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Leandra Clark: Good morning, and welcome to MAPFRE's activity update for the third quarter of 2025. This is Leandra Clark, Head of Investor Relations and Capital Markets. Thank you for joining us today. We are pleased to have here with us José Manuel Inchausti, Vice President of MAPFRE, who will provide some opening remarks and an overview of recent business trends. Following that, José Luis Jiménez, our Group CFO, will discuss the main financials; and Felipe Navarro, Deputy General Manager of the Finance area, will walk us through the balance sheet. As a reminder, we report IFRS financial information on a half year basis. The information in this activity update is prepared under the accounting policies applicable in each country, which generally do not apply IFRS 17 and 9. [Operator Instructions] and we will open up the Q&A session at the end of the presentation. I will now hand the floor over to José Manuel Inchausti. José Manuel Inchausti Perez: Thank you, Leandra. Hello, everyone, and thank you for your time today. Let me share some highlights of the quarter before José Luis and Felipe walk you through the details. Results have been excellent with higher profitability in all regions and in our main business units. We are outperforming almost all updated targets announced at the AGM. However, if we look at the macroeconomic context, the world economy has continued to slow down with fiscal tensions, trade wars and higher geopolitical risk. This is creating exchange rate volatility that is affecting our top line, especially the U.S. dollar and Latin American currencies. Premiums have grown 3.5%, reaching over EUR 22 billion, and at constant exchange rates, this would more than double, reaching nearly 8%. Non-life, which is more than 75% of our business, continues to benefit from improved technical management. Premiums in this segment are growing over 6% at constant exchange rates, almost 2% in euros, reaching over EUR 17 billion. The Life business is up around 10% in euros, nearly 40% at constant exchange rates, reaching over EUR 5 billion. The Non-life combined ratio is now 92.6%, down more than 2 points with a strong reduction in the claims ratio to 65%, and an excellent expense ratio at 27.5%. The net result is up nearly 27%, reaching EUR 829 million with a return on equity of 12.4%. These results includes extraordinary impacts of EUR 79 million from the partial goodwill write-down in Mexico and the derecognition of tax credits in Italy and Germany. This is the result of an ongoing review of our balance sheet with a prudent approach to valuation. The adjustments have had no impact on our cash flow positions nor our capacity to pay dividends. Without these one-offs, the result would stand at an excellent EUR 908 million and the return on equity over 13%. Our capital base remains strong despite market volatility with shareholders' equity up 5% during the year, reaching EUR 8.9 billion, and the solvency ratio close to 209% at the end of June, in line with our target range. These robust results have allowed us to increase the interim dividend to EUR 0.07 per share, up nearly 8% compared to last year. Core businesses are performing extremely well, supported by the progress in the implementation of our Strategic Plan. Overall, Iberia has an excellent contribution to results with almost EUR 350 million up over 22%, thanks to its diversified business mix with the Motor result up more than EUR 80 million, consolidating its recovery. There were also strong contributions from General Property & Casualty and Accident & Health. We continue to see the positive effects of our technical management with the Motor combined ratio improving by 6 points to 98.5% and Accident & Health improving 4.5 points to 95%. In Lat Am, performance has been outstanding with a combined ratio of 83% and almost all countries below 100%. The largest challenge we are facing in the region right now is currency volatility. We have been operating in this market for many years and are confident that our diversified business model will continue to prove resilient. While currencies are affecting the top line, results are strong across the region. Brazil has had an excellent quarter with a net result of almost EUR 200 million, up 6% with very strong margins. In addition, Mexico, Peru and Colombia together contribute over EUR 100 million to the results. But both the Non-Life and Life businesses remain highly profitable with improvements in the combined ratio across most lines, and financial income continues to be an important tailwind. The region reported a total result of EUR 340 million, up 11%. North America is delivering an excellent result of nearly EUR 100 million, up 40%. Technical measures continue to pay off with relevant improvements in Motor and General Property & Casualty. Finally, in MAPFRE RE, prudent underwriting, diversification and adequate retrocession are delivering solid results. We continued increasing prudence during the quarter with reserves still in the upper end of our confidence interval. Hurricane season has been very quiet. However, we prefer to maintain a conservative approach. Performance was standing with a net result of EUR 256 million and a combined ratio under 94%. In conclusion, we are extremely satisfied with this year's results. The Board of Directors approved an interim dividend of EUR 0.07, an almost 8% increase to be paid on November 28. It was the fourth consecutive increase, bringing total dividends paid in 2025 to EUR 0.165, EUR 508 million fully in cash. This is the highest dividend ever paid in a year. During the last 5 years, MAPFRE has paid out EUR 2.3 billion to shareholders. The average dividend yield for this year is over 5% and more than 7% for the last 5 years. I will now hand the floor over to José Luis to walk us through the details of the quarter. José Jiménez Guajardo-Fajardo: Good morning to everyone. I will now discuss the key trends by region, complementing the figures already provided by José