far along are you? And kind of what do you think are the next few steps you can expect in the next quarter or 2? Alain Bedard: Yes. Well, one of the first things that we did, Ravi, with Kal and his team there is we fixed the small- and medium-sized business, where we were way -- we've lost too much of that in '24. And when Kal took it over with Chris and the rest of the team there, they said, well, we definitely need to change that, right? So what you see there, okay, in Q3 and also the improvement in Q2, some of that is the improved quality of revenue, quality of freight that we do. So that's basically step number one. Step number two is we were a little bit too relaxed on some aspect of our business. So for instance, our approach us with temp account was you deliver the freight and hope to get paid, okay, when an account does not exist with you. Well, I don't think no one is doing that, right? So we were an exception in the U.S. We fixed that in Q2 and for the rest of the year. So now if you order at TForce Freight and you have a ship and we don't know who's going to be paying the bill. So we hold on to the freight until we know who actually is going to be paying that bill. So that's also another improvement that because of past procedures, we were losing a lot of dollars because of that negligence of our process at the time. Now also, we've hired a guy to run our fleet management team. And I'll give you just a small example. Last meeting we had the other day in Dallas, it used to be that a truck, a TForce Freight get into a shop and that truck is stuck there for 85 hours. Well, now we're down to about 45 hours. It's still too much, but that helps, okay, the cost because now the truck is available, so you don't have to rent a truck for 5 days or 6 days because now instead of being stuck there for like 2 weeks, now the truck is stuck there for now a week, right? So these are all the small details that Kal and the team there are looking at. We have a new team also that's focusing on claims because our claim ratio at 0.7% of revenue is not good. I mean it's never been good. So we have to do something. If you look at our claim ratio in Canada, we're always in that 0.2% of revenue, which is normal, right? But we're at 0.7%. So now we have a team that focus on that day in, day out in trying to get that 0.7% down to a more normal level, right? So these are all small things that the guys are doing, and we'll be announcing also, Ravi, very soon, probably next week that now within TForce Freight, we have one executive that's going to be a Chief Commercial Officer for all of our LTL operation in the U.S. So again, this is because our focus is on quality of revenue, growing the number of shipments. And this is what I think that we will start to see in '26. Operator: Next question will be from Jordan Alliger from Goldman Sachs. Jordan Alliger: Just maybe just following up on that. It sounds like real progress is being made, which is great. So hopefully, next year will be better in terms of the underlying demand. So in the context of that, how do you think now that sort of maybe it's getting to that point? How do you think either incremental margins or where LTL OR in the U.S. could ultimately get to? I mean, do you have any updated thoughts on that? Because clearly, what you've done has improved the company versus the last time we had strength in the LTL market? Alain Bedard: Yes. Yes, absolutely, Jordan. And we -- if you look at our U.S. LTL versus our Canadian LTL, I mean, in Canada, we have a deep bench, and we've been at it for a long time. In the U.S., I mean, don't forget, we're in that business since we bought UPS Freight. And now we're beefing up our talent team. And that's going to help go through that period that hopefully is going to be some tailwinds for the LTL industry in general. And we'll be, I think, well positioned to take advantage of that. But the focus at TFI with every business unit has always been do more with less, okay? And this is why, like I said earlier to Ravi is we are really focused in '26, what kind of implementation we could do with the new AI tools that are available to be in a position to do a better job, provide better service at a better cost for all of our customers. And there, I'm not just talking about TForce Freight or LTL, I'm talking about our package in Canada, our P&C business in Canada. I'm talking also about our truckload operation in the U.S. This is really going to be a big focus of ours in '26 because now contrary to '24, this AI thing there is really something that's going to change a lot of stuff. I mean we know that down the road, I don't know if it's 10 years from now, okay, you'll be probably able to drive a truck without a driver, right? So when you think about that, all the edge that a nonunion carrier has versus a union carrier, well, that edge down the road will probably disappear, right? It's like -- but this is 10, 15 years from now, I don't know. But one thing is for sure is that us, we are embracing AI, big time. We'll be investing on that. That's a big focus of ours in '26. This market has been difficult for us for the last 3 years, okay? Hopefully, the market turns in '26. We don't control that. But what we can control is our cost and our focus, and this is something that I'm reviewing the plan for '26 as we speak, next 2 weeks. So it's a big focus of ours, Jordan. Jordan Alliger: Okay. Great. I mean, I guess, suffice it to say, I mean, without necessarily putting a number then and a time frame, I would suspect, given what you've done, when we do get to a positive volume environment, you'd expect fairly quick reaction to the operating ratio to the improvement. Alain Bedard: Yes. Yes, for sure. Because don't forget, you know what, George, if you look at what we were able to do, with sadly 10% less top line, okay, in our U.S. LTL. And we maintained the same OR as the previous year at 92.2%. So that tells you the heavy lifting that our guys are doing today, okay, and becoming more process-oriented. I'll give you another example. shippers loading count, okay? So you get a trailer and the load and count is from the shipper. But if you don't check, maybe there's a mistake. But we were too relaxed on that. So now Kal and the team says no more, no more. This is -- we get a full trailers from the shipper. We have to check, okay? And if there's a shortage, well, we have to tell the customer right away and not wait and get a claim 3 months down the road because there was a shortage. I mean this is just being professional in our business, right? Operator: Next question will be from Scott Group at Wolfe Research. Scott Group: So I wanted to see if we can dig into the fourth quarter guidance a little bit. So I think I heard you say, Alain, the U.S. LTL margins 200 to 300 basis points worse. It's sort of hard to get all the way to that -- to your guidance unless like, I guess, the rest of the business is doing particularly badly. Maybe, I don't know, you or David, maybe just walk us through some of like the segment expectations, that could be helpful. Alain Bedard: You know what, Scott, that's a very good question. So I've got David next to me. He's the CFO. So I think I'm going to let that to David. He's the numbers guy. Scott Group: Scott, so yes, embedded in that guidance is a U.S. LTL OR in Q4 of 96%. Specialized truckload between 93% and 94% and logistics also between 93% and 94%. And that logistics piece is down substantially when you run the numbers on what that suggests year-over-year, operating income contribution in logistics is down by about half. Alain Bedard: Right. And logistics, Scott, I mean, as you know, we move all the trucks that are being manufactured in North America for PACCAR and Freightliner. So these guys are down like 40%. So that's a huge effect on us. And also globally, our logistics operation in the U.S. is also down. The Canadian ones are on plan, doing better. But in the U.S., we're also down. We're running about 92% of plan right now. So this is what we are showing there. I mean, like this -- I'll give you another example because of government shutdown, DoD is dead, Department of Defense. I mean, one of our divisions, 30% of the revenue comes from the Department of Defense, right? So this is out of our control. The same thing with the OEM, okay, selling less trucks. This is something that is out of our control, but we know it's short term. It could be 2 quarters, 3 quarters. I mean, those guys will be selling trucks soon. And that's why we're also keeping the staff. We're keeping the team because we'll be suffering for a few quarters because of that situation, okay? But we know that this freight is going to come back. And it's the same thing with our truckload operation that service the Department of Defense. I mean we know that this shutdown will stop at one point. David Saperstein: Yes. And then in terms of rounding out the rest, P&C and Canadian LTL, we see those in the 82%, 83% range and Canadian Truckload around 90%. Scott Group: Okay. Very helpful. And then, Alain, it feels like on the U.S. LTL side, one of the messages in the last year or so is we got to get service better before we can start focusing on price. Where are we in terms of the ability to start getting a little bit more focused on price? And then maybe just with that, it feels like we're seeing some stabilization in the GFP business? Is there any potential to start growing that business again? Alain Bedard: Yes. Yes, you're absolutely right, Scott. GFP finally is we got some stability, and now we could start growing again because the business we get from GFP comes mostly from the small and medium-sized accounts. So once that you start going back the small and medium-sized account, normally, you should have a benefit to your GFP. In terms of the service, what I would say is that right now, about 21% of our linehaul miles are on the rail versus 30% or 35% like it used to be. So for sure, our 4-day service has improved tremendously, right? Because we use less rail today than we were using about a year ago. So that's number one. Next-day service, we're up to par. I mean if we compare our next-day service to our peers, I mean, we're there. Where we still have issues is second day and third-day service and the guys are working actively on that. We are improving. We're not where we should be, but that is really the goal is to get this up to our peers on the second and third day service. And then slowly in '26, and I think we'll get there, we can start being seen as a professional carrier that respect, the commitment that they give to customers and get a price that is closer to the market versus right now, we're still a discounter, okay, versus the market. David Saperstein: Yes. And to follow up on what Mr. Bedard said on service, I think one of your peers pointed out that we were the most improved carrier in Mastio in this year's survey. And I can tell you that, that's underpinned by real data that we're seeing. So our small medium-sized revenue -- small, medium-sized percent of revenue is higher than it was last year. We're at 27.4% relative to 26.7% last year, this quarter. Then on service, we've improved 340 basis points in terms of our on time. Our missed pickups year-over-year, they're down 60% and then our reschedules are down 34%. Alain Bedard: So these are facts, Scott. So I mean, this is going to help us like you've asked the question to get better profitability from the top line. David Saperstein: And more freight. Alain Bedard: And more freight. David Saperstein: Better retention. Alain Bedard: Yes. Less turnover. David Saperstein: Less turnover. Operator: Next question will be from Walter Spracklin of RBC Capital Markets. Walter Spracklin: Alain, on 2026, you said the sun is coming up, and you've been very pragmatic, very, very clear about when you see things that are poor and when you things that are turning. And so that's very interesting for you to say and to hear you say. And I'm just curious, is that a commentary on price? Is it a commentary on demand? And specifically, are you seeing any real evidence either from the CDL restrictions and English language proficiency requirements that are now being mandated? Is that -- are you seeing that impact today on price? And are you seeing any light at the end of the tunnel in terms of overall demand as you go into 2026? Alain Bedard: Okay. So Walter, let me a little bit more specific. When I see the sun coming out, it's mostly the U.S. I think Canada, okay, because we still don't have a deal with the U.S., it's going to be probably the same in '26 like we have been going through in '25, right? But on the U.S. side, if you look at our truckload operation in the U.S., our velocity is down. Our miles are down, but our revenue per mile is up until now, right? So what we're starting to see is maybe a little bit of contraction in the offer. And that could be, like you just said, Walter, this thing about the CDL, okay, those permits are not being renewed, okay? The same is true of the English proficiency thing. The early stage, okay, but I believe that, okay, this is going to help us correct the imbalance between the offer and the demand, okay? Also the fact that the truck sales are down like 40%. That's also something that tells you that some capacity is running out of the system, right? Now for us, Canadian, I'm sure you saw what Champagne was saying about his new budget that he's going to be talking about soon, okay? Hopefully, in Canada, we'll have something similar with those Driver Inc., thing there, okay, where finally, we were able to convince the federal government to say, if you're a trucker, you have to issue either a T4 as an employee or a T4A as a subcontractor, right, Walter? So the Canadian finally also could be a help for us in '26, maybe not on the volume, but the offer could reduce. As a matter of fact, we just saw one of the Driver Inc., up for sale, okay? I mean we're not going to buy a Driver Inc., company. But just to say that those guys are starting to feel things are changing in Canada. So I think that globally, the Canadian situation is going to be difficult in '26 because we don't have a deal with the U.S. yet. .I think we'll have one, but we don't have one yet. Maybe it's going to go all the way to the summer '26. But I think that the U.S., okay, that's going to change. That's going to change with all the benefit of this OBB, the Big Beautiful Bill and everything that's going on, the reinvestment, okay, trying to bring those jobs back into the -- all of this to me is, guys, let's get ready, okay? I think after 3 years of a freight recession has been really, really bad, we're starting to see some capacity out. As a matter of fact, even we have one of our peers in Alabama, 500 trucks. The guy is out. David Saperstein: They're in bankruptcy. Yes, exactly. We're seeing those come across our desk more and more now. Alain Bedard: Exactly. We also have a freight guy, a freight broker, okay, closing shops. Walter Spracklin: So as you become a bit more optimistic on '26 then, does that change at all your strategy on M&A? Do you pull that forward at all? Is it contingent on the seller? Just curious your update on what -- and I'm talking not the tuck-ins, I mean a larger platform acquisition. Alain Bedard: Yes. Yes. So you know what? This takes time, right? And we've been at it for quite a while. And because we don't have a deal, what we're doing is we're buying back TFI, right? So that's what we've been doing. I think that in '26, hopefully, we could have -- it's always difficult to do a deal when the target doesn't want to sell, right? This is not easy to do, right? So sometimes you're better off to say, you know what, let's wait, okay, and let's work on a different file where at least you got a seller that's motivated, right? So to me, I'm still convinced that '26, probably mid-'26, later into '26, we could do something of size. We have the capacity, we have the potential, we have the target, okay, to do that. But there again, I mean, TFI stock is so cheap that when we talk to our Board, they say, "Hey, Alain, why would you invest $1 billion, $2 billion, $3 billion, okay? Why don't you just buy back TFI, okay? And we've been doing that slowly. But now things could change with this macro environment and maybe it's best to put the buyback on hold for now, although we have our Board and the TSX approved the renewal of our NCIB, but maybe put that on hold for now, depending on the stock valuation and get ready for the next step, the next chapter of my life on M&A. Operator: The next question will be from Jason Seidl at TD Cowen. Jason Seidl: Getting back to your comments about a potential trade deal with the U.S., and I share your hopes that it's sooner versus later. But if it is later, have you given any thoughts to maybe some further cost reductions that you might have to take given that you saw CN out there the other day laying off about 400 people. Alain Bedard: Yes. Well, you know what, Jason, I don't know that. What I could tell you, though, is that because we're so embracing AI, I think that with this tool, we'll be in a position to do more with less. I think that to do some layoff right now of quality people that are part of our team, the same story is true of our logistics, right? So as I was saying, Jason, about our truck moving operation, we know that this is just a few quarters. So we are suffering because we're keeping our people, right? Because these are good people. They're doing a good job. So we'll be suffering on that. And we are still suffering on the Canadian side in our Truckload sector. As an example, steel, okay? Well, Steel is dead for us. But we are a big steel hauler. So what do you do? I mean now we have those trucks parked, and we have those drivers at home because that's the only thing we could do. But then we have to protect our staff because the problem is when this business gets back on track, you don't want have to be rehire drivers and at the same time, also rehire the staff. So this is why by investing more in technology through this AI thing there, I mean, we'll be able to be better positioned to be fast, to react much faster to market condition. Jason Seidl: Well, Alain, as a follow-up there, as we think about JHT, sort of can you give us some numbers in terms of how much of a drag it's placing on the margins at logistics? And in terms of the AI, how quickly do you think some of your investments are going to bear fruit that we can see as we move throughout '26? Alain Bedard: Yes. I'll give you an example, Jason, about the AI. So when I'm talking to Kal and his team at TForce Freight, I'm saying, you know what, guys, we have to find a solution if Waymo can run taxi in Austin, Texas without a driver. I mean, how can we not run shunters in our yard without a driver, right? Is there a way, guys, let's wake up and smell the coffee. Let's open our mind that we have to change. And if Waymo is able to run cab in Austin, in a city, okay, why can't we run shunters in a yard, okay, without the drivers. So these are all things that we're looking at, Jason, to be more efficient, right? So. David Saperstein: Sales augmentation as well, right? Increasing the productivity massively of salespeople in terms of effecting in terms of identifying targets that fit not just names, it's -- okay, what's their business look like? How does that fit with our network? The solutions can do a lot of that work and then increase the velocity of the contacts and the outreach and the back and forth, it's remarkable. So that's another important application that we're looking at right now, and we're rolling out right now. Jason Seidl: That's some good color. And the margin hit from JHT? Alain Bedard: Well, JHT, I mean, the margin at JHT is probably depending on what you talk about, if you're talking about trucks that move from Mexico, okay, to the U.S. or Canada, I mean, the margin is not the same because we use a Mexican partner to move that truck from Mexico into the U.S. or Canada. Also, don't forget that we have experienced drivers in there. We also have a logistics division. So when the volumes are down, our logistics division, is very small, okay, because the logistics gets the overflow. So right now, there's no overflow. So this is why -- and as you know, Jason, in our logistics, the margins are really good, okay, on the overflow. So this is a little bit of a complex story. But what I can tell you is that JHT is a diamond for us because it's very well run. I mean the guys -- and this is why we're suffering so much right now because the volumes are down, but we probably have 50% too much staff for the volumes we have. But we're keeping those guys, right? Because when the things go back to normal volume with Freightliner and PACCAR, we want to be there. We want to be there to be able to service them, right? Operator: Next question will be from Konark Gupta at Scotia Capital. Konark Gupta: Alain, you mentioned about AI quite a lot on this call and technology. And I'm pretty sure I think that's the next evolution for you guys and everybody in the industry. I think, though, you reduced the CapEx guidance for this year. I'm just curious, when you think about the year or years ahead to invest for technology and for eventual rebound in volumes. I mean, how do you see the capital planning for those things? I mean, should you see a significant increase in CapEx for that? David Saperstein: So on the AI, no. These are licenses, it might be $30 per person per month, $35. It depends on what exactly we're talking about what -- but these are light, very nimble tools that we add on, like in sales, you'll add it on to your CRM. So I wouldn't -- first of all, that's not going to be CapEx, would be expense, and it will not be noticeable. We're not building data centers and that kind of thing. We're just customers and adopters of the technologies that are out there. As it relates to regular CapEx on trucks, there's no question that this is a very, very light year, right? At the outset of this year, we set out to do $200 million of net CapEx. Normal for this business would be more around $300 million. But the volumes are so low. We're driving so few miles that we -- and we had excess equipment from the Daseke acquisition that we're able to reduce the CapEx without really meaningfully aging the fleet. And so that's fine. But you should think about a more normal net CapEx number for us to be around $300 million, but that's also will take place in a year where there's more normal earnings, right? So free cash flow would be higher than it is this year, even with that increased CapEx. Alain Bedard: And the other thing, too, is that our CapEx has been delayed at TForce Freight because the supplier was not sure because the trucks, they are assembled in Mexico. right? And all this tariff thing situation, the trucks have been delayed by about 3 months. So right now, we're getting trucks in October, November that were supposed to come in Q3, right? And some of trucks also will come in Q1 '26 that were supposed to be part of '25. So this is why this revised CapEx that you see is it's exceptional that we're so low in a year like '25. I mean we should -- if things come back like we think they will in the U.S., we should get back to a more normal environment, okay, of activity, miles and freight. So for sure, we'll be back to normal CapEx. Konark Gupta: Makes sense. And just quickly to follow up. You mentioned Daseke in terms of access equipment you got there. Where is the integration process on Daseke now? I mean like it's been a while, I guess, right? You had Daseke in the system. And I'm sure obviously the volumes are soft and all that, but what you can control from a self-help perspective, like are you fully done there? Or there's more to do? Alain Bedard: You know what? On the Daseke, on the financial side, okay? So we're done, okay? By the end of '25, we're done, okay? Fleet management, financial, so they run MIR now, okay, like Contrans. They also run on Infineon for financial like Contrans, okay, which is our Truckload division, right? So this is done. In terms of the day-to-day TMS, okay, there, we're still working on McLeod and TMW, okay, updating those systems and also making sure that we have visibility across all the divisions because Daseke was more of a siloed kind of company, okay? So that is going to change during the course of '26. Sales is also something that we're working on at our U.S. truckload operation. And this is something I'm still discussing with my friend, Steve, okay, how we're going to go about the commercial operation in '26. This is still something that needs to be ironed out. But for sure, we need to invest more on the commercial side of our U.S. specialty truckload because I believe that with everything that's going on in the U.S., we need a sales team that are aggressive because there's going to be more business. Operator: Next question will be from Ken Hoexter of Bank of America. Ken Hoexter: Can you address the start in October on volumes relative to the down 7% tonnage in the fourth quarter, 11% shipments? David Saperstein: Yes. I mean the start to October, we're not in the habit of giving monthly data, as you know. But the start to October is soft, like the industry leader pointed out on -- when they reported recently. Ken Hoexter: So I just want to understand if it accelerate because I guess, David, just to clarify, right, when Alain said LTL 200 to 300 basis points deterioration, you said 96, which would be a 380 basis point sequential deterioration. I just want to -- was there anything in there that's getting worse? Or I didn't know if the volumes were accelerating the downside, just understanding what was in the numbers there. David Saperstein: No, listen, the 96% is what's embedded in the guidance. That's what our current forecast says, and that is driven by our observation of the first month of the quarter. So yes, October was weaker than it usually is, weaker than expected. Alain Bedard: Yes. Ken, because me, I'm always being optimistic. This is why me -- that's the target when I talk to Kal. But David is the CFO. He's the numbers guy. So sometimes we have different perspective. But you got to trust probably better David because he's the numbers guy. Ken Hoexter: Okay. And then just following up on that. The logistics, I guess similarly, right, the OR deterioration, you mentioned the JHT -- or is that getting more expensive or deteriorating OR because of what's going on in terms of reduced capacity availability from ELP and the CLs you're talking about? Just want to understand kind of the negative mix. Was it really just on the top line like you're talking about with LTL and the volumes? Or is there -- is it the cost side kicking in as well? David Saperstein: No, it's not the cost side. It's not like it's harder for us to get capacity. It's a combination of -- we -- remember, our logistics broker -- the brokerage portion of our logistics, most of it is LTL -- so if LTL is off to a slow start in Q4, the same is going to be true for our LTL brokerage in terms of demand. And then -- but the majority of the drag in that segment is coming from the truck moving business and the dynamic that we've talked about in terms of holding on to our people during that period. Ken Hoexter: And then Alain, I guess, just to wrap up. Alain Bedard: Excuse me, I was just going to add, Ken, that this is -- the old red is killing us at JHT because like David is saying is we're keeping the staff. We're keeping the team because we know this is short term. So, excuse me. Please go ahead. Ken Hoexter: No, exact same issue, right, which is short term on that because you mentioned the government shutdown. It's surprising because it seemed like a lot of companies were avoiding that thing, we don't really move that stuff. But it sounds like, I guess, you're seeing not only direct business where particularly for the DoD customer, but I guess the derivative of that. Is that kind of having another flow-through on other or derivative customers increasing that demand or not necessarily at this point too early? David Saperstein: Yes. Yes. Well, one thing is for sure, Ken, is that everything is slow right now because think about the fact that some people are not being paid or delayed in the payment of their salaries. So for sure, the demand is slow right now. And it will correct itself as soon as there's a deal in the U.S. We don't know when. I think it's going to be soon. And DoD, it's a big part of our specialty truckload, Ken. I mean, 30% of our business normally is moving freight for the Department of Defense. So it's just one example that this is why our guidance for Q4 is exceptionally low. This is not normal for us. But it's like a perfect storm where our logistics has been affected badly, okay? Our truckload is the same. So -- and also the fact that in Canada, I mean, it's pretty difficult as we speak, right, because of the trade between the 2 countries. So it's like a perfect storm for us. But $0.80 to $0.90, I mean, EPS for us is not normal. It's exceptionally low, okay? But we have to give guidance that is proper. Ken Hoexter: Yes. One more on that real temporary question, but -- and I don't want to talk about the government shutdown on the post office, but the post office is threatening, I guess, to make drastic changes of changing how many days you get deliveries and things like that. Is that a huge potential for P&C? Or is that a cost issue? I just want to understand if that longer term, not just the takeaway of the strike minimal volumes. I'm thinking bigger picture long term, does that change the structure for your P&C business? Alain Bedard: Well, for sure, Ken. If finally, these guys in Ottawa decide to -- because you're talking about Canada, right, Ken? Ken Hoexter: Yes, just Canada, yes. Yes. Alain Bedard: Yes, yes. You're talking about Canada. So for sure, I mean, I think that the guys in Ottawa now wake up and they see that things have to change. Things have to change, and we are way more efficient than them, okay? So whatever change they do, okay, it should help us on the longer term, Ken, in Canada. You know what, I'll give you an example of what's going on, credit cards, okay? So credit cards from financial institution used to be with Canada Post. Now it's mostly us, right? And a year ago, there was another strike. So we did that, then they went back to Canada Post. But now the discussion we're having with them, this is going to be a permanent change because I think the financial institutions are sick and tired of back and forth. Operator: Next question will be from Cameron Doerksen at National Bank Capital Markets. Cameron Doerksen: A question on the Canadian LTL shipments down quite a bit there, I think 12%, but revenue per shipment was nicely positive. Just wondering if you could describe, I guess, the -- what you're seeing in the Canadian LTL space? Are you just being more selective in the business that you're chasing there? Alain Bedard: No, no, Cameron. It's just our customers -- the weight per shipment is down, right? So I mean, they're less busy. And us, I mean, we're not losing customers, major customers, one that I think we've lost one customer that I'm thinking of, yes, okay? But in general, we're not -- there's no churn in customers unusual. It's just like lower activity, Cameron. Cameron Doerksen: Okay. And just on -- going back to your comments around, I guess, the Driver Inc., and hopefully, this change in the government will actually result in some change as we look ahead to next year. If that does happen, what does that impact on your business? Is this something where you just expect that some of these driver in carriers will just not be able to be in the market at all, and so there's a volume positive for you? Or is it more just that they're are underpricing in the market and this will just lift the pricing across all carriers if they don't have that benefit anymore? Alain Bedard: Yes. Yes. Well, we know these guys have been cheating all along. And we know that now if they have to issue T4A, the cheating is going to disappear. So I mean if you look at the evolution of our OR in Canada, the Canadian Truckload, I mean, it's just a disaster because we used to run 80 to 85 OR. And now we're running a 90 OR. Why is that? Well, because we have to be more competitive, et cetera, et cetera. So this is -- this was always unfair competition to us. So we think that now with this new issues, okay, you're going to start to see some change. Another thing also that's important to notice is the safety record of those guys is not good. So people are starting to understand. So we've got customers now that are stating, we don't want to deal with those Driver Inc., anymore, right? So we have won a paper guy big in Quebec that said, "Hey, you know what, you have to certify that you're not a Driver Inc., because more and more, there's also not just the cost, but the safety of these guys, okay, has been questioned now, right? So this is like to me, in '26, when I look at Canada, the market is going to be probably a little bit more difficult, but the supply is going to be also much less. So we'll probably be in a better position in '26 than we were in '25 because slowly, okay, those drivers will have to adjust. They will have to adjust the rates. They cannot cheat because right now, a Driver Inc., guy is not paying any taxes. Now he gets a T4A, oops, Revenue Canada is aware of him. And if he doesn't pay his taxes, then he's going to end up with a little bit of an issue. Operator: Next question will be from Brian Ossenbeck at JPMorgan. Brian Ossenbeck: Just going back to the Mastio survey and the big improvement you noted, when do you start to get credit for that? Is that something that you do at once? Obviously, it's continuous, but you get some credit the first time you make a couple of big steps and then they start to give you more volume and then maybe more price later. And then just related to that, I'm trying to understand how you can be pretty good on 4-day service and next day, but not necessarily 2 to 3 day. So what's the part I'm missing there? Alain Bedard: Okay, Brian. I'll let David talk about the Mastio report. But what I can tell you is that the 4-day, okay, where we were able to make some changes is that we move freight from rail to road, right? So when you do that, you are in control, right? So this is why we're doing really well on 4-day versus what we used to do. And next day, because we come from the UPS environment where everything was kind of next day, these guys have always been good on next day. So we're just -- it's just a continuation of what these guys have done all along. The second day and the third day, this has been the issue, okay, where we're not acting as being professional. We don't monitor. We just let the other guy do the job. So now it's a focus of ours because this is a big issue because you have a commitment that you give to a customer that is going to be there in 3 days, but it's not there in 3 days, it's there in 5 days. Well, that doesn't work, right? So you've got to be having process in place that you manage that. So this is something where in the old days, there was no real focus. And now through this new focus of the team, it has been a major focus of ours. And we know that second day and third day, okay, we were not as good as our peers, right? But we're getting there because we're making a lot of changes and a lot of improvements. So that's the difference between 4 days, 2 days, 3 days, Brian. David Saperstein: And in terms of how you get credit, in our experience so far, we would expect to see the impact first on volumes, right? So your turnover and your churn comes down. You're able to retain more business that you get. Then you start to get more wallet share from the same customer. Because remember, our customers -- a lot of the big customers use all of us, right? They use lots of carriers. It's just a question of how much they're allocating to each one. And so you do a good job, start to get a little bit more. So the first place that we would expect to see it is on volume. Pricing will come later. And pricing, frankly, is going to be a little bit of a function of the supply-demand imbalance correcting itself or at least normalizing and the market being a little bit more balanced, right? When there's -- the market is more balanced and our service is improving and we're getting more freight from people, then we could start to see pricing. The other thing I'll point out on this is that the beauty is that we've made big improvements, but there's still a long way to go, right? We're not best-in-class yet. We've still got another hundreds of basis points to improve on time. We can drive our missed pickups way down further, reschedules way down further. Our claims can come down way further. So we're still in the early stages, and there's a lot more value for us to create for our customers in the form of better service and ultimately for our shareholders when that plays through to the numbers. Brian Ossenbeck: And then just the relative size of the 2 to 3 days, it sounds like that's probably the bigger chunk of the market or the opportunity relative to maybe the 4 in the next day. Alain Bedard: Yes, absolutely, Brian. Because I would say that next day for us is about not even 20% of our volume today and 4 days is probably about the same. So I mean, the big chunk of our business is between 2 and 3 days. And this is where we are the weakest today, and this is where our focus is, is, guys, this is where we have to work on, right? So we made some major improvement in the 4 days there, we're good. We're good on the next-day service, fine. But let's do the job on the 2 and 3 days, and we are improving, absolutely. Operator: The next question will be from Tom Wadewitz at UBS. Thomas Wadewitz: So Alain, I wanted to get your thoughts on just kind of the size of the terminal network for U.S. LTL and where you would want to be for shipments. I think that was something where you kind of -- you inherited some or you bought something that had over 30,000 shipments a day, I don't know, 33,000, whatever it was, a wind down on kind of your own initiatives and the cycle went down. And I think that has been a component that you're like, well, we can't be a 90 or mid-80s OR company if we're just way underutilized. So how do you think about where the network is and how much volume is a piece of ultimately getting to the goals, like maybe how large that gap is? Because that seems like a factor that would ultimately matter as well. Alain Bedard: You're absolutely right, Tom. And as a matter of fact, in Q4, we will probably swap 3 terminals with one of our peers to readjust the size of our terminal, versus those guys, right? So this is an ongoing thing, okay, that we continue to do. Cash-wise, probably in our Q4 between what we're buying and what we're selling, we should see a net positive between USD 40 million and USD 50 million in Q4. But still, even with that, going into '26, I would say that -- we probably have another 2,000 doors too many, okay? Now the challenge that we gave our team is that the network was probably built to support 40,000 shipments a day, and we're doing half of that, right? So organically, it's going to take us some time. But can we go organically from 20,000 shipments a day to 40,000 shipments a day? That takes a long time. So this is for sure. There's more to go. There's more to come into adjusting our network, okay, to today's reality, and we'll keep doing that. So we're talking to all of our peers all the time. And what's the number of doors that we would need today, probably more like 5,000 to 6,000 to 7,000 doors. But these doors have to be in the right location, right? So that's the other thing that we're working on in some areas. I'll give you an example. Dallas, I don't have too many doors in Dallas because we're doing well in Dallas, and we are increasing our volume in Dallas. Chicago, the same, right? So we got areas that we are growing, okay? Now you say, well, your volume is down, yes, because in other areas, we are losing, right? But we were working on balancing the network absolutely like everything else, Tom. Thomas Wadewitz: Is that an issue on service that if you kind of rationalize or it's not -- it's size of terminal for you, it's not necessarily like reach of the network? Alain Bedard: No, it's not an issue for service, Tom. I mean, no. Operator: Next question will be from Benoit Poirier at Desjardins Capital Markets. Benoit Poirier: Thanks, Alain, for the great comments about the impact of regulation, both sides of the border. Obviously, you mentioned some color about 2026 being more of a sunny picture, especially on the U.S. LTL. I'm just curious what kind of OR could you produce in a flat volume environment in 2026? And maybe another scenario where you see a more bullish stance in terms of volume? Alain Bedard: Well, I think if everything stays the same, I think that in this kind of an environment where the volumes are light, et cetera, et cetera, if you look at our Q2, if you look at our Q3, for sure, last year's Q1 was a disaster for us at 99. I mean, I don't think that we'll be in that position. So can we say no volume growth, okay, for '26 versus the same kind of environment, '26 that we've been seeing in '25 with the investment that we're doing in our cost management and all that. So probably a 200 basis point globally improvement, 200 to 300 basis points versus what we are delivering in '25 into '26. Benoit Poirier: Okay. That's very great color. And just with respect to the Chief Commercial Officer role, is it fair to say that the candidate has already been identified and is coming from the outside? And I'm just curious to see how it will change the jobs performed by Kal and the team overall. Alain Bedard: No, the guy comes from the family. The guy is within TFI. Operator: Next question will be from Bruce Chan at Stifel. Julia Pernille Buhl: This is actually Pernille Buhl on for Bruce. I appreciate all the color here. So a quick one. I wanted to ask about CapEx. In terms of CapEx budget from here, how would you expect it to trend going forward? What investments are sort of needed as far as maintenance and potentially growth? David Saperstein: Yes. So for this year, we're -- we've updated our guidance to $150 million to $175 million net CapEx for '25. And -- in normal years, it would be more like $300 million, okay? And that's all maintenance CapEx. The way that we think about CapEx is really about maintaining the fleet that we need. We're not seeking to grow the fleet organically when volumes turn, we just use that opportunity to get more productivity out of our assets, use that opportunity to take the highest paying freight and we get the operating leverage that way. Operator: Next question will be from Ariel Rosa at Citigroup. Ariel Rosa: So I wanted to ask about tariff impacts and what you're seeing there? To what extent do you think tariffs are kind of holding back business, whether it's cross-border or in Canada versus how much of kind of the volume weakness is related to kind of cyclical factors or kind of underlying economic factors that would be independent of the tariffs? And then to the extent that we get a little bit more tariff clarity, do you see that as a positive or an incremental positive into 2026? Alain Bedard: Well, one thing is for sure. If you don't know the rules, everybody sits on the sideline, right? And the problem we have right now is that we don't have a deal. I mean, Mexico or Canada, both countries, big traders in the U.S., we don't have a deal. right? So this is why it's so important that in '26, at one point, okay, there has to be a deal between the 3 countries, right? So -- and in the meantime, okay, in terms of not knowing where we're going, right, for sure, it's a big effect, right? If you take the aluminum, okay, I was reading what the President of Rio Tinto is saying, I mean, aluminum is not affecting them, okay, the tariff, okay? So -- but what they're doing is they're shipping some of their aluminum from Canada to the Europe. Well, it's affecting me because I don't have any ships, right? But down the road, okay, this is temporary. I mean, for sure, this will change as soon as we have clarity on tariffs finalized all that, I mean, that product will go back to the U.S., right? So it's just we need to have a deal between the 3 countries. And once we have that, whatever it is, okay, then we know what to do and what kind of adjustment will be needed. And then it's going to be clear sailing. Ariel Rosa: Yes. Well, let's hope we get some clarity on that in the months ahead. And then just as a follow-up, Alain, I wanted to ask about how you're thinking about the dynamics between LTL and Truckload right now. Do you think there's a lot of LTL volume that's slipped into the Truckload market? And obviously, if we get some tightening here because of some of these enforcement actions, how positive of an effect can that have for the LTL market? Alain Bedard: Well, that's for sure. I mean when you think about that, you're a truckload guy, you're stuck, okay? So what do you do? I mean, you try to get the good heavy 5, 10 pallets of LTL and you give the shipper a good rate, right? So right now, what's happening in the LTL industry is that there's lots of freight that has been moved to the truckload guys, and this is good rates, good freight for LTL. So we'll see what happens. When the truckload guys get busier, okay, are they going to walk away from that freight because now they don't need to do that? Probably experience tells us that this is what happens, okay? But we'll probably see that sometimes in '26, hopefully, okay? But who knows when, right? Operator: And at this time, Mr. Bedard, we have no other questions registered. Please proceed. Alain Bedard: Well, thank you, operator, and we appreciate everyone joining us today. Thank you for your interest in TFI International. We look forward to finishing the year strong and are confident we'll be entering '26 in a position of strength. I look forward to seeing many of you at several investors conference and we'll be attending before year-end. And as always, please don't hesitate to reach out with any further questions. Have a terrific Halloween, and have a great weekend, guys. Thank you. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

199天前Insight Analytics约5分钟阅读

MGA 2025 Q3 财报电话会议

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.

199天前Insight Analytics约5分钟阅读

CPS 2025 Q3 财报电话会议

Operator: Good morning, ladies and gentlemen, and welcome to the Cooper-Standard Third Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded, and the webcast will be available on the Cooper-Standard website for replay later today. I would now like to turn the call over to Roger Hendriksen, Director of Investor Relations. Roger Hendriksen: Thanks, Danny, and good morning, everyone. We appreciate you spending some time with us this morning. The members of our leadership team who will be speaking with you on the call this morning are Jeff Edwards, Chairman and Chief Executive Officer; and Jon Banas, Executive Vice President and Chief Financial Officer. Before we begin, I need to remind you that this presentation contains forward-looking statements. While they are made based on current factual information and certain assumptions and plans that management currently believes to be reasonable, these statements do involve risks and uncertainties. For more information on forward-looking statements, we ask that you refer to Slide 3 of this presentation and the company's statements included in periodic filings with the Securities and Exchange Commission. This presentation also contains non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures are included in the appendix to the presentation. With those formalities out of the way, I'll turn the call over to Jeff Edwards. Jeffrey Edwards: Thanks, Roger, and good morning, everyone. We certainly appreciate the opportunity to review our third quarter results and provide an update on our business and the outlook going forward. To begin on Slide 5, I'll highlight some of the key third quarter data points that we believe are reflective of our continuing outstanding operational performance and our ongoing commitment to our core company values. In terms of operations and customer service, we're on track to have possibly one of the best years in our company's 65-year history. We ended the third quarter with 99% of our customer scorecards for quality and service being green. For new program launches, we also continue to deliver strong performance with 97% of those scorecards green. Our plant managers and our plant employees continue to deliver outstanding performance and value for our customers through their dedication and commitment to excellence. We're extremely proud of that. Also in our plant operations, safety performance continues to be excellent. In fact, during the third quarter, we had a total incident rate of just 0.28 recordable incidents per 200,000 hours worked. That's well below the world-class benchmark of 0.47. Importantly, 36 of our plants have maintained a perfect safety record with a total incident rate of 0 for the first 3 quarters of the year. That's 60% of all of our production facilities achieving a perfect safety score and demonstrating that our ultimate goal of 0 safety incidents is achievable. We're proud of our entire global team for their focus and achievement in this most important operating measure. In terms of cost optimization, we had another solid quarter with our manufacturing and purchasing teams delivering $18 million of savings through lean initiatives and other cost-saving programs. These cost reductions and operating efficiencies, combined with revenue growth in the quarter, allowed us to achieve a solid 140 basis point improvement in gross margin versus the third quarter of last year. Despite some of the market headwinds that we've been seeing, we continue to drive profitable growth and margin expansion through the execution of our plans and strategies. Finally, we're continuing to leverage world-class service, technical capabilities and our award-winning innovations to win new business. During the third quarter of 2025, we received $96 million in net new business awards, which are expected to drive profitable growth as they launch over the next few years. That brings our total net new business awards for the first 9 months to nearly $229 million. I will provide some additional detail on this in a few minutes. First, let me turn the call over to John to discuss the financial details of the quarter. Jonathan Banas: Thanks, Jeff, and good morning, everyone. In the next few slides, I'll provide some details on our financial results for the quarter and discuss our cash flows, liquidity and aspects of our balance sheet and capital structure. On Slide 7, we show a summary of our results for the third quarter and first 9 months of 2025 with comparisons to the same period last year. Third quarter 2025 sales were $695.5 million, an increase of 1.5% compared to the third quarter of 2024. The slight increase was driven primarily by positive foreign exchange and favorable volume and mix, partially offset by certain customer price adjustments. As Jeff mentioned, our third quarter 2025 gross margin improved 140 basis points compared to the prior year to 12.5% of sales. Adjusted EBITDA in the quarter was $53.3 million, an increase of more than 15.6% when compared to the $46 million we reported in the third quarter of last year. Importantly, we were able to drive further margin expansion of 100 basis points versus the same period a year ago despite the modest revenue growth and market headwinds. On a U.S. GAAP basis, we reported a net loss of $7.6 million in the third quarter compared to a net loss of $11.1 million in the third quarter of 2024. Adjusting for restructuring and other items from both periods as well as the related tax impacts, adjusted net loss for the third quarter of 2025 was $4.4 million or $0.24 per share compared to an adjusted net loss of $12 million or $0.68 per share in the third quarter of 2024. Our capital expenditures in the third quarter of 2025 totaled $11.2 million or 1.6% of sales, similar to the prior year period. We continue to exercise discipline around capital investments, which are primarily focused on program launch readiness in order to maximize our returns on invested capital. Moving on to the 9 months. For the first 9 months of 2025, our sales were essentially flat compared to the first 9 months of 2024. Significantly, and despite flat revenue over the first 3 quarters, our gross profit margin increased by 170 basis points and our adjusted EBITDA margin improved by 230 basis points compared to the first 9 months of last year. Moving to Slide 8. The charts on Slide 8 provide additional insights and quantification of the key factors impacting our results for the third quarter. For sales, favorable volume and mix, net of customer price adjustments, increased sales by approximately $2 million compared to the third quarter of 2024. The impact of favorable foreign exchange was approximately $8 million. For adjusted EBITDA, lean initiatives in purchasing and manufacturing positively contributed $18 million year-over-year. In addition, we continue to realize benefits from our restructuring initiatives implemented in prior periods, amounting to $5 million in incremental savings in the third quarter compared to last year. Favorable foreign exchange was a tailwind of approximately $4 million in the quarter. Partially offsetting these improvements were $5 million of unfavorable volume and mix, including customer price adjustments and the impact of certain short-term production disruptions, $6 million in increased costs and wages and general inflation and $6 million in higher SGA&E expense. The increase in SGA&E expense was primarily related to stock price appreciation adjustments for certain equity-based incentive awards as our share price increased by approximately 72% during the third quarter. With most of the price gain occurring later in the quarter, this increase and the related incremental expense were not contemplated in early August when we last reported earnings and updated our guidance. Moving to Slide 9. On Slide 9, we present the same type of year-over-year bridge analysis for the first 9 months of the year. As mentioned, sales were essentially flat for the first 9 months with slight positive volume and mix being offset by unfavorable foreign exchange. Adjusted EBITDA in the first 9 months increased by more than $48 million or more than 38% compared to the first 9 months of 2024. The improvement was driven primarily by $63 million of manufacturing and purchasing efficiencies, $17 million of restructuring savings and $9 million of favorable foreign exchange. These positive drivers were partially offset by $20 million of unfavorable volume, mix and price adjustments, approximately $19 million of higher wages and general inflation and $5 million in higher SGA&E expense, again, mainly due to the stock price appreciation discussed earlier. Overall, our SGA&E continues to benefit from previous restructuring and cost reduction initiatives and a disciplined management focus on controlling costs. We are pleased with our improving results in the first 3 quarters of 2025 as our focus on controlling costs, delivering exceptional operational performance and launch of new, more profitable programs are having the positive impacts we had planned despite some of the market headwinds we began to see late in the third quarter. Moving to Slide 10. Looking at cash flow and liquidity. Net cash provided by operating activities was approximately $39 million in the third quarter of 2025 compared to $28 million in the third quarter of 2024. Capital spending, as mentioned earlier, was approximately $11 million in the third quarter of 2025, resulting in net free cash flow of approximately $27 million for the quarter, more than $11 million higher than the same period last year. We ended the third quarter with a cash balance of approximately $148 million. Coupled with $166 million of availability on our ABL facility, which remained undrawn, we had solid total liquidity of approximately $314 million as of September 30. We believe that is more than sufficient to support the continuing execution of our business plans and profitable growth objectives in today's environment. Following the solid results of the first 3 quarters and even considering our revised outlook for production volume headwinds in the fourth quarter, we believe we remain on track to achieve positive free cash flow for the full-year this year. With respect to our capital structure, we are continuing to evaluate various options to strengthen our balance sheet and further improve our cash flow and are carefully monitoring market conditions and developments in the credit markets. We are optimistic that as we continue to deliver improving results, we will be able to favorably refinance our first and third lien notes in the next several months. With that, let me turn it back over to Jeff. Jeffrey Edwards: Okay. Thanks, Jon. And this last portion of our call, I'd like to again comment on our high-level strategic imperatives and how these are positioning us for continuing profitable growth over the next several years. Then I'll wrap up with a few comments on our near-term outlook and our revised guidance for 2025, so please turn to Slide 12. Our strategies and operating plans are built around the 4 key strategic imperatives that you see outlined on Slide 12. By aligning the company around these common objectives, we've been able to drive significant improvements in virtually every aspect of our business. By the continuing execution of our plans and strategies, we're positioning the company to deliver continued profitable growth, further improvements in margins and significantly improved returns on invested capital as we discussed in last quarter's call. Moving to Slide 13, as I name it, my favorite slide in today's presentation. One of the key improvements in our business has been the increase in our profit margins all financial strength and overall financial strength of the business. Through our successful strategic execution, we've been able to increase our gross profit margins by more than 100 basis points each year over the past 3 years, and that's despite reduced or flat production volumes in our 2 largest operating regions. Because of our focus on sustainable efficiency and fixed cost reductions, we will continue this trend of expanding margins into the future even if production volumes remain flat. We would obviously expect to leverage any increase in production volume to drive further profitability and returns. In addition to our cost optimizations, we're benefiting from continuing launches of new programs and products with enhanced variable contribution margins. As the new programs ramp up, they'll be replacing the older programs that have lower margins on average. Our book business, launch cadence and the timing of runout business give us a high degree of confidence in our expanding margin outlook. Turning to Slide 14. Our strategic execution is also enabling business wins that we believe will drive further profitable growth in coming years. I mentioned at the beginning of the call that in the first 9 months of the year, we've received nearly $229 million in net new business awards. Of the total awards, 87% were related to the value-add innovations in product and technology that we've introduced into the market. We continue to believe that our strategy and capabilities around technology and innovation are a clear source of competitive advantage for us. Similarly, 83% of the new awards were related to battery electric or hybrid vehicle platforms, which is an indication of how closely our product offerings and innovations are strategically aligned with the fastest-growing segments of the market. Finally, as we shared last quarter, our growth strategy includes expanding our relationships with the fast-growing Chinese OEMs that are beginning to expand their business globally. This opens up significant opportunity for us to expand both in terms of our customer base as well as geographically where we believe the greatest growth will be occurring over the next several years. We are proud to be the supplier that our customers turn to for quality components, consistency of delivery and collaboration on critical design and development of new technologies. Now, we're also the supplier they're returning to, to support their global expansion needs. With these awards in hand and bright outlook for new business wins ahead, we are increasingly confident that we will be able to execute our plans and achieve our longer-term strategic financial targets for growth, margins and return on capital. Turning to Slide 15. To conclude our prepared remarks this morning, let me focus in the nearer term and our outlook for the rest of 2025. Following a somewhat choppy third quarter in which certain of our customers around the world experienced short-term production disruptions from things like cyber attacks, lightning strikes, labor disruptions, just to name a few, we're now expecting a much more significant impact, unfortunately, in the fourth quarter due to the aluminum supply chain disruption that has hit our largest customer. While we're encouraged by public commentary about plans to make up the lost production in future periods, there is no way we can mitigate the impact this will have on our fourth quarter. From a more positive perspective, the statements about making up lost production early next year support our view that the underlying demand for new light vehicles remains strong, it's consistent with our plans for strong profitable growth over time as markets normalize. We expect any reduction in production volumes related to this latest supply disruption to be temporary and will not have any lasting impact on our opportunities to achieve our longer-term strategic targets. As a company, we're maintaining our relentless focus on the aspects of our business that we can control, operational excellence, delivering world-class quality, service and innovation to our customers and continued near flawless launches of new programs with enhanced contribution margins. As we do this, we're confident that we will position the company to achieve our strategic financial targets going forward as production volumes normalize. Turning to Slide 16. Despite our strong results in the first 3 quarters of the year, which exceeded our original plans, we are reducing our full-year guidance ranges for sales and adjusted EBITDA to reflect the expected impact of various temporary reductions in customer production volume, including on some of our most important platforms. The waterfall chart on the right breaks out the various drivers of our revised outlook for 2025 full-year adjusted EBITDA versus 2024 actuals. Our success in delivering manufacturing efficiencies and other cost savings are still the biggest drivers to the positive, but unfavorable volume and mix is now a significantly greater factor to the downside. Importantly, even with challenging overall outlook in the fourth quarter, we still expect to deliver significantly higher adjusted EBITDA and positive free cash flow for the full-year on sales that are flat to slightly lower than they were in 2024. We want to thank our customers, our suppliers and all of our stakeholders for your continued confidence and support. We remain committed to working together and finishing the year as strongly as possible. This concludes our prepared remarks, so let's move into Q&A. Operator: [Operator Instructions]. Your first question comes from Mike Ward of Citigroup. Michael Ward: Jeff, if we look out in 4Q, it's unfortunate the fourth thing happened, but it sounds like they're trying to get it accelerated as fast as they can. Then it sounds like they're going to try to make it up pretty early in the first half. It also sounds like they're going to add a third shift to Dearborn and LineSpeed, so when you kind of balance it out, it's really just postponing it into first half '26. Is that how you're looking at it? Can we look at first half of '26 where some of the things actually start to accelerate for you? Is that the way you're thinking about it? Jeffrey Edwards: That's exactly how I'm thinking about it. I think while the end of '25 isn't quite what we had forecasted because of the event, we're preparing our business plans for '26, '27 and '28. Certainly, there's an impact positively to what's going on in '26. Yes, it's a short-term issue, as I said in my prepared remarks, and I have no doubt that the first half of '26 will reflect improved results beyond what we originally had planned. Michael Ward: When we look across the different vehicles you supply components to, if you had to pick one where they're increasing the line rate, would the F-150 be the one that your highest content vehicle? Jeffrey Edwards: Yes. My short answer would be yes. Michael Ward: Jon, I wonder if you can walk through the gives and takes on the cash flow because that's a pretty strong cash flow statement you made for 4Q. You have to pay the interest, right, that was accrued in 3Q, so you have the 6-month interest payment. Is that correct? Jonathan Banas: That's correct. Mid-December is the next coupon due on the first and third lien notes. Michael Ward: That's about $30 million? Jonathan Banas: Actually, closer to $55 million. $55 million combined. Michael Ward: Then you have working capital. It sounds like working capital should be a strong positive. Jeffrey Edwards: It needs to be Mike. Jonathan Banas: Right. To get to positive, we need to generate about $30 million-plus of free cash flow in Q4. You're right, the big benefit that we see as we do every Q4 is improvements in working capital, unwinding that from an accounts receivable perspective and reducing inventory levels as production winds down towards the end of the year. Both of those obviously have a positive cash benefit. We're spending less, obviously, in the lighter months of November and into December as well. That preserves some cash on the balance sheet as well. All that combined will benefit and more than outweigh the $55 million in coupon payment that's due in mid-December. Michael Ward: The F-150 delays doesn't disrupt the working capital that much? Jonathan Banas: The timing will matter about when the production comes out because if you think about the timing of average days receivable, things that don't get produced in October would impact the total quarterly cash flows. If it's later in November, December, that's not being produced, then that impacts the subsequent quarter's cash flow timing. Operator: Your next question comes from Nathan Jones of Stifel. Nathan Jones: I guess I'll start with some of the net new business wins and probably as, I guess, the year-to-date ones more than just focusing on the 3Q ones and how that impacts the path to the 2030 targets that you laid out last quarter? What I'm looking for is some more commentary on the linearity of the path from 2025 to 2030, should we expect the growth and margin expansion to be fairly linear between 2025 and 2030? Is it more backloaded? I mean, I think some of these Chinese OEM contracts will ramp up faster than maybe some of the Western ones. Just any commentary you can give us on the linearity you're looking at for that, please? Jeffrey Edwards: Yes, Nathan, this is Jeff. I will tell you that we've been at this booking new business at these higher margins now for a couple of years plus probably. Yes, if you're going to take the line from today to 2030, I think it's pretty linear. Certainly, you're also correct that the Chinese launches are coming to market faster than most. Even with that taken into consideration, I would tell you we're very happy with what we're seeing in margin growth. We showed you a little bit of that today, the historical trend line there and even a glimpse into what we already know with 2026. If you drew the line from '26 to '30, you keep going on a similar trajectory. Nathan Jones: I guess to follow-up to that, obviously, these platforms don't ramp up -- start ramping up out in 2030. There are net new business wins that you need to get over the next couple of years at least to get to those 2030 targets. What kind of net new business wins should we be looking for, say, in '26, '27 and '28 to check that the company is still on target to get to those 2030 goals? Jeffrey Edwards: I think similar to what we track this year. That's kind of how we have to do it, right? You got to replace what's building out and you got to win the new stuff that's coming. Then if there's new programs or conquest opportunities on top of that. Historically, it's been in that same range that you see happening this year. We've had some years that were a little better, some years maybe a little bit under it, but I think that's a pretty good number going forward as well. Nathan Jones: Then maybe a follow-up on the balance sheet. You're still at about 4.2, a little over 4 turns of leverage today. I think you guys have targeted getting that down closer to 2x by the end of 2027. Do you think you're still on target to get to there? Does any of this disruption change that at all? Or I still think that you're on target to get to that kind of leverage by then? Jeffrey Edwards: This is Jeff. We're still on target to get there. As we just talked, I think '26 is actually going to be better than we originally had planned, not only because of what we discussed a few minutes ago with the volumes being made up from some of the fourth quarter disruption. I also tend to believe that we're going to see increases in overall volumes in some of our key regions. We don't have that yet in our forecast, but based on the leading indicators and certainly based on the amount of new models that are being invested in and coming through the system related to hybrid and electric vehicles, we're pretty excited about the businesses that we've been winning and the overall impact we think that will have on the next several years related to volume. Operator: The next question comes from Kirk Ludtke of Imperial Capital. Kirk Ludtke: On Slide 15, did any of these items impact the third quarter? Jonathan Banas: Kirk, it's Jon. When you think about some of the non-aluminum issues, the answer would be yes. Obviously, the thing is about the cybersecurity incident at one of our customers as well as some of the natural disaster weather-induced things, they did impact September and did put a little bit of a drain otherwise on Q3. Kirk Ludtke: Was it meaningful? Can you quantify it? Or kind of? Jonathan Banas: You see it impacted in the lower volume and mix that we would have had otherwise. Certainly not anywhere near as significant as the Q4 impact of the $25 million that you see on the bridge slide. We were able to essentially manage through that, but you think of the lost revenue, it's a big portion of the lower contribution at $53 million of EBITDA. Otherwise, we would have been a couple of million higher than that. Kirk Ludtke: I know we've talked about #1, but are #2 and 3, do you expect the production lost from #2 and #3 to be recovered in the first half of '26? Jonathan Banas: We haven't heard directly on that from those #1 and #2 -- or sorry, #2 and #3 customers, but if it's any indication, I think that they'll be competing for share and should do well as far as their production ramps. Kirk Ludtke: Then on Slide 14, the net new business slide, that's very helpful to break that out. Can you apportion that 83% between just battery and hybrid? Jonathan Banas: We do have that breakdown, Kirk. I'm going to have to get back to you on what that -- the current business wins are. broken out by hybrid and the true battery electric, but as we indicated, the majority of the total is, in fact, electrified, one of those platforms or another compared to the ICE platforms, but we'll get you that in short order. Operator: [Operator Instructions]. It appears there are no more questions. I would now like to turn the call back over to Roger Hendriksen. Roger Hendriksen: Okay. Everybody, thanks for your engagement this morning. We appreciate your questions. If you do have additional questions that weren't addressed on the call this morning, please feel free to reach out to me, and if necessary, we can arrange for future discussions with the management team. Thanks again for joining the call. This will conclude today's session. Thank you. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

199天前Insight Analytics约5分钟阅读

CUBE 2025 Q3 财报电话会议

Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I'd like to welcome you to the CubeSmart Third Quarter 2025 Earnings Call. [Operator Instructions] I will now turn the call over to Josh Schutzer, Vice President of Finance. Joshua Schutzer: Thank you, Colby. Good morning, everyone. Welcome to CubeSmart's Third Quarter 2025 Earnings Call. Participants on today's call include Chris Marr, President and Chief Executive Officer; and Tim Martin, Chief Financial Officer. Our prepared remarks will be followed by a Q&A session. In addition to our earnings release, which was issued yesterday evening, supplemental and financial data is available under the Investor Relations section of the company's website at www.cubesmart.com. The company's remarks will include certain forward-looking statements regarding earnings and strategy that involve risks, uncertainties and other factors that may cause the actual results to differ materially from these forward-looking statements. The risks and factors that could cause our actual results to differ materially from forward-looking statements are provided in documents the company furnishes to or files with the Securities and Exchange Commission, specifically the Form 8-K we filed this morning, together with our earnings release filed with the Form 8-K and the Risk Factors section in the company's annual report on Form 10-K. In addition, the company's remarks include reference to non-GAAP measures. A reconciliation between GAAP and non-GAAP measures can be found in the third quarter financial supplement posted on the company's website at www.cubesmart.com. I will now turn the call over to Chris. Christopher Marr: Thank you, Josh. Happy Halloween, and welcome, everyone, to our third quarter call. It was a very solid third quarter for Cube, which resulted in guidance increases across our key same-store and earnings metrics. Across all markets, our existing customer KPIs remain strong with key credit and attrition metrics remaining consistent within historical normal ranges. We are continuing to feel diminishing headwinds from new supply as the stores placed in service over the last 3 years lease up and the forward pipeline continues shrinking. As evident by 2 consecutive quarters of improved guidance expectations, the year has played out a bit better than we expected, which we attribute to the lessening impact of new supply, a more constructive pricing environment during our busy rental season and the continued health of the consumer. We foresee continued gradual improvement in operational metrics. We are not anticipating a catalyst for a sharp reacceleration. We are prepared and operating under the expectation that the stabilizing trends as well as deliveries of new stores will vary by market. Market level performance was similar to what we have been discussing for the last couple of quarters. Top performers continue to be the more urban, Mid-Atlantic and Northeast markets. The East Coast of Florida is experiencing stabilizing trends and some of the sunbelt markets are still finding their footing. In summary, it's a slow, steady stabilization without a catalyst for rapid acceleration, just like we laid out when we entered the year. We've seen some better pricing power that started earlier in the year for the reasons I've previously shared, while overall demand levels are mostly stable, but not growing significantly. It takes time for improving fundamentals to flow through to revenue with only 4% to 5% monthly customer churn, and this was the first quarter since Q1 2022, where move-in rates in the same-store portfolio were positive year-over-year. Assuming these stabilizing trends continue through the end of the year, we should be on improved footing heading into 2026. Now I'd like to turn the call over to our Chief Financial Officer, Tim Martin, for his commentary. Timothy Martin: Thanks, Chris. Good morning, and thank you to everyone for taking the time to join us today. For the quarter, we performed in line with our expectations, reporting FFO per share as adjusted of $0.65. Same-store revenues declined 1% compared to last year with average occupancy for our same-store portfolio down 80 basis points to 89.9%. Same-store operating expenses grew just 0.3% over last year, again, reflecting our keen focus on expense control. We saw favorable year-over-year variances in utilities expenses and in property insurance following our successful renewal back in May, which we discussed last quarter. So negative 1% revenue growth combined with 0.3% expense growth yielded negative 1.5% same-store NOI growth for the quarter. From an external growth perspective, we're starting to see a little momentum here late in the year as we're under contract to acquire three stores in the fourth quarter. We also completed and opened our joint venture development in Port Chester, New York during the quarter and are scheduled to open our project in New Rochelle, New York during the fourth quarter. On the third-party management front, we had another productive quarter, adding 46 stores to our platform, bringing us to 863 stores under management at quarter end. On the balance sheet, we successfully completed our issuance of $450 million of 10-year senior unsecured notes on August 20. The offering has a yield to maturity of 5.29% and was our first time back to the market in 4 years. We were delighted with the execution and delighted with the support we received from our fixed income investor base. Our 2025 notes mature later this month, and we intend to satisfy those initially through borrowings under our unsecured credit facility and then ultimately term that out by accessing the bond market again in the coming months. Our leverage levels remain quite conservative with net debt to EBITDA at 4.7x at quarter end. From a guidance perspective, we updated our full year expectations and underlying assumptions in our press release last evening. Highlights of the guidance changes include a $0.01 raise at the midpoint of our FFO per share as adjusted. On same-store revenue growth, we improved the midpoint of our guidance range. Our expense growth guidance range improved as well with a revised midpoint of 1.5% for the year. All of that translates into improved same-store NOI expectations for the year with a revised midpoint of negative 1.25%. Picking up on Chris' comments, we expect trends to continue to stabilize through the remainder of the year, putting us on better footing heading into 2026 than where we entered this year. Our guidance implies negative revenue growth in Q4, although acceleration from Q3 at the midpoint. While we're still not anticipating things snapping all the way back to normalized levels of growth quickly, we're seeing encouraging signs that are starting to flow through the portfolio. Thanks again for joining us on the call this morning. Happy Halloween. And at this time, Colby, let's open up the call for some questions. Operator: [Operator Instructions] Your first question comes from the line of Samir Khanal with Bank of America. Samir Khanal: Chris, I guess just how are you thinking about the balance between rate and occupancy right now in an environment where demand seems to be stable as you try to get that new customer in the door? Christopher Marr: So ultimately, the systems are focusing in on maximizing the revenue from each customer and so trying to find that balance, and it varies by market. So when you think about those two levers, rate and occupancy, you have the elasticity of demand that one has to deal with. And so when we look at those markets that we would describe as having been solid for a while, kind of the rock stars in this part of the cycle where you're getting both rate and occupancy, I'd call out New York City, Washington, D.C. MSA, Chicago, then you have those markets that are stabilizing. So their rate and occupancy are moving in a good direction, albeit still perhaps down year-over-year. And those examples would be Miami and L.A., Los Angeles. And then those markets that are still trying to find their footing where, again, the systems every day are trying to navigate through that dynamic of new move-in customer rate versus occupancy and testing is the demand there at any price. And those would be the same markets we've talked about all year, Atlanta, Phoenix, Cape Coral, Charlotte, the sunbelt market. So really varies quite a lot by market as the systems try to find that balance. Samir Khanal: And maybe as a follow-up here, I know you talked about move-in rates that were positive in the quarter, kind of the 2.5% better on rate versus occupancy. I mean can you provide some color around October as well, what were you seeing kind of trends in October? Christopher Marr: Yes. So the occupancy gap to last year has contracted from the end of the third quarter as of yesterday, we're down 100 basis points from where we were at this point last year. And the average rent on rentals, that 2.5% that you quoted for the quarter in October is kind of in that 1.92% kind of range. Operator: Your next question comes from the line of Nicholas Yulico from Scotiabank. Viktor Fediv: This is Viktor Fediv on for Nick Yulico. On your last call, you said that most demand still comes from traditional search and you're working with your partners for Gemini integration. So what percentage of leads and bookings are now AI influenced today? And how does overall the cost per AI leads compared to traditional search engine leads so far? Christopher Marr: Yes. The leads coming through the LLMs, which is primarily ChatGPT at this point for us are about less than 1%. Viktor Fediv: Got it. And then you also mentioned last call that merchant builder exit [ waves ] is kind of coming to the market. And just trying to understand whether it has intensified recently? And what does it mean for you and kind of for your potential acquisition pool? Christopher Marr: I'm sorry, I think we got a little bit more clarity on the question, if we could, merchant builder sellers? Viktor Fediv: Yes, yes, sellers, yes, whether you can see now more of them or not really versus, for example, Q2? Christopher Marr: Yes. No, I haven't really seen a change. Again, there's no and there typically isn't like significant duress in our sector. And so I think what you have is folks who may have opened a store in 2022, where they were underwriting cash flows based on the spectacular storage performance during COVID are clearly not meeting their pro formas. But I think what we're finding is everyone is just looking for ways to extend out and anticipate stabilizing trends and better times ahead and financial institutions for the most part, are cooperating. Operator: Your next question comes from Todd Thomas with KeyBanc. Todd Thomas: Chris, Tim, your comments about the improving trends and third quarter being the first period of higher move-in rents and it seems like that continued in October. Your guidance assumes an improving revenue growth trend in 4Q, albeit still negative. You mentioned that. But just your comments overall suggesting that, that trend of improving revenue growth, early sort of read into '26, is it fair to assume that you would expect, all else equal, that trend to continue from here, just given the 4% to 5% churn and the time it takes for that to translate to revenue growth? Is that how you're thinking about it at this point in the cycle? Christopher Marr: Yes. As you think -- I mean, as you think about '26 macro, again, assuming the consumer health remains where it is, the economy continues to do okay, we would anticipate that the trend from Q3 to Q4 -- and again, we talked about in Q2 that Q3 had a little bit of an anomaly and that was going to create that decel from the prior quarter. But yes, that trend should continue. Again, do we inflect positive in same-store revenue growth? As we sit here today, yes. When might that occur? Again, as we sit here today, I would conservatively expect that's probably the back half of 2026. Todd Thomas: Okay. And then some of your peers, I think, ran promotions are implemented, newer discounting strategies during the quarter. I was just wondering if you can speak to whether Cube participated or what discounting strategies might have been implemented during the peak season and how you're thinking about pricing, promotions and discounting in the off-peak season as occupancy typically pulls back a bit here. Christopher Marr: Yes. So I guess there was some new vernacular introduced recently with this gross net kind of concept. The 2.5% gross move-in rate year-over-year growth that we saw is -- for us, it is also the net. We have not had any change in our discounting. Todd Thomas: Okay. Are you changing your promotional offerings, though or changing your discount strategies at all? Christopher Marr: No. Operator: Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just on the acquisition side, a couple of your peers have become more aggressive, talking more -- about more opportunities or deal flow. Just curious what you're seeing and/or willingness or appetite to increase the external investments. Timothy Martin: Thanks, Juan. I appreciate the question. I guess we have three stores under contract, so that's movement in the right direction. I think what we have seen and we've talked about here for the past several quarters is pretty consistent view from the buying side of the table as to what return thresholds look like. I don't think that's changed much at all. It hasn't for us. I don't think it's changed much for others either. I think the change is that the seller side of the equation has gotten a little bit more constructive from the buyer's perspective, and you're starting to see things move a little bit. I think you saw that from some of our peers. I think you see that from us with the three stores that we have under contract. So nothing -- I wouldn't say there's any earth-shattering move other than the market becomes a little bit more constructive as the gap between buyer and seller has shrunk to the point where you're starting to see some things get done. Juan Sanabria: And then just as a follow-up, your rent per occupied square foot was strong in the quarter, up 2.4% quarter-over-quarter, flat year-over-year, better than peers. What do you think allowed you to push that in-place rate relative to the industry a bit stronger? Christopher Marr: Yes. I think, again, you're just -- everybody's system, I assume, is trying to do the same thing, which is find that balance between the levels of demand that are out there for storage and then pricing to capture that customer as well as the marketing tools to capture that customer. I think some of it is portfolio construct. Again, where we are at this part of the cycle, our strategy and our quality focus, I think, is very helpful to our results. And then part of it actually is just sort of the normal seasonality that one would expect to see from Q2 into Q3. Operator: Your next question comes from the line of Eric Wolfe with Citi. Eric Wolfe: I think you said a moment ago that -- conservatively that same-store revenue might not turn positive until the back half of 2026. But I mean if you're already at 2% to 3% move-in rate growth, is there some reason to believe that, that stays there that you wouldn't just go to like 2% to 3% same-store revenue growth? Is there some kind of offset on the ECRI? I'm just trying to understand why if you're already at, call it, positive move-in rents today that it's going to take until the back half of 2026 to be positive on same-store revenue. Christopher Marr: Yes. I mean not sarcastically, it's math. So we are in a business where 4% to 5% of our existing customers churn on a monthly basis. And so barring again some sort of change to the good on the demand side, again, which we don't foresee a catalyst for that. It just takes time. So you will just gradually see that slightly negative same-store revenue growth begin to move in a positive direction. And exactly when that crossover occurs, we're not providing guidance at this point, and we don't do quarterly guidance from a same-store perspective. But again, I think to be fair at this point in October 31, what I shared is kind of the conservative outlook at the moment. Eric Wolfe: Got it. And then I guess to the move-in rents that you provide in [indiscernible] I mean does that include promotions? I'm probably asking because I'm just thinking through like if we continue to see just positive move-in rent growth, like, I don't know, say, 2% to 3% or 2% to 4%, does that eventually translate into, call it, 2% to 4% same-store revenue growth. I know occupancy obviously plays a factor to your point. But I guess I'm just wondering about the -- if you can really just kind of take these move-in rent growth and then assume you're going to get a similar ECRI component to it, then take that as a leading indicator of where same-store revenue growth is going? Or we're mistakenly not including promotions or not including something else into that calculation? Timothy Martin: I'll jump in. If you think about the -- if you think about your premise there of 2% to 3%, 2% to 4% type year-over-year improvement in pricing, then -- and you held everything else constant, then ultimately, after, call it, 12 months when you've churned 5% of your portfolio each month at that type of churn, then eventually that's where you would get to. And then it would probably be helped a little bit then by some of those other factors. You probably get a little bit more out of your ECRIs, you probably get a little bit of occupancy if you're in that environment when you have -- if you have that type of pricing power, normal pricing power over a prolonged period of time. So back to Chris' point earlier here is it just takes time to flow through because it's 4% to 5% a month and it builds and builds and builds. So if you had that for a prolonged period of time, I think that's ultimately where you get to from a revenue growth perspective, plus or minus. Eric Wolfe: And then does the move-in rents include promotions or is that like a separate calculation we should make, meaning that up -- I think it was up like mid-2s this quarter. Is that flat with promotion? Christopher Marr: Yes. So that 2.5% is gross. And it for us is the same as the net because our promotions have not changed, the amount or the magnitude. Operator: Your next question comes from the line of Michael Griffin with Evercore ISI. Michael Griffin: Chris, maybe you can expand a bit on whether or not you've seen any changes in new customer behavior? I mean it seems like if you're able to raise these new customer rents, maybe there's less price sensitivity or customers shopping around. And I know it's always a topical point with storage, but any incremental homebuyer customers coming back? Or is it still -- they haven't really materialized yet? Christopher Marr: Yes. I think what you're finding is you're just able to get rate in these markets that are not typically the homebuyer and seller movement market. So you're leading year-over-year improvement in rate to new customers, Manhattan, Queens, Brooklyn, Chicago, Washington, D.C. and then the laggards where you're just still trying to find your footing in terms of where is that balance and at what rate can you get that customer to convert continue to be Atlanta, Phoenix, Charlotte, some in Texas, some of the major Texas markets are moving in that direction as well. So it really is just market from our perspective, which then sort of ties into your question, which is its customer use case. Michael Griffin: Appreciate the context... Christopher Marr: Yes, I'm sorry, one last piece. And then ultimately, it's still -- when we talk about supply and those headwinds are diminishing across the portfolio, but that also varies pretty significantly by market. So not surprising, those sunbelt markets that, a, tended to rely historically on a little bit more of that homebuyer and seller are also the markets that continue to get deliveries. While deliveries overall are down, they are still occurring all too frequently in Atlanta, in Phoenix, in the West Coast of Florida. Michael Griffin: So it's kind of a double whammy for those sunbelt markets, so to say? Christopher Marr: Yes. Michael Griffin: Great. And then maybe next, just on sort of the ECRIs and outlook there. I mean I realize that the rent roll downs, the move-in, move out is still pretty wide. But has your strategy changed there at all? Have customers become more sensitive to rate increases? Or are they typically still willing to accept them and you're able to push strategically where you can? Christopher Marr: Yes. The customer health, which we continue to really focus in on, and again, varies by economic strata and parts of the country, generally across the portfolio continues to be very good, and we have not seen any change in customer behavior as it relates to ECRIs and our overall approach has been consistent throughout 2025. Operator: Your next question comes from the line of Ravi Vaidya with Mizuho. Ravi Vaidya: I wanted to ask for the third-party management business. I saw a couple of stores came off on a net basis. Is there something that looking ahead, should we expect this to increase again? Or maybe who are some of the new private operators that you're partnering with? And how can that be used as a hedge for higher supply? Timothy Martin: Yes, I appreciate the question. So on our third-party management program, we talk about the stores that we add to the platform because that's ultimately what we control. That's our new business, the development team is looking for opportunities to add owners, to add stores to the platform. This year, we have exceeded adding 130 stores for the eighth consecutive -- at least 130 stores a year for the eighth consecutive year. So that part of the business remains healthy. The part that is very difficult to predict is when stores are going to leave the platform. And part of this year, when you have that churn, part of this year's churn was self-inflicted earlier in the year when we bought 28 stores that were in that third-party managed bucket. You just have a lot of stores that are -- leave the platform most often. That is because they have transacted, they have sold to somebody that either self-manages or has a different relationship. And so trying to predict the net growth in the store count on the 3PM platform is an impossible task. So we control what we can control. And we look -- when stores leave the platform, we've talked about in the past, we feel like it's job well done. We've helped that owner create the value. We've stabilized and improved performance. And in most cases, we set them up to achieve their desired results as they transact and sell the asset to someone else. Operator: Your next question comes from the line of Spenser Glimcher from Green Street. Spenser Allaway: Maybe just going back to the acquisition front. Are there certain markets or geographies that you guys are more comfortable underwriting just due to greater stabilization of fundamentals? And then on the flip side, are there any markets that are sort of redlined right now just because there's still too much operational uncertainty maybe outside of the obvious supply-heavy markets? Timothy Martin: Yes. I mean just the nuance response is we're comfortable underwriting everywhere. I think embedded in our underwriting are obviously going to be different risk hurdles based on some of those characteristics that you would refer to. Perhaps the best deal that we can find right now would be in a market that's more challenged because others don't see maybe what we see. And so we don't have a bias necessarily to blacklist a particular market because of supply as an example or some other criteria. But what we would do in that standpoint is to make sure that from a risk-adjusted standpoint, we're getting paid to take on that uncertainty. So those markets create more challenge from an underwriting standpoint to try to look at where rates are today, perhaps and where rates might be in a year or 2. It is a challenging but not impossible underwrite when you have a store in particular because it's such a micro market business, when you have a store that's competing against new supply to be able to have confidence in your ability to project where rates in that small market are going to stabilize once that new supply leases up is a challenge. It's the fun part of the investment team and what they do because those deals that have a little bit of hair on them are the most challenging, but also very interesting and perhaps the place that you can make a really nice risk-adjusted return. So we haven't -- we're not avoiding markets, but certainly considering all of those risk factors. Spenser Allaway: Okay, yes, that's very helpful. And then can you just share what stabilized cap rates you guys are underwriting on the three assets that you're acquiring in 4Q? Timothy Martin: Those three assets are a little bit of a mixed bag between stable and not stable. Going in, when you look across the three, we're going in, in the low 5s and stabilizing across the board fairly early on in year 2 or 3 at right around a 6% across the board for those three opportunities. Operator: Your next question comes from Brendan Lynch from Barclays. Brendan Lynch: New York City continues to perform quite well, and it continues to outperform other large markets in the Northeast. Maybe you can just kind of compare and contrast what is leading to that outperformance. Obviously, there's a lot of supply issues in the sunbelt, maybe it's the same in the Northeast. But just kind of any color that you can provide on New York relative to some of these other markets in the region? Christopher Marr: Yes. So it's going to be partly what you just said. So again, the boroughs really nonexistent new supply impact. So you're really stable from that perspective. You have a more need-based customer. And then obviously, we have a very significant position there and one in which the asset quality is extremely high. So we just have everything in our favor in a market that in this part of the cycle is just doing very well. Other Northeast, Philadelphia, Boston, a little bit of a mixture there. You've got supply as opposed to the boroughs. And you have a little bit of more of a mix in the customer base. It's not quite sunbelt like, but you do have a little bit more of that mover, so to speak, than you might have in, say, the Bronx. So I think it's kind of a combination of those two things. And you see that similarly in urban Chicago, you see it in a few of the other urban markets. Brendan Lynch: Great. And then maybe just sticking with New York City, you've got new development coming there. It's a relatively small investment. I think the $19 million. Maybe just talk about what would allow you to get more assertive or aggressive on development in the New York City area. Timothy Martin: It's really looking for opportunities that have a -- that are located in a spot that would be complementary to our existing portfolio and frankly, would have a need from a demand standpoint for there to be new product. Obviously, it's not as easy to pencil out deals in the boroughs as it used to be because the tax incentives aren't there any longer. So surely, there are opportunities somewhere, but the fruit is pretty high up in the tree. And for us to find an opportunity, it's going to be something that we're pretty excited about. Operator: Your next question comes from the line of Eric Luebchow from Wells Fargo. Eric Luebchow: Can you comment a little bit on any trends you're seeing on your average length of stay? It seems like vacates have been kind of muted across the industry this year, obviously helps from a roll-down perspective, but perhaps takes a little bit longer for some of these better move-in rates to flow through the portfolio. So any commentary on that would be helpful. Christopher Marr: Sure. When you think about those trends, I would macro say they're consistent, still elevated. So our customers who have been with us greater than a year, that's up 50 basis points year-over-year. And again, if you kind of compare it to pre-COVID, so third quarter of 2019, it's plus 260 basis points. And then those customers who have been with us greater than 2 years, which is about 40% of our customers, that's actually down year-over-year about 140 basis points, but again, up 50 basis points what we saw in 3Q '19. So continue to be pretty consistent, have come down a bit off of peak, but still elevated relative to historical metrics. Eric Luebchow: I appreciate that. And I know you provided a little bit of directional commentary on '26, but just trying to take maybe more of the bull case. Obviously, if we get a housing catalyst, if we see a pickup in customer mobility, move-in rates continue to find stability, start growing. Do you think it's reasonable we could get back to more historical levels of growth by maybe the second half of next year, certainly into 2027 and then potentially even higher beyond that, especially given some of the supply delivery commentary. Just wanted to get your temperature on what you see over the next few years and not just into '26? Christopher Marr: Yes. I do see that bull case as playing out the way you described. Again, it's sort of finding that catalyst for demand. And if that occurs, housing being the easiest thing to point at, we continue to have a healthy consumer. I think you then start to see consistent performance from those solid markets that we've experienced here over the last couple of quarters, those steady eddies continue. And then you're overall helped by the fact that the Charlottes and the Nashvilles, et cetera, of the world should rebound quite nicely. And I think we're well positioned from -- obviously, to get the rate. We've shown that we can do that through this cycle, increasingly more so over the last couple of months. And then on the occupancy side, then you get the pickup there as well. And to your point, you could see, and I would expect if those conditions were to occur, you would see more elevated performance. Operator: Your next question comes from the line of Michael Mueller with JPMorgan. Michael Mueller: I just go back to like development supply. I mean what's your gut feeling tell you about how quickly supply may come back in some of the markets as they improve over the next couple of years? I mean do you see a lot of competitive projects in -- near you where people are just kind of waiting for the right time to kick off? Or do you think you're going to have a little bit longer of a runway without meaningful supply? Christopher Marr: Yes. I think that crystal ball is complicated and maybe a little fuzzy. So I think it will be slower. I think that you have a couple of factors. Again, we still have elevated cost, I think it will, to our point be a more gradual recovery in move-in rates. So you'll still have to see some progress there. And I think the developers, again, who have opened in '22 and are sort of trying to figure out how to hang on at this point, may not be likely to want to get back into it again until they deal with exiting the store that they have. And then ultimately, the primary lenders to the space for the developers, those local and regional banks have to be -- they continue to be constructive in terms of how they think about underwriting and how they think about providing that leverage. I think that should constrain things as well. So again, at least you look out through next year, probably at least the first half of '27, I think we'll continue to see some restraint. Again, there are -- the markets I've called out that appear to have no guardrails but I think we'll continue to see some constraint. And then if you just think practically, if it picks back up again, it takes 6 months to sort of get everything going and then another 12 months to build. So you're 18 months out from whenever that happens. Operator: Your next question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: Move-in rate was up 2.5% during the quarter, apparently, both on a gross and a net basis, but came down in October. So how did the move-in trend during the quarter? Did it peak in October? Or did it peak kind of earlier during the period? And is that how it normally plays out? Christopher Marr: Yes. Move-in trend was historically normal. You see kind of that peak in July and then trends tend to sequentially start to slow down. But again, I think the message here is that the road is a bit windy. We've got markets that are continuing to move in a fairly straight line in an upward trajectory. And then there are markets, again, pick on the sunbelt where the road is a little bit more windy. So overall, I would say, kind of consistent with the last couple of years is what we've seen. Michael Goldsmith: Got it. And you said on the call maybe a couple of times just really stabilizing trends and encouraging signs. By stabilizing trends, are you referring to same-store revenue growth and by encouraging signs, you're suggesting the move-in rate. Is that kind of what you're pointing to? Christopher Marr: Yes. So again, the top line metric, same-store revenue growth will just kind of beat the drum again. It takes time for that to move given the relatively low churn in the customer base. So when we talk about stabilizing trends, we're talking about move-in rates and demand levels, which again, have been weaker than historical, but fairly consistent and occupancy. So it's more of the KPIs that are happening every day, which will then gradually bleed into the same-store revenue result, which will then gradually move that in a positive direction. Michael Goldsmith: Port Chester looks great. Good luck in the fourth quarter. Christopher Marr: Super excited about it. Timothy Martin: We have units available if you'd like to get. Operator: And with no further questions in queue, I'd like to turn the conference back over to Chris Marr for closing remarks. Christopher Marr: Okay. Thank you, everybody, for participating. Again, stabilizing trends, encouraged by the direction overall that the portfolio is moving. Assuming these continue, we expect to be on improved footing heading into 2026. We look forward to seeing some of you at upcoming conferences. And next time we're on a quarterly call, we'll share our specific expectations for 2026. So thank you all. Happy Halloween. Operator: This concludes today's conference call. You may now disconnect.