Manuel. In Iberia, total premiums are growing over 9% with solid growth in most lines of business. Non-life is up nearly 5% and Life premiums are up 20%. The combined ratio has improved 2.5 points to 95.9%. Our investment portfolio continued to boost profit. The return on equity is now up almost 2 points to 13%. Profitability in Lat Am has been excellent. Brazil continues to see excellent results, posting return on equity of over 27%, with improved technical ratios and high investment returns. The Non-life combined ratio is around 72%. In local currency, business volumes were down slightly with linked segment still affected by high interest rates and the macro and geopolitical context. Premiums in euros are down 11.5% with a 9-point exchange rate impact. Other Lat Am continues to deliver strong profitability, contributing over EUR 140 million, up 19% with technical improvements across all lines, leading to a 3-point reduction in the combined ratio to 96%. Premiums have been very affected by exchange rates, with strong local currency growth in key markets like Mexico, Colombia and Peru. In North America, premiums are down 4% in euros with a 3-point drag from the U.S. dollar. The combined ratio is well under 96%, improving around 3 points. In EMEA, losses in Germany and Italy are going down significantly. The region is reporting a second consecutive quarter of positive numbers with a EUR 7 million profit, compared to almost EUR 19 million in losses last year, with a 6.5 point reduction in the combined ratio. Regarding MAPFRE RE, José Manuel has already commented on the reserving strategy and the bottom line. In terms of growth, premiums are growing around 1%. The U.S. dollar is relevant for this business and premiums will be up over 6% at constant exchange rates. Additionally, reserve reinforcements has been around EUR 165 million year-to-date with a 5-point impact on the combined ratio, which means the ratio will have been below 90% without this one-off. MAWDY continues to contribute positively with a net result of EUR 3 million. Lastly, I would like to address a few specific items. First, hyperinflation adjustment has improved from around EUR 47 million last year to EUR 24 million this year, mainly due to Argentina and Turkey. And second, the extraordinary impact of EUR 79 million were recorded in the holding expense line, of which EUR 38 million correspond to the partial goodwill write-down in Mexico, and the rest to derecognition of deferred taxes in Italy and Germany, with EUR 31 million and EUR 9 million, respectively. As a reminder, in September 2024, there was the partial goodwill write-down in Verti Germany for EUR 90 million as well as extraordinary income of EUR 35 million from various tax adjustments. General P&C lines continue benefiting from technical discipline, strong market positions and diversification. Premiums are slightly down, affected by currencies. The combined ratio remained excellent below 81%. In Iberia, premiums increased by 7% with improvements in key segments, especially Commercial lines. The combined ratio stands at an excellent 94%, thanks to diversification and a prudent underwriting approach as well as comprehensive reinsurance protection. In Brazil, premiums declined 10% in euros, while the drop in local currency was just 1%. Agro insurance is still affected by high interest rates as well as the geopolitical and macroeconomic situation, while other retail and industrial lines are experienced notable growth. The combined ratio has improved to 63%, supported by Agro, which remains in the low 50s with a lack of relevant events as well as a strong performance in other retail lines. North America, premiums are impacted by the dollar depreciation, while the combined ratio has improved 2 points to 83% during a traditionally quiet quarter weather-wise. Regarding Motor, the third quarter confirmed previous trends with significant advance in most market. The combined ratio is now below 100% with around a 5-point improvement year-on-year. The net result is almost EUR 96 million compared to EUR 70 million in losses last year. In Iberia, the combined ratio has improved over 6 points, reaching 98.5%, and we expect to see further improvements. Premiums are growing 3% and reflect average premium growth of over 7%, almost a point higher than the market. The result has grown by over EUR 80 million, reaching EUR 52 million compared to losses last year. In Brazil, premiums are down mainly due to the currency depreciation. The combined ratio remained stable, in line with higher interest rates. Performance has been a standing in North America with a EUR 52 million profit, almost double compared to last year, with the combined ratio down more than 3 points. Regarding the regions, in other Lat Am, almost all units are now reporting combined ratios below 100%. In EMEA, the combined ratio is also down 8 points from around 120% to 112%. In conclusion, technical management remains solid and the measures implemented continue paying off. Regarding the Life business, premiums are up almost 10% with strong trends in Iberia and other Lat Am, especially Mexico. Furthermore, the Life business is very profitable, adding EUR 180 million to the result. In Iberia, total premiums are growing 20% due to strong performance in savings products. Excluding special transactions, growth in Iberia will be around 17%. This very strong underlying performance is supported by our extraordinary distribution capacity, adapting to the individual needs of our clients. The protection business is growing in line with previous trends. The net result was EUR 92 million, down year-on-year. About half of the decrease is explained by lower financial gains. In Brazil, premiums are 14% lower, impacted by the currency as well the high interest rate environment, which affect lending and related Life Protection product demand. Profitability remains strong with a combined ratio of 82%, down 2 points year-on-year. Regarding the rest of the countries, volumes were up almost 16%, led by over Lat Am, in particular, Mexico. Performance in both Mexico and Malta has been noteworthy, growing more than 40% and 10%, respectively. Now I will hand over to Felipe to discuss the main balance sheet items. Felipe Navarro de Chicheri: Thank you, José Luis. Shareholders' equity stands strong at over EUR 8.9 billion, up 5% during the year on the back of the excellent results we are reporting. The improved valuation of the available-for-sale portfolio offsets the negative currency conversion differences, mainly from the U.S. dollar, which is down 12% year-to-date. Leverage is at 21%, reflecting our disciplined approach to capital and debt management. Regarding our capital structure, we don't expect any major changes in the near future. The upcoming maturity of our senior bond in May 2026 will most likely be refinanced by senior debt. We hope to go to market sometime early 2026. Total assets under management stand at more than EUR 63 billion. Third-party assets, which are now over EUR 15 billion are up more than 14% with outstanding performance in Brazil. We maintain our position as one of the leading non-bank players in the asset management business. Our own investment portfolio amounts to EUR 47.5 billion with asset allocation stable. We remain convinced that our portfolio's defensive nature, focus on quality and diversification and high liquidity is well prepared to face market volatility. On the top left, you can see our main fixed income portfolios. Regarding the euro area, duration is down year-to-date, but relatively stable on the quarter and portfolio yields overall are slightly higher. In other markets, portfolio yields in Brazil substantially increased nearly 240 basis points year-to-date, reaching 12.7%. In other Lat Am, yields are stable, while they are moving up in North America. On the bottom left, you can see Non-Life net financial income is up around 9%. Other Lat Am continues to be affected by Argentina, where investment returns are lower than prior years, which is offsetting the hyperinflation adjustments, which are also lower. On the right, you can see net financial gains at around EUR 29 million. Iberia remains the largest contributor, the majority coming from Non-Life. Now I will hand the floor over to José Manuel to make a few closing remarks. José Manuel Inchausti Perez: Before moving on to the Q&A, I would like to reiterate that we continue consolidating significant improvements across all regions and business lines, especially in the Motor business. This is thanks to one of our strongest assets, our high level of diversification, both by geography and by product, which not only mitigates risks but allow us to leverage opportunities. We continue executing our strategic initiatives with focus on profitable growth and continuous technical improvements as we move forward in our internal transformation. Financial income is still a relevant tailwind, and our balance sheet remains resilient. Despite the geopolitical and macroeconomic uncertainty, we have a very positive outlook. We are prepared to face the headwinds from currency depreciation, inflation and economic slowdown, and we are confident in the direction we are heading in. The increased interim dividend we announced this morning is proof of that. In conclusion, these solid results are proof of the strength of MAPFRE's business model, our ability to adapt in a constantly changing environment and our ongoing commitment to profitability, solvency and a client focus. These achievements allow us to be optimistic about the coming years, continue with the prudent approach that define us. I will now hand the floor over to Leandra to begin the Q&A. Leandra Clark: Thank you, José Manuel. Although most of you are already familiar with the process [Operator Instructions] And now let's start with the first question. We've received several questions surrounding the reinsurance business. Juan Pablo Lopez from Banco Santander would like to ask if there's been any impact from the recent hurricanes in the Caribbean. José Jiménez Guajardo-Fajardo: Okay. And thanks for your question, Juan Pablo. To be honest to you, I mean, the impact so far is negligible. And we have to say that MAPFRE has no exposure to Cuba and Jamaica. And in the case of Global, it's a minimum exposure that probably it wouldn't affect the result. Leandra Clark: We've also received several questions regarding the reserve strengthening at MAPFRE RE during the quarter. Maks Mishyn would like to know what was behind these reserves? And Alessia would like us to quantify the impact, both at 9 months and on the third quarter stand-alone and what businesses they affected, if they affected any particular line of business? José Jiménez Guajardo-Fajardo: Okay. I would say that probably following our prudent approach to reserving, I mean, we have reserve reinforcements has been around EUR 165 million year-to-date, which means more or less a 5-point impact on the combined ratio. Otherwise, it would have been below 90% without this one-off. In terms of the quarter, last quarter, we did a reserve around EUR 60 million. Leandra Clark: Thank you. Paz Ojeda also would like to know if we've finished with this reserve strengthening or will this continue in the coming quarters? José Jiménez Guajardo-Fajardo: Probably, I think it's too soon to say. I mean we are just in the middle of the hurricane season. Apart we have all the kind of NatCat events that could happen at any time around the world. So I would say that until the 1st of January is quite difficult to comment. But of course, I mean, we are prudent by nature. And if we think that there is secondary price increase or whatever it could happen, we are more on the prudent side. Leandra Clark: Thank you, José Luis. Maks also had a question regarding our outlook for the fourth quarter. As we've seen that the hurricane season remains mild. If that continues into the fourth quarter, what could we expect from an underlying combined ratio? José Jiménez Guajardo-Fajardo: Once again, I would say it's too difficult