199天前Insight Analytics约5分钟阅读

VICI 2025 Q3 财报电话会议

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this conference call is being recorded today, October 31, 2025. I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties. Samantha Gallagher: Thank you, operator, and good morning. Everyone should have access to the company's third quarter 2025 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI Properties website at www.viciproperties.com. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of words such as will, believe, expect, should, guidance, intends, outlook, projects or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition. During the call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our website in our third quarter 2025 earnings release, our supplemental information and our filings with the SEC. For additional information with respect to non-GAAP measures of certain tenants and/or counter-parties discussed on this call, please refer to the respective company's public filings with the SEC. Hosting the call today, we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; Gabe Wasserman, Chief Accounting Officer; and Moira McCloskey, Senior Vice President of Capital Markets. Ed and team will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Ed. Edward Pitoniak: Thank you, Samantha, and good morning, everyone. I want to start by talking about something we probably won't get asked about much during the upcoming Q&A, and that's our Q3 earnings growth. For Q3 2025, we grew our AFFO per share earnings by 5.3% versus Q3 2024. I want to emphasize our Q3 2025 earnings growth rate, because I want to emphasize the earnings growth that our model is capable of producing even in periods of continuing uncertainty. With our Q3 2025 results, the VICI team continues to demonstrate its resourcefulness and resilience in growing relationships that grow our revenues and profits without, in the case of 2025, significantly growing our capital base. You will hear more in a moment from John Payne about what the VICI team is doing to continue to grow our portfolio and our income. You will hear from David on our financial results, balance sheet and updated 2025 earnings guidance. Before we turn to John and David, I want to talk about the wider strategic context in which we are producing our results. And by context, I do not mean the state of the market this week is very weak, which has obviously been a rough week for REITs and for gaming operators. If you wish, we can share our thoughts on this week's market reactions and ructions during the Q&A. By strategic context, I mean the larger context of the world we are living and moreover, we'll be investing in, in the years, not weeks to come. As I've told you before, I do a lot of reading. Some days, I do wonder if I do too much reading. Two weeks ago, I read a guest post in one of my favorite daily newsletters, Odd Lots. That particular day, the Odd Lots Pop-In was given order to Viktor Shvets, Head of Global Desk Strategy at Macquarie Capital. Viktor starts by quoting Nobel Prize winner Neils Bohr, who is often quoted as having said, "Prediction is very difficult, especially if it is about the future." Viktor does acknowledge that Yogi Berra evidently said something similar. After summarizing the current weird state of our world, Viktor states, "In line with many other prognosticators, I do believe that the next decade will be the most critical period in the transition from yesterday's capitalism toward a yet to be defined alternative system. Everything is up for grabs in what is likely to be one of the most profound changes since the invention of agriculture with far deeper consequences than even the industrial revolutions had." Viktor goes on to ask, "Then what are rational investment strategies in response to an irrational world caught in violent transition?" Viktor's preferred answer is, "To have strong views rather than no views. This involves joining the revolution and backing instead of fighting secular themes, basing investment strategy on a new world and avoiding the waging of old battles." He states that for the last 10 years, his firm has valued building portfolios around sectors and companies that are, "Supported by long-term structural forces rather than investing based on a heavily degraded reading of economic and capital market cycles." With portfolio construction based in part on rising returns on digital capital he then continues, "Included are several disruptive themes, such as the replacement and augmentation of humans, the flow on impact to social, political and geopolitical arenas and the corresponding need for balm, both metaphysical and real." Okay, did you get all that? These days, it's hard, at least for me, to determine if Viktor's view is on the outer or inner spectrum of potential outcomes. But a lot of what he says rings true to me and in any case, I believe that in this period, real estate investors should be developing and executing return and risk management strategies that account for the possibility that Viktor will be proven right, that we are in a prolonged period of significant change and that those changes could impact people's desire and need for what Viktor calls balm, both metaphysical and real. And just in case I'm not pronouncing it as clearly as I should, he is saying B-A-L-M, balm and not bomb, B-O-M-B. And I take balm to mean what people do to seek connection, entertainment, play-based excitement, both psychological and physical wellness and healing. These are the experiential dimensions, the various dimensions of balm. We at VICI have been, are and will continue to be examining, evaluating and potentially investing in through our insight-driven approach, depending, of course, on our determination that these experiences have the investment attributes we rely on. We are mindful, very mindful that at a time like this, it's more important than ever to identify as best we can the risks of oversupply, obsolescence and the other factors that can lead to real estate capital destruction. And through that identification process to determine what we will and will not invest in. It's an approach that has driven what we've done at VICI in the last few years, an approach that has led to investments made and investments avoided. And as you can see from our Q3 2025 results, it's an approach that is delivering growth where it most counts growth in AFFO per share. With that, I'll turn the call over to John. John? John W. Payne: Thanks, Ed. Good morning to everyone who's on the call. As Ed laid out, we face a market environment defies easy explanation. But at VICI, we have already faced multiple unprecedented events in our 8-year history. And through disciplined capital allocation, we have been able to strike the balance between investment, quality and growth. Subsequent to quarter end, we announced that we'll be adding our 14th tenant, Clairvest, in connection with MGM resource agreement to sell the operations of MGM Northfield Park. Upon closing of the transaction, VICI will enter into a new triple-net lease with an affiliate of Clairvest as well as an amendment to the master lease between VICI and MGM Resorts. The Northfield Park lease will have an initial annual base rent of $53 million or $54 million if the transaction closes on or after May 1, 2026. And rent under the MGM Master Lease will decrease by the same amount. Simply put, this transaction will not change the total amount of rent collected by VICI. Clairvest is a top performing private equity firm out of Toronto, and they are a recognized leader in the gaming sector. Clairvest is a sought-after partner with gaming experience across regional casinos, racetracks, suppliers, technology providers and online gaming globally, having made 17 investments in 37 gaming assets over the last 2 decades. VICI looks forward to further diversifying our tenant roster with a well-respected counterpart in the sector. Now casino gaming remains the top focus for VICI. We continue to believe in the durability of the sector despite recent noise around Las Vegas. John DeCree at CBRE put it well in his research note earlier this week. Las Vegas has experienced a confluence of idiosyncratic headwinds. The slowdown in visitation this summer influenced by decreased Canadian travel and reduced capacity from Spirit Airlines is definitely something to monitor. But Las Vegas has endured cycles before, and operators are expecting trends to improve through quarter 4 and into 2026. Headlines emphasize short-term trends, but at VICI, we take the long view. We are still big believers in Las Vegas as one of the world's best destinations with operators who are willing and able to adapt their business to meet consumer demand. With that said, some operators have experienced recent strength in Las Vegas. The Venetian, one of our tenants, for example, continues to perform remarkably well with record hotel revenues and gaming volumes this summer. Additionally, according to Venetian management, 2026 is on track to be a great year for the Venetians group business, convention cycles in and out of cities each year. But Las Vegas continues to draw solid group demand that supports the segment as other conferences rotate locations. For example, CONEXPO-CON/AGG, America's largest construction trade show that draws nearly 140,000 attendees takes place every 3 years is set to happen in Las Vegas in March of 2026. We believe the convention business in Las Vegas is an underappreciated mitigant to the cyclical nature of leisure-oriented business. In 2024, convention visitors spent $1,681 per trip. That is 33% higher than the average leisure visitor. And the strength of Las Vegas as a convention city has continued to gain momentum post-pandemic. VICI owns nearly 6 million square feet of convention of conference convention and trade show space on the Las Vegas Strip, and representatives from several blue-chip large cap companies like Amazon, Google, Microsoft, attend conferences in Las Vegas every year. VICI continues to believe in the strength and resiliency of Las Vegas. Over the last 8 years, VICI has been deliberate with its portfolio construction, and we believe we've made the company better each time we grew bigger. Our multidimensional investment evaluation bolsters the quality of our decisions as real estate owners, and we conduct rigorous analysis with each opportunity that comes across our desk. At any given time, we consistently have multiple ongoing dialogues with gaming and other experiential operators, and what we want to continue to do, which is what has earned its credibility thus far, is maintain a disciplined capital allocation strategy that facilitates quality growth. We do not aim to grow for growth sakes. We do not seek to compromise creditworthiness to reach for return. We instead engage in selective sustainable capital allocation that can provide long-term growth and withstand potential near-term macro shocks. We are long-term stewards of capital, and VICI aims to make decisions that support sustained and sustainable growth that delivers value to our shareholders. Now I will turn the call over to David, who will discuss our financial results and guidance. David? David Kieske: Thanks, John. Touching on our financial results, AFFO per share was $0.60 for the quarter, an increase of 5.3% compared to $0.57 for the quarter ended September 30, 2024. These results once again highlight our highly efficient triple net model given the increase in adjusted EBITDA as a proportion of the corresponding increase in revenue. Our margins run in the high 90% range when eliminating non-cash items. Our G&A was $16.3 million for the quarter and as a percentage of total revenues, was only 1.6%, which continues to be one of the lowest ratios in not only the triple net sector but across all REITs. On September 4, we declared a dividend of $0.45 per share, representing a 4% increase from the prior dividend amount and our eighth consecutive annual dividend increase since VICI's inception. We are very proud to deliver this consistent increase to our owners. Touching on liquidity and the balance sheet. During the quarter, we settled a total 12.1 million shares under our forward sale agreements and received approximately $376 million in net proceeds with a portion of these proceeds being used to repay $175 million of the outstanding balance on our credit facility. Our total debt is $17.1 billion, and our net debt to annualized third quarter adjusted EBITDA is approximately 5x at the low end of our target leverage range of 5x to 5.5x. We have a weighted average interest rate of 4.47% as adjusted to account for our hedge activity and a weighted average 6.2 years to maturity. Turning to guidance. We are updating our AFFO guidance for 2025 on a per share basis. AFFO for the year ending December 31, 2025, is now expected to be between $2.51 billion and $2.52 billion or between $2.36 and $2.37 per diluted common share. Compared to our prior AFFO per share guidance of $2.35 to $2.37 per share, the raise represents an increase of the lower end by $0.01. Based on the midpoint of our updated 2025 guidance, VICI now expects to deliver year-over-year AFFO per share growth of 4.6%. As a reminder, our guidance does not include the impact on operating results from any transactions that have not closed interest income from any loans that do not yet have final draw structures, possible future acquisitions or dispositions, capital markets activity, or other non-recurring transactions or items. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Anthony Paolone from JPMorgan. Anthony Paolone: John, I think you mentioned you're at 14 tenants now. And so VICI's kind of unique compared to net lease peers, and that you got a pretty narrow set, and you talk to them all the time. So, can you talk about maybe like how often lease amendments come up? And if they do, how you approach those conversations? Edward Pitoniak: Yes. It's Ed. I'll start off and turn this over to John in just a moment. But where I want to start this morning is by reminding everyone of where we came from, and how we started. At VICI, we were born with challenges. And what we proved right out of the gate, and I believe, improved ever since is that when we face challenges, we get after them. We focus on making sure we understand the full dimensions of the challenge. And then we work as productively and expeditiously as possible to find the right solutions that deliver the right outcomes for us and our partners. And we've got obviously a track record of doing that through what we've done in selling assets that our partners wanted to get out of, and we wanted to get out of as well. We have obviously helped tenants get out of assets that they for strategic reasons, wanted to get out of Northfield Park being the most recent example. But I'll turn it over to John because he can further elaborate on the approach we take with our partners and the degree to which we are always focused on making sure that any challenges that exist for them or for us get dealt with, and we can all move on. John W. Payne: Yes, just a little bit to add to what Ed talked about. I mean, we are very fortunate or blessed to now have 14 tenants that allowed us to get into greater detail of strategic growth, or if there tends to be a problem in the business, we can discuss about how we can be beneficial, which is very different than many other REITs that you know Tony, that have 100 or 500 or 1,000 tenants that I'm not that smart to be able to help with 1,000 different tenants to understand how we can be beneficial to them. So, we are very fortunate to have a few, and we can get into greater detailed discussion with them about how to grow again or how to handle a certain situation. Anthony Paolone: I mean, if I could ask more directly on Caesars, given the comments from them around the regional assets, like how much you approach a situation like that? Or would you use a similar framework to what you've used in the past? Or just any context there? Edward Pitoniak: Yes. I think the framework we've used in the past, Tony, would be the same frameworks we would apply here. We would look across the portfolio on our own and with them determine where do they want to be, where they want to continue to be, where do we want to continue to be, what are the various levers that we can work on our side, on their side to make sure that we end up with an outcome that is a genuine win-win for both parties. We've obviously got time to deal with this, but we also don't want to let this continue to be a distraction. We've got a business to grow. They have a business to run. And we will work in the way we have worked in the past from our very beginnings to make sure that we find the solutions that work for everybody as quickly as we can. And again, I just want to reiterate our experience in our 8 years of getting after it when a situation needs to be dealt with. Operator: The next question comes from Greg McGinniss from Scotiabank. Greg McGinniss: John, I was hoping you could talk about some of the more non-gaming conversations you're having these days, and your feelings on potential likelihood of getting deals done. And I'm especially interested if you could touch on collegiate or university level athletic facilities. John W. Payne: Everyone is smiling around the room, because I spent quite a bit of time with experiential operators and have been spending quite a bit of time, as you mentioned, in university sports. I'll touch on that one because it's very interesting. What I would describe, university sports today is going through radical change. And I say that in -- when we talk to athletic directors or CFOs or chancellors, and they tend to nod their head saying, "Yes, John, it's good to know that we are going through radical change." But we've been talking a lot with them about sports infrastructure. There's a lot of different investment companies getting involved in professional and youth in collegiate sports. But VICI is a little bit different in our pitch to them about how we can accelerate their growth in infrastructure and building, whether it's arenas, stadiums, practice facilities, ice rinks, all of those things. So, it's been a really good educational process for the universities and for VICI as well about how our capital can work in that environment. On the other side, as I -- in my remarks, gaming is still top of the pyramid for us. We're spending a lot of time with our current tenants and new tenants. And then, there's other experiential operators in mixed use, in attractions, certain resort properties as well that our team has been out kicking the tires a little bit. But university sports is definitely a big opportunity. There isn't a university that we've met with that doesn't have projects that they need to get done, and they are figuring out in this new environment, how they're going to pay for it. Greg McGinniss: Great. And I think maybe just touching on the gaming side a bit. Is there any potential catalyst or some event that needs to occur to make some inroads into the downtown or local Vegas market? John W. Payne: Yes. This is a market we would love to be in, as you're seeing the results come out every year. I think, I saw a stat the other day that the Nevada locals market or the Las Vegas locals market is now the second biggest market in the United States, which is a market that we sure would like to be in. And we love the regulations and the support from the State of Nevada and making investments in the bricks and mortars. So, this is an area that we continue to look at. There are obviously some great operators in that space, Red Rock Resorts, Golden, there are some individual owners that own real estate there that we would love to be partners with over time. Operator: The next question comes from Barry Jonas from Truist Securities. Barry Jonas: A competitor just noted their expectations for more broadly marketed competitive bidding type gaming M&A processes. Is that your expectation as well? And if yes, do you see VICI participating? David Kieske: Barry, good to talk to you. Well, we see a lot in gaming. And if there's things out in the market, I think there's a good chance that we're also getting a look. And to answer your question, do we expect to participate? Look, it depends on a lot of factors. Gaming M&A is complicated. And even though it's a single asset, it's kind of simply M&A given there's three parties, there's a seller, there's a propco and opco buyer and they're complex long-term leases that take a lot of diligence and a lot of work to get things done. So, we would hope to continue to be active and continue to grow. John just talked about, there's always things we're looking at and pursuing. Edward Pitoniak: And Barry, this is Ed. I'll just add that a week like this for gaming operators, there are the occasional public gaming operators who go, how much more of this do I want to put up with. And so, I think there are a number of factors in play that could, could. I want to emphasize could not necessarily lead to heightened activity. Barry Jonas: Got it. Got it. And then, just for a follow-up. Coverage on Northfield Park in the Clairvest transaction looked pretty good. Can you talk maybe how that compared to what 4-wall was in the MGM lease? I guess, what I'm trying to get at is how do you think about the difference in value for a new lease with a smaller tenant versus the pre transaction with a much larger lease and tenant? Edward Pitoniak: Yes. It's a very good question, Barry. And I would generally say that for a single asset, with a single tenant, yes, I think to your implicit point, you generally are going to look for higher coverage than you might have had within a master lease with a much bigger tenant. I think that's pretty much the simple logic of it. Operator: The next question comes from Smedes Rose from Citi. Bennett Rose: I guess just on that with Clairvest and as you mentioned, they have a history of some gaming assets in the U.S. and in Canada. Do you -- would you expect to do more deals with them? Do you think that they're actively looking to expand their footprint in the U.S., or is this more of a one-off opportunity for them? John W. Payne: I hope so. I mean, we really enjoyed getting to know them in this process. They're very creative. They've hired a lot of very seasoned operators to work with them in the properties that they've owned not only now, but in the past. So, we're excited to have them as one of our tenants, and we hope to continue to grow that portfolio with them over the coming years for sure. Bennett Rose: Okay. And then, I wanted to ask you on the loan book, is there any other -- are there any of the borrowers having any short-term difficulties that you can speak to? Or is everyone current on the payments just given some of the softness we're seeing in a broader economy, particularly across, yes, certain kinds of venues? Gabriel Wasserman: Yes. It's Gabe here. I can answer that. Yes, everyone is current on all their obligations under their loans, and we continue to have active asset management and monitor all of our investments. And work with our partners to understand that they're meeting their milestones and their business plans. Operator: The next question comes from Haendel St. Juste from Mizuho. Haendel St. Juste: My question, I guess, it's on the MGM decision to withdraw from the New York City license bidding process. It seemed to surprise a lot of people, including us. Was it a surprise to you? And what do you see as the implications for your Yonkers asset? And then, I guess as part of that, given their decision to withdraw MGM, does that free you up to perhaps partner with some of the other bids? Edward Pitoniak: Yes, Haendel, good to talk to you. Well, certainly, it didn't take us by surprise, because we've obviously been in conversations with them for a while. And what MGM did was look at the situation, the ever-evolving situation in the New York landscape, and make what we agree is a very sound capital allocation decision or capital non-allocation decision based on, again, the changing circumstances. I think, one of the key factors, Haendel, that really became clear in the last few months is that without a Manhattan-based Casino, it was not clear that the remaining bidders would be able to create a casino experience that would become a truly national and international destination. And thus, if it was going to mainly be a competitive marketplace of three regional gaming assets, competing geographically very close to each other for the same regional marketplace. It wasn't necessarily clear that the resulting economics of that very competitive marketplace would support the kind of capital required to enter the market with the tax regimes that are likely to be in place. And so again, I think MGM took care and took a lot of thought and obviously consulted very closely with us in making that decision. In terms of the aftermath of decision and what it means for us within this marketplace, yes, we have been in dialogue with various contestants in this process over the last couple of years and certainly could be of service to them with capital if we believe that their opportunity was an opportunity that had very good capital fundamentals that it had a legitimate shot to become what it would have to become, which is the most profitable regional casino in America. And I just want to emphasize that point end, Haendel. The way this is evolving, whatever does get built in New York is going to have to be meaningfully, measurably more profitable than any other regional casino in America, and that includes the finest regional casinos in America, whether we're talking about MGM National Harbor, Encore Boston MGM Detroit or the others, each of which I should emphasize tends to have market dominance and at a lack of competitive supply that will not necessarily exist here in New York. Haendel St. Juste: Appreciate those comments. And if I could ask a follow-up or a question on the -- I guess, there was announcement earlier this week, Cordish is developing a new project down to Virginia, about an hour south of your D.C. National project. I guess, I'm curious on the competitive dynamics there? I think Richmond is about an hour away with mild traffic. So curious if you think the location, maybe the demographics relative to what your asset offers -- offer you some maybe some insulation. John W. Payne: Yes, it's a good question. The distance may seem like an hour, but if you've been in D.C., welcome to a little bit more traffic. And again, it's a pretty undersupplied market there. And they probably will target very different consumers. We'll have to see how the new asset that's built by Cordish. I'm sure it will be a wonderful asset as they do a good job in building their assets. But National Harbor is, as Ed just mentioned, if you're going to mention the best or one of the best regional casinos in the United States, MGM has done a fabulous job there. It continues to do a fabulous job. The numbers continue to be quite successful, and we think they're going to continue to grow there. So, we'll have to watch how that happens. But I do think they're probably a little bit -- the customer base is going to be a little bit different. Operator: The next question comes from David Katz of Jefferies. David Katz: I appreciate all the candor, as usual. I wanted to just go back on the sports facilities commentary, John. Not have you negotiate something in this kind of forum. But just out of curiosity, are there any historical cap rate or any kinds of comps or anything like that? Just out of curiosity, how we would think about the opportunity if someone -- if people like us wanted to sit down and try and develop the TAM and think about what it all means for you? Edward Pitoniak: Yes. I'll start out, David. And I would say that, if you're going to look for a historical precedent for the possible infusion of private capital into real estate, on university land, the corollary would be the development of on-campus student housing by private capital, which has certainly taken place in the past and the American Campus Communities is obviously an example of private capital, a REIT in fact, at the time that they did exactly that. And obviously, we had to make sure they were creating a positive spread between their weighted average cost of capital at the time and whatever cap rate they went on to campus with. And so, I do think that this landscape of sport infrastructure and college campuses is obviously rapidly evolving in an overall marketplace that is wildly volatile and everybody is trying to get smart as fast as they can. But I think what John and the team are finding, and John, you can elaborate on this, is that the idea of conventional private equity coming on to campus with a 5- to 7-year investment horizon, just doesn't -- John, I mean, it's not that appealing. John W. Payne: Yes, David, good to hear from you. I know you've asked about this sector before. And it is important to understand that this is what I think our company feels great about is finding a space that we think there's a lot of opportunity to deploy capital and we've been spending time getting educated on the space, who are the decision-makers are, what is the magnitude of opportunity where at the same time, hearing from the universities about how they could take our type of capital. And that -- what we're talking about today is we're right in the middle of those processes. And obviously, state schools run schools are different than private schools, right? And so, we are continuing to refine the way we think about the opportunity. We continue to talk about pricing. And as Ed said, there's other forms of outside capital that are also spending time with the universities. And so, it's -- like I opened up by saying there's a lot of change going on in collegiate sports right now, and it's just an opportunity we are spending some time because we think there is a magnitude of capital to be deployed. Operator: The next question comes from Rich Hightower at Barclays. Richard Hightower: As always, I appreciate the candor on various topics. But Ed, maybe just to ask you a metaphysical question to use this word from earlier in the comments. Obviously, we don't want to focus on short-term movements in the stock price or cost of capital. But in your conversations with investors, what do you think are the major overhangs at this point? And does most of it revolve around some of the Caesars stuff you mentioned before? Is it other things? Edward Pitoniak: Yes. I mean, I think it's a combination, Rich. I think there's the idiosyncratic factor of that noise, combined, obviously, with what's been a fairly tough period for the RMZ over the course of the year. And I think you put out a good note last night pointing out that, yes, in recent weeks, we have declined more than the RMZ. But more, I don't know if you want to jump in here about the degree to which we may also somewhat idiosyncratically be seeing a dynamic of first half winners. Well, you can explain better than I can. Moira McCloskey: Yes. No, thanks, Rich. So, as I was saying, we do think it's a confluence of factors between, yes, this Caesars focus, but also at the same time, when there's been a positioning rotation out of some winners, out of some long positions as the market has rotated into the end of the year. So, the timing has been unfortunate, but we do think it's a combination of factors, not just the one particular overhang. Operator: The next question comes from Chris Darling at Green Street. Chris Darling: So with Six Flags in the news recently, I thought that presents a good opportunity to ask about your broad level of interest in theme park real estate ownership. The pros and cons that might come with those types of assets. And related to that, I'm curious if you've explored the theme park landscape internationally as well as domestically in the U.S. Edward Pitoniak: Yes. John, you want to take that? John W. Payne: Yes, Chris, good to hear from you. To be blunt, yes, it's an area of attractions in the United States are, an area that we have spent a lot of time with. We've not done a transaction, but we have spent quite a bit studying the landscape there, the opportunities there, the accounting treatment there and obviously have followed what is going on in the news with Six Flags. And I think that's the way I can put it. Edward Pitoniak: Yes. And I'm going to ask Gabe to chime in here in a moment. Chris, but one of the things we always do when we look at any particular experiential category, is work to determine the degree to which there's a meaningful amount of real property within the business that is readable. And Gabe, you can opine if you wish, on theme parks and other categories we looked at, ski resorts and other things. Gabriel Wasserman: Yes. So, in regards to that, Chris, obviously, there's a lot of real property at these theme parks and a lot of personal property, including the roller coasters and some of the attractions, and we would just make sure any potential investments that we're owning real property and put it in a REIT-friendly structure, but we're confident we could work with our partners to make it work. Chris Darling: Okay. I appreciate those thoughts. And then just maybe a point of clarification on the Northfield lease with Clairvest and maybe a little nuanced here. But as it relates to allocating rents between the new stand-alone lease and then the remaining master lease with MGM, the resulting coverage ratios that you talked about, I guess, I'm interested to understand what are your contractual rights in that regard versus this perhaps being more so just a good faith discussion between all the parties involved. Edward Pitoniak: Yes. I don't know if -- I mean, there are obviously contractual considerations and I'm looking at Samantha to bail me out in case we need to explain any of those. But I think the most fundamental starting point, Chris, is obviously, the economic throw weight of the assay. What rent could it support at a coverage level we're all comfortable with? That's the starting point. What is the EBITDA before rent of the asset? And what thus would be a level of rent coverage both we and they would be comfortable with. Samantha Gallagher: Yes. And just from a contractual perspective, in any event, however we come to the determination of what rent might come out, we're always protected that we would never find ourselves in an economically disadvantaged position. So, we're always going to have the same amount of rent. When that transaction is completed between the, what we call, severance leases, the new lease with the stand-alone tenant and then our MGM Master Lease and that's contractually provided. Operator: The next question comes from Chad Beynon from Macquarie. Chad Beynon: And, Ed, thanks for the comment on Viktor's piece. His reports are absolutely a must read in. He's another person that probably reads multiples of most of us on the call here. So, maybe just wanted to start with the call right on the Caesars Forum Convention Center. We've kind of eclipse that time period where that begins. It seems like all the commentary from Vegas operators is that conventions, the group pace, the outlook, you talked about some of the citywides is extremely positive. It's obviously some of the leisure concerns that have hurt some of the near-term results. So, with that opportunity, for that call right, how are you guys thinking about timing on that versus other deals? John W. Payne: It's a very good question, and I like your comments about Las Vegas. Because I think you said near-term concerns about leisure customers. And in my opening remarks, I do think we're -- the world is so short term ADD focused that there's times that we don't think step back and think about what a great destination Las Vegas is and will continue to be. We obviously have a variety of things that we evaluate. You are correct that the opportunity to buy the Caesars Forum Convention Center is live right now. And we're fitting it into all the other things that we look at when is the right time. Is there the right time? And Las Vegas, as I said in my opening remarks, we are big believers in, and we'll continue to make investments over time. So... Edward Pitoniak: Yes. I just want to jump in and emphasize, Chad, along the same line. The degree to which Vegas is competitive dominance across the American convention trade show and conference space has only increased in the last 5 to 10 years. If you look across the competitive landscape of the big American convention centers in the gateway cities, it's actually kind of a sad story. First of all, most of the full-service urban hotel product has seen tremendous underinvestment. And a lot of the convention facilities themselves are in need of substantial capital and/or infrastructure. It would have been, for example, here in New York, it would've been a very positive thing for the Javits Center, if the related wind project has gone ahead and created hotel inventory adjacent to Javits. But as we all know, that project didn't happen. And as a result, Javits is still this conference center, the convention center near pretty much nothing in terms of hospitality infrastructure. And that's just one example among many across the U.S. where Vegas, again, just shines because of the amount of capital put into both the conference convention and trade show facilities, $100 million in the Mandalay Bay. Again, I can't remember exactly how much Venetians put in to the Expo Center. But at any rate, this competitive dominance is only going to grow in the years ahead. Chad Beynon: That's great. And then... Edward Pitoniak: Samantha is looking at me with anger, because I used the word, ain't in that way. Go ahead, Chad. Chad Beynon: And then moving over to the tribal lending landscape. I know we talked about before the North Fork loan is very different than a traditional loan to a tribe. But how has that evolved? And how is your comfort level working with other drives evolved here? David Kieske: Yes, Chad, it's David. Good to hear from you. Just to clarify that North Fork is, it's a loan to a tribe. It's a typical lending structure into a tribe. That's unique about it. There's no security in the real estate, and that goes with anything around tribal gaming. So, we have a lot of relationships with tribes on commercial land. We obviously have a great relationship with Red Rock and the development of what will be a phenomenal asset at Madera, California opening in, kind of, Q3 2026. We do have dialogue with other tribes. I mean, anything we would do around tribal has to be with a great team, a great asset, but ultimately, it will be a credit investment, right? There's not a way to own gaming real estate that sits on tribal land and actually have security in that asset. And so, we have a very active credit book led by Gabe whose -- you've heard from on this call, and we will continue to look for ways to deploy smart capital with good tribes in the future as the opportunities arise. Operator: The next question comes from John DeCree at CBRE. Unknown Analyst: It's Colin on for John. Maybe going back to Northfield transaction, I think a lot of us has been relatively excited to see some recent pick-up in M&A. So, curious maybe how those negotiations went considering this became into a single lease, an OpCo asset trading hands, do you guys expect or think we could start seeing some more OpCo trade hands going forward? John W. Payne: Well, your opening question was how did the negotiations go. And we're -- again, in my opening remarks, we're excited to have Clairvest as one of our tenants, and we surely hope that we continue to grow with them. They operate assets, that we own. If you're asking, has there been a pickup in opportunities that we're seeing, for us because we're looking at so many sectors across the gaming and experiential landscapes, there are a lot of different deals that we're looking at. Do I think there'll be more deals in gaming? I hope so. And I think we'll be there and talking to operators and talking to potential sellers. Colin, I am disappointed that John's not on. I gave him some love with a quote with the opening. So, it's disappointing to hear that love. So you'll have to pass that along. Unknown Analyst: He's going to be very disappointed. I didn't hear that, but definitely... John W. Payne: You're not going to get a repeat next quarter. So he's one and done. Edward Pitoniak: Yes. If you're going to be here, turn next time, Colin. Unknown Analyst: And I guess, maybe the other question, I wanted to double click on is, how comfortable are you guys sort of letting leverage maybe creep below, sort of, the low end of the range that you guys have 5x to 5.5x. I think you have you guys about 5x right now. And obviously, leverage you guys had taken a pretty low going into the MGP acquisition, saving a lot of dry powder for what was quite a material transaction. So, I'm just kind of curious how you're seeing leverage trend from here. Obviously, you have the escalators. But how are you thinking about it potentially creeping below your low end? Edward Pitoniak: I would say, as a Spanish like to say with tranquility, if it goes lower, that is just fine. If it goes a little higher, it's just fine. But as you remember, Colin, from that dinner we had together in Boston, as important for us as leverage is laddering. And what we like about the 5x debt-to-EBITDA benchmark is that, it means by definition, you have $1 of debt for every $0.20 of EBITDA. And I'm not going to go through the whole English, major math thing I did at that dinner. But as you and your clients gathered, we like the way in which -- laddering in which roughly no more than 10% of debt comes due in any given year, matches up with 5x debt-to-EBITDA, such as the metrics are such that in the worst case scenario where the credit market window is closed, you could, if necessary, pay off expiring debt with available cash flow after debt service. So, in and around 5x, plus or minus 1/10 here, 1/10 there, again, we don't tend to get highly precise about that. It's more about building a ladder for the future. And with that, making the best use of the amount of retained cash flow we generate, which as we've spoken about in the past, is now in the $600 million range and gives us firepower that enables the kind of year we're having this year, where we're growing, once again, AFFO per share in this quarter by 5.3% while growing our share count by barely more than 1%. Unknown Analyst: Great. And yes, Ed, I still think that was one of the best articulated explanations of formulation of a leverage target that you gave when we had that dinner. So, I appreciate it. Operator: The next question comes from Daniel Guglielmo from Capital One. Daniel Guglielmo: You all own a lot of properties on the Las Vegas Strip, but not all of them. Based on your experience, what kind of macro or Las Vegas demand environment do properties typically come to market there? And if the opportunity rose, would you expand your ownership on the Strip? John W. Payne: I'll answer the last part of the question. I think for the right property and right operator, absolutely, we would continue to expand our presence not only on the Las Vegas Strip and not only in the locals market that I talked about, but I think all over Nevada. We're big fans of that as well. But as it pertains to when do they come to market, that's very hard to predict. And it depends on the company and how they're thinking about use of proceeds from the monetization of their real estate. But what I would tell you, to Ed's comments, we will be prepared should there -- should there be an opportunity of an asset in Las Vegas on the Strip that comes to market. But I can't tell you when they're going to come. Daniel Guglielmo: Yes. I appreciate that. And then just a follow-up. In the opening remarks, the 3Q earnings growth was mentioned. I think part of that is the competitive annual rent escalators that you all have. On the flip side, tenants do bear increased rent line. So, can you just talk about some of the risks that you all think through on the tenant side in with those kind of rent lines increased for them? Edward Pitoniak: Yes. First of all, Daniel, Q3 2025 wouldn't within itself have had any rent escalations quarter-over-quarter sequentially. And when we think about escalation, what we think about is, again, the supportability of the rent. And so yes, we do not want rent escalation that goes beyond what the tenant can afford to pay over the long term. And so again, I think we're in an environment right now where things are -- have more or less reached the equilibrium, in terms of rates of inflation, rent escalation and revenue and profit growth. But obviously, we monitor it closely. And again, it doesn't benefit landlords when rent gets beyond what the tenant can pay. Operator: The next question comes from Jim Kammert from Evercore ISI. James Kammert: Team, if I were thinking about your competitive advantage, let's say, as an example on the university sports, what elements really would differentiate VICI structuring wise or other attributes? Because if I'm being snarky, I would say it's really just the cost of capital, right? I mean university is going to want to take the best deal for them. So, how would VICI differentiate itself from other potential providers of the capital? Gabriel Wasserman: Yes. Jim, it's Gabe Wasserman, I can take that one. So, I don't think we're just competing along cost of capital. It's not the only dimension. It's also on structure. So, as a permanent capital vehicle that wants to own our real estate forever. I think our investment time horizon is very well aligned with our potential university and collegiate partners. And as we compare and contrast our capital and opportunity with private equity folks, we just think that our long-term permanent horizon is just a really good match for potential universities and colleges, and that's really resonated well in the conversations that we've been having. Edward Pitoniak: Yes. I would just add too, Jim, that while, obviously, universities, both public and private can often tap the tax-free bond market. Most universities, we're finding out run in the way that Harvard famously speaks of, which is every tub on its own bottom. And athletic departments in particular, and John and Gabe, elaborate this, athletic departments, especially at this point, are being told you need to be self-funding and self-sustaining. And no, you're not necessarily going to get to use up whatever envelope we have in the tax-free bond market. Do you want to add to that, John? John W. Payne: No, it's a very good point. James Kammert: That's great. And then just one quick related question. With most of those opportunities, I know it's very premature, but would they be leasehold interest because you presume the university continue to own the underlying land, or is that not necessarily? Edward Pitoniak: Yes. I think it depends on the university. We're open to both structurally and can make both of them work. John W. Payne: Jim, it's a very good question, and you open by saying, I know, it's premature as we've talked about the university space, and I've been very open that when you're the first kind of week into this space, educating athletic directors and CFOs and chancellors and presidents on our type of capital, the structure then, as Gabe mentioned, is a big factor in the discussions. Can we own the real estate? Can't we own the real estate? What is the duration of the lease? How much capital of a project can you put in versus a donor? Does your name go on it, does it or don't? I mean, there is a wide variety of things that we are feeling out. And as Sam mentioned, every university, it's different. And state universities are different than private, and that's why we're taking the time in meeting and really crafting how our capital can work. Obviously, we have not gotten over the finish line with the university sports deal yet. But you can hear that we've been spending some time because we think there is a big opportunity in sports infrastructure and the amount of capital that needs to be put to work. Operator: Our final question today will come from Alec Feygin from Baird. Alec Feygin: Kind of wanting to synthesize what we've talked about all the call from the MGM capital allocation decision or the Caesar convention and also how you think about the balance sheet. With VICI taking the long view about capital deployment, kind of what's the philosophy about how VICI weighs deploying money in uncertain times for good opportunities versus waiting and preserving the balance sheet for a potential great opportunity that may or may not come? Edward Pitoniak: Yes. No, it is a wonderful question, and I wish we had more time to do it full justice. Because it is something that our investment committee is always, always deliberating. And I would tell you, Alec, there's no perfect answers, but I would say that because we invest what we believe to be perpetual capital. We really want to have confidence that 10, 15 and 20 years from now, we or our successors are going to be glad we've made this investment that we invest in the right geography, the right category, the right marketplace, and most importantly, the most -- the best operating partner we could find for that opportunity so that we can always be comfortable, the credit is secure. Operator: We will now hand the call back to Ed for any closing comments. Edward Pitoniak: Thank you, Adam, and I'll just thank everybody for their time today and look forward to continuing the conversation in the weeks and months to come and see you again in February. Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.

199天前Insight Analytics约5分钟阅读

BVN 2025 Q3 财报电话会议

Operator: Good morning, ladies and gentlemen. Welcome to the Compania de Minas Buenaventura Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions]. And please note that this call is being recorded. I would now like to introduce you to your host for today's call, Mr. Sebastian Valencia, Head of Investor Relations. Mr. Valencia, you may begin. Sebastian Valencia Carrasco: Good morning, everyone, and thank you for joining us today to discuss our third quarter 2025 results. Today's discussion will be led by Mr. Leandro Garcia, Chief Executive Officer. Also joining our call today and available for your questions are Mr. Daniel Dominguez, Chief Financial Officer; Mr. Juan Carlos Ortiz, Vice President of Operations; Aldo Massa, Vice President of Business Development and Commercial; Mr. Alejandro Hermoza, Vice President of Sustainability; Mr. Renzo Macher, Vice President of Projects, Mr. Juan Carlos Salazar, Vice President of Geology and Explorations; Mr. Roque Benavides, Chairman; and Mr. Raul Benavides, Director. Before I hand the call over, let me first touch on a few items. On Buenaventura's website, you will find our press release that was posted yesterday after the market close. Please note that today's remarks include forward-looking statements that are based on management's current views and assumptions. While management believes that these assumptions, expectations and projections are reasonable in view of the current available information, you are cautioned not to place undue reliance on these forward-looking statements. I encourage you to read the full disclosure concerning forward-looking statements within the earnings results press release issued on October 30, 2025. Let me now turn the call to Mr. Leandro Garcia. Leandro Raggio: Thank you, Sebastian. Good morning, and thank you for joining us today to discuss the quarterly results of the company. On Slide 2, this is our cautionary statement, important information that I encourage you to read. Today, we will discuss our third quarter of 2025 performance, highlighting key achievements on our strategic priorities going forward. After the presentation, we will be available for our Q&A session, where our team will be happy to answer your questions. Next slide. I would like to highlight a few key areas that contributed to our strong third quarter results. Copper production in the third quarter of 2025 reached 12,800 tonnes, down 24% year-on-year. This is mainly explained because in the third quarter of the last year, all the ore stockpile during the El Brocal's voluntary temporary suspension in the second quarter of 2024 was processed. Silver production reached 4.3 million ounces, 3% lower compared to 4.4 million ounces produced during the same period last year. The decrease was mainly due to lower production at Uchucchacua and Yumpag in line with expectations, partially offset by increased production at El Brocal and Julcani. Gold production was 30,894 ounces, down 21% year-on-year, mainly due to lower output at Orcompapa and Tambomayo, consistent with the 2025 planned mining sequence. EBITDA from direct operations in the third quarter of 2025 was $202.1 million, which represents a 48% increase compared to the $136.5 million in the same quarter last year. Net income for the quarter was $167.1 million compared to $236.9 million in the third quarter of 2024, which include $157.3 million from the sale of Chaupiloma. The third quarter ended with a cash position of $486 million and a total debt of USD 711 , resulting in a leverage ratio of 0.41x. Moving on to San Gabriel. CapEx for the project in the third quarter of 2025 was $92 million allocated to completing the construction of the processing plant to enable the start of commercial production in the fourth quarter of 2025. As of now, San Gabriel has reached 96% overall progress. Construction is 95% complete. On September 5, 2025, Coimolache received a new operating permit, allowing fresh ore placement on a new level of Tantahuatay leach platform and adjacent surface areas. This milestone enables full capacity production at both the mine and the leach pad. Finally, Buenaventura Board of Directors has approved a dividend payment of $0.1446 per share ADS. Moving on to cost applicable to sales trend. Copper cash decreased in the third quarter of 2025, mainly due to the positive contribution of byproducts at El Brocal. Silver cash increased driven by higher commercial deductions related to tailings sales at Uchucchacua and lower ore grades at Yumpag. Gold cash has decreased due to higher volumes sold. On the next slide, we will present free cash flow generation. The third quarter 2025 cash position decreased during the quarter mainly driven by the net cash outflows from investing activities and financing activities. In terms of financing activities, Buenaventura redeemed the remaining $149 million of its 2026 notes at par, including a great interest. Moving on to Slide 6. Third quarter 2025 CapEx related to San Gabriel was $92 million, allocated to completing the construction of the processing plant. As of September 2025, San Gabriel's total CapEx has reached $681 million. We are moving forward steadily and remain on track to begin production in the fourth quarter of 2025, subject to timely approval of the necessary permits. As part of this progress, the Ministry of Energy and Mines granted San Gabriel, a power transmission concession. Mine development has been completed and mining preparation activities are underway using Buenaventura's owned fleet. The commissioning plan is now being implemented with the C1 and C2 commissioning already completed. San Gabriel's cumulative progress has reached 96% overall completion by third quarter 2025, primarily driven by finishing the engineering and procurement as well as the construction at 95% of advance. On the next slide, we are showing the processing plans progress. The primary crusher mechanical works are at 100%. The SAG and Ball mills mechanical works are at 100%. And finally, the CIL tanks mechanical works are at 100%. Moving on, we can see the progress of the main components of the plant. Moving on to Slide 9. We are showing the progress at the Filtered Tailings plant that currently is at 96% overall progress. To conclude this presentation, I would like to share a few final thoughts. First, a stable and continuous production at our flagships. We are making progress in our efforts to increase throughput while prioritizing cost efficiency. Second, solid performance from our affiliate companies, Coimolache's new operating permit will enable production at full capacity. We are expecting to produce over 8,000 ounces of gold next year which will lead to higher cash flow in the coming quarters. Third, strong cash flow generation and a solid balance sheet driven by the outstanding performance of Buenaventura's flagship operations enabled us to return value to shareholders and resume our dividend policy. Finally, the San Gabriel project has achieved 96% overall progress. The new power line concession will allow us to complete commissioning in the coming weeks on track as we aim for our first gold bar by fourth quarter of 2025. Thank you for your attention. I will hand the call back to the operator to open the line for questions. Operator, please go ahead. Operator: [Operator Instructions]. Our first question comes from Carlos De Alba from Morgan Stanley. Carlos de Alba: So I wanted to maybe go back a little bit and make sure that we get a little maybe more color, Leandro, on what is still pending for San Gabriel. And when do you expect to get maybe those permits that are pending? And if there is anything else from a government approval perspective. How confident are you that with the recent changes in government that we have seen in the country, you're going to get them relatively on time? And to the extent that there might not be on time, if that possible delay will be weeks, days, weeks or months. And then related to that is, you did mention you expect to -- the total production for the year in San Gabriel, but what is the sequence that we should be contemplated in the model. And given the benefit that you have in ramping up this project, I mean, very amid, very high gold prices. When can we see -- when do you expect San Gabriel to be EBITDA neutral or at least where you start to breakeven? Leandro Raggio: Thank you, Carlos. Well, we are coordinating previously since weeks ago, the final permits for San Gabriel. We are confident that we will be granted of all, and we will end this year with the production of 2 bars. Maybe Renzo can give us more detail and then Juan Carlos Ortiz can help us for the sequence of the production. Please, Renzo. Renzo Macher: Sure. Yes, all the permits are aligned there to be able to produce the first cover towards the end of the year, it is a matter of when the authorities go up. We don't foresee any problems on that. And regarding what is pending in San Gabriel, the power should be arriving this Sunday and then it's somehow testing the C3 and C4, and that is going to take us a couple of months to complete. Leandro Raggio: For the production sequence, Juan Carlos can help us. Carlos? Carlos de Alba: Yes, maybe before Juan Carlos -- sorry, I may have lost my connection for a second there. So can you repeat what is happening with power. So you're getting access power this week or today or tomorrow, is that what you said? And then why won't take 2 months or to ramp up? Renzo Macher: Sure. So power line construction is complete. All the arrangement with the other users is complete. The permit from the authority is complete. The energy station will happen on Sunday, and then we can start the commissioning process. The commissioning process will take around a couple of months because we need to stabilize power first, then we're going to start filling the mills, filling all the plant with water. And then as soon as we can start crushing and milling, we're going to be filling all the circuits up to the Tailings storage facility. And then we're going to start adding ore to that to start the crop of gold, and we expect that to be finishing towards mid-December. Juan Ortiz Zevallos: Thank you, Carlos. And regarding your question about production, as Renzo mentioned, this year is going to be the initial gold bars by the end of the year. And in January, we will start doing the operational ramp-up. We start the operational ramp-up in January. And as we mentioned before, we need to pay attention to the construction process, the normal construction might be filtration, dissipation and compaction of the Tailings -- in the Tailings Dam because the shape of the Tailings reservoir is a V-shaped valley. We need to start from the bottom where the area is limited. And as long as we are compacting the Tailings and raining elevation, we will extend and gain more available area for compaction. Due to that, the production this year on a global basis is going to be in the order of 70,000 to 90,000 ounces of gold next year, and we are working in -- along with the project team with the commissioning and monitoring all the process, trying to do our best to be on the upper range of this guidance. Carlos de Alba: Thank you, Juan Carlos. And maybe just, I don't know, Daniel, or when do you expect to start breaking even at current gold prices? Juan Ortiz Zevallos: We're going to start with the high grade at the beginning. So it's going to be pretty soon, I would say, the first or the second quarter, we will probably be reaching breakeven. Even if we are not working at full capacity, we will be over breakeven, I would say, by the second quarter next year. Carlos de Alba: Thank you very much. Good luck. Operator: [Operator Instructions]. Ladies and gentlemen, with that, we will be concluding today's audio question-and-answer session. I would like to turn the floor back over to Sebastian Valencia, Head of Investor Relations, for any webcast questions. Sebastian Valencia Carrasco: Thank you, operator. At this time, there are no further questions. I would like to turn the call over to Leandro Garcia. Leandro Raggio: Thank you, Sebastian. I would like to thank you for the time and effort today to join us today. your participation and input are very appreciated. Thank you again, and have a wonderful day. Operator: Thank you very much. Ladies and gentlemen, that concludes Buenaventura's Third Quarter 2025 Earnings Results Conference Call. We would like to thank you again for your participation. You may now disconnect.

199天前Insight Analytics约5分钟阅读

CL 2025 Q3 财报电话会议

Operator: Good morning. Welcome to today's Colgate-Palmolive Third Quarter 2025 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer and Executive Vice President, M&A, John Faucher. John Faucher: Thanks, Drew. Good morning, and welcome to our third quarter 2025 earnings conference call. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to our third quarter 2025 earnings press release and related prepared materials and our most recent filings with the SEC, including our 2024 annual report on Form 10-K and subsequent SEC filings, all available on Colgate-Palmolive's website for a discussion of the factors that could cause actual results to differ materially from these statements. Our remarks will also include a discussion of non-GAAP financial measures, which exclude certain items from reported results, including those identified in tables 4, 6, 7, 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the third quarter 2025 earnings press release and is available on Colgate-Palmolive's website. Joining me on the call this morning are Noel Wallace, Chairman, President and Chief Executive Officer; and Stan Sutula, Chief Financial Officer. Noel will provide you with some thoughts on our Q3 results and our future plans, and then we will open up for Q&A. Noel? Noel Wallace: Thanks, John, and good morning, everyone. Thanks for joining us today as we discuss our Q3 results and more importantly, the steps we are taking to accelerate our performance in this volatile operating environment. Importantly, focused on the priorities and actions set out in our 2030 Strategy. As you will hear today, consumer uncertainty, tariffs, geopolitics, high cost inflation and other factors are all pressuring sales and profit growth across the consumer sector. Despite these headwinds, we are operating with determination and focus. We have healthy brands in growing categories with strong market shares and a diverse global footprint with nearly 50% exposure to faster growth emerging markets and a best-in-class global supply chain to service that demand. We remain committed to our goals of delivering organic sales growth, net sales growth and dollar-based EPS growth and to our capital allocation priorities to drive total shareholder return towards the top end of our peer group. We have done that over the past 5 years and have confidence in our ability to continue to do that. What drives this confidence is our ability to execute on our 2030 strategy to accelerate change as we adapt to this complex and changing environment. Coming off our 2025 strategic plan, we have improved our innovation, built and scaled our capabilities, improved our organic sales and market share performance and delivered consistent annual dollar-based EPS growth. This is the perfect time for our strategic transition as we're coming off our 2025 plan, which built the organizational muscle necessary to execute our strategy and focus on global alignment. This is not wholesale change but rather we are working to accelerate the rate of change as we embark on our 2030 Strategy. We have made and are continuing to make the changes that are required to drive outperformance. And over the strategic time horizon of our 2030 strategy, we will emerge a stronger and more effective company. As I outlined in September, we are taking concrete intentional steps to accelerate our growth going forward, steps that will drive performance in any market environment, but particularly important now. These include a new innovation model with additional resources focused on delivering more impactful science-based innovation across all price tiers. This new model includes investment in people, process improvement and resources and tools, including AI to make us faster and better able to prioritize the innovative products and packaging that matter most to our customers and consumers. We are focused on omnichannel demand generation, including upskilling our commercial organization to be more consumer-centric by adopting how we deliver the right products at the -- with the right content, with the right message to the right people at the moments that matter. This will help continue to build the strength of our brands and drive brand penetration. Having scaled new capabilities we prioritized as part of our 2025 Strategy, including digital, data, analytics and AI, we will drive more dynamic change by accelerating our investments and efforts in areas like RGM and agentic AI, working to drive efficiency, disrupt our own processes and integrate new ways of working across the company. And using predictive analytics and automation more and more across our supply chain to deliver personalization at scale, drive optimal asset utilization, minimize downtime, improve our service levels and enhance our quality systems. Underpinning many of these initiatives is our strategic growth and productivity program. While this program will enable us to fund incremental investments and deliver savings to drive dollar-based earnings growth, it is even more vital as a strategic enabler to facilitate the changes in behaviors and processes needed to accelerate organizational change, making us more flexible and simplifying our processes to increase speed and efficiency. Because of these actions and the fundamentals of our business, we believe we are well positioned to outperform in the context of the current global category slowdown for several reasons. The strength of our business in emerging markets gives us the ability to drive faster category growth as developed markets remain sluggish. Hill's underlying performance remains very good in a softer category given our robust innovation and our ability to gain market share in low development segments like cat, wet and small paws. The health of our brands across categories following years of investment provides us with opportunities to drive pricing to offset raw material inflation. Across our business units, we continue to have well-funded advertising and innovation plans. And we're operating with an even greater focus on revenue growth management, particularly with prescriptive analytics and AI. And we continue to generate strong cash flow to invest in the business and help drive TSR. The timing for us to be kicking off our 2030 Strategy could not be better. We are seizing this moment as the 34,000 Colgate-Palmolive people around the world work to deliver on the change needed to reaccelerate growth and outperform. And with that, I'll take your questions. Operator: [Operator Instructions] The first question comes from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: So clearly, a difficult operating environment here in terms of category growth in household products, as you mentioned, Noel, with all the consumer pressure points. Can you just give us some perspective on if you expect the category softness to linger as we look out to 2026. You also highlighted a number of focus areas for your own business in 2026 within that landscape. So just how impactful and quickly do you think those levers might be in improving your own organic sales growth performance, again, as we look beyond this year? And if I can just slip a Part B, can you just review Hill's specifically, volume mix dropped off in the quarter. I know there's some factors exaggerating that, but it did look like the underlying performance was perhaps weaker. So just an update on pet category trends and Hill's market share performance. specifically would also be helpful. Noel Wallace: Great. Thanks, Dara. So clearly, a lot of volatility in the market, particularly in the quarter, we're seeing month-to-month swings that are, quite frankly, pretty surprising through the quarter. August was very difficult, but September shipments did get better but just not enough to make up for the August softness we saw. So if I look back at my upfront comments, which I think clearly lay out exactly how we're thinking about the business, both short term and long term. As we switch to our 2030 strategy, we feel we're in a position of strength here. We're executing against the changes that we implemented through 2025 and the new changes that we believe contemplate the current environment, which we expect to continue in the short term, certainly to be sluggish. The SGPP will provide the right organizational structure and the capabilities while funding importantly, increased investment in helping us drive that dollar-based earnings per share growth we talked about. So if I go around the world perhaps in terms of the operating environment, on an underlying basis, we think North America was actually a little better for us this quarter and particularly ex skin, but we're still not where we need to be there. And I'm pleased to see how Shane and John Coyman are truly tackling the opportunities that we see on the business. Categories were slightly weaker in Q3 in North America but our performance improved sequentially, and we expect that to continue sequentially, particularly excluding skin health. Consumer still remains relatively weak across North America, as you point out. We're seeing higher levels of couponing. Hispanic traffic is still down. And as you've heard from others, category takeaway in the U.S., particularly in September, was a little softer than most of us anticipated and a little softer than the preceding months. So -- and if I move on, again, we expect that to continue. But this SGPP plan, Dara, what I'm really trying to get across here is we're anticipating a continued sluggishness but we're making the changes necessary to stimulate growth not only for our business but for the categories. And that's going to be consistent all over the world. As expected, let me get into Europe. We're seeing a little less pricing than before. Volume was in line, maybe slightly lower than we were expecting. Western Europe was strong, better than we expected, some incremental weakness in Eastern Europe, particularly in Poland. Latin America is mixed, although Mexico and Brazil, better for us than for some others. Organic was up mid-single digits in both Mexico and Brazil. Conversely, Colombia and Central America were a little softer as they're dealing with more economic weaknesses in those markets and more political volatility that's impacting consumption across those regions. So if I move on now to perhaps China, China is a mixed bag for us. Colgate continues to do well as e-commerce and innovation are key drivers for us in that market and doing exceptionally well. We were up mid-single digits on the Colgate side. However, Darlie continued to see some weakness, particularly in premium e-commerce. We are taking aggressive steps to address our innovation and our e-commerce business there but it's taken a little longer than we anticipated to see the changes. As you saw in the announcement, India was a little softer but we expect that to improve moving forward. The GST came through in the quarter, medium and long-term positive, we think, for the benefit, it created some additional headwinds as we went into the quarter -- as we exited the quarter. But importantly, we are really focused on getting some big core innovations executed across that country and pushing our premium innovation, particularly in the urban class of trade where we've seen some sluggishness. And so let me move on to Hill's quickly to balance out your question at the end. Hill's from a category remains a bit soft but we particularly saw dog dry down but cat way up. U.S. growth slowed a bit but that included some headwinds from lower e-commerce inventory that got pulled out at the end of the quarter, a little softness in Canada due to the Canadian sentiment. But overall, we're pleased with Hill's. If you take ex private label up some good growth there, and we're gaining share there across almost every strategic growth segment there is. And that, again, is, I think, a testament to the strategy we put in place the last couple of years, the increased capacity we have in areas like wet. And we obviously are expecting the category to remain a little bit sluggish in the short term but the opportunities for growth remain real and particularly in those faster-growing segments like cat and wet, and we believe we've got the plans in place to do that. So despite a positive growth in our categories but slower than we anticipated in the quarter, raw material inflation, tariffs, obviously, some trade destocking, we're still delivering dollar-based earnings per share and strong cash flow. And overall, that's exactly how we expect the business to continue to trend. Operator: The next question comes from Peter Grom with UBS. Peter Grom: I wanted to ask on Latin America. So I just wanted to ask on Latin America. So first, just the prepared remarks, there was a comment regarding a decline in oral care due to the replacement of trade inventories in connection with the formula change. So can you just give more color on what happened there? And is there a way to quantify the impact that had on the quarter? And then second and related, growth in the region has been more in this low single-digit range this year as pricing has moderated. And Noel, your commentary to Dara's question was helpful. But just as we look ahead, would you expect more of the same? Or do you see an opportunity for growth to improve from here? Noel Wallace: Sure. Thanks, Peter. So yes, Latin America organic was 1.7%. But if you include -- which includes 150 basis points negative from the volume impact from the Colgate Total replacement, which I'll talk to perhaps in a second here. As I mentioned just a second ago, we were pleased with Mexico and Brazil, both up around 4%. so overall, those markets continue to perform well. Pricing is improving but a little bit at the expense of volume, and we saw volume a little bit sluggish in our categories, not to be expected given some of the prolonged pricing we've taken there. So let me explain a little bit more on Colgate Total. Globally, through the third quarter, Colgate Total continues to do well, driving organic sales growth and premiumization as we've been able to take pricing on this pretty significant innovation. We've rolled it out around the world with new regimen claims and on toothpaste, mouthwash and toothbrush and seeing some good share growth in general around the world. So we're pleased with that. If I go back to Latin America, we noticed an increase in consumer complaints, including some temporary mouth irritations in Latin America early in the year, with the majority coming from consumers who had used the clean Mint variant. This was mostly people who brush their teeth 3, 4, sometimes even 5 times a day. We determined this was primarily due to the new flavor. So we adjusted the formula and in collaboration with the Brazilian health authorities, we voluntarily replaced the impacted variants in Brazil with the reformulated product, and we've seen Colgate total market shares begin to improve subsequent to that change. We are currently also replacing the impacted variants in other markets in Latin America. This was the gross margin impact that we discussed in the prepared commentary, 40 to 50 basis points. While we did not see the same level of complaints in other markets, we are proactively adjusting the formula for the impacted variants around the world. There may be some further costs going forward. But at this point, we believe the majority of costs have already been incurred. Coming back to some of the categories in Latin America, still growing but have slowed a little bit in the recent periods, driven by particularly volume while we're still getting pricing in the categories. And this, as I mentioned just a moment ago, is more acute in Andina and Central America, where we're seeing a little bit more price competition in those markets. We're making the necessary changes to adjust to that, and we're working on sharpening our price points to improve our volume shares. Overall, Latin America, volume shares for our total Oral Care business were flat, slightly down in value, as I mentioned, due to perhaps the total replacement. We're starting to see those shares come back nicely. Operator: The next question comes from Kamil Gajrawala with Jefferies. We'll go to the next question. The next question comes from Filippo Falorni with Citi. Filippo Falorni: On the Asia Pacific business, Noel, you mentioned the GST tax change, obviously, impact on India. Any sense of quantifying that impact also? And you mentioned an improvement going forward. Is that the main driver? Are you expecting also an improvement in the macro conditions there? And any comments on the local competition in that market would be helpful. Noel Wallace: Yes. So let me -- Filippo, let me address India first. Thank you. As you saw from the Indian company results, organic was down mid-singles. Underlying demand in India, mostly in the urban part tends to be a bit sluggish. Rural seems to be holding up okay. We had very difficult comparisons, as you well know. Pleasingly, comps get easier, and we feel we've got really good plans moving forward, and we expect better performance in the fourth quarter and returning obviously to growth in 2026. The GST tax in our categories, particularly oral care and toothpaste went from 18% to 5%. As you can imagine, this led to some price reductions and disruptions in trade inventories. I think our team did a really good job to manage that and get ahead of it and get it cleaned up as we move into the fourth quarter. Longer term, we would expect the GST reduction to benefit consumption in the category, which has been challenged by the inflationary pressures there. So overall, we think this will be a net positive for us. Moving forward, we're obviously very focused on addressing some of the sluggishness we're seeing in the rural areas. We've got a strong premiumization strategy to continue to grow share in the modern trade and particularly in urban areas. And we'll be reviewing that business in detail with the teams next week but we're excited about some of the strategic areas that we're going after and the long-term growth potential of that market. Operator: The next question comes from Robert Ottenstein with Evercore ISI. Robert Ottenstein: First, a quick follow-up just on Latin America. If you can give us just a sense of where the market shares ended up with the relaunch and your thought of the impact of the formula change on that? And do you -- what is the outlook for 2026? And then my main question is on the drugstore channel in the U.S. very weak, not a great channel to shop in, products under locking key. How are you dealing with that -- the challenges of that channel? And then perhaps related to that, elmex has been a huge success in Europe. Drugstore channel in the U.S., not the greatest venue for that. How are you thinking about that dynamic, the weakness of the drugstore channel as well as the potential of elmex in the U.S.? Noel Wallace: Yes. Thanks, Rob. So let me try to take those in turn. First, on Colgate Total, we got out of the gates really, really strong with that relaunch, saw market shares grow incrementally for the business. As you can imagine, we stay very close with our consumers. And as I outlined, made an adjustment to the flavor in order to address some consumer complaints and irritation associated with select variants. The good news is that product is -- new product is rolling in, particularly in Brazil and Mexico and across the region as we speak. And the early indication is we're starting to see the shares come back quite nicely. We have a really strong marketing plan for the year -- for the quarter to go, the quarter we're in right now. So we're quite confident that we will see the business rebound nicely. As I mentioned, it was about 150 basis points of negative organic in the quarter for Latin America, about 40 to 50 basis points of total gross margin hit. So the good news is we're moving forward and confident in what we're seeing with Colgate Total. If I move to Asia, particularly where we're seeing some very strong results on Colgate Total, we're very encouraged by the progress we're seeing in that region. As I refer to your question around the drug class of trade, it is challenged. The good news is we have reengaged them in conversations in the middle store about how to drive more traffic back into those stores. I mean, obviously, CVS announced more improved results this week, as you may have seen. So we're hopeful they're committed to getting the middle of the store addressed and certainly, in the therapeutic end of the business, our whitening business continues to do quite well there. But they are -- it's challenged right now, and we're working very closely with them to improve the category dynamics through some of the revenue growth management initiatives and more importantly, some of the high-end therapeutic premium innovation we're bringing to it. Elmex, wonderful business. I won't get into the discussion on Europe at this stage but driving record shares for us in Europe. We have taken that bundle, to your point, Rob, into other key strong pharmacy markets around the world. It requires a strong professional underpinning in order to launch that. Clearly, we have opportunities to take that into other markets. And as we decide to roll that into new markets around the world, we'll be sure to let you and other investors know because it's a wonderful bundle with great upside potential. Operator: The next question comes from Robert Moskow with TD Cowen. Robert Moskow: I noticed in the script that in the U.S., you mentioned some increased competitive activity, getting more promotional. You described it as fairly rational. Can you be more specific as to the degree to which it's intensifying and what you expect going forward? Noel Wallace: Yes. Thanks, Rob. Yes, we've seen a slight uptick in promotional weights, more couponing, a little bit more volume on deal but nothing that would suggest that we're back to pre-COVID levels and higher. It's still, in my view, quite constructive. But you can imagine, as we've seen some volume slowdown in the categories in which we compete, I think all of the retailers and all the competitors are looking for solutions in order to drive more turn and more velocity in store. And ultimately, that turns to volume. What's interesting is when you look at the volume characteristics in the U.S., we still see the premium and the super-premium growing very, very nicely. It's the value-oriented brands or SKUs or segment as well as the mid-price segment that seems to be suffering. And importantly, as I outlined in our 2030 strategy, we are very deliberately looking at more core innovation across our franchises to stimulate more demand, particularly at the lower end, while we continue to focus on the significant growth opportunity we have in the premium segment around the world. So the strategy is much more intentional in getting more innovation out to stimulate demand, not only here in North America but around the world. Operator: The next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: Just wanted to ask about the pricing environment in Europe. We've had a few years, obviously, post-COVID where there's pretty constructive pricing. This quarter is still positive. But just curious about kind of the longer-term outlook and ability to keep driving positive price in Europe. Noel Wallace: Yes. Thanks, Lauren. So clearly, as we've said, we're really pleased with continued pricing in Europe. And I think we've learned a lot in the last couple of years on how to manage price effectively, notwithstanding the fact that it will continue to be a challenge in the longer term getting positive pricing every quarter but we have certainly built a much stronger muscle on the importance of ramping up our innovation. And again, I come back to the SGPP and the focus we have on putting more resources into innovation, and that's going to allow us to take price-based innovation, particularly at the premium side of the business, and that will be our focus. Overall, the retailers have to be pleased with the category growth they're seeing on dollars and our ability to get pricing in the category but it's going to be a balance. We need to bring real science-based innovation to drive the premiumization and take more pricing. I would expect that pricing, our anticipation is that we can keep getting positive pricing as we move forward but it will certainly be a little bit more challenged given the prolonged inflation that we've seen in the categories and our need to balance both pricing and volume growth moving forward. Operator: The next question comes from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I had a question on your implied Q4 organic sales growth. I guess for the full year, guidance assumes a step-up in Q4 at the midpoint. So I guess, just hoping you could talk through the puts and takes for Q4 to get there. I guess I'm asking in the context of the still subdued end market backdrop and certainly the greater headwinds from private label pet food exit. Stanley Sutula: Bonnie, it's Stan. So yes, let's talk a little bit about Q4. So we said in our guidance that Q4 organic or that full year organic will be roughly in line with the year-to-date. So if you look at the year-to-date, we're roughly 1.2%. So getting to the full year would indicate that we'd improve over the performance in Q3. If you think about the drivers that would help there, we had an impact that Noel articulated earlier around total to the total company. That's going to improve here as we go. And you also heard in both our prepared commentary and some of the questions thus far that there was some destocking in certain markets and certain products. And so as that levels out, that also becomes a benefit here heading into Q4. In addition, on private label, the impact that you saw in Q3 year-on-year will roughly be about the same impact that you'll see in Q4 as we have completely exited the private label business but we still have that year-on-year impact. So right now, as we look at Q4 and coming off of Q3 and the momentum that we see, we feel pretty good about that in line for our guidance of roughly in line with the Q3 year-to-date, which is around 1.2%. Operator: The next question comes from Kevin Grundy with BNP Paribas. Kevin Grundy: Noel, a question for you. I wanted to kind of take a step back and get your thoughts on the top line challenges. How much of this you believe is cyclical versus how much you believe maybe are Colgate-specific challenges, 1% organic sales growth in the quarter. I'm sure you're not pleased with it. It's levels that investors are less accustomed to seeing from Colgate. So number one, at a global level, where do you see industry growth at the moment, kind of rolling up everything and looking across your business relative to the 3% to 5% longer term? And then two, how much of this do you see as cyclical versus how much is company-specific and you think you can address with the strategy that you've outlined so far on the call? Noel Wallace: Yes. Thanks, Kevin. So let me just tackle the categories first. They obviously slowed, as I mentioned, in Q3 on a global basis, particularly for developed markets. The initial slowdown was driven by lower pricing across many of the categories but that inflationary pressure -- the inflationary pressure abated, we didn't see it necessarily coming back in volumes. And clearly, underpinning all of this is just the continuous consumer uncertainty. As we talk to consumers and evaluate consumers around the world, it's not a question of them being confident. It's just the uncertainty with all the moving parts that are going on and all the noise and rhetoric. So ultimately, on a global basis, categories are now for us growing roughly 2% on a global basis, probably more like 3% in the first half. So obviously, it's a bit slower. And that's versus the 4% to 5% exit run we had in 2024. So volumes today basically flat with pricing more or less 2%. So if you go back, Kevin, historically, over the last 10 years, I mean, clearly, these are low levels of market growth. So whether you want to call it cyclical or not, I mean, it's clearly way below the historical averages. And so our anticipation is, yes, things will get better. But I want to reiterate, if things don't get better, we are preparing our plans and our strategy to address what we need to do to grow faster in this current environment. That's not only faster top line but faster margin growth and faster EPS to ensure that we're putting steps in place if this is to linger on for another couple of quarters. I do think it's somewhat cyclical versus historical numbers. But we're not waiting to see if it turns. We're taking steps now to ensure that we accelerate organic growth moving forward. Operator: The next question comes from Peter Galbo with Bank of America. Peter Galbo: I wanted to ask a little bit on the gross margin performance in the quarter. I know you called out maybe the acceleration in palm oil costs. And I just wanted to understand, a, how much of that is just base period effect? I mean the raw material pressure in the margin build clearly stepped up versus the second quarter. So I just want to understand, is that base period effects? Or is that something else? And then b, Noel, I know there's a lot of kind of geopolitical noise around it but obviously, we have some Southeast Asia trade deals. We have political unrest in Indonesia, a lot of places where you source from. So maybe just the latest and greatest on what you're seeing kind of in the live market from a palm oil perspective. Stanley Sutula: Let me start with the gross profit. First, gross profit margin was down year-over-year in the quarter versus Q3. But I would point out Q3 of last year was the highest gross profit margin we've had since 2020. So the year-on-year impact is primarily driven through greater-than-anticipated raw materials inflation, and that is fats and oils is the biggest driver there. The impact of lower volumes on our fixed cost leverage from our production facilities, tariffs and the transactional FX. We also saw an impact that we talked about earlier from a formula change in Colgate Total in Latin America, as we mentioned in the prepared commentary. For our guidance, what we've laid out is that our year-to-date margin is 60.1%. We expect the full year gross margin to be roughly in line with that, which would put Q4 at 60% plus or minus. The sequential improvement for Q4 versus Q3, we're confident in because we expect that there'll be less material inflation on a year-on-year basis, transactional and Colgate Total impact will be partially offset by a slightly greater tariff impact. So we're confident on the gross profit improvement as we go quarter-to-quarter, which would deliver us a gross profit margin for the year that's roughly in line with the year-to-date. Operator: The next question comes from Chris Carey with Wells Fargo Securities. Christopher Carey: Just to clarify that, was there -- were there anomalies in Q3 gross profit that should be easing from here over and above just the rising commodity backdrop. So I just wanted to clarify that quickly. But really, the question is around advertising spending. Colgate has increased ad spending over the years. Obviously, this is allowing for a very full and rich source of investments to support your brands. I'm also conscious that you have peers that are looking at AI and automation to drive savings in advertising. Clearly, you talked about AI quite a bit in the prepared remarks. And I just wonder with sales and categories doing what they're doing, is there any, I guess, desire or thought to think a bit more strategically about advertising spending going forward and maybe less concentrating on percentage of sales? And how can the organization be more efficient with this spending so as to get the right return profile. So thoughts there. Stanley Sutula: Yes, Chris, let me start with the gross profit. So just again, the kind of quarter-to-quarter anomalies as we think about what will drive that. From the total impact that we talked about in Latin America, that was roughly 50 basis points or so margin. And we believe that most of that is behind us. So that would be a benefit. And then we do see materials, gross materials easing a year-on-year basis. So that will also be a help. And now we're completely out of private label. So that does not going to impact the current period GP. Obviously, it's still in the prior year. So we're confident in the GP improvement here as we go quarter-to-quarter. Noel Wallace: Yes, Chris, let me talk about the advertising question because I -- this is one I'm spending a significant amount of time on. And as we laid out our 2030 Strategy, and we've talked about in previous meetings, AI and ultimately, the application of AI across various vectors in our company is strategically very, very important. And we've been investing not only over the last 3 years in that space but we'll continue to accelerate our investment there. So if I look at the year-to-date spending on advertising, roughly in line with last year's record full year number, and we expect the fourth quarter to be roughly in line with the year-to-date. So advertising dollars and percent down slightly year-on-year as we lap, obviously, the strong level of spending that we had in the year ago quarter in 2024. But we are still spending very robustly against our brands, although we pulled back a little bit in some markets where we saw the consumer is much more challenged, and we delayed some of the innovative launches that we had to a later point. So we adjusted spending accordingly. But we're still spending against what we call return on investments. So very much looking at leveraging our media efficiencies, as you point out, to get a much better return on the overall investment. We still expect advertising to be roughly flat this year on a percent of sales basis as we move forward. And as I talked about, we will look to the savings from our SGPP to continue to fund advertising and accelerate how we're thinking about building our brands moving forward. So let me talk a little bit about AI, and this is one that certainly I hope that our investors have seen that we've been really out in front of this, as I talked about at CAGNY. It's a very important focus for us and a key strategic enabler for both growth and productivity as we move into the 2030 plan. And we're very, very excited about that. We've spent a significant amount of money in the last 2 years training and upskilling our teams on horizontal AI and the ability to apply that to drive more productivity. Our independent surveys that we see would indicate that we're making strong progress versus our peer growth in terms of using AI and its implementation across the company. We've launched AI hubs using the world's leading generative AI models to ensure our people have secure access to the most advanced AI capabilities. And as I think I may have mentioned at CAGNY, this is, to me, a huge unlock to drive productivity across the organization. We'll move it into the next phase, certainly as we go into 2030 more on a vertical basis to really reengineer our processes and drive a lot more efficiency. But I thought I could talk about a couple of the areas that we're very focused on with regards to advancing AI and particularly as we move into agentic AI, which is the next big frontier for us that we're quite excited about. So marketing and content, we will be using generative AI will be pivotal to transforming all of our marketing and digital strategies. We're going to significantly enhance consumer engagement through optimized real-time and compelling visual storytelling through AI-developed content. That's going to be exciting for us. We have some pilots in some pretty significant markets that are showing very early -- great early success. The second big focus area, as I mentioned in my upfront comments, is around innovation and how we're going to truly step up the quality and quantity of our innovation using AI and our ability to much more efficiently generate more consumer-centric concepts and get those tested and validated much quicker and incubated across core markets. So that's exciting for us. As we look at some of the collaboration, as we think about Agentic commerce moving forward, an area that we're really thinking about collaborating closely with some of our big retailers, whether it's Walmart and OpenAI, whether it's Amazon, all of these will afford us the opportunity to unlock the potential that Agentic commerce will bring, and we're certainly thinking about strategically how to make sure our brands play at the forefront of that and that exciting change that we're going to see from shopper behavior. So rest assured, AI is right at central in terms of our strategic growth enablers for the 2030 strategy and the investments that we put in place over the last couple of years, we think, position us very well to continue to maximize on the trends that we're seeing with that exciting technology. Operator: The next question comes from Michael Lavery with Piper Sandler. Michael Lavery: [ Mostly ] you covered already. There's been good stuff already. Just maybe a couple of quick ones on pet. Cats are gaining share of the U.S. pet population. You pointed out some innovation in the EU. Is there a similar shift there in terms of the market dynamics favoring cats? And you also pointed to the 20,000 distribution point gain in the U.S. Can you give a sense of maybe some of the timing and how much of that wraps into 2026? And maybe just on inventories as well, you cited a little pressure there. Are those at the right levels now? Or should we expect any more retailer reductions still to come? Noel Wallace: Yes. Thanks, Michael, for the question. So let me more broadly cover Hill's again, and I'll address in turn some of your specific questions. Overall, given the category slowdown and impressive quarter for Hill's in what I would characterize as pretty tough circumstances. Overall, we delivered 2.5% organic ex private label, and that came with some e-commerce inventory reductions we saw at the end of the end of the quarter from some of our retailers. Therapeutic, which I didn't talk about in my upfront comments, continues to be a real growth driver for us. The Prescription Diet business is doing exceptionally well with market share growth, which is obviously helping our mix and gross margin and operating margins on that business moving forward. We saw a greater impact, as we've mentioned in the upfront comment on private label this quarter to the tune of about 300 basis points. Clearly, strategically, we're not in the business for producing private label. So this is going to get cleaned out as we move through the fourth and into the first half of 2026, which will be terrific for the business, allow us to really focus on the short-term growth opportunities and longer-term strategic growth opportunities that we've talked about. So if I go back to the year-to-date and importantly, the third quarter, we grew organic sales in almost every combination of wet, dry, treats, cat, dog, prescription diet and science diet. So it was very broad-based strength despite the slowing category. So we're really pleased with the underlying structure of the business. Continued strong margin performance on the business, that's driven by the fundamentals, aided to be sure, by a little bit lower private label but we're obviously getting more leverage through the P&L as we continue to optimize the supply chain, and we're able to do that despite obviously softer volumes in general. And as the category remains sluggish and ultimately should come back medium and longer term, we'll get obviously more leverage moving through our facilities. We're gaining share across channels as well, which is terrific. The science-based innovation that we're bringing behind the increased brand investment is clearly working. Active biomes, multipacks, a series of price pack architecture moves, getting better assortment in store, particularly on the growing segments like cat and wet are generating real benefit for us. And my compliments, obviously, to the supply chain that with all the changes that we've executed over the last couple of years, our supply chain now really seems to be executing well. Our ramp-up of Tonganoxi, obviously unlocking a lot of opportunities for growth in the West segment and driving more efficiency. So overall, a pretty strong performance despite the slowdown in the market. And I think longer term, as we've always said, the dynamics of this category continue to be excellent. Even though we're seeing some slowdown, the strategic growth segments are growing fast, and we have an opportunity to get our fair share in those segments. And lastly, I would say is the Prime acquisition that we made in Australia continues to perform really, really well ahead of expectations. We're learning a lot about fresh in that market, and we will continue, obviously, to fuel that growth in Australia and learn from that important segment. Operator: The next question comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: Are you planning any selective pricing to offset the additional commodity headwinds? And then a second part of that is that with FX coming in better than anticipated, isn't it positive, sorry, for especially Lat Am transactional FX into 2026 and even in the fourth quarter as you phase out the total impact? Stanley Sutula: Yes. So Andrea, why don't I take the first one. So on the pricing, as you go through, Noel's covered pricing here and what we would look at. The pricing actions we have in place try to address in balance with competition as well as the commodities that we see. And FX clearly did come in favor here over the past quarter. And if it stays in the current place, should be a tailwind for us heading forward. At the current spot rate, we still see it as a flat to low single-digit negative impact for the year but Q4 would be more favorable than Q3. Europe has the biggest marginal benefit but most currencies in general have moved favorable. And in fact, you mentioned Latin America currencies. Those have also moved recently, which is a benefit to the business. So FX becomes a bit of a tailwind here at the current spot rates. Noel Wallace: Yes. And other thing, Andrea, I mentioned is that we were positive pricing in every single division in the third quarter, which, again, I think is a clear indication that our brands are strong. The investment we put behind them over the years is allowing us to offset some of the commodity inflation and some of the foreign exchange inflation that we've had in the first half. But overall, we're encouraged with that, and we will continue to look for pricing opportunities as we move forward, certainly as we look to balance the volume component of the business in the medium and longer term. Operator: The next question comes from Olivia Tong with Raymond James. Olivia Tong Cheang: Can you talk a little bit about offset EPS unchanged. Gross margin guide obviously came in 50 basis points but you're maintaining the low single-digit EPS. Are you expecting to be on the lower end of the range? Or is there some kind of offset that we should be mindful of? And then as we think about this more challenged environment, is there more that should be done with respect to restructuring given the current backdrop? Stanley Sutula: So let's talk a little bit about the guidance on EPS. So if you kind of go back and look at the overall guidance, we said that we still expect net sales to be up low single digits, and that's including a flat to low single-digit negative impact from foreign exchange, though that improves as we get to the back half of the year. We updated our organic sales growth to be roughly in line with the year-to-date, which would indicate to be around 1.2% for the year. And that includes a 70 basis point impact from the exit of private label. So as you're thinking about run rate going out, it's important to keep that in mind. And then on gross profit margin, we said we'd be roughly in line with the year-to-date gross profit margin of 60.1% and including advertising roughly in line with the full year of last year. And we've held our EPS guidance. And I think if you step back in our commentary the last few years, we've made significant changes to the business model. The strength of that business model enables us to weather the challenges that we had here in Q3 and still deliver bottom line dollar-based EPS growth, and we expect to be able to continue that here for this year. On the restructuring question, for our sales growth and productivity program, this is designed for 2 facets. First, we're doing this, we believe, from a position of strength to enable us to fund incremental investments as well as the second piece is delivering savings to continue to deliver dollar-based earnings growth. It facilitates the changes that help us make us more flexible, simplify our processes, increase our speed and efficiency. Now the program is consistent with what we announced last quarter with estimated charges of $200 million to $300 million and concluding by the end of 2028. And we anticipate those kind of first charges to start to roll through in the fourth quarter. So we're doing a lot of planning. We're going to execute this carefully because we're changing the way we work, not just slashing cost. So it's important that we're looking to design and allow the future fit for our organization, which aligns with our 2030 Strategy. That's going to include investments in things like omni demand gen, increased innovation, scaling our capabilities and Noel just covered AI and agentic AI, deep investments in those areas and educating our teams at the same time to be able to go execute that. This also will help us continue to drive flexibility and personalization in the supply chain. We talked about those investments that we made, and we think that will continue to benefit us going forward. Noel Wallace: Olivia, if I can just add one thing to what Stan said. We spent a lot of time over the last 12 months talking about building flexibility into the P&L. And I think that is the key thing from that standpoint, which is we worked all through '24 to build that. We used some of that. We're still building flexibility in the P&L. So again, when we think about achieving our targets, we're still continuing to think about that. And I think if you look at the '25 results, we've had incremental tariffs. Year-over-year, we have foreign exchange. We've had higher raw materials, the category slowdown, what have you. It's that focus on the flexibility that allows us to get to that. And yes, we're going to use that up as we go through the year to deal with headwinds, but that's really the focus of building that up in the first place. Operator: The next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: And I guess picking up on some of that. So Noel, when you step back and you think about the initiatives that you opened with and that Stan just walked through in support of SGPP, new innovation model, omnichannel diversification, RGM, et cetera, all underpinned by AI and predictive analytics. Those all seem like the right points of emphasis. But I guess a couple of questions around that. How do you think about the upfront costs of all those things in the aggregate, number one. Number two, to what extent are they really points of category acceleration or points of Colgate-specific differentiation versus more just the cost of doing business these days? Because if I was going to be devil's advocate, I'd say that thematically, that's what a lot of companies are doing. And I guess all of that in terms of how that plays into your '26 planning, if you could? Noel Wallace: Yes. Thanks, Steve. So listen, I think we clearly want to look at these as a way to gain a competitive advantage in the market but more importantly, utilize the capabilities to drive incremental category growth for our retailers and for us. So let me start with innovation. And we're learning a lot about how to use technology to innovate faster and to get better premium innovation in the market that's validated expeditiously in terms of how we've looked at it before. So all of that is intended on giving us a way to go to our retailers, partner with our retailers with better innovation faster and in more quantity than we've done before. So it's going to allow us to hopefully accelerate that if we gain a competitive advantage on that. Getting a clear understanding of how to use, let's take agentic AI and how to make sure that we're participating in, once again, drives premiumization, drives more purchase intent, the 3 more, more money, more households, more volume, allows us to really get much more personalized with our messaging, which will drive incremental consumption in the category. So all of that, if we believe we're doing it right and partnering with our retailers in an effective way, should drive more category growth. Now getting the -- taking AI aside from the top line aspect of the company and the growth aspect, it's using it to really effectively be more productive internally within the organization. So let me take demand planning as an example. Clearly, we have -- we see real opportunities in the demand planning space to use AI to more automate demand planning and demand replenishment, which allows us to generate more cash for the business and lower working capital. So clearly, opportunities for us to gain an advantage there. So not dissimilar to how we embarked on the whole SAP journey 20 years ago, we feel technology can be a real competitive advantage for us as a company, and we're making sure we're putting the training and the investments in place. And we've been doing that for the last 3 years, given some of the flex that John mentioned in the P&L. So it's not like we're starting from square one here. Our teams are well equipped to understand the applications of technology, and we're investing in the right capital given the strong cash flow that we have to ensure that we're positioning ourselves for success moving forward. Stanley Sutula: Yes. And I'd just pick up on your question on the upfront cost. We're not starting. We're well underway and have been for some time. And in fact, as we look at our 2030 strategy, one of the things that's changed over the last few years is while the total number of investment you see may look relatively static, under the covers, we're practicing good resource allocation. So we are driving productivity, getting more efficiency, using AI to help us drive that and then making strategic investments, which we've been doing over the last several years on data, digital, AI, those investments on educating our people all help enable this going on. So it's not like we're going to come and say we have to make this big, large incremental investment. We're reallocating resource, making strategic investments and have been for some time, and we'll continue to do so as part of our 2030 strategy. Operator: The last question will come from Edward Lewis with Rothschild & Company, Redburn. Edward Lewis: Yes. Noel, I wanted to return to China. I guess it's another quarter of familiar trends with growth at Colgate China and then challenges at the H&H subsidiary. Can you talk about what's going on at the latter and how you're looking to turn around performance? I mean, is it as simple as a bricks-and-mortar business essentially losing share to online? Noel Wallace: Yes. Thanks, Ed. So clearly, we're not pleased with the overall performance in China. We see real opportunities for longer-term growth. Clearly, that market is challenged from obviously a little bit slower growth and a more intense competitive environment/ And a pretty transformational transition into e-commerce, which our Colgate business has managed exceptionally well. And our Holly & Hazel business now is putting the right investment in place to get the premium side of their business, which is what's driving that marketplace right now. So we spent some time, as I alluded to in previous calls, as you well point out, getting the go-to-market fixed on Holly & Hazel. And I think the go-to-market, particularly in brick-and-mortar, is quite advanced now, and we'll start to see benefits of that in the next couple of quarters. Where we're really doubling down now is on building the brand more effectively through our online communication and how we do that and move from both from basically a more transactional business today with some of these strong online platforms to a more strategic basis on how we advertise top of the funnel, what we talk about to build the brand and ultimately drive ultimately persuasion and conversion. And that's going to require a more deliberate focus on how we spend our money online, with intentionality in my view, and a better understanding of how Colgate has done it successfully, which we're sharing those learnings. And then more importantly, getting the premium side of the Holly and Hazel business stepped up and excited that we've got a pretty significant premium innovation coming in the fourth quarter, which they will introduce, and they're really ramping up the 26 grids to ensure that we have much more online e-commerce-ready products to launch to that segment of the market, which seems to be growing quite nicely. Operator: This concludes the Q&A portion of our call. I will now return the call to Noel Wallace, Colgate-Palmolive's Chairman, President and CEO, for any closing remarks. Noel Wallace: So thanks, everyone, for your questions. Not a lot more to add. But obviously, while the external environment provides challenges, I hope you feel we are very confident in our ability to continue to execute against our strategy. We're particularly excited about the changes we're making to adapt to the current environment to ensure that we accelerate growth both for Colgate-Palmolive and for our retailers. And let me make sure I thank again the incredible tireless effort by Colgate people all around the world to continue to drive our results, and we look forward to talking to you again in the first quarter. Thanks, everyone. Operator: The conference has now concluded. Thank you for attending today's call. You may now disconnect.