to say. Hopefully, the quarter could end as it has started. But during the last few weeks, we have Melissa and everything was a little bit concerned. Finally, it's not a big issue. But still, we have to deal with the end of October and November. Leandra Clark: Thank you. Moving on to another topic, still MAPFRE RE. Juan Pablo from Banco Santander asked about the loss ratio, which he said was very low in the quarter. Was there any release or extraordinary impact? And he also asked for the expense ratio, which has increased quarter-on-quarter. And is wondering if there's been any other extraordinary impacts in either of these lines. José Jiménez Guajardo-Fajardo: Well, as we have mentioned before, there is no release at all. It's the other way around. We have reserve reinforcements as we have pointed out. Maybe the good figures come from low NatCat events during the quarter. And regarding the expenses, it's just the profit sharing adjustment that we have in some policies that explains the difference. Leandra Clark: Thank you. We have one last question from Maks Mishyn regarding the reinsurance business. In particular, he's asking about the profitability of the Life business. I believe there may have been some volatility on the quarter, although this is a business that tends to have high volatility. Felipe Navarro de Chicheri: There is as well -- I mean, the reserves as well in the Life business has been reinforced during the year. And we can mention that the Life business, which is an area that we want to grow in the future, has been observed and developed in a very prudent way. So this is what we may expect on the year. I mean we are looking at this business very closely. And I think that year-on-year, it evolves quite swiftly. Leandra Clark: Great. Thank you. We're going to move on to the next block of questions. Moving on to Iberia. Juan Pablo from Banco Santander has some questions regarding the Motor gross written premiums that are growing 3% versus the sector, which is growing around 9% and that we've seen some loss of policyholders during the quarter. How do you see the competitive environment? Are you expecting an inflection point in terms of market share in the short term? José Manuel Inchausti Perez: Okay. The first thing is that MAPFRE Iberia has dropped 6 points, its combined ratio in Motor insurance, which was the main objective. And now it's in a good 98.5%. That was the first objective, and we were very focused on profitability. Once -- and in spite of that, the growth is 3%. It's true that it's less than the market. It is still a positive growth of 3%. In the next quarters, once we have improved, I would say, radically the combined ratio, we will be a little bit more focused on growth, not only in premiums, but in insured units. Regarding the market, what we could say is that the market has entered in a very soft market in the motor insurance in Spain, but we will be more dependent on our technical results than these movements in the market. Leandra Clark: We've also received some questions that affect more the General P&C line. The first one is from Paz Ojeda, Bank Sabadell. She mentions that it's been a quite benign year in general for weather -- from a weather event point of view. And that it seems -- or she'd like to know what part of the improvement in the combined ratio in General P&C is due to this very benign weather environment. Felipe Navarro de Chicheri: I mean there's definitely some kind of impact of this benign weather. I mean this is something that we are experiencing lately. It is true that General P&C has as well other exposures that are affecting the situation. And once again, we want to mention that there is a very prudent approach on the reserving of this line of business. So even though this prudent approach that we are taking, we are still posting excellent combined ratios, and we should continue if nothing happens otherwise. Leandra Clark: Thank you, Felipe. Moving on also into General P&C. Maks Mishyn from JB Capital would like to know what has been the impact of the wildfires in Spain on your claims during the quarter? José Jiménez Guajardo-Fajardo: I will say that despite the tragedy of these wildfires, we all have in mind those images about the countryside, small village and the fire and so on. We have to say that many of these properties were not insured and probably the impact will be negligible on the accounts. Leandra Clark: Great. Thank you. Moving back to Motor. We've received several questions, which I'm actually going to summarize, I think, from a few analysts. I think in general, the question is, number one, what can we expect for the combined ratio in Motor in the coming quarters? And number two, what -- how do we feel about this slowdown in premium growth? And do we think this can also improve in the coming quarters? José Manuel Inchausti Perez: What I would say is that the combined ratio in MAPFRE is -- Motor insurance is 99.6%, which is a good improvement over 5 points over the last year, and it will continue improving in the next quarters. Growth has been 2.3%, affected by exchange rates, and it should be better in the next quarter as well. Leandra Clark: And Maks Mishyn has a follow-up question on that, and he'd like to know what type of tariff increases are you implementing in Motor? And when do you expect to normalize churn and start growing the client portfolio? José Jiménez Guajardo-Fajardo: Well, in this case, I mean, we -- as we have said in different presentations, the premium, I mean, the increase in target is more related to inflation to cover the cost slightly above inflation. But it's true that during the last quarters, I mean, year-to-date, we prefer to come back to profit and to resolve the crisis on the Auto business. Right now, I think we are in a very good position to try to put the focus on growing in terms of customers, and that's where we are focused for the coming quarters. Leandra Clark: Thank you. We're moving on to the Iberia Life business. Barclays -- Alessia, Barclays commented