199天前Insight Analytics约5分钟阅读

ISNPY 2025 Q3 财报电话会议

Operator: Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the third quarter 2025 results hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Nadia, and I will be your coordinator for today's conference. [Operator Instructions] I remind you that today's conference call is being recorded. At this time, I would like to hand the call over to Mr. Carlo Messina, CEO. Sir, you may begin. Carlo Messina: Thank you. Welcome to our 9-months 2025 results conference call. This is Carlo Messina, Chief Executive Officer; and I'm here with Luca Bocca, our CFO; Marco Delfrate and Andrea Tamagnini, Investor Relations Officers. We just delivered our best ever 9-month net income at EUR 7.6 billion, of which EUR 20.4 billion (sic) [ EUR 2.4 billion ] in Q3. Common equity Tier 1 ratio increased more than 100 basis points. Annualized return on equity is 20% and earnings per share grew 9%. These are excellent results, confirming we are well on track to deliver our full year net income target of well above EUR 9 billion. including Q4 managerial actions to strengthen future profitability. The 9 months and the third quarter both recorded all-time highs for commissions and insurance income. Costs are down, asset quality remains top notch and customer financial assets grew to more than EUR 1.4 trillion. We keep investing strongly in technology, enabling the acceleration of our workforce generational change. This year, we are returning EUR 8.3 billion to our shareholders, including the EUR 3.2 billion interim dividend to be paid in November. On top of this, an additional capital distribution will be quantified at year-end. Our results once again confirm the resilience of our well-diversified business model, further validated by the EBA stress test where Intesa Sanpaolo was a clear winner. This outstanding outcome reinforces our leading position in Europe. This is also reflected in the 2-notch upgrade by Fitch moving ISP above Italy and the 1 notch upgrade by DBRS. Our strong profitability allow us to confirm a world-class position in social impact to fight poverty and reduce inequalities. I'm proud of these results and thank our people for their excellent contribution. Now let's turn to Slide 1 for the key achievement of the first 9 months. In the first 9 months, we delivered record high profitability and efficiency, NPL stock and ratios at historical lows, strong capital growth and high increasing and sustainable value creation. Slide #2. In this slide, you can see the impressive continuous growth in net income. Slide #3. In the first 9 months, we delivered a significant increase in return on equity, earnings per share, dividend per share and tangible book value per share. In a few weeks, we will pay an interim dividend almost 10% higher than last year. Slide #4. In Q3, we confirmed our excellent organic capital generation capability with a 40 basis point increase in common equity Tier 1 ratio. Slide #6 (sic) [ Slide # 5 ]. Net interest income has increased over EUR 400 million compared with 2 years ago despite a 90 basis points drop in Euribor. Euribor is now stabilizing at a level consistent with the normalized interest rate scenario, and our hedging strategy will continue to sustain net interest income in the coming quarters. Slide #6. In the first 9 months, commissions and insurance income grew 5%. Q3 performance was excellent with 7% yearly growth and stable Q-on-Q despite the usual summer business slowdown. Slide #7. We also managed to reduce costs despite tech investments reaching EUR 5 billion. Slide #8. As said, we are in a comfortable position to confirm our 2025 net income guidance of well above EUR 9 billion. Moreover, we clearly have significant excess capital, giving us a lot of flexibility for growth and additional distributions. Slide #9. Our performance allow us to benefit all our stakeholders. The new medium, long-term lending to families and businesses grew 40% on a yearly basis. And let me just focus on the contribution to the public sector because in taxes in the first 9 months, we gave contribution for EUR 4.6 billion that is equivalent to the amount of the new taxation that the government is looking from the banking sector. In 9 months, we paid the same amount. So contributing hopefully to social inequalities in the public sector. Slide #9 -- Slide #11, sorry. In a nutshell, in the first 9 months, net income was up 6%. We accrued EUR 5.3 billion in cash dividends, and we delivered a best-in-class common equity Tier 1 ratio growth. Please turn to the next slide for a closer look at our P&L. Slide 12. This slide shows the building block of our 9-month P&L with improved results across nearly all items. Please turn to the next slide for the third quarter results. Very briefly, in the third quarter, revenues were supported by the highest ever Q3 commissions and insurance income. We decided not to push on trading, keeping flexibility for the coming quarters. Costs were down on a yearly basis, and we increased NPL coverage. Please turn to Slide 14 for a look at net interest income. We are firmly on track to deliver net interest income well above the 2023 level. Further growth is expected in 2026. Slide #15. This slide provides more details on the net interest income evolution. The Q3 decline was mainly due to the further reduction in Euribor and the impact from the 6-month and 1-year repricing of loans. Slide #16. Customer financial assets were up strongly on a yearly and quarterly basis. In Q3, we had EUR 3 billion growth in retail current accounts and EUR 10 billion growth in assets under management. Let's now move to Slide 17. Slide 17. commission growth was driven by wealth management fees. We can count on our unmatched advisory [indiscernible] and our fully owned product factories are a clear competitive advantage. Slide 18. The contribution from Wealth Management and protection activities is 43% of gross income and assets under management inflows are growing. Please turn to the next slide for a closer look at insurance income. Non-motor P&C contribution was the main driver for insurance income growth, and we still have significant upside potential. Slide 20. The contribution from commissions and insurance income to revenues is by far the highest in Europe after UBS. Please turn to Slide 21 for a look at costs. Operating costs are down with personnel costs decreasing 1% and administrative cost 1.5%. Slide 22. We have high flexibility to further reduce costs, thanks to our tech transformation. By 2027, we will have 9,000 exits with savings of EUR 500 million. Slide 23. We have a best-in-class cost-income ratio in Europe. Let's move to Slide 24 for a look at our asset quality. Asset quality remained excellent, and we registered the lowest ever NPL inflows. Slide 25. Our NPL stock [ is ] clearly among the best in Europe. Slide 26. As you can see, we remain very well positioned in terms of Stage 2. Slide 27. Our annualized cost of risk is stable at 25 basis points with NPL coverage up to more than 51% and stable overlays. We see no signs of asset quality deterioration. Slide 28. Our NPL coverage is clearly among the best in Europe. Slide 29, our Russia exposure is now less than 0.1% of the group's total loan with local loans close to 0. Slide 30. We have a rock solid and increasing capital position. Common equity Tier 1 ratio increased to 13.9%. Let's move to Slide 31. ISP [indiscernible] of the EBA stress test, we had a very low adverse scenario impact on our common equity Tier 1 ratio. The next best performing peer showed an impact 3x higher. In the next 3 slides, you have the usual update on our sound liquidity position and ESG actions. But let's move to Slide 36 to see how ISP is fully equipped to succeed in any scenario. Slide 36. Our profitability and capital position remains strong even in adverse conditions. We have a very resilient business model. Our asset quality is top notch, and we have already deployed EUR 5 billion in tech investments, including artificial intelligence, we are key enablers for future efficient gains. Slide 37. Intesa Sanpaolo stands out in Europe across key metrics and is better positioned than peers to face any future challenge. Slide 38. In this slide, you can appreciate our unique positioning, thanks to our commissions-driven and efficient business model. Let's move to Slide 39 for a few words on the strength of the Italian economy. The Italian economy remains resilient and the recent upgrade of Italy's rating confirms the country's strength. We expect Italian GDP to grow this year and next. Slide 40. The Italian companies are in a stronger position today compared to the past. Their debt-to-equity ratio has decreased over time and their liquidity buffers are at all-time highs. Slide 32 -- 42, sorry. This slide offers a recap of our best ever 9 months and the reason why we are fully equipped to succeed in the future. To finish, please turn to Slide 43. Slide 43. We are in a comfortable position to confirm our full year net income guidance. 9-month performance once again demonstrates the quality of our business model. We are a sustainable 20% return on equity bank, one of the few in Europe able to combine high profitability with long-term strength. In Q3, we started putting away in the and continue in the fourth quarter to reinforce future profitability. We are delivering one of the highest capital returns and dividend yields in European banking while maintaining a rock solid capital position and continue to lead on social impact. At the same time, we are accelerating the generational change of our workforce, investing in skills and new talent to ensure the group continues to grow and innovate in the coming years. Thank you for your attention, and we are now happy to take your questions. Operator: [Operator Instructions] And now we're going to take the first question. And it comes from the line of Antonio Reale from Bank of America. Antonio Reale: It's Antonio from Bank of America. Just a couple of questions for me, please. One on growth and the other one on capital distribution. So my first question is, well, what do you think it will take for a bank like yours to be able to show some loan growth going forward and at the same time, not dilute your 20% ROTE. So basically supporting growth while keeping the same level of profitability sustainable through time. The second question is to do with your capital. I think this quarter was a positive surprise. And I think yet it's not being rewarded by the market today. I think part of the issue might be that this excess capital has been trapped there in the bank as you've been basically remunerating shareholders only from your earnings, almost 100% total payout, but you've not paid out the excess capital. So the question is, could you consider paying shareholders also out of your excess capital? And related to that, I mean, you're no longer the highest paying cash dividend bank in terms of payout for what it's worth really. Do you think it will make sense to pay more than 70% dividend payout, so tilting the mix even further towards cash dividends? Carlo Messina: So thank you, Antonio. The point on growth is something that we analyzed in comparison the real potential of value creation. We are shifting a significant portion of our [indiscernible] into very low default rate loans. So we reduced in a significant way the default rate of our portfolio, so moving to close to 1% in the range of 0.7%, 0.8%. So the reduction was massive in the last year, and this will continue because we think that for a bank like us in mainly concentrated in wealth management and protection business model with a significant sustainability in the earning power, what is important is to concentrate on the ability to not generate nonperforming loans in the future. So that means that the growth in loan book will be, for sure, accelerating mainly in the sector export related in the sector that are linked with the new generation and new funds. But in our perception, this will bring the growth in the range of 2%, 3% in 2026, but not more than this. So the main driver could be for sure, for the recovery and growth in terms of net interest income 2026 will be the loan growth, but the acceleration will be part of a story that will balance also the cost of risk for the future. So that for us is fundamental having -- you know that Italian banks in the past had significant negative surprise from the loan book. We want to avoid to be in case of future crisis to be again in the same position. That's the reason why we are so concentrated in maintaining a net nonperforming loans ratio very low and [indiscernible] not diluting the coverage of the nonperforming loans that for us is fundamental also to proceeds in further reduction of the stock because 0 nonperforming loans is the ideal way of working for a bank that is really focused on wealth management and protection like Intesa Sanpaolo. In terms of capital distribution, obviously, capital distribution and the excess capital is related with the business model because from one side, we have a very limited need of capital. So our capital related to unexpected losses today is very low because as you had the occasion to see in the EBA stress test, our resilience is really strong. So our real excess capital is really significant in comparison to the past and in comparison to all the other peers. At the same time, the capital distribution is something that we will reassess in the new business plan. We have a clear evidence of other players that are working on a payout ratio that is much higher cash dividend payout ratio that is much higher than the one that we have in Intesa Sanpaolo. So this is something that we are evaluating. And at the same time, also what we can do with the excess capital, not only the current excess capital, but also the excess capital that we will generate in the next years because the run rate of 20% ROE bank will, by definition, create significant excess capital for the future. And this is part of what we are starting for the new business plan, but we have to discuss with the Board of Directors and then to propose and submit also to the supervisor. And then as soon as we have completed this process at the beginning of February, we will announce a new dividend policy. But obviously, the capital -- the excess capital, the real substantial excess capital significant and we do not see any kind of M&A opportunities. So by definition, the capital is -- the excess capital is of our shareholders. Operator: And now we take our next question. And the question comes from the line of Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. My first question would be around net interest income. How should we think about the net interest income trough? Do you think it's fair to assume that net interest income will trough in the next 1 or 2 quarters? Or when do you expect net interest income to trough on a quarter-on-quarter basis? And also, if you could just remind us of your rate sensitivity and how do you think about the replicating portfolio tailwinds that we should expect for net interest income? And then my second question would be around the banking tax in Italy. How should we think about the potential banking tax or levy for Intesa? Carlo Messina: So on net interest income evolution, I want just to make a clear point on net interest income because I read some point on net interest income that I think in this quarter, I need to have some clarification. So when we gave the outlook on our net interest income, we gave a clear indication that the third quarter could have been a third quarter in which we can have a reduction in terms of net interest income in comparison to the second quarter. And the reason is mainly related to the fact that we have, in the third quarter, a concentration and we had a concentration of repricing on the loan book. So we had the majority of our loan book that had made repricing during this quarter. We still remain only with EUR 8 billion of loans that we repriced in the fourth quarter. So this is the real bottom that we reached in this quarter because we had an impact of roughly between the repricing on a 6 months and 12 months Euribor of 100 basis points on an amount of 50 billion in this quarter. So this means that we had the peak of the negative contribution in this quarter, but was expected by us. So that was not a surprise. That the reason why we confirm our guidance and also because refinancing on the loan book will be only EUR 8 billion, concentrated in a volume of loans of EUR 8 billion. So very limited amount in comparison to our portfolio. So we think that in this quarter, we can have a rebound in terms of net interest income and then maintain the speed that will allow us to have in 2026 net interest income that can increase. So that's our expectation on net interest income. On the other side, banking tax. On the banking tax, we -- obviously, for the real figure, we will have to wait until the final process in parliament, so in which we will have the law approved. What I can tell you is that the impact that we can have both on net interest -- net income and on net equity from our side is totally manageable. And our commitment today are also including a potential impact coming from taxation. So absolutely not worried about this kind of impact. Operator: And the question comes from the line of Marco Nicolai from Jefferies. Marco Nicolai: So the first question is on insurance income. I see that it's picking up. So if I look at the year-on-year growth in the third quarter, it's actually improving quite a bit compared to the previous quarters. So can you tell us what's happening here? And if we should expect for the future, the same level of year-on-year growth in this line in insurance income? And then another question on isytech. Just wanted to know where you stand in terms of the group transition to this new tech platform beyond the isybank customers? And so what do you expect in terms of efficiencies from this platform, both in terms of cost efficiencies and also in terms of revenues upside, let's say, from this platform? Carlo Messina: So thank you. On insurance, we are working in order to have further [ acceleration ] business. The momentum is very positive and the penetration is in such a position that can allow us also to have significant further increase because we increased penetration, but we remain with a penetration between 13% and 14%. And we think that there is room to have significant further penetration in the next years. So insurance is and will remain and especially property and casualty insurance is and will remain an engine for growth that for the group is really strategic. Also, if you look the growth in terms of market share in the areas in which we are investing is really impressive. So we are increasing the value of this company and the value of the acceleration of the product between the different networks of the group and especially in the Banca de Territori network. Isytech is, for sure, important for Isbank, and this will allow to have further potential increase in terms of clients, in terms of revenue. But let me focus on what is in reality for us, isytech because isytech will be the pillar of the new business plan. isytech will be the key driver of the new plan, especially for the cost reduction. We think that the massive investments of the cloud and the possibility to write off the mainframe could be -- the investments in mainframe could be the most important part of the story of a plan that will be a plan based on cost reduction and efficiency. So this will be the clear lever that we will use in order to gain competitive advantage, not only in terms of client revenues, but in terms of efficiency. So this will remain a strategic lever, and we will elaborate more in the presentation of the business plan. Marco Nicolai: When do you plan the presentation of the business plan again? Carlo Messina: Should be in occasion of the results of the year-end, so the beginning of February. Operator: And now we take our next question. And the question comes from the line of Ignacio Ulargui from BNP Paribas Exane. Ignacio Ulargui: I have 2 questions, if I may. The first one is on fees. Looking to wealth management fees and looking to the asset inflows in the quarter, seen a very strong performance despite the summer seasonality. Just wanted to get a bit of a sense of how you think fees will go through in coming quarters and the progression of shift from AUC to AUM, how you see your clients on that step? The second one is on the capital movement in the quarter. If you could elaborate a bit more on the RWA improvement, the 10 basis points. Was there anything related to moves? Linked to that, should we expect any hit from operational RWAs in the fourth quarter? Carlo Messina: Okay. So starting from fees, we expect to have a very good performance also in the next quarter by definition. So fourth quarter will be a quarter in which our expectation is to have a growth -- significant growth in terms of fee and commissions, but also an acceleration during the year of the business plan. In the plan, we are planning to reinforce the ability to make conversion in terms of asset under administration and also the portion of time deposits that will expire during the period of the plan. We are increasing and we will elaborate on the presentation of the business plan, but I can anticipate that the amount that is workable is really massive and increased in comparison with the EUR 100 billion that originally we gave as the workable -- real workable part that we gave to our network, we are increasing this amount and they will start in 2026 to work with target that will be selective client by client. But this is and will remain an area in which we can deliver organically a significant growth in terms of fee and commissions. In terms of capital movements, we had in this quarter benefits in terms of risk-weighted assets is also related to this reinforcement of the quality of our loan book. So the reduction in terms of default rate has allowed us to improve the condition of the risk-weighted assets. And this is part of the story that I was mentioned before. This will continue to be part of our story. And we think that this can give satisfaction also during 2026. In terms of the trend for the last quarter, we will have a further positive evolution in terms of capital ratio that our expectation. And we will compensate an increase in operational risk that can come from the revenues average of the last 5 years because you know that 3 years because you know that the rule in which you can calculate the risk on a standard basis is based on 3 years revenues. And so we had like all the other banks in Europe, an increase in revenues. So this will bring an increase but will be more than compensated by the other reduction in risk-weighted assets. Operator: And the question comes from the line of Britta Schmidt from Autonomous Research. Britta Schmidt: Just coming back on net interest income. You mentioned that hedging means that you can sustain this net interest income for the coming quarters. So should we read into this that this is the level we should expect unless we see loan growth pick up? And then just a clarification, what is in the other net interest income that declined in 3Q in the quarter? Is that related to NPLs? Or is there anything else in there? And then on capital, just 2 clarifications, please. I think there was a pillar increase of around 15 basis points. Maybe you can give us some color as to why that increased? And whether you could just confirm that any insurance dividends are yet to be recorded in your capital? And maybe if you have an impact on that, that will be helpful as well. Carlo Messina: Luca bocca will answer to your questions. Luca Bocca: Okay. I can start with NII. NII, we will have some decrease in the quarter in the financial component, but it is related to the classical situation in that line that are NPLs and the difference between loan and deposit. So the capital that is noninterest bearing asset liabilities. So it is something that is normal that decrease during a negative trend in the Euribor, but it will remain stable in the next quarters. And according to the question to insurance income, you are right, we are in Danish compromise. So RWA of insurance income is included in the credit risk. And during the quarter, we can have the payment of a dividend to decrease the level of RWA related to that kind of line. And this is one of the measure of optimization that we can have during the fourth quarter to compensate the increase in operational risk. Operator: And the question comes from the line of Andrea Filtri from Mediobanca. Andrea Filtri: The first question is if you could give us a sort of sensitivity of your fees to the market performance? And the second is an unbiased view on Italian M&A. There are articles every day on the combinations, potential combinations in Italy. How do you see the end game looking like in terms of market structure for the Italian market? Carlo Messina: So looking at the sensitivity to the market performance, our expectation is that in case of a reduction of interest rate, we can increase our fee commission income in a significant way because this calculation is made moving through the capital gain embedded in our assets under administration that we can switch -- that we can ask our clients to switch into asset under management. So we think that in case of a reduction of 50 basis points of Euribor, the increase could be in the range of some EUR 100 million of commissions. This will depend on the kind of portfolio. A significant portion of our -- of the portfolio of our clients with a reduction of 50 basis points could become significantly capital gain positive. So in case of potential switch, we can accelerate the growth of our fee and commissions income. In terms -- that's very important for the gross income -- the gross inflows, not only for the net inflows. So in case of a reduction, we are really positive. In case of an increase in interest rate until a level of 50 basis points, our expectation we will remain more or less at the same level. This will depend also on the market performance of the equity markets. Then we will see what can happen. Our base case is that our fee and commissions can increase in a significant way during 2026 and 2027. Looking at the M&A environment in Italy, I have to tell you that I don't think that there will be some significant move in the next months during 2026, we will see what can happen for the other competitors that didn't close deal during 2026. In any case, Intesa Sanpaolo will be not part of any kind of consolidation in the banking and insurance framework. Operator: Now we'll go and take our next question. And it comes from the line of Andrea Lisi from Equita. Andrea Lisi: The first question is if you can already provide us an indication on the managerial action you are aiming to put in place in the fourth quarter, especially given your indication regarding the new business plan that will be a plan of further efficiencies. And so if you can provide some color on them. The second is if you can provide an update of your direct digital platform from 2026, how is evolving the collaboration with BlackRock to create the new digital wealth management platform for European private and affluent clients, what should we expect and what should we have updates? And how should we make in your international growth in this segment? Carlo Messina: So looking at the managerial actions, we will obviously wait for the final figures of 2025 in order to define the managerial action and the focus will be on the sustainability of future results. The first part of the job [indiscernible] the cost base. So this will mean that we will work on some areas in which we can anticipate some cost reduction that we can have for the future. So making some write-off in some areas in which we can improve profitability, mainly related to the IT system cost base. This will be the majority of the efforts that we are doing in terms of studying the potentiality. Then we still have a significant number of people that asked to leave the organization at the timing of our agreement, and we didn't -- we were not in a position to allow them to leave the organization. At the same time, we remain also with some areas of potential reinforcement also on the credit side, if this will bring to a potential reduction in terms of risk for the future. And so we will also work in this part of the story considering that we are in a very good position in terms of run rate of the cost of risk. So these are the most important areas in which we will concentrate in order to evaluate the managerial actions. On the BlackRock, I will ask Luca to answer to your question. Luca Bocca: Yes. The partnership is continuing to develop. In Italy, Aladin solution is fully operative on all the different clients that we have, especially in the Private Banking division. So you see the very good performance in commission are also driven to the excellent level of service that we offer to the Italian client. On the European platform, we are planning, as you can see at Page 60 to launch the platform not only in Belgium but in the fourth quarter of this year and some hundred million of new financial asset can arrive in the next quarter. But again, in the business plan, we will provide also a number on this kind of lever. Anyway, we are starting to have also new inflow of money in Belgium and Luxembourg. Operator: Now we're going to take our next question. And it comes from the line of Andrew Coombs from Citi. Andrew Coombs: Just follow up with a couple of numbers questions. Firstly, just on the trading income, the client contribution was fairly stable, but the capital markets are fair bit weaker. Could you just elaborate on what drove that swing in the capital markets trading results? And then the second question, just coming back to the deposit hedge on Slide 15. You talked about EUR 2.5 billion maturing a month, so close to EUR 30 billion a year. If I take that implies the entire book would turnover in about 5.5 years. So your average duration would be just shy of 3 and you said it's 4. So can you just help me square the circle on that one, please? Carlo Messina: So on the trading income, we had some negative mark-to-market, especially in some participation, mainly we can mention the Euronext participation that was really strong positive in the last quarters and this has reduced the positive contribution. So this is the most important part of these items in the trading income. Then in any case, we decided to be very conservative in order not to force profitability in this quarter because we have already reached the level of our profitability that we want to deliver this year. And so we are already to prepare for the new business plan. In the second question, I will ask Luca. Luca Bocca: The duration is 4 years because it's the average duration based on the different buckets that we cover with a different level of our stable deposit. So it's 4 years with repricing of more or less EUR 3 billion every month in the region of EUR 9 billion every quarter. So it's something that you need to wait for the different bucket of our deposit. In any case, you can assume a repricing at the level of today of 10 basis points more or less every quarter, and this is the reason why we are have another increase in the yield of our hedging portfolio in the 2026 of around EUR 400 million of positive contribution. Operator: And now we're going to take our last question for today. Just give us a moment, and it comes from the line of Delphine Lee from JPMorgan. Delphine Lee: Just 2 on my side. So I just wanted to ask on fees because you've had a very strong year, fees growing mid-single digit, but that includes wealth management fees growing double digit. Going forward, do you think you can continue to achieve the same kind of levels -- or just if you can give us any color of how you're thinking about the moving parts within fees? And then my second question is just a follow-up. I can't remember if you responded to the question, but another question around the cash dividend payout. Considering other banks, other Italian banks are looking at increasing meaningfully their dividend payout ratio. Is this something you're considering as well as part of your new business plan? Carlo Messina: So on fees, I can confirm you that we are working in order to have a double-digit growth in terms of wealth management and commissions. This will be part of the strategic story of the group and the increase in terms of amount of assets under administration and deposits that can be transformed into asset under management and the increase in people that we will have during the business plan, global advisers and the 360-degree services, this will bring us to have trend in terms of fee and commissions income that is and will remain the most important part of the story of our business model. In terms of cash dividend payout, as I told in the first question, I think that this will be evaluated with all the new dividend policy of the group. It is clear that until some months ago, we were the best-in-class in terms of cash dividend. Today, there are other players that can be considered as part of benchmarking that we can analyze in terms of evaluating the new dividend policies. But do not forget that we will have to deal also with a significant excess capital. So the mix between dividend payout and share buyback, we will be part of the new dividend policy. But 70% would be a minimum for sure. Operator: Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to the management team for any closing remarks. Carlo Messina: No, only thank you very much, and we will have the occasion to have also the analysis of the business plan in the next presentation, and you will have all the drivers that will allow us to be a sustainable 20% ROE bank. So thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.

199天前Insight Analytics约5分钟阅读

STRT 2026 Q1 财报电话会议

Operator: Greetings, and welcome to the Strattec Security Corporation's First Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Pawlowski, Investor Relations for Strattec. Thank you. You may begin. Deborah Pawlowski: Thank you, and good morning, everyone. We greatly appreciate you joining us for Strattec's First Quarter Fiscal 2026 Financial Results Conference Call. Joining me on the call this morning are Jennifer Slater, President and CEO; and Mathew Pauli, Vice President and Chief Financial Officer. Jen and Matt will review our financial results, the progress being made to transform Strattec and our outlook. You can find a copy of the news release and the slides that accompany our conversation today on the Investor Relations section of the company's website. If you are reviewing these slides, please turn to Slide 2 for the safe harbor statement. As you are aware, we may make forward-looking statements on this call during the formal discussion as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today's call. These risks and uncertainties and other factors are discussed in the earnings release as well as with other documents filed by the company with the Securities and Exchange Commission. You can find these documents on our website as well. I want to also point out that during today's call, we will discuss some non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release and slides. With that, let me turn it over to Jen, who will be referencing Slides 3 through 5. Jennifer Slater: Thank you, Deb, and welcome, everyone. We started fiscal 2026 in a solid position, and our financial results are a direct testament to the actions we have been taking to transform the underlying operations of Strattec to improve our earnings profile. The progress reflects the significant effort by our team and the magnitude of change we have been implementing. Revenue grew nearly 10% in the quarter, while gross profit margin expanded 370 basis points and EBITDA margin expanded 310 basis points to 10.2%. Margin improvements are a result of higher sales, pricing actions and cost reduction activities. We continue to actively manage our cost structure and implemented an additional restructuring action during the quarter that is expected to provide approximately $1 million in annualized savings that will be fully realized in the third quarter of this fiscal year. We also had solid cash generation of $11 million and ended the quarter with just over $90 million of cash on the balance sheet. We believe this provides us the capital to continue to execute on our transformation plans while providing a cushion during these rather turbulent times for the automotive industry. I'll talk more about the short-term automotive industry headwinds that have been layered on top of the impact of tariffs after Matt covers the details of the quarter results. Mathew Pauli: Thanks, Jen, and good morning, everyone. Let's begin with Slide 6. First quarter gross profit increased $7.4 million or approximately 40% on 10% sales growth, while gross margin expanded by 370 basis points to 17.3%. Gross profit improvement was a result of strategic pricing actions, higher production volumes, some modest contributions from tooling and $1.3 million of restructuring savings. These gains more than offset $500,000 in unfavorable foreign currency, $200,000 in net tariff expenses and $1.1 million increase in statutory labor rates in Mexico. Sequentially, gross margin improved 60 basis points on relatively similar revenue as bonus accruals normalized and tariff recoveries helped to offset the unfavorable impact of foreign currency and higher warranty reserves. Selling, administrative and engineering expenses, or SAE, were $15.9 million, a $2 million increase year-over-year, reflecting the investments in the business transformation. As a percentage of sales, SAE was 10.4%, somewhat similar to the prior year and within our expected long-term range of 10% to 11%. Let's move to Slide 7, where we summarize our profitability. Net income attributable to Strattec for the quarter on both a GAAP and an adjusted basis was up meaningfully year-over-year, reflecting the progress we've been making with the transformation even as we invest to drive the progress. Adjusted EBITDA was $15.6 million, representing an adjusted EBITDA margin of 10.2%. Our results reflect the team's commitment to delivering sustainable margin improvement. As I've noted before, over the long term, we believe the business model would suggest low teen EBITDA margins. Reaching the double-digit level, we believe, demonstrates the validity of this expectation. Now turning to Slide 8, which highlights our cash flow, balance sheet and capital priorities. Operating cash flow was more normalized, $11.3 million for the quarter, coincidentally similar to the first quarter of the prior year. We had capital expenditures of $1.5 million in the quarter or about 1% of sales. While we are investing in the business, we tend to not be capital intensive. We expect CapEx to be higher over the next several quarters as we advance our plans to accommodate the changes we are making to modernize the business. We now have $90 million of cash and approximately $53 million available under our revolving credit facilities. Subsequent to the end of the first quarter, we did enter into an amended and restated $40 million revolving credit facility, which extended the maturity until October 2028. We believe we are in a secure position with our cash balance to continue to advance our transformation plans as well as begin to investigate what M&A may look like for us. I'll caution that we are in the very early stages of this discussion internally about what that scenario could be. Right now, we won't have much more to add to the conversation, but we believe acquisitions could be a part of our longer-term future growth. If you turn to Slide 9, I'll hand it back to Jen to review the conditions in the automotive industry and the actions we're taking. Jennifer Slater: Thanks, Matt. As you know, we are heavily dependent on volume to deliver profit. I am sure you are all aware of 2 significant events that have impacted auto production. First, an aluminum supplier had a fire in its facility, which will impact production levels for some of our major customers during our second quarter and potentially into our third fiscal quarter. The return to full production and restocking dealer inventory levels for our customers can take months to make up for lost time. The second major event is the result of international trade restrictions on a chip supplier that has caused shortages of semiconductor chips to the automotive industry. At this time, we do not know the full impact to how our OEM customers will respond as the industry looks for alternative sources. We will use this time to build finished-good inventories to be able to better serve our OEM and aftermarket customers, reduce expedite costs and be prepared for anticipated demand rebound as OEM customers catch up for lost production time. Importantly, we will continue to monitor demand signals and take appropriate actions to align our cost structure as needed. Despite these constant industry macros that disrupt progress, we are in a better position to manage the current issues facing our major customers than we would have been last year. Let me update you on our transformation plan. We have started modernizing our operations with automation. While some of the improvements we are making may seem menial, each one makes a difference. For example, we are starting to automate certain manual assembly stations in our Mexico operations. These relatively simple automation projects have been validated, and we are applying this automation process to other production lines. Our commercial efforts are centered on gaining new customers as well as capturing future vehicle platforms with existing customers. To do this well requires a deep understanding of our products, cost structure and where our value add is generated. We still have more work to do on this front, but we are continually assessing our operations and product portfolio to drive value. Regarding the sale of our Milwaukee facility and the modernization program, we have come to the conclusion that our best route is a sale leaseback. This should provide us a better return on the building, reduce the challenges of moving production operations, allow us to rightsize our floor space requirement and redesign production flow. In conjunction with this decision, we will be consolidating our test lab to Auburn Hills, Michigan. This will put it closer to the customer and the commercial team for greater collaboration and oversight. We also plan to move the corporate offices to a more modernized facility to advance our culture and enable better productivity. We have been producing results that demonstrate the effectiveness of our efforts to drive profitability, and we believe we have a great foundation upon which to grow. I'd be remiss not to thank the team that has made this happen. With that, operator, we're ready to open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of John Franzreb with Sidoti. John Franzreb: Congratulations on another good quarter. Jen, I'd like to start with your ongoing review of operations. What can you share with us that's new compared to what we discussed in fourth quarter results? Jennifer Slater: John, thanks for your question. I touched a bit on some of the automation work we're doing. And I think as we go through this transformation, and we really started with the basics, we're now moving on to where there are simple processes that we can leverage automation. And then for new -- for future products, we'll look at are there more transformational ways to automate our manufacturing. So it's really just a progression of our thinking as we're stabilizing the underlying operations and moving to the next phase of modernization. John Franzreb: And how should we think about the change in CapEx as you start to automate? What does the CapEx budget, say, for 2026 look like versus 2025? Mathew Pauli: John, it's Matt. On a full year basis, our CapEx budget is about $12.5 million. So it's about 2% of our sales. But the automation -- the cost of automation has come down over the years. So it's not a significant investment from a CapEx standpoint. Jennifer Slater: And I'll maybe just add on to that, John, just to give you an example. There's really simple automation processes that we're starting with. So where you're manually putting a screw into a part, we've proven that, that's an easy thing to automate. Automation costs really have come down. And so they're quick payback to look at those simple ways to automate our processes. Deborah Pawlowski: You want to talk on the Mexico restructuring too, the most recent... Jennifer Slater: Yes. I think we also talked about that. We did do -- we continue to look at our cost structure, John. And so we have done another look at our Mexico operations. We continue to drive efficiency in Mexico. And so we will see in our Q3 more favorability from further restructuring that we've done in Mexico. John Franzreb: And actually, that kind of dovetails nicely into maybe you looking at the footprint of the company, relocating the labs, changing corporate offices and now going to a sale leaseback in the Milwaukee facility. Can you just talk about your thought process and some of the moves you're making here? And does that maybe optimize what you think the manufacturing and the corporate footprint should look like on a go-forward basis? Jennifer Slater: Yes. I think it gives us flexibility. So we're optimizing for what we have today, making sure we're utilizing the space, getting a better process flow, moving the things and consolidating where we're closer to the customer like the test lab and then driving our continued culture change. So it's an ongoing process, John, to make sure that we're leveraging the footprint that we have to where our business is today, but where we think we're going to be in the future, along with providing ourselves flexibility. John Franzreb: Okay. And in Slide #9, you're signaling a cautionary outlook, certainly next quarter and change. Can you talk about the potential impact to the company on the fire and the semiconductor production, I don't know, disruption. Can you kind of quantify what you are thinking and the timing of all this become -- normalizing against? Jennifer Slater: Yes. When we started the year, John, we said that we would really be in line with North America production because we would be lapping some of our launches and the pricing actions that we had last fiscal year. And with that in line, we thought we would be modestly flat -- or flat to modestly down. That didn't anticipate the supplier issue or the chip shortage. So we do see that, that will be an impact here in the quarter because our customers have already announced some time out. I know our customers will work like they always do to make as much of that up as they can, and it will be a timing issue. But right now, there's too much uncertainty to say what the full impact of those will be for the full year for us. Operator: We have no further questions at this time. I'd like to turn the call back over to management -- I'm sorry, I would like to turn the call back over to management for closing comments. Deborah Pawlowski: No, I just saw that we had an investor hop into the queue, Christine. Maybe we can take them. Operator: Our next question is from [ Ethan Star ], a private investor. Unknown Attendee: Great quarter. And my question is regarding the automation products that -- to further improve gross margins, what types of return on investments do you expect from those? And when might such returns show up in quarterly results? Mathew Pauli: Yes. It's less than a 1-year payback, [ Ethan ], and I think we'll start to see some of those results in the second half of this fiscal year. Unknown Attendee: Okay. Great. And then on Page 4 of the slide deck, it says that Strattec is developing relationships with other North American vehicle manufacturers. Are you able to tell us anything about this at present? Jennifer Slater: No, not specifics, [ Ethan ], but we have talked about that we've had a pretty limited customer reach with the North American OEs and our products can add value to other customers in the region. And so as we start thinking about where do we have opportunity with our power access products and our digital key, we're looking to support the customers we have today, but also expand our customer base. Operator: We have no further questions at this time. I'd like to turn the floor back over to management for closing comments. Deborah Pawlowski: Thank you very much, everybody, for joining us here today. We will be presenting Monday at the Gabelli Automotive Symposium in Las Vegas. So we will be posting the presentation associated with that on our website Monday. And in the meantime, if you have any questions, my contact information is on the website, and I look forward to talking with you. Have a great day. Thank you. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

199天前Insight Analytics约5分钟阅读

CHTR 2025 Q3 财报电话会议

Operator: Hello, and welcome to Charter Communications Third Quarter 2025 Investor Conference Call. [Operator Instructions]. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Stefan Anninger. Stefan Anninger: Thanks, Leila, and welcome, everyone. The presentation that accompanies this call can be found on our website, ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, and we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements. As a reminder, all growth rates noted on this call and in the presentation are calculated on a year-over-year basis, unless otherwise specified. On today's call, we have Chris Winfrey, our President and CEO; and Jessica Fischer, our CFO. With that, let's turn the call over to Chris. Christopher Winfrey: Thanks, Stefan. During the third quarter, we remained the fastest-growing mobile provider in the United States. We added nearly 500,000 Spectrum Mobile lines in the quarter and 2 million lines over the last 12 months, over 20% growth. Our video customer losses continued to improve to 70,000, less than 1/4 of last year's third quarter losses. That was driven by significant product improvements over the past 2 years. In Internet, competition for new customers remains high, and our third quarter Internet customer losses were in line with last year. Revenue was down about 1% year-over-year, driven by customer losses and a challenging political advertising comparison. Third quarter EBITDA declined by 1.5% year-over-year, essentially flat when excluding advertising. The operating environment for new sales, in particular, Internet continues to reflect low move rates and higher mobile substitution, along with both expanded cellphone Internet competition and fiber overlap growth similar to earlier in the year. Collectively, that drove third quarter Internet gross adds lower year-over-year. Churn improved year-over-year, as to be expected given last year's ACP-related impacts, and Internet churn, including nonpaid churn, remains at historically low levels. From a medium and long-term growth perspective, we know we have the best network, fully capable of where we operate with increasing demand for bandwidth, and we have great products to help us win and the ability to save customers hundreds or even thousands of dollars a year. In the short term, with lower selling opportunities and new forms of competition, small changes in sales or churn have an outsized impact on Internet net gains. We're leaving no stone unturned to drive customer and financial growth, including improved customer perception of our brand and products, growing mobile profitability and driving streaming video growth, all with the focus to drive connectivity revenue growth. We're also improving our long-term cost profile through our service and technology investments, including AI. Beginning with go-to-market, we remain focused on better ways to message our products and value savings, including our marketing and channel mix and testing new offers within our national pricing and packaging structure. The new pricing and packaging we launched in September of last year produces a higher number of total products sold per connect, a gig attach rate that has nearly doubled, more mobile lines per customer connect, and a video sell-in rate that has improved substantially with lower customer churn from bundling. Despite lower selling opportunities given the macro backdrop, our yield on sales opportunities has steadily increased and various new offer expressions in our marketing mix are designed to find audience and drive more traffic to digital and traditional sales channels, saving customers money without sacrificing our revenue or cash flow potential at the household level. Our marketing efforts, combined with our improving products, promotional and retail pricing and customer service have resulted in significant improvement in consumer perception scores over the past year. Our service is backed by the investment in our 100% U.S.-based sales and service workforce, increasing tenure of those employees and quality for better pay, benefits and technology investment, coupled with our market-leading and industry-first customer commitment across our wireline and wireless services, which we back with service credits, including for outages, or if we can't be at your home or business the same day for service or at least next day for installation. For service visits, we're moving our internal standard to arrive at your doorstep within 2 hours of the service call, and we're now achieving that a large percentage of the time, all of which is helping to drive improved brand perception. In mobile, our broadband growth continues. And for the last 6 quarters, the majority of our line net adds have come from Unlimited Plus lines, which offer higher customer value and drive lower churn. We've also been selling more mobile lines per connect and additional lines to existing mobile households. Convergence reduces Internet churn and higher mobile lines per customer benefits churn further. Increasingly, the line between mobile and wireline connectivity is being blurred as our customers connect seamlessly between the 2 networks. Over the last 12 months, our total connectivity revenue grew by about 4%, and 21% of our Internet customers are now converged, meaning they buy both our mobile and Internet products. The profitability of our converged customers continues to grow. And we don't treat mobile as a separate product, but if we did, Slide 7 shows our fully loaded mobile service margin, excluding acquisition, and that's without the significant churn benefit to Internet. Mobile's financial contribution continues to grow with our scale and a 20% reduction in our reliance on macro cell towers over the past 3 years. We are growing offload to faster networks driven by the development of our Spectrum Mobile network with seamless authentication to nearly 50 million small cell towers through our advanced WiFi, CBRS deployment and partner cable networks. With 88% of Spectrum mobile device traffic now on our own network, the cable operators deliver more facilities-based traffic than the traditional mobile carriers. WiFi is essentially the backbone for all cellular traffic and 5G macro cell towers are really our backup radios with lower speed and higher latency. We continue to evolve our fiber-powered wireline network to deliver Internet service that offers more throughput, even less latency and greater reliability, all at a great value. Our network evolution initiative remains on track to deliver symmetrical and multi-gig speeds across our entire footprint with convergence everywhere we operate. In early 2026, we'll launch our Advanced WiFi Complete product, a tri-band advanced WiFi 7 router that integrates 5G cellular and battery backup to keep customers seamlessly and fully connected during the service disruption or a power outage. We've also announced new B2B partnerships that allow secure auto connection to the Spectrum Mobile network, starting with Amazon and Nexar, and we're exploring a wide range of B2B applications using the network assets highlighted on Slide 4, including lower cost and higher performance data transport, authentication services and other consumer-friendly uses of our capabilities. Our video product also continues to evolve and improve. Earlier this month, we announced the launch of our Spectrum App Store, a digital marketplace where Spectrum customers can discover, activate, manage and upgrade the apps included with their Spectrum TV video plans, and non-video customers can purchase DTC video apps a la carte. The store is accessible on My Spectrum App and on our website, spectrum.net. It's an important additional step in our effort to bring back utility and value to customers in the video ecosystem really for the benefit of our connectivity services. With the combination of over $125 of included video app value in our video product, unified search and discovery in Xumo and our digital marketplace, we're now more fully marketing our seamless entertainment packaging. Slide 9 shows our video customers are increasingly streaming customers through the award-winning Spectrum TV app and now included programmer streaming apps. Also earlier this month, we announced that we are partnering with Apple to record and distribute a selection of immersive live Lakers games starting in January. And that will go to Spectrum Internet and video customers in L.A., Nevada and Hawaii using the Spectrum SportsNet immersive app on the Apple Vision Pro. The same will be distributed nationally the next day throughout our footprint and on the NBA immersive app. Experience is amazing, and you can see how immersive content will apply across next-generation devices in the future. And keep in mind that these immersive video streams filmed in 16K require consistent throughput of 150 megabits per second to the home even when distributed in 8K for the Apple Vision Pro. Our fiber-powered bandwidth-rich network is ideally suited to deliver these kinds of immersive experiences, which require significant throughput and benefit from lower latency. So we continue to believe a high-quality video product with value and utility to customers and the development of these bandwidth-rich products can be yet another competitive advantage for our seamless connectivity products. Video also remains a significant driver of lower customer churn, and it can help drive acquisition, and the partnerships we're recreating with programmers and the leagues, great benefits for all of us as we, for example, address the problem of where's my game. Most of what I've discussed this morning really relates to our products and how they'll help drive customer demand and revenue growth. But we're also deploying new technologies, which will transform the quality and economics of our $8 billion annual cost to serve. For years, we've meaningfully improved the quality of our service while reducing service calls and truck rolls, often at a double-digit rate annually. We've reinvested those savings into frontline employee wages and benefits as well as technology and tools to enhance the quality of our service interactions with customers, both of which have meaningfully improved service employee tenure and career progression. Just a few of the currently deployed tools that we have include machine learning and AI for our network and in-home telemetry to identify and address service issues before they ever occur, even more so with the deployment of signal and power transponders, which will occur as part of our network evolution initiative. Another example is our unified front end for agents with real-time call transcription feeding our AI models for what we call next best action presentment to the agent based on hundreds of real-time and historical metrics. That front end also integrates our Spectrum GPT capabilities for the agent, which will move from current text to conversational prompting. Our AI-based customer sentiment measurement includes supervisor tools to flag real-time agent support and subsequent agent-specific training modules. Our service calls also now have AI call summarization presented on call transfers or subsequent calls and for field techs on job arrival. We're also integrating network telemetry and AI will prompt next best action and coaching for the field of maintenance techs as well. And you can imagine the upcoming positive effects of AI in areas like network monitoring, dispatch and workforce planning. These are just a few isolated examples, often seamless to our employees as it simply improves their job and it improves the service experience. At Charter, these tools are all supported by the same unified data set and tools development within our centralized operating model. All of that reflects where we are today and in the coming months. But just over the past few months, we've seen rapid investments in Agentic AI technology, such that we're focusing our efforts with a few key partners going into 2026 to integrate our existing capabilities into a more Agentic service. The recent advancements most relevant to us include short- and long-term memory, handling multiple customer issues and prioritization, multimodal and multichannel service, including our internal service channels, and over time, the customer's chosen interface. And the goal is, first, to have a better customer experience at every implementation and then to significantly lower operating costs with even higher tenured service employees, because the quality of the job is enhanced, all a virtuous cycle to lower service transactions and cost and improve customer satisfaction, churn and customer growth. The prospect for Agentic AI tools for our back-office employees and software developers has also rapidly increased, and those will be separate work streams within the company. The benefit is still probably 12 to 18 months away, but we believe the impact can be real and material, and we'll plan on updating progress on future calls. So the current operating environment is driving us every day to perform better, and we are, whether it's continued improvement in our network and product capabilities, adapting our marketing strategy to find audience and drive traffic in a temporarily challenging macro and competitive environment, or improving execution of our customer service commitments through all the efforts I mentioned. We're becoming a better operator every day, and consumers are noticing as evidenced by our improving brand perception. All of that effort is in support of our core strategy of offering the best products, including seamless connectivity and seamless entertainment, the most value with unmatched service. And ultimately, those efforts and our differentiated network will drive perpetuity free cash flow growth, which remains our focus for shareholder value creation. Now I'll pass it over to Jessica. Jessica Fischer: Thanks, Chris. Let's please turn to our customer results on Slide 11. Including residential and small business, we lost 109,000 Internet customers in the third quarter, in line with last year's results, but lower when adjusted to remove last year's impact from ACP-related disconnects. In mobile, we added 493,000 lines with higher gross additions year-over-year, offset by disconnects on a larger base. Video customers declined by 70,000 versus a loss of 294,000 in 3Q of '24, with the improvement primarily driven by better connects year-over-year resulting from the new pricing and packaging we launched last fall and the various product improvements that Chris covered, and lower churn year-over-year, driven in part by our programmer app inclusion packaging. Wireline voice customers declined by 200,000. In rural, we continue to see accelerating customer relationship growth. We generated 52,000 net customer additions in our subsidized rural footprint in the quarter. And in the third quarter, we grew our subsidized rural passings by 124,000 and by over 453,000 over the last 12 months. We continue to expect subsidized rural passings growth of approximately 450,000 in 2025, in addition to continued nonrural construction and fill-in activity. The BEAD bidding process is largely complete. We bid in 20 different states and were awarded subsidies associated with approximately 84,000 passings. In total, we expect to spend approximately $230 million of our own capital net of subsidies to build out those passings over the next several years. Moving to third quarter revenue results on Slide 12. Over the last year, residential customers declined by 2.1%. And while residential revenue per customer relationship grew by 1% year-over-year, given promotional rate step-ups, rate adjustments and the growth of Spectrum Mobile lines, those factors were partly offset by a higher mix of non-video customers, growth of low-priced video packages within our base and $106 million of costs allocated to programmer streaming apps and netted within video revenue versus $25 million in the prior year period. That allocation should grow over time as more customers authenticate into our streaming application offers, but is neutral to EBITDA. As Slide 12 shows, in total, residential revenue declined by 1.1% and by 0.4% when excluding costs allocated to streaming apps and netted within video revenue in both periods. Turning to commercial revenue. Total commercial revenue grew by 0.9% year-over-year, with mid-market and large business revenue growth of 3.6%, and when excluding all wholesale revenue, mid-market and large business revenue grew by 4%. Small business revenue declined by 0.9%, reflecting a decline in small business customers with revenue per customer remaining essentially flat year-over-year. Third quarter advertising revenue declined by 21%, including the impact of less political. Excluding political, advertising revenue decreased by 0.5%, with national and local advertising market challenges, partly offset by our higher advanced advertising and better inventory selling capabilities. Other revenue grew by 10.7%, primarily driven by higher mobile device sales. In total, consolidated third quarter revenue was down 0.9% year-over-year and grew 0.4% when excluding advertising revenue and costs allocated to streaming apps and netted within video revenue in both periods. Moving to operating expenses and adjusted EBITDA on Slide 13. In the third quarter, total operating expenses decreased by 0.5% year-over-year. Programming costs declined by 6.5% due to a 3.5% decline in video customers year-over-year, a higher mix of lighter video packages and $106 million of costs allocated to programmer streaming apps and netted within video revenue, partly offset by higher programming rates. Other cost of revenue increased by 4.6%, primarily driven by higher mobile service direct costs and mobile device sales, partly offset by lower franchise and regulatory fees and lower advertising sales costs given lower political activity. Cost to service customers, which combines field and technology operations and customer operations, decreased 0.7% year-over-year, primarily due to lower bad debt expense and labor costs, partly offset by higher network utility costs. Excluding bad debt, cost to service customers was essentially flat year-over-year. Marketing and residential sales expense grew by 5.4% due to some higher marketing spend with dramatically higher impressions at lower cost and continued channel mix shift from lower-cost channels like in-house call centers to digital and affiliates. Finally, other expense increased by 0.7%. Adjusted EBITDA declined by 1.5% year-over-year in the quarter and was essentially flat when excluding advertising. We expect 2025 full year EBITDA growth to be flat or marginally positive year-over-year with higher underlying growth absent the impact of political advertising. And EBITDA growth in the fourth quarter will be pressured by at least as much as it was in the third quarter, given last year's political advertising strength and the same macro pressures we saw in the third quarter. Turning to net income. We generated $1.1 billion of net income attributable to Charter shareholders in the third quarter compared to $1.3 billion last year, given this quarter's lower adjusted EBITDA and higher other operating expenses, driven by merger and acquisition costs related to the pending Cox transaction and severance costs. Turning to Slide 14. Capital expenditures totaled a bit less than $3.1 billion in the third quarter, nearly $500 million higher than last year's third quarter due to CPE spend timing and higher network evolution spend. We continue to expect total 2025 capital expenditures to reach approximately $11.5 billion, lower than our original outlook of $12 billion, primarily as a result of some network evolution capital pushed into 2026. Despite that push, our goal is to ensure that 2025 is the peak capital year, even if by a small margin. And aside from the network evolution timing variance, our previous commentary on capital outlook on a stand-alone basis remains the same. Further, even including the impact of the Cox transaction and associated integration capital, we expect total combined company capital expenditures to decline in the first full calendar year post close. All of those statements are inclusive of the BEAD spending I mentioned earlier. Turning to free cash flow on Slide 15. Third quarter free cash flow totaled $1.6 billion, in line with prior year, given higher CapEx offset by lower cash taxes and a more favorable change in cable working capital tied to CPE spend, some of which will reverse in 4Q. And we expect full year change in cable working capital to be modestly positive. Turning to quarterly and full year 2025 cash taxes. Third quarter cash taxes totaled $53 million, and we expect full year cash tax payments to total approximately $1 billion. We finished the third quarter with $95 billion in debt principal. Our weighted average cost of debt remains at an attractive 5.2%, and our current run rate annualized cash interest is $4.9 billion. During the quarter, we repurchased 7.6 million Charter shares and Charter Holdings common units, totaling $2.2 billion at an average price of $292 per share. As of the end of the third quarter, our ratio of net debt to last 12-month adjusted EBITDA increased sequentially to 4.15x and stood at 4.23x pro forma for the pending Liberty Broadband transaction. As I've noted before, during the pendency of the Cox deal, we plan to be at or slightly under 4.25x leverage pro forma for the Liberty transaction. Post close, however, we will move our long-term target leverage to 3.5x to 4.0x, and we would expect to delever to the middle of that range within 2 to 3 years following close. Before moving to Q&A, I wanted to remind everyone that as our capital spending peaks this year and as we begin to benefit from President Trump's new tax legislation, we are poised for rapid free cash flow and free cash flow per share growth over the next several years. Slide 16 lays that phenomenon out very clearly. And with the additional upside potential from future EBITDA growth, a declining stand-alone share count and the powerful economic and strategic benefits of our Cox transaction, the pro forma entity will generate higher free cash flow per share in spite of delevering, which will reduce our cost of capital. And as Chris mentioned, sustainable free cash flow is our key focus metric for delivering shareholder value. With that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Our first question will come from Craig Moffett with Moffett Nathanson. Craig Moffett: Chris, I wonder if you could just sort of help us think about where broadband is getting better, so that we can sort of get our minds around your arguments that things are going to improve on the broadband side. Is it in areas where you've completed your high splits? Can you share some data that suggests that your market share or market retention is improving? You talked about voluntary versus involuntary churn last quarter and your voluntary churn metrics being best ever. I wonder if you could just sort of help us sort of frame why we should be optimistic about improving results. Christopher Winfrey: Sure. Look, just to tackle both of those quickly, and then I think it's probably best to give a more global look. The high split is going well, but we're not actively marketing the capabilities until we get further down the road from a national perspective just to make sure that we're on track there. So there's really nothing to report there. Where churn is definitely better is to the extent that we have a mobile relationship and to the extent we have more lines per mobile relationship, the impact is significant on the churn impact. And then in addition to that -- which has always been the case in cable to the extent you have a video relationship attached to that. But now what we're seeing is the additional activation of these direct-to-consumer apps, which are included as part of the offer to the extent and when that occurs and it's meaningful, then the churn benefit is pretty significant. So no big secret that bundling different products together, saving customers' money, having them have a unified service with seamless connectivity and seamless entertainment really does that from a churn perspective. The challenge that we're facing right now isn't so much on the churn side, although I think there's real opportunity where that will just continue to get better. The challenge we have is the operating environment remains competitive with new competitors and the macro environment that hasn't gotten better. And I'll start from the top of the funnel. So we have a really muted housing environment. There's slow household formation and low move rates. We have continued mobile substitution growth. And then you layer on top of that, so you have these kind of macro trends, you layer on top of that, competitively, there's more footprint expansion from cellphone Internet, particularly from AT&T, that's no secret. Some others have varying results on the residential fixed wireless access or cellphone Internet, but AT&T is new to the space with expanding coverage. And then you take a look at our overlap with 1 gigabit or higher competition. It's grown. The pace of that growth hasn't changed in our fiber overlap areas. And our penetration in mature fiber overlap areas remains well above the competition. But it's new competition in multiple fronts. And in any market, when you have new competition, whether it's fiber or cellphone Internet, there's going to be a short-term impact on us. And that's where we're seeing it right now is at the gross add level. We are seeing that in Q1 and Q2, our gross adds were actually higher year-over-year. Q3, it was lower year-over-year. The impact there was most pronounced in the low-income segment. That's not an excuse. I'm not sure if somebody is targeting it or not, but it was pretty notable for us, and that's still very much an important segment for us as well. And so we're trying to pay attention to that. So it's really coming down to, at this stage, competition for a limited number of gross adds that exist in the marketplace because of some of the macro trends. But having said all that, if you think about -- Craig, you and I have spoken about it before, if you look at a bucket of gross adds and a bucket of disconnects, the difference between net loss and net adds is a sliver of gross adds or it's a sliver of disconnects. And in this case, I think over time, when you think about the forward outlook, whether it's household formation, whether it's mobile substitution steadying out, whether it's low move rates, whether it's cellphone Internet getting to its final state of footprint, which is coming, or the slowdown or cessation of new fiber overbuild, all those things, I think, will happen. It's just unclear -- it's very difficult to predict, frankly, the timing of each one of those. But I don't think it takes all of them. So it takes a couple of those, one or a couple of those and you have an outsized impact on our ability to grow. In the meantime, we're not standing still. You can hear it. There's a determination on our side and marketing offer expressions, better use of mobile and video. But I think through our own efforts, both short term and long term, as well as a couple of those external and macro variables changing, it would make all the difference, and we'll grow Internet customers again. I think in the meantime, when we take a look, is there a silver lining? The silver lining is that this environment is -- it is pushing us to be a better operator. And I think when we come out the back end with macro or competitive slowdown, which will occur, we'll end up being a better operator with a better brand perception and probably a better cost structure along the way as well. Operator: Your next question will come from Ben Swinburne with Morgan Stanley. Benjamin Swinburne: Can you hear me okay? Operator: Yes. Benjamin Swinburne: Great. Great. Two questions. Jessica, I think back in September, you had suggested that the fourth quarter EBITDA decline would be maybe less significant than the third quarter. You can correct me if I got that wrong. It sounds like you're signaling that it will be bigger in Q4 than Q3. I'm just wondering if you could talk a little bit about what's changed in the business and if the layoffs are having a positive or negative, maybe there's a charge in there, impact in the fourth quarter. And then, Chris, I hesitate to ask you about your competition since it's not you, it's them. But this has been an interesting week. Comcast announced that they're not planning a rate increase, normal course on broadband. Verizon talked about the fact that they had leaned too much on price increases. I know Charter has always been, going back to Tom's leadership, more cautious, I guess, for lack of a better term on pricing. But I'm just wondering, when you hear that, do you think it -- does it change your outlook? And do you have to think differently about your ability to grow broadband revenues, convergence revenues, just given what you're hearing from 2 of the companies, one of which is a major competitor in the marketplace? Jessica Fischer: Got it. So Ben, on the EBITDA side, as we often do, we explored some new offers inside of the third quarter. And a few of those offers impacted ARPU a bit more than we had anticipated without driving the additional sales that we expected. We're pulling them from the market as of the beginning of November, but they're putting a bit of pressure on our ARPU growth in 4Q, which, combined with some sales channel mix pressure in marketing and resi sales, will put us in that place where you did hear it correctly that I think they were a little more pressured in Q4 than we had anticipated that we would be when I spoke about it a few months ago. Christopher Winfrey: And then Ben, on rate increase. Look, I'd take a step back. Clearly, we've seen, to your point, everything that's been said in the past week or so. But our ARPU today and our promotional pricing and retail pricing, when you take a look at the Spectrum pricing and packaging that we rolled out last year, our ARPU and our pricing is low today versus our peers and competitors. And because of that, we've always had, as you pointed out, probably a little more headroom than others. And given this macro environment, we're not in a position to not pass through cost increases as they occur. That's particularly the case with video. And I wish that were different, but that's the economic reality, and I think you should expect us to do that. And because of discipline in the past, we're probably in a different spot. I would also say, remember that based on -- because of the Spectrum pricing and packaging that we rolled out last year and other migrations that we've done before, because of the transaction activity over the past year, we've successfully migrated much of our base to Spectrum pricing and packaging. And you haven't seen, in our results, other than that this separate offer that Jessica mentioned, you haven't seen a big ARPU impact of that migration to lower promotional and lower retail pricing over the past year, because we've managed it through putting more value into the package, and that's the case. And so that migration at a product level and ARPU has been invisible externally. That migration has occurred not just through acquisition, but as customers see these offers in the marketplace, there's a proactive migration that they initiate that also occurs through retention and through loyalty offers that we've migrated a big portion of our existing base over as well as reactive migration, as I mentioned inside of retention. And so we've been able to manage ARPU in a way that continues to create value for customers. So lowering their overall product price, but keeping the household contribution the same, particularly at a margin level. So to wrap it up, I think we're in a slightly different situation. And I don't think that that's where we're at today because of what we've done over the past couple of years. Operator: Your next question will come from Vikash Harlalka with New Street Research. Vikash Harlalka: Can you hear me okay? Christopher Winfrey: Yes. Vikash Harlalka: So Chris, it seems like there's a theme at play here where you flipped the script on how you've marketed your products historically. So at your video event earlier this month, you talked about potentially marketing video to customers where they pay for streaming services and get linear video for free. Similarly, there was a promotion recently where customers receive broadband for nearly free when they buy 4 lines of mobile. Is this the next sort of step in the evolution in the marketing chain? Christopher Winfrey: Yes. I think these are just different marketing offer expressions to get to higher ARPU and higher margin per household, at the same time saving customers lots of money. So trying to create win-win scenarios. Our national pricing and packaging hasn't changed, and I think that's the vast majority of how we go to market. The video expression really is just the way we talk about it. So if you think about it for -- I'm going to make this up, but an audience over 35 years old, for an audience over 35 years old, it may resonate that here's your video package, it's around $100 and you get over $125 of apps included for free. But for an audience that's younger that may not be that interested at all in linear video, the expression, how about I give you $125-plus of app value for $100? And oh, by the way, your linear video is included. Well, that's the exact same product. So there's no change in economics there for us. But depending on the audience, either way, we're saving them lots of money. And it's valuable to them. It's just expressed in a different way. And then you overlay Xumo and the ability to have unified search and discovery. And it's an interesting and compelling way to use video to drive our connectivity services. The 4-line offer, one, I would start by saying, it's a relatively small audience that's willing to convert over 4 lines in one single fell swoop. But it is a good way to express value to consumers by saying, if you take 4 lines, we'll give you Internet for free. And when you do the math and think about the economics here, I'm sure Jessica can chime in, but the vast majority of these customers take speed upgrades. They're taking Unlimited Plus. Our ARPU at sell-in over time and our margin over time is higher than any other traditional sale. And so you can move dollars around. That's the benefit of having multiple products to sell and creating offer expressions that create a really winning situation for different pockets of audience in the marketplace, and you don't have to sacrifice revenue or margin from a company perspective in order to achieve that. Again, that's a twist and offer expression for a relatively small audience. So you're not going to see a lot of volume there. But to the extent it exists, it's incremental to what you would have gotten otherwise, and it's accretive relative to the average acquisition. Jessica Fischer: And particularly, too, because those customers with 4 lines of mobile and an Internet line don't -- their churn rates are very low. And so you can end up with very high customer lifetime values, particularly given the combination of the 4 lines and the upgraded services that people take. Christopher Winfrey: Yes. Even with -- you're totally right. But even without that, it's a slam dunk, as that makes it -- what Jessica said is true. If we get 4 lines and a free Internet with -- upgraded for an extra $10 or $20 to 500 megs or to 1 gig, plus some Unlimited Plus lines, the value in that package, it's high for both. It's higher than the customer can get anywhere else in the marketplace, and it's higher for us than... Jessica Fischer: High value asset. Christopher Winfrey: Yes. And because of that, the relationship sticks, has low churn, and has high customer lifetime value for both. Operator: Your next question will come from Jessica Reif Ehrlich with Bank of America. Jessica Reif Cohen: I guess 3 different things. One, can you just give us an update on more color on Cox acquisition, how you're preparing for it? And any -- just timing as well. And then on the video product, you've had such dramatic improvement pretty quickly since you started marketing it in October. Can you give us any detail or color on that in terms of conversion of broker bids only subs, what you're seeing in terms of retention? How many subs are really engaging with us? I mean, obviously, it's working. Christopher Winfrey: Yes. So on Cox, there's no real new news there. From a time line perspective, everything we've said in the past remains the same. I don't want to step on my own feet here and say it differently, but I think it was mid next year is what we had said. And so that's still the case. Our focus right now from a Cox perspective is a fewfold. But first and foremost is to work with the regulators at the federal and state level, make sure that we're in a position to answer all their questions properly, make sure they understand the value that exists here for customers, in particular, because we have lower pricing and the ability to bring these type of mobile offers and video at scale, and to save them money across really the entire suite of products as well as for employees and the communities we serve, including adopting some of the great things that Cox does inside of their local communities and create a benefit for not just the Cox footprint, but also inside our existing footprint as well. So that's the biggest focus, but also clearly, as we try to make sure we're preparing ourselves to, as quickly as possible post closing, to put ourselves in a position to launch the Spectrum brand in Cox Markets, to launch our pricing and packaging, to put Xumo in place for video acquisition, and to apply our seamless entertainment and seamless connectivity products. There's a lot of work in preparation for us to do that. We can't do anything in the meantime until we close, but we can do a lot of thinking, we can do a lot of preparation and trying to get ready for that. And so the team is busy on that front as well. On video, it's going to sound like Apple pie, but our sales are up, churn is down on video relative to prior periods. And the activation of the apps has really accelerated. It had been growing pretty steadily, but that was absent us really doing anything to advertise or drive it, because we wanted to make sure that the service experience for activation was there in a unified way, that upgrades could work the way that it should with the incremental cost to the customer. And so it had gotten pretty significant. And then when clearly, we had the launch of the new ESPN app, FOX One, as well as Hulu now included for free. And then just in the past few weeks, the launch of the Spectrum app and digital marketplace, there was an accelerated pickup even in the recent weeks. The benefit from that is what we can clearly see now is when you segment customers based on their tenure with the company, the number of activations of these direct-to-consumer apps that they have, whether that customer is 0 to 6 months tenure, 6 to 12, 12 to 24, 24 and beyond, in each of that A/B testing of whether they activated the apps or not, and how many apps did they activate, the churn reduction is significant. There's clearly a lot of self-fulfilling prophecy that's inside there. Those that activate tend to like us more, I would argue. But it's pretty compelling. And so we're excited about what we're seeing on that front. It's been a lot of work. It's not perfect yet. So when you think about the different ways that customers activate, each one of those programmers genuinely has a different activation path and flow that we need to follow. So we still think we can work on that with things like behind the modem, automatic authentication and still get password and credentials to the programmers the way that they want. So there's still things that we can do to make it even better. We're not done, but pretty pleased with where it's at. And I said it in the prepared remarks, I just want to be clear, our goal here, it isn't to have positive video ads, and it's not -- unfortunately, it's not to save the video ecosystem, because it's pretty challenged. But our goal is to make sure that we have a unique and differentiated product that we can put in front of our connectivity customers in a way that generates new ways to market and acquire customers and has retained value and it has value and utility for them. And to the extent a broadband customer wants that and values that, we're going to attach that to the relationship. And if they don't, we won't. And we'll just rely on the retained value of Internet and mobile convergence on that front. So it's going well, but it's still very early days. And the amount of pickup on these inclusion offers is significant. It's great for the programmers, because once that happens, they will have, relative to stand-alone selling of these retail products, they're going to have much lower churn. There's obviously an operating cost to wholesale relationship. It's great economics that exist inside the traditional linear system. And then they have the upgrade potential of these apps to an ad-free version, and we'll keep innovating in different ways. Wherever the customer wants to go, that's where we're going to try to meet them together with what I think is a very, very different relationship that we have now with the programmers and even the leagues understanding that the importance of doing from packaging and from utility inside Xumo with the ability to have unified search and discovery across all these apps and really solve what I call where is the game problem. Jessica Fischer: The one thing that I would add to that, while it's not sort of the focus of investing in the video product, there has been significant financial pressure on video margin with the loss of customers that we've seen over the last several years, and bringing stability to that space, even if it's not that you fully stop it from shrinking, if we can bring the pace of that down, that really allows us to be in a better place to highlight the growth that we see across other areas of the business and to drive financial growth of the company as a whole by having more stability in video. Christopher Winfrey: Yes. So it's actually an important derivative growth lever. Operator: Your next question will come from Michael Rollins with Citi. Michael Rollins: Two topics, if I could. So first, through all the recent efforts to improve efficiency at a lower cost, can you size the future opportunity for savings, including if you have any step function opportunities to take cost out, whether it's migrating customers to IP video off the linear infrastructure, or the automation tools that you're bringing to your customers and employees? And then secondly, and I guess, forgive the expression, but are there any nonlinear ways to expand Charter's addressable market for revenue to introduce new ways to monetize the customer relationship for both the consumer and business segments? Christopher Winfrey: Look, great questions actually and something both of which we're thinking a lot about. The size of the cost opportunity, I mentioned it in the remarks today. We've been getting, depending on the year, but if you look at a multiyear period, a reduction in cost to serve per customer relationship through quality transactions, which actually came about by investing more. So we invested more in our employees and our systems and tools in order to drive down service transactions and have lower churn. And all of that ultimately reduced our cost to serve over time per customer despite the higher investments. And more recently, in the past, I'd say, 2 years, making those tools better, the investments that we've had there has been driven by machine learning and which has migrated into AI-type investments. The backbone of all of that is a unified data and software development structure that we have here at Charter, which may or may not be unique, but it allows us to put these separate AI tools because they're really functioning off the same data spine and development infrastructure. It actually sets us up very well for Agentic AI. And I'll be honest, just a few months ago, I kind of rolled my eyes. But when you take a look at the things that I mentioned that have really changed, at least from our perspective, what we've been able to see, whether it's short- and long-term memory, multimodal, the ability for our agent to potentially -- meaning an Agentic AI agent able to interact with the customer's agent over time. There's a real opportunity here for doing, first and foremost, the improvement of quality of customer service based on the knowledge of the significant number of transactions we do every year. There's not millions of different ways to do that transaction in best ways. There's usually one. So the opportunity to meet the customer where they want to be in a digital transaction is big. I mentioned inside the prepared remarks, just the size of the cost of service for us is $8 billion. A lot of that's physical, but a lot of it's different areas of the business. And what that will do, as we make those investments, it actually -- first is, can you improve the customer service quality? Second is, can you improve the quality of the job for an agent. And when you do those things, you make it better for the customer, but the agent is more satisfied, too, which means that you have a happier employee who develops more tenure with the company, which is actually better for the customer. You get this virtuous cycle, which end up at the back end, you can dramatically lower your cost in environments that have naturally higher attrition to begin with. And so I think the size of that -- the total of it today, you can see it in our P&L is $8 billion. And so I think there's -- without giving -- we don't know yet the exact size, but I think it could be significant, and we're leaning into that pretty heavily. The nonlinear ways of growing revenue and developing new products. For the past few quarters, we've included a slide, I don't know if it's Slide 4, we can take a look, but whether that's right or not. There's a slide in there that shows the extent of our assets. And part of that slide is meant to demonstrate that we have facilities and we have connectivity capabilities that I think are genuinely of interest to a much broader array of B2B partners and could also create additional, even residential products for us over time. But I mentioned we have recently signed up with Amazon to do data offloading, saves them money, has better connectivity. We've done the same thing with Nexar, which you'll find in different car rideshare services as video cameras for offload. But you could think about what could we bring to the EV community in terms of offload and the amount of bandwidth that comes into a garage every single night, and save those providers' money, which actually ends up saving customers' money. You could think about our location-based services behind the modem or with our seamless connectivity abroad in terms of financial transactions and managing cybersecurity risk in a low latency environment in ways that you could monetize that, that facilitates transactions for a B2B provider, but also makes the network safer for financial fraud for our end user customers in a way that could be relatively unique. And then you move on and you'll see, on that page, there's 1,000 hubs and localized data centers. These are not hyperscaler data centers. They're generally much smaller. They have a little bit less -- a lot less power. And we're exploring different use cases for what you could do there with respect to edge CDN. Could AI inferencing be there? I think there's a huge set of assets that exist in our footprint that are untapped as it relates to new B2B and B2C products. There's nothing here that I can sit here and tell you is material today. But we're pretty active in talking to different people across the country and in fact, globally about different ways that we can make better use of these assets to bring value to consumers and to bring new revenue streams to us. So in some sense, that's the history of cable. If you step back, broadband was never a product. Voice over IP telephony was never a product. Mobile was never a product. And it all came on the backbone of these assets that we have in providing connectivity services. And while I still firmly believe we're going to grow Internet again for all the reasons that I talked to Craig about earlier, it doesn't mean that this isn't a good opportunity to go take a look and say, what's the next wave. It's always happened. Stefan Anninger: Thanks, Michael. Leila, we'll take our last question, please. Operator: Your last question will come from Peter Supino with Wolfe Research. Peter Supino: A financial question. I think you all have done a great job of covering a lot of the operational topics today. Historically, Charter has structured its debt really intelligently so that the maturities are fairly evenly laddered and the rates are fairly fixed. With rates higher today and with growth coming in below where I'm sure all of us expected a few years ago, I wonder what it would take to make it interesting for Charter to start paying down debt maturities over the next few years. Understanding that it is your conviction that cable broadband will grow again. I think we're all wondering what we do if it doesn't. Jessica Fischer: Yes. So Peter, we reevaluate our target leverage ratio all the time in spite of the fact that we don't change it very often. And we do that in the context of all of the things you're talking about, whether that's interest rates or growth prospects for the business, sort of how we see the long-term trajectory of the business. And right now, I would say how we see the long-term trajectory of cash flow. And given what we see across the business today and what we think that we will be able to do as we bring together our business and the Cox business and reap substantial benefits out of that transaction, I think we're comfortable with the stand-alone business where it is today at just under 4.25x when you pro forma in the Liberty debt. And then over time, when we bring in the Cox assets, assuming that the transaction closes, that on its own sort of moving the leverage ratio down a bit and then targeting at the midpoint of a 3.5x to 4.0x range over time. What that means is that we will do sort of somewhat less borrowing. I mean, I'm sure that you can see we have pretty limited towers over the next couple of years. And on top of that to be in a place where we would be planning to reduce the leverage ratio. The total amount of borrowing that we do does sort of naturally self-limit in that period. But I think it strikes a nice balance between being able to continue to return capital to shareholders, which I think is an important part of our business, keeping leverage on the business at a time when there is dramatic free cash flow growth that's coming in a way that I think will provide significant value to shareholders and managing risk in a way that's appropriate. I mean we still, in the stand-alone business and then even more so in the combined business, generate a substantial amount of cash flow so that if we did need to delever at some point in the future, from a risk perspective, I think we're more than capable of doing so. So I continue to be happy with where we sit in the guidance that we've given today. But it doesn't mean that we won't continue to evaluate. We will. We always have. And if it's prudent for us to make a move, we will. Christopher Winfrey: I think I'm just going to add to that, and it's probably a great way to end the call today. The free cash flow that we've talked about, it's mechanical. It's because of the massive step down in capital expenditure, it's mechanical, and it happens whether or not there's some or high EBITDA growth rate. So it's happening either way. And I think everybody knows we typically -- because we want to make sure that we can make the right capital allocation decisions dynamically to create value for shareholders, we typically don't give a lot of financial outlook. But to the extent we do, we understand the importance of hitting it. And that includes CapEx, that includes a commitment to EBITDA growth and free cash flow and particularly free cash flow. And so that means that you can delever fast if you needed to or wanted to at any time. So kind of it's a very repetitive to what Jessica just said, but I felt like I wanted to add that in. Jessica Fischer: Yes. But it's probably important to say, look, we continue to have confidence in the business and in our ability to create the free cash flow growth that we've talked about for shareholders and in the ability in the medium and long term for the broadband asset to deliver the kind of connectivity that people will need to run the products that will come to the marketplace. And so with that confidence, I think we continue to be in a place where we believe that we can continue to create good value for shareholders going forward. Stefan Anninger: Leila, that ends our call. I'll turn it back to you. Operator: Thank you, everyone, for joining today. The call has concluded, and you may now disconnect.