that Life gross written premiums came down by 17% in the third quarter. Can you please give us some details of the drivers of why the business volumes in Life came down between the third and the second quarter? José Jiménez Guajardo-Fajardo: Linear growth in Life Savings, I mean, it's not regular. I mean we cannot share the same amount every quarter. So it is true that during the first and the second quarter, we have a real extraordinary growth. Probably the third quarter has been more flat. But as well, we have plans. You all know, we try to become a leader on financial planning in the Spanish market. We have more than 3,000 branches, more than 10,000 people specialized in Life Savings, and we are really focused in continue growing on the coming quarters. Leandra Clark: Thank you. We have two more questions or one more, I believe, for Iberia. Juan Pablo from Banco Santander. He asks why financial income was down and would like to know if we can expect a stabilization at the current levels. José Jiménez Guajardo-Fajardo: At the group level, I mean, financial income has grown around 9%, if I'm not wrong, with the figure. In the case of Iberia, it is true that we have to come back to last year because last year, we sold a real estate property, and we did an important capital gain. But we have to say that we expect a stabilization even maybe why not increasing a bit the financial income. I think that the book yield is something that probably can continue growing slightly. And it is true as well that this year, we have less capital gains compared to last year despite the incredible performance on the financial markets. But we are not -- we have no concern about that. And probably we believe it could be a tailwind in the coming quarters. Leandra Clark: Thank you. We have one additional question in Iberia, General P&C. The combined ratio performed very well, down again during this quarter. And Juan Pablo from Banco Santander would like to know, has there been anything extraordinary or a release of provisions? Felipe Navarro de Chicheri: As I said before, I mean, General P&C is performing extremely well. There was no release during the quarter. There was -- in fact, it was otherwise. I mean, we were preparing for having a very benign quarter to have some reinforcement of reserves in this line of business as well. So things are performing well, and this is nothing extraordinary that we should mention. Leandra Clark: Thank you. Well, we finished with Iberia. And in case -- unless there's any follow-up questions, we're moving on to Brazil. Our first question is from Juan Pablo at Banco Santander, and he's asking about growth. He comments that we're seeing a fall in gross written premiums. What is our outlook for this business? And what is the impact from the struggling Agro business in Brazil? José Jiménez Guajardo-Fajardo: Well, in the case of Brazil, we have to say, I would say, several things. The first one is that the business is performing extremely well and results are growing another quarter. It is true that we have an important headwind there, which is the high interest rates. The Selic right now is around 50%. And where you are selling insurance product linked to credit, it's quite difficult to grow in such market conditions. I would say, the good news is that probably next year, we have elections in Brazil. Inflation is coming down, very close to the target of the Central Bank. And we believe it could be reasonable to think that probably interest rates could come down in Brazil significantly. In the short term, we have the advantage, we have the pros of high interest rates for our investment portfolio. In fact, the book yield of the investment portfolio has increased almost 3 percentage points, which is not bad. But on the other hand, it's suffering a bit in terms of premium growth. Next year, we could see a reverse on this function. So probably we have lower interest rates. We expect to see more premiums coming for the business. So we are optimistic about the future of the business in Brazil. Leandra Clark: Thank you. Following up on the Agro business, well, I would say the combined ratio in general, Non-Life, which is very much supported by Agro. Juan Pablo from Santander asks, your combined ratio increased quarter-on-quarter after a very strong second quarter. In the past, you mentioned you expected a lower structural combined ratio in Brazil. Could you update us on the structural level around mid-70s combined ratio? José Jiménez Guajardo-Fajardo: I think 70s is a wonderful combined ratio, and we would like to see that ratio in many of the business. And it doesn't matter from one quarter to another, it moved slightly up. I mean, if I remember properly, second quarter was around 68%. Right now, it's 71%. I'll be more than happy to see 71% for the coming future. But this is an extraordinary business for us. I think we think we have a quite competitive advantage in the marketplace. And it doesn't matter if the combined ratio moves around the 70s up or down. So we are very happy with that. Leandra Clark: Thank you. Regarding the Life business in Brazil, is there any -- there's been a fall year-on-year in the premiums. Is there any reason different to ForEx? And how do you see the trend of the Life Protection business going forward? Felipe Navarro de Chicheri: I mean as José Luis has mentioned already, I mean, this is very much related with interest rates. Selic at 15% is a deterrent on the increasing of the credit in the market. We should expect that if -- as José Luis mentioned, we are going to have lower Selic during the next year. There will be an increase of lending in Brazil that will help us to increase the level of premiums on the market. I mean there is as well the FX that has been affecting us. But I mean, I think that all in all, I think that there is a solid position on the Life Protection business that will continue during the next year. Leandra Clark: Moving on to the rest of Latin America. On a similar note, Life business is actually doing quite