199天前Insight Analytics约5分钟阅读

SAMG 2025 Q3 财报电话会议

Operator: Good morning, and welcome to the Silvercrest Asset Management Group Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that the event is being recorded. Before we begin, let me remind you that during today's call, certain statements made regarding our future performance are forward-looking statements. They are based on current expectations and projections, which are subject to a number of risks and uncertainties, and many factors could cause actual results to differ materially from the statements that are made. Those factors are disclosed in our filings with the SEC under the caption Risk Factors. For all such forward-looking statements, we claim the protections provided by the Litigation Reform Act of 1995. All forward-looking statements made on this call are made as of the date hereof, and Silvercrest assumes no obligation to update them. I would now like to turn the conference over to Rick Hough, Chairman and CEO of Silvercrest. Please go ahead. Richard Hough: Good morning, and welcome joining us for the third quarter 2025 earnings call. Our discretionary assets under management, AUM, which primarily drives the firm's top line revenue, increased $687 million during the third quarter, primarily due to the beneficial equity markets. Silvercrest added $46.4 million in organic new client accounts during the third quarter and has added $564 million in new client accounts through the third quarter of 2025. Despite overall negative flows during the quarter, closed accounts were immaterial and new client account flows remain on pace to register one of the stronger levels of organic new client flows over the past several years. Silvercrest has added approximately $2 billion in organic new client accounts year-over-year. and we are primarily focused on organic new client acquisition and discretionary AUM as a result of our previously announced and ongoing heavy investments in growing the business. Discretionary AUM now stands at $24.3 billion, which is a 3% sequential quarterly increase and an increase of 8% year-over-year. Assuming supportive markets and continued business development, we hope discretionary AUM will exceed all-time highs in the coming quarters. Total AUM at the end of the third quarter did hit a new high for the firm at $37.6 billion. Of that total, reported nondiscretionary AUM at quarter end comprised $13.3 billion. These nondiscretionary AUM are associated with only 4% of total revenue, mostly comprising fixed fee reporting and family office services. These assets have more than doubled over the past few years, which artificially lowers the apparent average basis points we receive for advising on AUM. To better relay the average basis points of our asset management and advisory businesses, we expect in 2026 to adjust how the firm reports nondiscretionary AUM. This will substantially lower that nondiscretionary AUM on a onetime basis without any revenue effect, providing a clear picture of the business. Barring short-term market volatility, the increase in AUM bodes well for future revenue as Silvercrest primarily bills quarterly in advance. As previously announced and emphasized, Silvercrest has embarked on significant strategic investments to promote growth opportunities. As it takes time for those investments, primarily in intellectual capital and headcount, -- to bear fruit, our earnings and adjusted EBITDA are substantially lower than the steady-state business and reflect our concerted effort to invest capital to support our long-term strategic priorities. Our strategic initiatives highlight Silvercrest in both the institutional and wealth market. The firm continues to invest in talent across the firm to drive new growth and successfully transition the business toward the next generation. Our new business pipeline remains robust, in particular with regards to our new global value equity strategy. Also, as previously discussed, Silvercrest will continue to adjust our interim compensation ratio to match important investments in the business as long as we have compelling opportunities to organically grow the firm and build our return on invested capital. With important initiatives for marketing in Europe, Oceania and Asia as well as in U.S.-based personnel, our compensation ratio will remain elevated for the foreseeable future. We previously announced a new buyback program of $25 million in May 2025. As of the end of the third quarter of 2025, we have repurchased approximately $16 million worth of shares. Our strong balance sheet supports ongoing capital returns, our substantial dividend as well as our growth initiatives. Silvercrest also previously received shareholder approval to increase the number of shares issuable under our equity incentive plan. We expect to begin rewarding shares to further motivate our professionals in the near future. We announced a dividend of $0.21 per share of Class A common stock, and that dividend will be paid around December 19 to stockholders of record. With that, I will turn things over to Scott Gerard to discuss our financials, and then we will take questions. Thank you. Scott Gerard: Thank you, Rick. As disclosed in our earnings release, for the third quarter, discretionary AUM as of September 30 of this year was $24.3 billion, and total AUM as of the same date was $37.6 billion. Revenue for the quarter was $31.3 million and reported consolidated net income for the quarter was $1.1 million. Looking at the third quarter, revenue for the quarter increased $0.9 million or 2.9% year-over-year. Expenses for the quarter increased year-over-year by $4 million or 15.4%, primarily driven by increased compensation and benefits expense and general and administrative expenses. Compensation and benefits expense for the quarter increased year-over-year by $3.1 million or 16.8%, primarily due to increases in salaries and benefits expense, primarily as a result of both merit-based increases and new hires and an increase in the accrual for bonuses, partially offset by a decrease in equity-based compensation. General and administrative expenses increased by $0.9 million or approximately 11.9%, primarily due to increases in professional fees, occupancy and related expenses and recruiting costs, partially offset by decreases in shareholder expenses and trade error expense. Reported net income attributable to Silvercrest or to Class A shareholders for the third quarter was approximately $0.6 million or $0.07 per basic and diluted Class A share. Adjusted EBITDA, which we define as EBITDA without giving effect to equity-based compensation expense and noncore and nonrecurring items, was approximately $4.5 million or 14.5% of revenue for the quarter. Adjusted net income, which we define as net income without giving effect to noncore and nonrecurring items and income tax expense, assuming a corporate rate of 26%, was approximately $2.4 million for the quarter or $0.19 per adjusted basic and diluted earnings per share. Adjusted EPS is equal to adjusted net income divided by the actual Class A and Class B shares outstanding as of the end of the reporting period for basic adjusted EPS. And to the extent dilutive, we add unvested restricted stock units and nonqualified stock options to the total shares outstanding to compute diluted adjusted EPS. Looking at year-to-date September 30 of this year, revenue increased year-over-year by $1.7 million or 1.8%, primarily driven by market appreciation and partially offset by net client outflows. Expenses for the 9 months ended September 30 of this year increased year-over-year by $7.1 million or 9.4%, primarily driven by increased compensation expense and general and administrative expenses. Compensation expense for the 9 months ended September 30 this year increased year-over-year by $4.6 million or 8.5%, primarily due to increases in salaries as a result of both new hires and merit-based increases in addition to an increase in the accrual for bonuses, partially offset by a decrease in equity-based compensation expense. General and administrative expenses increased by $2.5 million through the 9 months ended September 30 this year or approximately 11.7%, primarily due to increase in professional fees, occupancy and related expenses, portfolio and systems expense and travel and entertainment expenses, partially offset by a decrease in trade error expense. Reported net income attributable to Silvercrest or again, the Class A shareholders for the 9 months ended this year was approximately $5 million or $0.56 per basic Class A share and $0.55 per diluted Class A share. Adjusted EBITDA was approximately $16.8 million or 18% through the end of September of this year. Adjusted net income was approximately $9.6 million or $0.77 and $0.74 per adjusted basic and diluted EPS for the 9 months ended September 30 this year. Looking at the balance sheet, total assets were approximately $157.6 million as of September 30 of this year compared to $194.4 million as of the end of last year. Cash and cash equivalents were approximately $36.1 million as of September 30. This compared to $68.6 million at December 31 of last year. There were no borrowings as of September 30. Total Class A stockholders' equity was approximately $58.9 million at September 30. And during the third quarter, we repurchased approximately $4.6 million worth of Class A shares. That concludes my remarks. I'll now turn the call over for Q&A. Richard Hough: Thank you, Scott. We'll take questions at this time. Operator: [Operator Instructions] And our first question will come from Christopher Marinac of Janney Montgomery Scott. Christopher Marinac: Just want to talk a little bit about calibrating the timing of when the AUM and revenue kind of hit various points to get back to leveraging the expenses that you're having now. I understand the comment on the compensation that you mentioned in the remarks. And I just want to understand, do we think about this as maybe an 18-, 24-month time frame? Or is it any way to kind of give visibility on that? Richard Hough: Yes. So that's a great question. And obviously, we have multiple investments going on. So it depends on the time horizon for each one. Just very briefly, we have domestic expansion efforts. We are active in Asia/Australia. We are opening an Australian investment trust there. In order to get flows, we are working on our MiFID II with the Central Bank of Ireland in order to face Europe and actively market there, both to existing clients as well as to new institutional and family clients. And all of that also includes new marketing professionals, investment team here, et cetera. That is all on a short-term basis, kind of occurred, let's just call it over the past 1.5 years in its bulk. Our headcount has gone up by about 15 to 20 people, I think it's exactly 15 people, say, over the past year-over-year. So that's a lot of hires and quite recent, even though we've started hitting EBITDA and earnings for these investments prior to that. The bulk of it has been quite recent. So when you put it all together, yes, you're looking at a longer time horizon of 18 to 24 months. However, we are done primarily with the investments we made in institutional marketing as well as in our global value equity team. And I expect flows for that in a much shorter term than that. The pipeline is very large. And so I would look to that more like 6 months to 12 months, and we could see even some reasonable allocations in the fourth quarter or first quarter coming up here, which is -- which would obviously cover about 6 months. So all things being equal, that would start to creep into the profit side and start increasing the EBITDA and earnings on that basis alone. But there's still other investments to go. So the longer time horizon is probably more realistic. What I look forward to is really being able to report substantial progress that those investments will be making. The potential is very large. And I'm quite confident that it is going to pay off and that we will be able to report meaningful progress soon. Christopher Marinac: Great. And the progress clearly was also this quarter. So there was progress for sure in this last quarter. One related -- just goes back to kind of professional fees that you called out in the press release. Are any of those temporary? Or will you have new professional fees to kind of cover in future periods? Scott Gerard: Yes, Chris, in our -- some of them are temporary, especially related to some of our global initiatives. And in our earnings release and 10-Q, there is a reconciliation from GAAP numbers to non-GAAP, where we isolate those nonrecurring items and add it back. So you can get some sense from that disclosure what is temporary. Christopher Marinac: Okay. Great. And then, Rick, to the extent you can comment on this, as you look out a couple of years, do we get back to where the EBITDA margin was? Does the EBITDA margin get recast because it's now going to be a different company with a different broader focus? Richard Hough: Yes, you look out further and it gets back to where it was barring any other new investments. Of course, where it was before included ongoing investments that were just on a much smaller scale. And we have a lot of wood to chop. So I expect we'll be getting back to that over that time frame. It's really just more about organically building completely new things here. If I were to strip everything away that we have done over the past 1.5 years, 2 years, we would be at a really historic EBITDA and earnings level. Operator: Next question comes from Sandy Mehta of Evaluate Research. Sandy Mehta: The global strategy has a very strong performance over the last 5 years -- in 1, 3, 5 years. And you mentioned that you have a very large pipeline. There's interesting dynamics there. So the U.S. weighting is 73% of MSCI World. So that doesn't bode well for global strategies. But on the other hand, EAFE in emerging markets, international markets have outperformed the U.S. this year by 2x. So I think that bodes very well for Global. So can you just give us a little bit more color on what you're seeing from a marketing perspective, the pipeline and what clients are saying or consultants are saying, what do you see out there on Global? Richard Hough: Yes. Right. So 2 points. Number one is, while I have focused on the significant opportunities for the global value portfolio because of the size of the allocations it can receive and because it's new at the firm, that has colored my remarks. And that is also the strategy that received the large Australian superannuation fund seeding, not quite a year ago, about 9 months ago or so. And that is the performance you are referring to. And in fact, on a shorter time horizon since that investment, it has performed very, very well, which is really nice to be able to demonstrate to an investor and to other potential investors that this is a good strategy that they should be looking at given the trends that you noted. That strategy has freedom to change those balances and to move around against the benchmark as they seek relative value and outperformance in the portfolio. That said, we have other international equity strategies at the firm that focus entirely on investing outside the United States, whether that's in developed international markets or in emerging markets. Those markets have been hot. And I'm very pleased to report that those capabilities led by a different investment team here at the firm have done extremely well and also have interest from investors in a growing pipeline. The mandates don't tend to be quite as large there, and they're a little different, but that has potential as well. So you add that -- those 2 together in covering both the global international and emerging market space, and it looks quite favorable for the firm. In terms of what we are hearing or seeing our new centralized institutional marketing team and process has been highly engaged both with very significant sovereign pools of capital, and it includes other Australian superannuation trust. It includes pool capital for retail and other retirement assets. It includes interest in Europe, and it includes the globe's largest consulting firms. We rate extremely well, both on a performance basis for those strategies that I just went through as well as with regards to the compliance and high quality of the firm here and the institution that we've built. Silvercrest, despite being a fairly small asset management firm, also gets a lot of attention for its intellectual capital among those consultants I just shared with the firm yesterday that one of our update pieces from our investment policy team was one of the most read articles within the internal distribution of one of those large consultant firms, one of the globe's largest. The pipeline itself is not measurable the way we used to measure it. I think we've talked about this in prior earnings calls. We used to have very rigorous standards around what we would announce on a call for the pipeline. And that was we were in finals or semifinals presentations. It was -- we were invited to put in an RFP or -- and we expected some form of decision within a 6-month period. The consultant industry and the way that marketing works now has changed very substantially since 2020, which is to say COVID. It gradually changed during that period of time. It became harder and harder for us to measure. And so we just are not confident with giving very strong numbers the way we used to be. Instead, I have chosen to provide color. I will say that from my thinking, it is a very large pipeline. It is quite significant, especially in those international and global areas. for the firm, and I'm quite optimistic, as you heard in my answer to Christopher. If I can give harder numbers as we go along here and learn more about how it's working, I will do so. But unfortunately, I just don't have the same apples-to-apples or confidence in giving you the kind of numbers that I did before. As part of that effort, I should mention that we hired a professional who was one of the top institutional client representatives at a competitor firm, one of the larger asset managers in the United States. And globally, he has spent his career in Australia and in London, and his contacts have been extremely helpful to us as well. I hope that helps. I'm happy to follow up with anything else, Sandy. Sandy Mehta: Yes. Yes, yes. Sure. And you already talked about expenses, and you said that you hired 15 key hires. The new hires, is most of the hiring done at this point of the senior people that you were hiring? Is that pace of incremental hires? Is that going to slow down? Richard Hough: We've done most of it that for building out the new equity strategy as well as the institutional team and all of the support work that goes along with that, including trading, et cetera, marketing support analysis. However, as I mentioned earlier, to Christopher, we have multiple initiatives going on. So there will be new hires for Europe. There will be new hires in Asia. There will be some new hires in -- domestically on the wealth side. So we are not done. However, as this initiative grows and those -- the investments we have been made to date produce revenue, it won't be as noticeable in terms of hitting our earnings and EBITDA because we'll have cash flow to fund those things. Just as before we hit this very strong investment phase, we were hiring people and investing in the business all along and not hurting earnings or EBITDA when we did that previously. So -- you may -- depending how soon some of these big hits come along, it may not be as noticeable as it was as we continue to make those investments in the business. Just going back, say, several years pre-COVID and during that, we were investing in the next generation. I was hiring new portfolio managers here. We were investing across the business, and it was not affecting our EBITDA because we had such strong growth and cash flow. I expect that to accelerate and to happen as we move forward over time as the revenue starts coming in for these initiatives. Sandy Mehta: And where are you in terms of OCIO assets, currently? Richard Hough: OCIO is almost $2.2 billion and has a very strong pipeline. I usually don't talk about wins on the next quarter. I usually wait, but we just -- we just got a, I think, about a $70 million or so new foundation just joined us, I think, October 1 or 2. So it didn't quite make it in the numbers for this quarter. And I expect more from that team. The performance for the OCIO portfolio itself that gets uploaded and compared to our peers is very, very strong as well. I don't know if you see that, but they have outperformed quite nicely, which really helps us along with our differentiated service model. Sandy Mehta: And one last question from my side. Your share count has declined 11% year-over-year. You had the $16 million buyback. Do you disclose what price you bought the stock? Or can I ask you whether it's more at the $16.5 level or more at the $14.5 level? Richard Hough: Yes, we don't disclose it. I will say that it has been, from our thinking, a very, very favorable price. And I would -- also, I think in our last call, we pointed out that we did some pretty substantial block trades in the period just after we announced it. So if you looked at the price in June, you've got a good idea for a couple of those block trades. But we've been active in the market all along here. So you can assume that since the end of June through August and September that we were actively buying back stock. But no, we don't disclose the price. And I think we've got about -- on that point, about another $9 million, $8 million or $9 million to go, something in that range. Is that right, Scott? Scott Gerard: Yes, that's correct. Yes. Operator: [Operator Instructions] There are no further questions at this time. So that will conclude our question-and-answer session. I would like to turn the conference back over to Rick Hough for any closing remarks. Richard Hough: Right. Thank you very much for joining us for this third quarter of 2025 review. As you saw from my business update and the questions, thank you, Sandy and Christopher. This is a critical juncture for the company in terms of our investments. But hopefully, I convey that I expect those investments to pay off for this firm with some progress in the short term in getting back to more elevated levels of earnings and EBITDA as we move further along into 2027 and 2028. The efforts that we have taken to find really talented professionals to enhance our offerings and to grow the visibility of the firm, not just here in the United States, but in other markets with large pools of capital has been very important to us, and I think will have benefits into the future. Thank you again, and we look forward to discussing the fourth quarter and year-end. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

199天前Insight Analytics约5分钟阅读

BAFN 2025 Q3 财报电话会议

Operator: Good morning, ladies and gentlemen, and welcome to the BayFirst Financial Corp. Q3 2025 Conference Call and webcast. [Operator Instructions] This call is being recorded on Friday, October 31, 2025. I would now like to turn the conference over to CEO, Tom Zernick. Please go ahead. Thomas Zernick: Thank you, Joanna. Good morning, and thank you for joining our call today. Once again with me is Robin Oliver, our President and Chief Operating Officer; and Scott McKim, our Chief Financial Officer. Today's call will include forward-looking statements and non-GAAP financial measures. Please refer to our cautionary clause on forward-looking statements contained on Page 2 of the investor presentation. At the start of the year, management and the Board initiated a comprehensive strategic review of the bank's business model to chart a new path forward that holds true to our mission as a community bank. Today, we are reporting on the culmination of our work to derisk the balance sheet and position our community bank for long-term sustainable growth and enhanced shareholder value. For over a decade, the bank's SBA 7(a) business has provided revenue to help build our 12 branch network, which drives tremendous franchise value. At the same time, this line of business outgrew our community bank model and as reflected in this year's results, brought material risk that led to operating losses. In September, we reported BayFirst would exit SBA 7(a) lending and that we had signed a definitive agreement to sell a large portion of our SBA 7(a) portfolio to Banesco USA. Furthermore, the majority of our SBA 7(a) staff would be offered positions with Banesco USA's SBA lending team. I should note that we expect to close this transaction later in the quarter. However, the current federal government shutdown has generated some delays. While managing this transition, the BayFirst team continues to prioritize our community banking mission by delivering excellent service to our customers across the Tampa Bay and Sarasota markets. Our focus remains firmly on what matters most, being the premier community bank in Tampa Bay. That means building real relationships with local individuals, families and small businesses through reliable checking and savings accounts. These connections give us a solid, stable funding foundation while strengthening our footprint throughout Tampa Bay's dynamic market. And today, more than 84% of our deposits are insured. This relationship-driven strategy helps us to deliver sustainable growth while maintaining the disciplined risk management and operational efficiency central to our long-term value creation. Scott will elaborate on the restructuring charge and the accounting impacts related to the portfolio sale to Banesco USA, and Robin will discuss changes to our senior leadership, which align with the focus I have previously shared. But first, I want to emphasize that though profitability has not met expectations, we are building a stronger, more resilient organization. Once restructuring is complete, we expect to return to profitability with the goal of positive return on assets of 40 to 70 basis points in 2026 with continued improvement in later years. Additionally, we will continue resolving nonperforming loans and improving credit quality. With strong market opportunities and operational capabilities, we remain focused on executing our strategy and delivering long-term shareholder value. To that end, we have made some important but difficult decisions regarding staff levels, span of control and legacy costs related to our SBA 7(a) lending business and technology platform. I am confident our actions will allow us to create a stronger, more stable BayFirst. I also want to share some encouraging metrics, all of which will be sustainable as we move away from relying on gain on sale revenue, which has historically contributed to most of our earnings. We expect lower net charge-offs following the reduction of unguaranteed SBA 7(a) loans on the balance sheet. While our net interest margin dipped this quarter, the decrease was related to onetime items. We will be closer to the 4% target, which we mentioned previously, which is achieved through lower deposit costs and appropriately priced consumer and commercial loans originated across the Tampa Bay market. Now I will pass the microphone to Scott McKim, our CFO, to provide an overview of our financial performance. Scott McKim: Thank you, Tom. Good morning, everyone. We are reporting a net loss of $18.9 million in the third quarter. This compares to the net loss of $1.2 million reported in the second quarter. During the third quarter, we recorded a restructuring charge of $7.3 million plus the lower of cost or market adjustment on the loan portfolio being sold to the Banesco USA, an increase to our allowance for credit losses and a handful of other extraordinary items. The restructuring charge includes $2.9 million to write off assets and prepaid expenses related to the SBA 7(a) lending business. Also $3.9 million in personnel-specific costs, including the termination of the company's ESOP plan and about $0.5 million of conversion in deal costs. We previously reported that the portfolio sale was priced at 97%. The discount on the final portfolio is $5.1 million, including fair value adjustments, recognition of deferred costs and premium discounts and, of course, the 3% stated discount. This impact is seen in noninterest income for this quarter. I will also note that our allowance for credit losses was reduced by $800,000 in recognizing that these loans are being moved to held for sale. While it is not part of the restructuring charge, we also recorded and accrued $1.9 million of disallowed interest overpayments from the SBA during the quarter. Loans held for investment, therefore, did decrease by $127.1 million or 11.3% during the third quarter of 2025 to end at $998.7 million and decreased $43.8 million or 4.2% over the past year. During the quarter, $97 million of loans were transferred to held for sale and subsequently marked to the lower cost of market, as I noted a moment ago. Total deposit balances increased $7.7 million or 0.7% during the third quarter of 2025 and increased by $59.3 million or 5.3% over the past year to $1.17 billion. The increase in deposits during the quarter was primarily due to an increase in time deposits of $53 million and is partially offset by decreases in noninterest-bearing accounts of $3.8 million, interest-bearing transaction account balances of $27.9 million and savings and money market account balances of $13.7 million. Furthermore, as Tom mentioned, more than 84% of the bank's deposits were insured by FDIC on September 30, 2025. Shareholders' equity at quarter end was $89.7 million and is $12.6 million lower than the end of the second quarter -- or the third quarter of 2024. Net accumulated other comprehensive loss decreased by $300,000 during the quarter, ending at $2.1 million. Tangible book value decreased this quarter to $17.90 per share from $22.30 per share at the end of the second quarter. As Tom mentioned, our net interest margin was down 45 basis points to 3.61% in the third quarter. Net interest income was $11.3 million in the third quarter, down $1 million compared to the second quarter and up $9.4 million from the year ago quarter. During this quarter, the bank wrote off $400,000 of unamortized premiums related to 1 USDA guaranteed loan, which was liquidated during the quarter. Furthermore, $600,000 of interest was reversed for loans moved to nonaccrual status during the quarter. Outside of these onetime adjustments, net interest income would have been flat to the second quarter number. Noninterest income was a negative $1 million for the third quarter of 2025, which is a decrease from $10.8 million in the second quarter and a decrease from $11.7 million in the third quarter of 2024. The third quarter decrease is primarily from the decrease of gains on the sale of SBA 7(a) government-guaranteed loans. Notably, with the exit of the SBA 7(a) lending business, revenue from the gains on sale of government-guaranteed loans will no longer impact noninterest income as it has in prior periods. Tom alluded to this earlier. Noninterest expense was $25.2 million, an increase of $7.7 million compared to the second quarter. Nearly all of this increase is related to the $7.3 million, which is the restructuring charge that I spoke about a moment ago. Loan origination and collection expense was also $700,000 higher in the third quarter, and that was offset by lower salaries and benefits, including commissions and incentives. Provision for credit losses was $10.9 million in the third quarter compared to $7.3 million in the second quarter and $3.1 million in the year ago quarter. Net charge-offs, primarily from unguaranteed SBA 7(a) balances were $3.3 million, which was down $3.5 million compared to the second quarter. Excluding the $800,000 reduction in the ACL for the loans that was transferred to held for sale, the remaining increase in provision is primarily for retained unguaranteed SBA 7 balances. Annualized net charge-offs as a percentage of average loans held for investment at amortized costs were 1.24% in the third quarter. That was down from 2.6% in the second quarter and up just slightly from 1.16% in the third quarter of 2024. Nonperforming assets were 1.97% of total assets on September 30 compared to 1.79% at June 30, 2025, and 1.38% at September 30 last year. Nonperforming assets, excluding government-guaranteed loan balances were 1.21% of total assets as of September 30, 2025, compared to 1.12% as of June 30, 2025, and 0.88% on September 30, 2024. The ratio of allowance to credit losses to total loans held for investment at amortized cost was 2.61% at September 30, 2025. That compares to 1.65% as of June 30, 2025, and 1.7% on September 30 of last year. The ratio of ACL to total loans held for investment at amortized cost, excluding government-guaranteed loan balances was 2.78% September 30 of this year, 1.85% in June of this year and 1.70% in September 30 of last year. At this time, I will turn the call over to Robin to make some additional comments about staffing changes. Robin Oliver: Thank you, Scott. First, I'd like to comment a bit more on our efforts around asset quality. Throughout this year, we have worked to strengthen credit administration practices to ensure the timely identification of problem credits as well as ensuring those same problem credits are resolved as quickly as possible. Management has worked to tighten credit underwriting in all areas of the loan portfolio and in an effort to ensure all loans are properly risk rated and accounted for, management hired consultants and other third parties in the third quarter to assist in reviewing the portfolio to take an aggressive stance on recognizing all potential problem loans. This effort did increase our nonperforming and classified loans as well as our allowance for credit losses, as Scott reported. As we move forward into 2026, the goal will be the continual reduction of nonperforming and classified credits to bring these balances closer in line to peers. The overall wind down of the SBA loan portfolio, the potential sales of additional SBA unguaranteed balances and the continued aggressive workout of problem loans is expected to improve asset quality in the coming quarters without significant additional provision for credit losses being necessary. As Tom mentioned, I also want to touch on some leadership changes. First, Tom Qualley has served as the bank's Sarasota market leader for the past several years. Tom is a veteran banker with over 40 years of experience, and he will be retiring in December. Succeeding Tom is Samantha Hill. Sam, as she likes to be called, joined BayFirst over a year ago and brings a wealth of knowledge in the commercial and community banking space. Tom and Sam have been working together and will complete their transition plan over the coming weeks. I also want to announce that Adam Curtis, who has been serving as our Pinellas County market leader, has assumed the leadership role in Tampa as well. Adam has added the 2 Tampa branches to his team and will also take over as Chief Lending Officer upon Tom Qualley's retirement. Adam is well known throughout both markets and has a great team of branch managers and business bankers. Finally, I want to note that Brandi Jaber's title is now Chief Administrative Officer. Previously, Brandy was focused on loan production operations. And with our restructuring efforts, she will now manage a few operational areas and importantly, the Banesco USA transition project. Brandi's historical knowledge of our SBA 7(a) lending business makes her the perfect leader for this important project. And that concludes the comments I have, and I will turn it back to Tom for his final thoughts. Thomas Zernick: Thank you, Robin. Our Board of Directors and leadership team are committed to driving resilience and innovation as we position the company for long-term success and enhance shareholder value. We are confident that these efforts will better align the company and our bank with the demands of a dynamic banking landscape. We remain optimistic about the road ahead. Thank you. Robin Oliver: At this time, we'd like to turn it over for questions. Operator: [Operator Instructions] The first question comes from Ross Haberman at RLH Investments. Ross Haberman: I have 2 quick questions. You said you did not sell all of the SBA. How much did you hold back? How are you servicing them? And why don't you sell the whole thing? Thomas Zernick: Ross, I can answer that quickly for you. Our anticipation is, and I stress this is a forecast, is that on the end of December, so this would be post closing the transaction, the bank would still have about $167 million of unguaranteed SBA 7(a) loan balances. So we are still working on selling the remainder of that portfolio. The transaction that we announced previously, that was the amount of balances that Banesco USA wish to buy. And we continue to look for other parties to continue to try to market and sell that portfolio down. As far as servicing it, ultimately, Banesco will be operating as the servicer for all of the loans that are in our SBA portfolio for us. And at that point, really, it's -- the best part of that is that a good chunk of our people who have been servicing that portfolio on our behalf will move over. And so there really should be a good level of continuity between the 2. Ross Haberman: What -- refresh my memory, what kind of reserve or allowance did you sell the bulk of -- or cents on the dollar, did you sell the bulk of the SBAs for? And will you have to take a bigger reserve or allowance for this last $167 million? Thomas Zernick: The portfolio sale that we previously announced was at a 3% discount, so 97%. The increase in our allowance for credit loss that we are talking about today reflects an increase of really primarily related to the unguaranteed balances going forward. We're not anticipating adding additional ACL to the ACL for those remaining balances at the end of this year or in the future. Operator: [Operator Instructions] The next question comes from Julienne Cassarino at Sycamore Analytics. Julienne Cassarino: Yes, eventful quarter. You do what has to be done. So I applaud you on the definitive actions in the quarter. I was just wondering, are you still -- Tom, your background is in SBA loans. Are you still originating SBA loans, even though they're not this kind of 7(a) or there still -- is SBA still going to be a big part of the business model moving forward? Thomas Zernick: Yes. We are -- first of all, I'm certainly a commercial banker. I do have a lot of expertise in SBA, but we are actually exiting SBA. We will continue to originate up until our close with Banesco USA. Beyond the closing date, we will be a true community bank. And we will make Tampa Bay-based commercial C&I loans. We will continue to focus on some consumer lending, residential mortgage lending, all in Tampa Bay. And we will continue to offer a great deposit suite. We've enhanced our treasury management services significantly, and we'll continue to do all the right things as a real community bank now. Julienne Cassarino: Okay. So SBA really is a complete exit. And can you talk about the treasury management product? You mentioned it started in February, I believe, of this year. So it really seems to have gained traction. Can you just describe the products or products and if you have any off-balance sheet deposits? Robin Oliver: This is Robin, Julienne. We have always had treasury in our portfolio. But what we've tried to really do is beef up the software and the services that we have to make sure we are competitive in the marketplace. So for example, towards the end of last year, we added lockbox services, which we did not have before, which if we're going to serve health care industry or the homeowners associations that we've talked about, that was something that they demand. In addition, earlier, I think what you're speaking about in February, we did roll out a new software product from Jack Henry -- Jack Henry Treasury. And it is -- we've always had Banno business for our business customers, but the new Jack Henry Treasury is really designed for more mid-market type businesses that want more complex permissions and functionality in order to serve that market. So it's not something that all of our customers would be on, but we've worked to transition some of our larger business clients to that platform, and now we can offer that as we work to enhance and improve our business services. So a little over 2 years ago, we had one treasury officer to give you an idea. And we have now beefed our team up to really 4 folks serving treasury, and we will likely continue to increase that in 2026 because we have onboarded a lot of new treasury customers this year and are seeing a lot of success in that space. So hopefully, that gives you a little flavor of what we're doing there. Julienne Cassarino: Yes, sounds great. And there's no -- you don't do sweep deposits. Robin Oliver: No, we do not have any off-balance sheet activity. Sorry, I forgot to answer that part of your question. Julienne Cassarino: Okay. I just wanted to make sure. And yes, it sounds really good. And I was just wondering about the loan portfolio review that was done in the third quarter that you were describing. What percent of total loans were reviewed in that? Robin Oliver: We reviewed around $70 million of the portfolio, but it was from a third party. And then we also had another individual that we hired as a consultant that was reviewing a large number of units but smaller dollars because that has been where some of our credit concerns have been. So we were really -- it was a targeted review focused on specific criteria that might indicate that there was a credit weakness in that particular credit. So we've looked at different components of our data tape, our watch list loans, things of that nature to try to pinpoint those that could be problems that weren't recognized yet as needing a downgrade and to just make sure that we had our arms around the entire portfolio and that any problem loan possible was identified clearly here by the end of Q3. So a bit of a targeted review there. Julienne Cassarino: So is it fair to say $70 million loans were reviewed by a third party, external third party and the rest of all the loans were internally reviewed by a new hire, it sounds like. Is that? Robin Oliver: Well, yes, a contractor not all other loans, right? But we focus on our SBA watch list loans, our conventional commercial watch list loans, our smaller bolt and flat cap loans that have had prior express modifications and might still be having some struggle, things of that nature. So we probably hit about 8% to 10% of the total portfolio, but focused in a targeted way. Julienne Cassarino: Okay. So 8% to 10% Okay. Okay. And then is the Board getting paid now? I remember last quarter, you said the Board was -- had halted their compensation. Has that changed? Robin Oliver: No, that has not changed. Julienne Cassarino: Okay. So the Board is still not being paid and the repurchases have been halted and now all of this news is out, I'm guessing nobody insiders are not restricted, right, from buying if they want. Thomas Zernick: Yes, I'll take that one, Julienne. It is -- I'll answer it this way. These are some pretty substantial changes, and this is something that really has kept insiders out of the market. As far as when that window is back up for us, that's to be determined. I wouldn't expect to see anybody jumping in today by any measure, but we'll take that one day at a time going forward. Julienne Cassarino: So currently, insiders are under -- currently, insiders continue to be under a lockup, but... Thomas Zernick: Well, we typically wait until 2 full trading days after we release earnings before we open that window. Julienne Cassarino: Right. But now there's no reason to not be under lockup, right? Because there's -- it's all out, right? There's nothing else really pending, right? Thomas Zernick: Yes. It's -- I appreciate the question, Julienne. I'm not going to go into additional details. Operator: The next question comes from [ Fred Earl at GTF Capital Management. ] Unknown Analyst: My question is why is the best decision anything other than to go to the Home Depot and get one of those signs that goes in the windshield for sale [ till now]. Thomas Zernick: I'm not exactly following your question. Okay. Looks like he hung up Joanna. Is there anyone else in the queue? Operator: Thank you. There are no further questions in the queue. So that does indeed conclude today's conference call. We do thank everyone for participating. And at this time, you may disconnect your lines. Thank you.

199天前Insight Analytics约5分钟阅读

SEM 2025 Q3 财报电话会议

Operator: Good morning, and thank you for joining us today for Select Medical Holdings Corporation's Earnings Conference Call to discuss the third quarter 2025 results and the company's business outlook. Presenting today are the company's Executive Chairman and Co-Founder, Robert Ortenzio; the company's Chief Executive Officer, Thomas Mullin; and the company's Executive Vice President and Chief Financial Officer, Michael Malatesta. Also on the conference line is the company's Senior Executive Vice President of Strategic Finance and Operations, Martin Jackson. Management will give you an overview of the quarter and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including, without limitation, statements regarding operating results, growth opportunities and other statements that refer to Select Medical's plans, expectations, strategies, intentions and beliefs. These forward-looking statements are based on the information available to management of Select Medical today, and the company assumes no obligation to update these statements as circumstances change. At this time, I will turn the conference over to Mr. Robert Ortenzio. Please go ahead. Robert Ortenzio: Thanks. thank you, operator. Good morning, everyone. Welcome to Select Medical's Third Quarter 2025 Earnings Call. As our custom, I'll provide some overview of the quarter and comment on our development efforts, and then I'll turn the call over to our CEO, Tom Mullin. Let me begin with the regulatory update that affects our critical illness recovery hospital segment. On September 22, CMS announced the deferment of its expanded Medicare outlier reconciliation criteria, what we commonly refer to -- have referred to as the 20% transmittal rule. It was originally slated to apply to cost reporting periods beginning on or after October 1, 2024. This rule will now be effective for periods beginning on or after October 1, 2025. The rules deferral resulted in a favorable revenue adjustment recorded this quarter. We are pleased with the delay of the transmittal and expect the rule to have much less of an impact as labor costs are more stabilized in the cost years now affected by the change. This should result in fewer of our hospitals subjected to an outlier payment reconciliation. While we are pleased with CMS' decision to delay the implementation of the 20% transmittal rule, we believe further reform is needed to ensure Medicare policy supports treatment of high-acuity patients in our long-term acute care hospitals. We will continue to actively advocate for policies that enable us to provide critical care for these patients. I would now like to turn to an update on development. During the third quarter, we acquired a 30-bed critical illness recovery hospital in Memphis, Tennessee and grew our outpatient portfolio by 3 clinics. Future development efforts remain focused on our inpatient rehabilitation segment. Between now and the first half of 2027, we expect to add 395 inpatient rehabilitation beds through a combination of new openings and strategic bed additions. This month, we opened our fourth rehab hospital with our joint venture partners, the Cleveland Clinic that operates 32 new beds. By year-end, we expect to open a 45-bed rehabilitation hospital in Temple, Texas and a 32-bed acute rehab unit in Orlando, Florida. We also anticipate adding 10 beds to an existing rehab hospital with our joint venture partner, Riverside in Virginia. Moving to 2026, we expect to open 3 new inpatient rehab hospitals, including a 58-bed facility in Tucson, Arizona in partnership with Banner Health, a 63-bed hospital in Ozark, Missouri with Cox Health and a 60-bed hospital with AtlantiCare in New Jersey. Additionally, we plan to add 2 acute rehab units and 2 neuro transitional units to further enhance our continuum of care rehabilitation. Looking ahead to 2027, we are preparing to launch a 76-bed rehab hospital in Jersey City, New Jersey under the Kessler brand. Beyond these projects, our pipeline remains active and promising with additional opportunities under various stages of development. As we advance these initiatives, we will remain focused on strategic investments that drive sustainable growth and long-term value for our shareholders. In addition to development, we continue to evaluate opportunities to increase the return on capital to our shareholders through share repurchase and cash dividends. This quarter, the Board of Directors approved a cash dividend of $0.0625 per share, which is payable on November 25, 2025 to stockholders of record as of November 12, 2025. These actions reflect our ongoing commitment to enhancing shareholder value and positioning the company for continued success. This concludes my remarks, and I'll now turn the call over to Tom Mullin for additional remarks regarding financial performance for the quarter of each of our segments. Thomas Mullin: Thank you, Bob, and good morning, everyone. On a consolidated basis, revenue grew over 7% to $1.36 billion compared to $1.27 billion in the prior year. Adjusted EBITDA also increased over 7% to $111.7 million, up from $103.9 million. Earnings per common share from continuing operations rose over 21% to $0.23 compared to $0.19 per share in the same quarter last year. Moving into our segment results. We will start with the inpatient rehab hospital division, where we delivered another strong quarter. Revenue increased 16% year-over-year to $328.6 million and adjusted EBITDA was up 13% to $68 million. Our revenue per patient day increased nearly 5% and our average daily census rose 11%. Occupancy improved to 83% from 82% with same-store occupancy rising to 86% from 85%. Our adjusted EBITDA margin declined slightly to 20.7% from 21.3%. In our outpatient rehab division, revenue increased 4% to $325.4 million, which was driven by over 5% growth in our patient visits. Net revenue per visit decreased to $100 from $101 in the same quarter last year. The decrease in net revenue per visit was driven by a reduction in our Medicare reimbursement and an unfavorable shift in payer mix. Adjusted EBITDA decreased over 14% to $24.2 million, with margin declining from 9.1% to 7.4%. In our critical illness recovery hospital division, our revenue increased over 4% to $609.9 million, while adjusted EBITDA rose over 10% to $56.1 million, up from $50.8 million in the same quarter of last year. Our adjusted EBITDA margin increased to 9.2% from 8.7%. Occupancy remained steady at 65% with our admissions up 2.1%. That concludes my remarks, and I will turn the call over to Mike Malatesta for additional financial details before we open the call up for questions. Michael Malatesta: Thank you, Tom, and good morning, everyone. At the end of the quarter, we had $1.8 billion of debt outstanding and $60.1 million of cash on the balance sheet. Our debt at quarter end includes $1.04 billion in term loans, $150 million in revolving loans, $550 million in 6.25% senior notes due 2032 and $47.1 million of other miscellaneous debt. We ended the quarter with net leverage of 3.4x under our senior secured credit agreement and have $419.1 million of availability on our revolving loans. Our term loan carries an interest rate of SOFR plus 200 basis points and matures on December 3, 2031. Interest expense was $30 million compared to $31.4 million in the same quarter last year. For the quarter, cash flow from operating activities was $175.3 million. Our days sales outstanding or DSO from continuing operations was 56 days at September 30, 2025, compared to 60 days at September 30, 2024, and 58 days at December 31, 2024. Investing activities used $32.6 million, which includes $53.1 million used for purchases of property and equipment, offset by $22.1 million of proceeds from the sale of interest in one of our hospitals. Financing activities used $135 million, including $100 million in net repayments on our revolving line of credit, $7.7 million in dividends, $17 million in net distributions to noncontrolling interest and $2.6 million in term loan repayments. We are reaffirming our business outlook for both revenue and adjusted EBITDA for 2025. We expect revenue to be in the range of $5.3 billion to $5.5 billion and adjusted EBITDA to be in the range of $510 million to $530 million. We are increasing our estimate for earnings per common share to be in the range of $1.14 to $1.24. Excluding capital expenditures subsequently contributed to nonconsolidating joint ventures, we still expect capital expenditures to be in the range of $180 million to $200 million. This concludes our prepared remarks. At this time, we'd like to turn the call back to the operator to open the line for questions. Operator: The first question for today will be coming from the line of Ben Hendrix of RBC Capital Markets. Benjamin Hendrix: I appreciate the opening commentary about the 20% transmittal delay. I wanted to see if you could focus a little bit on the ongoing impact of the high-cost outlier. What it's doing to the admission volume, occupancy and kind of what types of mitigation tactics you guys can employ to help offset that? And then just close with any development conversations in Washington. Thomas Mullin: Ben, this is Tom Mullin. I'll start with your question. To your point about the high-cost outlier and the fixed loss threshold continuing to increase at a pretty dramatic rate over the last 4 years and now sitting at just under 79,000. It does have a negative impact on our LTAC business because whenever you think of how our LTACs are positioned across the country, many of our LTACs are with some of the largest academic medical centers that carry the highest case mix index and most acute patients across the country. So as we see that fixed loss threshold continue to go up, we are unable to accommodate as many of those very acutely ill patients just because there's so much more loss to get to any outlier reimbursement. So it has had an effect on our ADC and some of the mitigation efforts that we have, we're fortunate that we have inpatient rehab hospitals in those shared markets in most of our shared markets with the large academic medical centers that we partner with. And we're able to use those as downstream opportunities to get some of the patients moved from the LTAC to the inpatient rehab as they're able to take more acutely ill patients, and we get our rehabs able to do that. So we've seen year-over-year, our patient days or our length of stay on some of these -- on those patients has decreased by 1.5 days on our patients. As a result of that, our ADC is down slightly, but our admissions are up. So obviously, we're going to continue to focus on that high-cost outlier threshold. And I'll let Bob comment on what we're doing in D.C. to try and combat some of those efforts. Robert Ortenzio: The environment in D.C. is one that I think I characterize it as better than it's been historically. We -- I think we have more open channels with both CMS and the committees of jurisdiction in the House and Senate. Our energy most recently has been to try to get the deferment of the 20% transmittal so that it would be applied a bit more fairly because of the nature of our cost reports and the high labor costs coming out of the pandemic. So as I mentioned in my earlier comments, we are pleased with that. However, it does not solve really more of the long-term challenges that we have. Just to point out that, that fixed loss threshold in the last 4 years has gone from $38,000 to $59,000 then to $77,000. And then we did get, I think, a bit of a break with it being at $79,000, still quite an increase, but a bit more modest when you consider that the proposed rule had the fixed loss threshold of being $91,000, which would have been extremely punitive had that been implemented in the last proposed rule. So as always in this industry, we are holding our breath for the proposed rules to come out, and then that is an avenue for us to comment. But it is true that while the regulatory environment is difficult because the outlier pool is supposed to stay at a little bit below 8% and the mechanism that CMS has is to continue to push up the fixed loss threshold to try to come within that legislative mandate of the 8%. But on the other hand, it works against the policy for LTACs, the overreaching policy for LTACs, which is to have them take the higher acuity patient. So there is a push and pull there that I think is difficult to reconcile. And the only thing that we can do is continue to advocate on behalf of the sickest of the sick patients that go into the -- particularly to our LTACs. I hope that answers your question. But if you have a follow-up, please ask. Benjamin Hendrix: No, I think that covers it. Operator: Our next question will be coming from the line of Justin Bowers of DB. Justin Bowers: So I'll just stick with 2 quick ones on LTAC. So number one, Bob and Tom, is there -- has there been any discussion with CMS or in D.C. about raising the targeted amount of payments or that 8% threshold to something higher in terms of like percentage of outlier patients? And then two, there's a lot of moving parts with reimbursement, but you did get an increase for 2026 and a modest increase for the HCO. Are the trends that we're seeing now as it relates to like length of stay in ADC, is it just -- is that a good way to think about sort of like how the business should trend on the go forward, absent any other big changes? Robert Ortenzio: It's a great question. And I think the best way for me to respond is to say this, there are lots of levers in a very complicated reimbursement system. As I've said before on this call, the LTAC reimbursement has become mind-numbingly complicated. And I think we see -- we hear that from our shareholders and from the analyst community because there are -- if you go with the fixed loss threshold, you go with site neutral, you look at the compliance requirement of 20-day length -- 25-day length of stay, you look at an 8% outlier pool. These are all levers that can be pulled for us, for Select. And I think for most of the industry, we'd be happy for relief to come from any of those levers. And for me, just from a -- strategically, I'd like to propose to policymakers ranges of options that they could do to help the industry that is no secret over the last 4, 5 years has struggled as an industry. And so we're putting all options on the table for relief. And it's hard oftentimes for us to know either from a legislative or regulatory standpoint, what are the paths of least resistance for regulators. So sometimes we don't always know from a transparency standpoint of what they feel they can do more easily. Sometimes the regulatory CMS feels that they're restricted by some legislative constraints. And the legislative branch doesn't want to oftentimes impose too much on what they view as a regulatory playing field and encroach upon that. So we're -- we try to work with the rest of the industry to put as many options on the table. Obviously, you hear about the ones that are most difficult for us. I mean it is trying when the fixed loss threshold has been going up as dramatically as it has over the last couple of years. So that's obviously an easy one, but that may not be the easiest one for CMS to solve for. So we obviously put other options on the table. Justin Bowers: Appreciate that. And then just pivoting, there's a lot of development activity, especially on the IRF side over the next couple of years. Can you help us understand how much of the CapEx this year is maintenance versus growth? Michael Malatesta: I'll take that question on maintenance. Maintenance for this year, we're projecting overall $180 million to $200 million. Maintenance is going to range in that $100 million to $105 million range. The remainder is related to... Operator: And our next question will be coming from the line of Ann Hynes of Mizuho Securities. Ann Hynes: I know you said in the prepared remarks that you had a revenue benefit from the delay of the 20% transmittal rule. What was the impact in the quarter from a revenue and EBITDA perspective? Michael Malatesta: So Ann, the net impact when we take into account the revenue and some expense reversals was in the $12 million to $15 million range. Ann Hynes: For EBITDA? Michael Malatesta: EBITDA for the quarter. Ann Hynes: Okay. And then what about for the year? Because you didn't raise -- like I would assume this would have been a benefit to guidance. Is there something else going on that you didn't raise guidance for the positive change? Michael Malatesta: Well, as you saw, we had some softness in our outpatient segment this quarter. So while we're comfortable raising EPS guidance, we thought it was prudent just to maintain EBITDA guidance. Ann Hynes: Okay. And then -- and just from a year impact, like what was the delay? I know that was the quarter, the 12% to 15%, but what impact did it have on your guidance for the total year? Michael Malatesta: So for the year, we really did not -- we had just a negligible, not a de minimis impact for Q4 because I think as we -- as Bob alluded to earlier, that as the time line progressed, it had less of a significant impact to 20% transmittal rule because we had more labor periods to compare against. Ann Hynes: And maybe you mentioned outpatient. Maybe can you give us some more detail on what type of softness you're seeing and the impact? And what you think driving it? Michael Malatesta: We did have a nice increase in volume of approximately 5%, but we did have pressure on rate. And Medicare has been a headwind that we've had to deal with for all of 2025 and actually the last few years significantly. But we also did see a deterioration in our mix for this quarter. We look to get that back on track, but just not the mix within categories, but sometimes the mix within the mix of certain geographic areas and certain managed care commercial payers. Ann Hynes: Okay. And then maybe focusing on 2026. I know you're not giving guidance today, but are there any high-level headwinds and tailwinds that you want to call out? Michael Malatesta: What -- I think the one thing with outpatient that we have not experienced in the last 5 years is, even though it's modest, there will be an increase for Medicare -- and our Medicare Advantage payers. So that is -- I consider that some type of a slight tailwind. And also, I think Tom can speak to this too, the significant development that we've communicated going into next year. Thomas Mullin: Yes. I think starting just with LTAC briefly, we'll have the 20% transmittal back in place starting this October 1 and rolling in by cost year. So that will be a bit of a headwind, but far less because of the point Mike just made about the labor markets and being further from the pandemic labor costs. So we will be able to mitigate that far more than what we would have experienced in the past year. And as it relates to inpatient rehab, there is a fair amount of development that to get started in 2026 with new hospitals. And there's also consideration for converting more of our LTAC beds in markets where there's rehab demand to add an ARU within our LTACs. So you'll see a fair amount of rehab growth in the next year. Ann Hynes: All right. Maybe one more question, just on rehab. Can you remind us like when you build a development hospital, how long to break even and how long do you get to your like peak margin profile? Michael Malatesta: It's -- Ann, it's Mike Malatesta again. It's approximately 6 months until we get to about breakeven. For full maturity, it's around 3-year -- hospital that we're at that 85% occupancy that we have for our core hospitals. Operator: Our next question will come from the line of Joanna Gajuk Of Bank of America. Joanna Gajuk: A couple of follow-ups. So on the 20% transmittal goal delay in implementation. So because of the more recent cost reports will be used, should we think about the, I guess, the headwind much smaller than that $12 million to $15 million you saw in first half of '25? Michael Malatesta: Joanna, I think your question is that is for next year, we project the impact to be much less in '26 than it would have been if it was implemented for '25. Yes. And we think the impact will maybe approximately a 1/3 of what we would have anticipated if it was put in place for this year and not rescinded. Joanna Gajuk: Okay. That's super helpful. And I guess, to Bob's commentary around D.C. environment, maybe a little bit warming up or at least open channel, so that's positive. And I guess as we think about heading into next year and the proposal for fiscal '27, so any indication whether the CMS would propose again to increase the outlier threshold to $90,000? Or you think that's kind of off the table? How should we think about that? Robert Ortenzio: Well, the short answer is no idea. There is -- these proposals are just absolutely blacked out. I mean this is why they become such a big event for us every year because there is literally no discussion ever that comes out of CMS on the proposed rules for reasons which you can appreciate. Those things are locked down. They get drafted, they circulate around the administration before then they're released under, I think, the most extreme confidentiality. Joanna Gajuk: Okay. So I guess we'll just have to wait and see. All right. That's fine. I was just checking. And if I may, a couple of more follow-ups. On the outpatient rehab, so you said that the weakness in that segment was because of the -- it sounds like a payer mix. So what exactly is happening? Is it just -- like you said, there's something with different markets growing differently or there's some sort of like managed care denying care or not paying or anything else that's going on there? Michael Malatesta: Well, the first part is with Medicare, there's over a 3% [increase] this year. So that's the challenge that our operation had to face the entire year. For this particular quarter, though, we did see a slight shift in mix to Medicare, Medicare Advantage. And also, it depends with -- which -- geographically, which areas have comprised a little more of your volume. And also within managed care commercial, that's a wide basket. Certain payers pay different rates higher and lower than others. So this quarter, we did have, as we say, a shift in our mix, but along with our sustained Medicare cut that we've had to endure all year. And again, that is going away next year where we'll have a modest increase. Joanna Gajuk: Right. Because that was my other follow-up. But before I ask that, on this payer mix. So should we think this is something that could persist in terms of these margins all the way down to 7%? And is there something you can do to kind of mitigate that headwind? Michael Malatesta: Well, we don't think this is something that's going to persist. Again, with Medicare, that's going to help with Medicare and Medicare Advantage with an increase. But on our -- we've also talked about in the past, putting investments into our systems. And this is where going into next year, with our investment in our scheduling module, that should facilitate it. Plus there is a focus to kind of rectify the deterioration of mix. Joanna Gajuk: And then my follow-up on the outpatient rehab Medicare rate next year. So we don't have the final -- why I guess, might be delayed. But based on the proposal it says, the proposal is finalized as proposed without any changes, but what will be the rate update for your rehab therapy codes? I mean we were estimating, it's got to be 2.6% to 2.8%, but any estimate that you can share for us? Michael Malatesta: Actually, with the mix of codes, and there's just a few codes that predominantly make up the base of revenue over 95% of your revenue mix for therapy codes. We're a little more modest. We're around that 1.8%, 1.75% increase for next year when you take all factors into account for Medicare. Joanna Gajuk: But it's still better than the cost, so I guess. Michael Malatesta: [We're happy]. Yes. Joanna Gajuk: Yes. And if I may, just very last question. Just talking about how the segment did versus your internal expectations. So you said the outpatient was a little worse. And then the LTAC business or the critical illness hospitals, it sounds like were better because of this reversal. But outside of the reversal, how were the trends in the critical illness hospitals? And also, how did the IRF segment did versus your internal? Michael Malatesta: Well, I think -- and Tom can maybe elaborate on critical illness, but I think we're all in agreement for inpatient rehab, it just continues to exceed our expectations this year. Thomas Mullin: And in critical illness, we did see occupancy increase compared to prior year. But as everyone on this call knows, in the critical illness business, there's a fair amount of seasonality, and we're always going to see a decrease in the third quarter. And then we start to really pick back up as we enter October and the fourth quarter as the season start to change and we start to see respiratory volumes start to pick up. So we saw the normal trend that we see every year in critical illness. But compared to the prior year same period, occupancy was ahead, admissions were ahead and revenue was ahead. But obviously, the 20% transmittal deferment played into the rate increase. Operator: And our next question will be coming from the line of A.J. Rice of UBS. Albert Rice: First, maybe just to ask you on the rehab IRF development pipeline. Do you have a sense of what the relative start-up costs that you experienced this year and how that might compare to next year? Is that number going to be a tailwind -- headwind for you? And your biggest peer in that segment is talking about potentially changing the footprint model a little bit, smaller facilities, et cetera, to go into a new market. Are you -- anything going on in your approach to the sizing of these development locations that's worth calling out? Michael Malatesta: A.J., it's Mike. In regards to losses, we've had a pretty consistent cadence from last year and projecting into next year, we're projecting approximately $15 million to $20 million of start-up losses per annum. So that's going to be fairly consistent. Tom is going to speak to our strategy on the size of the hospitals. Thomas Mullin: Our focus will remain partnership focused and looking to expand partnerships with the larger health systems across the country. So you'll see more new partners added in the coming year or 2 across the country. You'll also see us in our markets where we're running at or near capacity with existing partners, we'll be adding new hospitals, like Bob spoke to in his opening remarks where we added a fourth rehab hospital with Cleveland Clinic that just opened earlier this week. So there will be additions in our existing markets, but we'll be looking to add large new academic medical centers with inpatient rehab as well. We typically build 60-bed rehab hospitals, but we're considering 80 to 100 bed rehab hospitals in future markets where the demand deems it necessary. Albert Rice: Okay. Interesting. Any thoughts on labor? I think you've sort of tangentially commented on a couple of times across different business lines. But what are you seeing there as you think about '26? It sounds like it's probably a more stable labor environment than you've seen in a number of years, but I just don't want to put words in your mouth. What's sort of the cost trend on labor that you're seeing this year and for the different business lines? And do you see it being pretty stable going into next year? Michael Malatesta: So A.J., I mean, if we're going to go back to what we call the agency crisis or challenges we had in '22 and the first half of '23. Agency within our critical illness division has -- utilization has been consistently around 15%. So that's been very stable. Our agency rates, again, are back to pre-COVID levels. And full time, I think with full-time increases for full-time equivalents across all 3 business lines, it's been fairly consistent and actually a little under 3%. So it's a much more stable environment than we encountered a couple of years ago. Albert Rice: Okay. Interesting. The last question on leverage, you're down to 3.4x now at this point. Is -- how should we think about that going forward from here? Is that sort of a stable area roughly that's comfortable? And as you sort of debt pay down maybe is less of a priority, does it change your thinking about capital allocation in any way? Robert Ortenzio: No, A.J., this is Bob. The 3.4 is a stable, comfortable leverage. We can take it down. But as you've heard Marty and I in the past talk about it, it's opportunistic. I mean, divided by the CapEx for development is obviously our #1 priority. And then you've got dividends, you've got stock buybacks and you've got debt reduction is then on the list, and we'll take advantage of the one that is the most advantageous to us, and we'll take the one the market gives us. Operator: And we now have a follow-up question from Justin Bowers of DB. Justin Bowers: I just wanted to follow up on PT. So Mike, what percentage of your MA rates are pegged to the Medicare fee schedule? And then the follow-up to that would be, do you have a sense of -- I mean, Medicare has been a headwind for quite a few years now. Any sense of what kind of drag that's been on EBITDA in the division over the last few years? And then what can you do to get this back to double-digit margins? Michael Malatesta: Okay. So let me take -- I think there's 3 questions there, Justin. So the first question is approximately 80% of our Medicare Advantage is linked directly to the Part B fee schedule. So -- and then I think your next question, I remember, was -- what -- I'm sorry, Justin, can you repeat your 2 questions again, your last 2? Justin Bowers: Yes. So it was just -- there's been -- I think there's been -- what a decrease in the -- there's been headwinds for, what, 4 or 5 years now... Michael Malatesta: 4, 5 years -- the decrease in the last 4 or 5 years, and the metric we look at is if we just had a 2% increase, a modest increase over the last 5 years versus the cuts that we had, we calculate as almost $65 million directly to our bottom line. Justin Bowers: And then is this -- the rate increase is going to help. Any other levers that you can pull to sort of like to get this thing back to double-digit margins? Michael Malatesta: Well, the focus and the focus going into '26 is going to be on productivity. So that's where we've invested in our systems and the scheduling module. But just minor increases in productivity will have a large impact on our bottom line. So that productivity and enhancements of our systems -- our front-end system is going to be a focus for outpatient in the year to come. Operator: And this does conclude today's Q&A session. I would like to go ahead and turn the call back over to Mr. Ortenzio for closing remarks. Please go ahead, sir. Robert Ortenzio: Thank you, operator. There are no closing remarks. We look forward to updating you next quarter. Operator: This concludes today's program. You may all disconnect.

199天前Insight Analytics约5分钟阅读

RMAX 2025 Q3 财报电话会议

Operator: Good morning, and welcome to the RE/MAX Holdings Third Quarter 2025 Earnings Conference Call and Webcast. My name is Colby, and I'll be facilitating the audio portion of today's call. At this time, I would like to turn the call over to Joe Schwartz, Senior Vice President of Finance and Investor Relations. Mr. Schwartz? Joe Schwartz: Thank you, operator. Good morning, everyone, and welcome to RE/MAX Holdings Third Quarter 2025 Earnings Conference Call. Please visit the Investor Relations section of www.remaxholdings.com for all earnings-related materials, including our standard earnings presentation and to access the live webcast and replay of the call today. Our prepared remarks and answers to your questions in today's call may contain forward-looking statements. Forward-looking statements include those related to agent count, franchise sales and open offices, financial measures and outlook, brand expansion, competition, technology, housing and mortgage market conditions, capital allocation, credit facility, dividends, share repurchases, litigation settlements, strategic and operational plans and business models. Forward-looking statements represent management's current estimates. RE/MAX Holdings assumes no obligation to update any forward-looking statements in the future. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those projected in forward-looking statements. These are discussed in our third quarter 2025 financial results press release and other SEC filings. Also, we will refer to certain non-GAAP measures in today's call. Please see the definitions and reconciliations of non-GAAP measures contained in our most recent quarterly financial results press release, which is available on our website. Joining me on our call today are Erik Carlson, our Chief Executive Officer; and Karri Callahan, our Chief Financial Officer. With that, I'd like to turn the call over to them. Erik? W. Carlson: Thank you, Joe, and thanks to everyone for joining us this morning. We're pleased that the momentum we've built in the first half of the year continued into the third quarter. Our total RE/MAX agent count reached another all-time high, fueled by steady global growth and our best third quarter U.S. agent count performance in 3 years. Based on feedback from the membership, we believe our mix of new ideas and products, along with our reinvigorated recent network events are enhancing our value proposition and generating great energy. At the same time, our constant focus on operational excellence, again, drove profitability and margin performance that exceeded our expectations. And while existing home sales have yet to show sustained signs of recovery, our networks continue to perform resiliently. From a macro perspective, the trends we saw in our RE/MAX National Housing Report earlier in the year continued in September as inventory increased 20% over September 2024, marking the 21st consecutive month of year-over-year growth. Additionally, new listings, which has slowed some over the summer, rebounded in September, growing 4.5% over August. We believe these sustained increases are constructive for housing and will help support increased transaction activity. However, affordability remains a challenge, particularly at the lower price points. Further downward movement in mortgage rates would be welcome news. From an industry perspective, this year has seen consolidation activity on both the large and small scale. Given existing industry dynamics, we believe the current state of change creates exciting opportunities for our company and networks. We continue to have a robust franchise sales and conversion pipeline and are building on the momentum of recent additions, including RE/MAX Hawaii, which catapulted RE/MAX to a #2 market share position in the state. This momentum is bolstered by our innovations and ongoing enhancements to our value proposition, which has spurred a lot of excitement throughout our networks and the industry. I've never felt more positive about what lies ahead for our company, and we're going to continue to evaluate all opportunities to drive enhanced value for all of our stakeholders. As of September 30, our worldwide agent count of over 147,500 agents was another record high, and U.S. agent count had its best third quarter in 3 years. Although we're not where we want to be, the underlying agent fundamentals are encouraging. We said last quarter that May and June were the first 2 months of the year where our agent recruitment rate increased year-over-year. This positive momentum carried into Q3, where the recruitment rate for each month of the quarter was higher than last year. Producing agents continue to be drawn to RE/MAX and the quality of our network was reflected in the recently released 2025 REAL Trends Verified City rankings, where we had more agents represented than any other brand. Although Canadian agent count was down slightly year-over-year, we saw modest sequential growth despite a continued challenging housing backdrop. We appreciate that being a broker and an agent is difficult in this market. And historically, we know that the number of producing agents in the industry tends to correlate with the level of existing home sales. We're encouraged by the results in both the U.S. and Canada given the current state of the markets, and our international agent count continues to be a bright spot, surpassing 73,000 agents. Momentum in agent recruiting has been fueled by many of our ongoing initiatives. Our Aspire program continues to be a success with approximately 1,500 agents benefiting from the program. Although it's still early, Aspire is performing as intended with an uptick in the recruitment of newer agents and a higher retention rate. Building on the strong reception and feedback from the network on Aspire and leveraging our voice of customer capabilities, we've introduced the Ascend and appreciate programs in September. These optional economic models offer greater flexibility with respect to how and when a franchisee pays us, further supporting their ability to attract and retain quality agents. While these programs are new, the feedback from the network has been very positive. In addition to providing flexibility with respect to our economic models, we continue to lean heavily into innovation to deliver an elevated experience to all of our affiliates and the consumers they serve. Many of our new offerings like the recently launched RE/MAX Marketing as a Service platform, leverage the strength of our scale to create new competitive advantages. The platform is a data-driven, AI-powered system that simplifies marketing for all of our affiliates. The offerings include automated listing packages, complementary and paid campaign options, real-time analytics and property videos created seamlessly with AI. We'll continue to add innovative products to the platform, all of which are designed to help agents save time, win more listings and grow their business. This marketing approach is a strategic shift as we're consolidating fragmented efforts into one seamless experience. Although we're just getting started, the initial click-through rates and engagement results are very promising. We're seeing both the number of orders and users increase each week, and the current weekly order value is indicative of a low 7-figure annual run rate. Notably, we are planning to expand the platform into some international geographies outside of the U.S. and Canada, marking a tangible step to capitalize on the scale of our worldwide footprint, enhance the value proposition globally and diversify our revenue streams. In addition, we continue to innovate on the exciting initiatives we launched last year, leveraging our digital assets. Our Lead Concierge program has been outperforming expectations this year, and we continue to evaluate and add new lead sources. The RE/MAX Media Network is on track with our revised expectations, and we anticipate it will have a 7-digit revenue contribution by the end of 2025. We remain optimistic about the long-term potential of these initiatives. Our story is being told loudly and proudly through the voices of our franchisees and agents, both online and offline. Whether agents are leveraging our MAXEngage platform or other mediums, our momentum continues to build. Throughout our many events over the past several months, excitement and a feeling that something is different about RE/MAX has emerged as a constant theme. And that excitement is carrying forward in our ability to recruit top industry talent to our executive team. We're thrilled to have Vic Lombardo on board as our new President of Mortgage Services. In his role, Vic will oversee the growth of our mortgage business, including Motto Mortgage, wemlo and future evolutions designed to grow our mortgage offerings. In Vic's first 2 months, he's rolled at the sleeves, dug into the operations, surfacing a number of innovative ideas to drive growth and add additional revenue streams and increase the operational efficiency. We're already putting foundational pieces in place, and we look forward to sharing more details on our strategy in February. While the mortgage market remains challenging, we've seen a modest uptick in refi volumes in the last couple of months. Our franchisees and LOs continue to persevere, and we're optimistic about the growth potential for our mortgage business. In addition to Vic, Tom Flanagan, our new Chief Digital Information Officer, joined us at the end of September. Tom, a member of the 2025 Swanepoel Power 200 is a great cultural fit and his impressive track record includes 20 years as a real estate innovator and executive and leadership roles covering both technology and marketing. Tom is leading in to the potential of AI both to improve the customer experience and to make us more efficient in our day-to-day operations. Not only is he an industry-leading technologist but is experienced in ancillary businesses will also be a great asset as we continue to explore future growth strategies. As we look to the future, we continue to lead in our networks and build on our momentum. We're focused on the tremendous opportunities that lie ahead for us. And with a world-class leadership team now in place, we believe we're well positioned for growth in the current environment. We're focused on what matters, continuing to grow our RE/MAX agent count, especially in the U.S. and Canada, enhance and expand our value proposition, focused on improving our customer experience, grow our mortgage business and concurrently diversify our top line drivers as we execute with excellence across our brands. As we move into the last couple of months of the year and prepare for 2026, I want to emphasize that we're in a new era when defined by clarity, purpose and action. With that, I'll hand it over to Karri. Karri Callahan: Thank you, Erik. Good morning, everyone. As Erik mentioned, we are pleased with our third quarter operational results and overall financial performance. Our third quarter profit came in at the high end of our expectations and our top line results were solid despite a housing market that continues to be slower than anticipated, highlighting the resilience of our financial model. Some of our notable quarterly financial highlights included total revenue of $73.3 million, adjusted EBITDA of $25.8 million adjusted EBITDA margin of 35.2%, an increase of 40 basis points over the third quarter of 2024 and adjusted diluted EPS of $0.37. Looking closer at revenue, excluding the marketing funds, revenue was $55.1 million, a decrease of 5.6% compared to the same period last year, driven by a decline in organic revenue of 5.4% and adverse foreign currency movements of 0.2%. The decline in organic growth was principally due to lower U.S. agent count and to a lesser degree, certain incentives related to modifications to the company's standard fee models, including our Aspire program. This decrease was partially offset by contributions from our marketing services, including our Lead Concierge and RE/MAX Media Network initiatives. As mentioned, margin performance improved, thanks to our focus on ongoing operational efficiencies. Third quarter selling, operating and administrative expenses decreased $3.5 million or 9.7% to $32.5 million. This reduction was primarily due to certain lower personnel and events expenses, partially offset by higher investments in technology in our flagship website and increased bad debt and legal fees. Despite the challenging broader macro and housing environment, our ongoing evaluation of every aspect of our business is paying off. The cash-generative nature of our business converted approximately 60% of adjusted EBITDA to adjusted free cash flow this quarter, and our total leverage ratio decreased to 3.41x as of September 30. Importantly, our total leverage ratio is now below the 3.5x level, at which we are afforded greater flexibility from a capital allocation perspective. And we expect to remain below the 3.5x level at the end of the year. From a capital allocation perspective, our priorities remain unchanged. We are strategically reinvesting in the business, and we'll continue to build our cash reserves. We also believe that we can now evaluate returning capital to shareholders because at the current price, repurchasing our shares is an attractive use of capital. Now on to our guidance. We are pleased with our Q3 financial performance and are encouraged by the growing excitement from our network and early returns from our initiatives. However, we remain pragmatic about the realities of the current housing market and continued uncertainties in the broader macro environment. As a result, we are tightening the top end of our full year revenue and adjusted EBITDA ranges. Our fourth quarter and full year 2025 outlook assumes no further currency movements, acquisitions or divestitures. For the fourth quarter of 2025, we expect agent count to increase 0% to 1.5% over fourth quarter 2024, revenue in a range of $69.5 million to $73.5 million, including revenue from the marketing funds in a range of $17 million to $19 million and adjusted EBITDA in a range of $19 million to $23 million. And for the full year 2025, we now expect agent count increase 0% to 1.5% over full year 2024, revenue in a range of $290 million to $294 million, including revenue from the marketing funds in a range of $72 million to $74 million, a change from $290 million to $296 million, and adjusted EBITDA in a range of $90 million to $94 million, a change from $90 million to $95 million. With that, operator, let's open it up for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Anthony Paolone with JPMorgan. Anthony Paolone: Just, Erik, I think you mentioned there were 2 programs. You talked about 7-figure contributions potentially. I think it was marketing and maybe it was Aspire. But I was wondering if maybe you can give a little bit more color around can we expect to see that level of incremental revenue in 2026? And maybe what would the margin perhaps look like? Or just a bit more detail on what that trajectory might be. W. Carlson: Yes. Certainly, Tony. Thanks for being on today. A couple of things we're talking about is, as you know, over the past 4, 6 quarters, we really have been talking about bringing more value to the network and helping them win more business, do it in less time and bring some profitability back to brokerages and help agents make a little bit more money. Part of that is our marketing efforts that we rolled out, I don't know, 8 or 10 weeks ago. And we're seeing really good engagement on our Marketing as a Service platform. So that's one of the platforms that we talked about being a 7-digit revenue opportunity. That certainly is continuing to grow. We're seeing great response engagement, usage. And I think the most important thing, Tony, is it's actually working, right? So when you think about the marketing and listing or an open house or just marketing in general, it's good to see that engagement and their returns. So we're seeing customers come to our site. We're seeing higher engagement with properties. We're seeing more customers wanting to click through and grab an agent. All these things are good to help our folks kind of win listings. And really, it's a spend that's happening kind of in the market but in a disaggregated way. And so what we've done is created a platform through process technology and AI to help that spend, one, to lower the cost for agents, but also to be more effective in the marketplace. So we think that's a big opportunity, not only in the U.S. and Canada, where it's deployed today, but also internationally, and we're working on several markets in the fourth quarter to start that rollout to help monetize that international opportunity that you all have so politely pointed out to me many times in the past. In addition, we have the RE/MAX Media network. We've spoken about a bit in the past and part of, obviously, Marketing as a Service has helped driving traffic to the website. I will tell you that we're building the plumbing. We've got good infrastructure in place. I think closer to the end of the year, you'll see kind of a new approach for us on dot-com and [ dot-ca ] but advertisers are liking what they're seeing. We have work to do, but they're seeing good engagement with their products. We're seeing good engagement from consumers when they have an ad kind of on a site that helps our brand, helps their experience. So we're working through kind of the foundational aspects of the program, but that definitely is -- it's a 7-digit figure in 2025 and will continue to grow in 2026 and beyond. Karri Callahan: Yes. Tony, 1 thing that I would add in addition to everything that Erik said from a strategic perspective because we are really excited about the engagement that we're seeing from a Marketing as a Service perspective. The margin profile from just a financial standpoint, it does look a little bit different than our core business. So kind of looking in that kind of high single-digit, low double-digit margin contribution perspective. But with all of that said, we just think there's tremendous opportunity in terms of driving the top line from that perspective, just given the engagement we've seen from the network and the overall performance with consumers who have interacted with the product over the last couple of months. W. Carlson: Tony, on the [ RMN ] side, the margin profile will be different too. It will be higher than our normal margin profile. Anthony Paolone: Okay. And then just 1 other one. Just on M&A in the sector in general. Can you give us any thoughts on where you stand there? And also whether or not that has any implications on just -- you mentioned your recruitment rate and whether you're seeing people move around as a result of M&A in the space. W. Carlson: Yes, great question. Look at -- I think last time, we talked about us building momentum within our network and really being focused kind of our strategy and our value proposition. We're seeing great enthusiasm from the network right now. In my opening remarks, we talked about a little bit the -- some of the events, the last 5, 6 events since the last time we spoke, have been kind of categorized from the network as best as best [ event ] ever, which is really encouraging, meaning the way we're showing up the tools, the services, the engagement we're providing is resonating with the network. That, along with some of the programs, whether it's a Marketing as a Service or some of the new economic models, whether that's Aspire, Ascend or Appreciate, they're resonating. And so we're seeing good engagement levels there, and we're seeing good recruitment rates through the Aspire program. With all that being said, there will be continued consolidation in the market. Obviously, since the last time we spoke, there was a big announcement. We think that, that just brings additional opportunity for us and could help accelerate our strategy. But obviously, we're open for business. We are seeing a lot of inbound requests meaning, hey, something is happening over at RE/MAX. What is that? I want to talk more about that. Maybe I've got a contract up maybe on independent feeling pressure. But we are definitely seeing a lot more inbound activity here, which is very encouraged for our franchise sales and our network to capitalize on maybe some of the market conditions but also just the opportunity on what we've built to join kind of this momentum that we've got on the market right now. Operator: Your next question comes from the line of Nick McAndrew with Zelman. Nick McAndrew: Erik, maybe 1 for you to start. I think just with Aspire, Ascend and Appreciate now live, could you maybe just walk through what type of agent you're trying to attract with kind of each of those models? And maybe just how franchisees are thinking about those optional models in practice? I mean, are most rolling them out selectively for recruiting and for the existing agent base they already have? Or maybe if you could just add any color there, that would be helpful. W. Carlson: Yes. Sure thing, Nick. Thanks for the question. A couple of things. One is, as I just mentioned, I think that the models and just the idea that there's choice is resonating with the network. Obviously, brokerages and agents, independent operators, and they have to make the best decision for themselves. I think on the last call, we talked about a little on Aspire, about 2/3 of the folks have joined or participating. I think the important thing that we're seeing -- and by the way, it's still a little bit new. But there are some positive green shoots, meaning Aspire has not -- it has not taken away from any of the existing recruitment that we are doing organically for kind of highly professional, productive, more tenured agents. And so Aspire generally has been seen as kind of incremental. The other great thing that we're seeing is Aspire is definitely coming with higher retention rates than what we previously saw. So I think the idea that we've coupled education, kind of a formalized program and learning technology in order to become a productive professional agent and take some burden off the broker is really helping with that retention rate for agents. We're hoping here in the next 2 quarters that we'll see that productivity follow. We've got a tried and true partnership with the Buffini Group on 100 days to Greatness. And so if those averages play out, we certainly think that will have additional productive agents kind of in that network within that 12-month time frame. Appreciate is a little bit different. Appreciate is really about retirement. So obviously, we've got a real estate agents enjoy retirement through this profession. We want to make sure that there is a place where they can stay at an affordable rate and still capitalize on their book of business. But no, they may not be as productive as they once were kind of in their heyday. And so we're seeing some adoption of Appreciate. Obviously, that's a program that takes a little bit more time for the funnel to fill as folks have a desire to roll off. And then on Ascend, we're seeing decent adoption on Ascend for those folks that want to take advantage of a model, which provides a lower fixed fee and a higher variable rate. And I think part of Ascend for me is also kind of putting our money where our mouth is, meaning like we have to be in the business of helping folks win business. That can be leads generated from our website, that can be other sources, that can be on our dot-com. I mean, a whole different variety. And so what we're now showing to the network is we're in it with you, right? We'll take some risk on the financial side, but we're going to help you as an agent and a brokerage build your business. And I think that stance alone has really resonated with a lot of the network. And it's just really a philosophy of us leaning in to help support their business. Nick McAndrew: Got it. Yes, that makes a lot of sense. And I guess just a follow-up. I think just given all of the investment in digital tools and marketing capabilities this year, whether it's Lead Concierge or the new Marketing as a Service platform, do you have any sense for just whether you're seeing any tangible uptick in productivity of agents or offices that are more actively engaged with these platforms versus those that aren't? W. Carlson: Look, I think it's a long sales cycle. Some days, you wish you were kind of like a consumer goods company and just selling a bar soap, but that's not the case. So what I said before, Nick, and I think is helpful is like we're seeing additional engagement on listings, right? And so when you see that type of activity, that will lend itself to, I think, our team winning more business, and that will help improve productivity. So when you roll out programs like these, like increased marketing or Lead Concierge, with our sales cycle, it takes a while to actually see the results. But when you set out and you say, hey, these are a few things that I'd like to see initially to make sure that the program has kickedstarted in the right way. We're seeing all those green shoots, and we're seeing it actually exceed our expectations. So we're really optimistic on the work that we've done, which is very purposeful investments. One, not only to help our agents and our brokers but also to start to tell a different story about revenue diversification for our enterprise. And so we're really happy with the progress we've made, and we're excited about the reaction from the network and the usage of the tools. Operator: Your next question comes from the line of Matthew Erdner with Jones Trading. Matthew Erdner: I'd like to kind of shift gears and talk about Motto a little bit. You guys touched on some of the initiatives that you're doing there. But I'd kind of like to get your guys' sense a little more in depth of kind of the changes you're making there and get an idea of the profitability. And if it's not profitable, kind of that outlook towards profitability? W. Carlson: Yes, great question. I think I led you down a path with my opening remarks that we talk more about it in February, but let me give you a little bit of color right now. One is we've -- over the past 6 to 10 weeks since Vic arrived, we've really taken a new view of the mortgage opportunity. So that includes not only Motto, and our processing group, which we think that there's opportunities there to do a little bit about what we've done in real estate, quite honestly, and change the model to be a little bit less fixed and more variable. We've got to be in a position to help our network and our LOs really find business and capitalize on business, which not only helps the profitability of their business, but the value of owning a Motto franchise and our value proposition, quite frankly. So it's a little early, Matt, to actually kind of go through some of the specifics. But what I would tell you is we've got a new outlook, not only in the franchise business, but just capitalizing on the mortgage opportunity in general, based on the number of transactions, connections, with both consumers, agents, brokers and the footprint that we have, both kind of in the U.S., Canada, et cetera. So we're really excited about some of the the items that we're working on right now, but it's just a bit early to talk through the strategy with you all. Matthew Erdner: Got it. Yes. I appreciate that. And then kind of as a follow-up to that. How do you guys plan on leveraging that agent network that you guys do have, given that you guys are up there pretty much every year in terms of transaction size so the opportunity there is pretty large. W. Carlson: Yes. I mean, I think you're seeing us lean in, in a variety of different places. So whether that's providing services like the Marketing as a Service platform, which not only kind of improves agent execution on marketing at a lower price point, but also helps us to obviously improve the monetization event through either the agent or the consumer. The RE/MAX Media Network is a perfect example, Lead Concierge as an example. And obviously, some of the high-level hints that I provided to you on mortgage are also examples. So you're just seeing us lean into our business and really think about what else can happen through the agent or the consumer transaction. And I think that the other item we're really working on is what happens post close. I come from a place where we were dead set focused on the consumer experience. And we are focused here on the customer experience for brokers, agents and that end buyer seller to improve that, not only before the transaction and when they're shopping or researching a particular property or an agent or a brokerage, but also during the transaction to make it as easy as possible to do business with us and our network and then also to make sure that we're nurturing those folks post close in a value-added way. So not just an e-mail once a month, but making sure that it's meaningful to help them with their home buying and home ownership experience. Matthew Erdner: Got it. That's very helpful. Operator: Your next question comes from the line of Tommy McJoynt with KBW. Thomas Mcjoynt-Griffith: The first one is just around -- you guys called out the organic revenue impact as taking some impact from the modifications to the standard fee model. Are you guys able to put some magnitude around that number? And then should we think about that as sort of run rating or does it lap after a year? How should we think about that? Karri Callahan: So great question. I think, as Erik said, we're really excited about the Aspire program. It's really driving the benefits that we had hoped for in terms of increased recruitment rates for newer agents. And also, we're seeing churn decline in that cohort as well. And we knew kind of from the very beginning that there would be a little bit of an upfront investment as those agents came on board, got trained up and then started to produce transactions. And so we do think it is a little bit of a short-term investment cycle because as those agents continue to get ingrained in our tools and services, start leveraging Marketing as a Service, really lean into our education and become the trusted professional that is the hallmark of the RE/MAX brand, we think that, that will dissipate over time. It was just a little bit of a near-term headwind as they're onboarded. So Erik mentioned it's about 1,500 agents. And so that's kind of the quantification, but we think it is near term in nature, and we absolutely think it's -- it was a prudent choice because, as Erik said, we're really trying to partner with our franchisees, help them build their businesses and help us really kind of create that flywheel for agents to participate in the other tools and services that we're offering holistically from a brand perspective. Thomas Mcjoynt-Griffith: Okay. And then in the sort of capital allocation priorities, returning capital through buybacks has been on the list but for the lower end for a while now. I guess, is anything different now that would make you guys more interested in buying back shares now? Should we expect to see some buybacks by year-end? Any more commentary around that? Karri Callahan: Yes, it's a great question. I think the biggest thing from our perspective right now, that was great to see this quarter is -- we've done a very good job from a deleverage perspective. Our TLR is now below that 3.5x level. So we do have some more flexibility. So from a capital allocation perspective, we're continuing to allocate or evaluate all of those options where we think that we're going to allocate capital to the areas where we get the highest returns. So there's a lot of things going on right now from a strategic perspective, in terms of the additional value and services and initiatives that are ongoing. But obviously, now with that deleverage, we'd like to get down a little lower, but below that 3.5x and given where we're trading, we think that returning capital is a great use of capital and more to come. Operator: Thank you. So with no further questions in queue, I'd like to turn the conference back over to Joe Schwartz for any closing comments. Joe Schwartz: Thank you, operator. That concludes today's call. Thank you all for joining us today. Operator: This concludes today's conference call. You may now disconnect.

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