well and growing year-on-year, but the P&C business seems to be a little weaker. Is there any other reason, again, different from foreign exchange? What are the trends you're seeing in Non-Life in the rest of Latin America outside of Brazil? José Jiménez Guajardo-Fajardo: As we have pointed out before, I mean, high interest rates is really a driver of this, in the sense, it's quite difficult to sell insurance linked to credit. And it is the same trend in Mexico, it could be in Colombia and Peru. As we have a more positive view regarding interest rates in the future, we have seen this week as the Fed has reduced by 25 basis points and probably this could continue in the coming months. So this could help as well that Latin American central banks could review as well rates. So this is a very good trend for the business. Apart from that, I mean, we have the FX effect. But once again, we tend to believe this has stabilized so far. And in the last, I would say, 2 months, we have seen how some Latin American currencies has strength rather than deteriorate compared to previous quarters. And so far, year-to-date, we see a slight appreciation on the real, a slight appreciation on the Mexican peso. So I don't know, I think probably this mean reversion probably could affect us positively from now till next year. Leandra Clark: Thank you. We're going to move on to North America. We've received so far, two -- one question. Juan Pablo from Santander would like to know why is the combined ratio so low in P&C? Were there any release provisions? Or was it weather-related? José Jiménez Guajardo-Fajardo: No. I mean not release provision at all. It's just probably this part of the year is probably the best in the U.S. in terms of weather-related events, but also all the hard work that our colleagues has done there in terms of efficiency, in terms of operational effectiveness and so on. But the weather has helped a bit, but we continue with the good trends of previous quarters. Leandra Clark: Thank you. We're going to move on to a few questions we received regarding the balance sheet strengthening that took place with some extraordinary impacts this quarter. We received a question from Antoine at AlphaValue. He would like us to give some background information regarding the goodwill write-down in Mexico. How is this business performing? And what would have been the combined ratio in Lat Am, excluding Mexico? Felipe Navarro de Chicheri: I don't have a figure about Lat Am, excluding Mexico. I mean we can send it the answer to you after. I mean it's going to be very detailed. Regarding the write-down in Mexico, I think that we need to be aware on what kind of transaction we were looking for in this area. We wanted to have -- to increase the network that we had in order to distribute better and reaching more the client in the Life business. In this case, I think that the acquisition of a network of more than 4,000 agents and related distributors of Life business is an extremely good acquisition. The thing is that the business that was on back of it, this was -- there was something that we need to revise, review and to challenge in order to provide with sound information on this business. This is the reason about this partial write-down that we did in the goodwill in Mexico. That is part of it that has been preserved, because we think -- that we continue thinking that the business should be profitable. There will be a lot of cross-selling that is not included in this goodwill that is going to be captured from Mexico. And once again, this is part of the very prudent approach that we have from the balance sheet, and this is going to be the same approach that we have on the reinforcement of reserves and looking at a very strong balance sheet for the future of MAPFRE. Leandra Clark: And just to follow up, we're looking at the combined ratios for the region and Mexico's combined ratio is very much in line with the total of other Lat Am. So there's no large difference in the profitability across the region versus Mexico. Thank you. We received another question coming from Paz Ojeda, Bank Sabadell. And she'd like to know what risks do we have remaining for additional write-downs in intangibles, including goodwill, deferred tax assets or value of business acquired across the different subsidiaries that the group has? Felipe Navarro de Chicheri: I think that we look always as a very conservative -- with a very conservative eye all those intangibles assets that we have. When we are looking at them, we have a very strong and very strict approach on how we analyze it. It is true that the goodwill that we have in the market are right now associated mainly to very strong operations. And I think that, that is something that has been seen in the past. I mean, they're related with very strong businesses. But we are going to continue looking at the opportunity of approaching this with the most prudent way in a manner that things are going to be on the reinforcement of the balance sheet. There is nothing in the short term that let us know -- let us think that we should continue with this -- with any kind of write-down. But I mean, in any case, we are going to continue looking at each of every -- and every line of the balance sheet in order to take the most prudent approach that has been taken in the last years. Leandra Clark: Thank you, Felipe. Moving on, we have a question surrounding the dividend. Juan Pablo from Santander asks, we've seen your solvency ratio improved to 209% compared to 206% last quarter. This is the figure we have at the end of June. This is quite comfortable above the midpoint of your target range of 200% with a 25-point leeway. Could we expect any increase of dividend payment -- payout -- excuse me, of dividend payout? José Manuel Inchausti Perez: What I have to say just -- and then I will let José Luis speak about the solvency ratio. Any decision about dividend payout is taken by the Board and they must be approved by the AGM. So that will be the procedure. José Jiménez Guajardo-Fajardo: Well, regarding the solvency ratio, I mean, we are really happy with the level that we have achieved, 209%, which is in line with the margin that has been set out by the AGM, by the Board of Directors. And nothing to comment. I mean, probably if the trends continue, we could keep within that range on the high end. And probably, we are looking forward to continue with such a strong balance sheet. Leandra Clark: Thank you, José Luis. We're going to move on. We have 2 more questions. The next one is regarding M&A coming again from -- sorry, from Banco Santander. He'd just like an update on what are our M&A plans and our strategy going forward. Felipe Navarro de Chicheri: Mean there's no change in the strategy. We already mentioned that we have capacity to display more capital, but I think that we are not in a hurry right now. We are looking at any opportunity. There is nothing on the desk that we should look for a very immediate closing or in the next months. The opportunities that we are looking at or that we are looking with a very close attention are related with, of course, with Spain that we want to increase our distribution power on the country, mainly for the -- trying to rebuild the bancassurance agreements that we had in the past and try to distribute better on the Life business. On the -- we should be keen on displaying more capital in the euro area, and we need to bear in mind that the only country mainly that we could do it would be Germany. Italy could be an opportunity, but I mean, it's mainly Germany on this side. If we look at Lat Am, I think that there are two economies that are the focus of our M&A strategy. First, Brazil. And we are looking for any opportunity that could help us to increase our importance there. It is important to mention that we don't need -- we don't want to jeopardize in any case our very good agreement with Banco do Brasil. So we will be very careful in this area And of course, Mexico, which is a country that is in the long term, very linked to the U.S. economy and is the second biggest economy in Lat Am. Looking at the U.S., I mean, we could think about some company that will present some business that will make a complement to the one that we are distributing already in Massachusetts, which is mainly Homeowners and Motor, and try to look for an opportunity in a single state company that could help us to try to put a foot on another state that could help us to start developing mainly this new line of business in the area that we are already present or the Motor and Health -- or Motor and Home that we are already doing very well in Massachusetts in this other state. I mean those are the main points that we want to increase. I mean, the areas where we want to deploy more capital will be, I mean, on top of, of course, Motor agreements, distribution agreements, Life business, which is one of our priorities. I mean, I think that there is nothing that changed from the past. So the same kind of strategy and nothing on the short term for the moment. Leandra Clark: Thank you, Felipe. And moving on to our final question. Juan Pablo from Banco Santander has commented that our latest guidance in terms of ROE and combined ratio looks a little out of date. And do we plan to update these targets anytime soon? José Manuel Inchausti Perez: As I said before, our current guidance was adopted in coherence with the Strategic Plan that ends in the next year. Fortunately, things seems to be better than expected. But we have to bear in mind that we are not in the end of the year, we are just in the third quarter on one side. And on the other side, any change in any guidance of the company must be adopted by the Board previously. Leandra Clark: So we have no further questions. We did receive some to the platform that we think would be better answered after the call due to a very technical nature. We'll reach out to you between now and Monday. And just as a reminder, all the documents are available at our website. And now I'm going to hand the floor back to José Manuel for some closing remarks and after José Luis Jiménez. José Manuel Inchausti Perez: Yes. If I make some closing remarks, I would say that we are very satisfied with the company figures that we have presented. They are excellent results, and the results are the consequence of 3, 4 very hard years of work, especially to decrease the combined ratio and to grow up the ROE. Combined ratio is improving 2.2% -- 2.2 points over the last year. That has been compatible with a very prudent approach, which has led us to make some strongest provisions in some units, especially in Reinsurance unit and to make the write-offs and the recognition of fiscal assets that we have presented to the market. So overall, every country -- almost every country, almost every business line is improving its technical results. So we feel the whole team feels very rewarded for the for the work that has been done in the last year. Growth is 80% in a constant exchange ratio and having this improvement on the balance and on the results, we will be focusing in profitable growth over the next quarter, not only in premiums. This is something that we already have, but in insured units and in terms of customers. Another thing is that MAPFRE is having a very good years, and we have good expectations for the end of the year if nothing extraordinary happens. Just to remind that the dividends will surpass for the first time in our history, EUR 500 million, which is a very remarkable figures. And just to put an end, talk just a second on the prudent deployment of AI and digitalization that is going on in the company. The company is improving a lot. And I must say with a prudent and humanistic approach to the AI, we are expanding it over the company. And the last part is to talk about system plans, very important system plans that are going on in Spain, Latin America and U.S.A. And so far, they are giving results and they are on track as well. So that is my final conclusion, and thank you very much for the attention and the questions. Leandra Clark: Thank you. José Jiménez Guajardo-Fajardo: I think José has said it all. We have had a wonderful quarter, and we are looking forward to a really good year for MAPFRE. Thank you so much for your analysis, for your questions. And if you have any further questions that we are able to give you a proper answer, we are at your disposal in the coming hours or days. Thank you so much. Leandra Clark: Thank you. José Jiménez Guajardo-Fajardo: Thank you. José Manuel Inchausti Perez: Thank you.
Operator: Good morning, ladies and gentlemen. Welcome to Vale's Third Quarter 2025 Earnings Call. This conference is being recorded and the replay will be available on our website at vale.com. The presentation is also available for download in English and Portuguese from our website. [Operator Instructions] We would like to advise that forward-looking statements may be provided in this presentation, including Vale's expectations about future events or results encompassing those matters listed in the respective presentation. We caution you that forward-looking statements are not guarantees of future performance and involve risks and uncertainties. To obtain information on factors that may lead to results different from those forecast by Vale, please consult the reports Vale files with the U.S. Securities and Exchange Commission, the Brazilian Comissão de Valores Mobiliários and in particular, the factors discussed under forward-looking statements and Risk Factors in Vale's annual report on Form 20-F. With us today are Mr. Gustavo Pimenta, CEO; Mr. Marcelo Bacci, Executive Vice President of Finance and Investor Relations; Mr. Rogério Nogueira, Executive Vice President, Commercial and Development; Mr. Carlos Medeiros, Executive Vice President of Operations; and Shaun Usmar, CEO of Vale Base Metals. Now I will turn the conference over to Mr. Gustavo Pimenta. Sir, you may now begin. Gustavo Duarte Pimenta: Hello, everyone, and welcome to Vale's Third Quarter 2025 Conference Call. I would like to start by highlighting how excited I am about what we are building at Vale. Our vision to become a trusted partner with the most competitive and resilient portfolio in the industry remains solid, and we continue to make significant progress towards this future. This quarter, we once again delivered solid operational and cost performance across the board, and we are on track to deliver all of our guidances for the year. We continue to advance our safety agenda, most notably by removing the last dam from emergency Level 3, a significant milestone in our derisking journey. Our key initiatives and growth projects are also moving forward as planned, reinforcing our long-term strategic focus and disciplined capital allocation approach. These results give me great confidence in Vale's future and in the value we are creating, not only for our shareholders but also for society. Now let's move on to the quarter performance on the next slide. First, I would like to highlight the solid operational results we delivered across all 3 commodities, positioning us to reach the upper limit of our annual production guidances. This achievement reflects the outstanding performance of our operational teams, and I want to congratulate them for their hard work and consistency throughout the year. This quarter, iron ore production reached 94 million tons, an increase of 4% year-on-year and our highest quarterly output since 2018. This growth was primarily driven by a record third quarter performance at S11D, along with the ramp-up of Brucutu, Capanema and Vargem Grande projects, which added flexibility to our operations and product mix. Copper also delivered a strong performance with production growing 6% compared to last year, supported by Salobo's solid performance. This was the best third quarter result for our copper business since 2019. Nickel production remained flat year-on-year, but with an increase in our own production, thanks to the ramp-up of the Voisey's Bay underground project. This allowed us to significantly reduce our unit costs year-on-year as Marcelo will present later. Also in nickel, we started operations at the second furnace of Onça Puma in September. The project was completed on schedule and 13% below the planned CapEx, reinforcing our commitment to efficiency. The second furnace adds 15,000 tons of production capacity per year, and it is expected to further reduce unit cost by approximately 10%, enhancing the competitiveness of our nickel business. We also reached other important milestones this quarter through our new Carajás program, which aims to accelerate the development of key projects in one of the world's most attractive mineral deposits. As many of you know, in June, we received the preliminary license for the Bacaba copper project and have since begun preparations for construction, which is set to start in the coming months following the issuance of the construction license. In iron ore, we received the operating license for the Serra Sul plus 20 million tons per annum expansion. The project has reached 80% physical progress and should start up by the end of 2026. Additionally, we secured approval to expand Serra Leste's capacity from the current 6 million tons per year to 10 million tons per year, bringing extra volumes to the Northern System with a highly competitive capital intensity of just $20 per ton. Now looking at our portfolio. One of Vale's key competitive advantages is our ability to adapt to different market conditions, offering a product mix that meets the evolving needs of our customers. This is possible given the flexibility of our supply chain, supported by multiple blending, concentration and distribution facilities across the world. Throughout 2025, we actively adjusted our iron ore product portfolio, concentrating our high silica products and launching a new medium-grade product from Carajás. This flexibility results in significant value creation. In Q3, our iron ore fines premium increased by nearly $2 per ton quarter-on-quarter. From an EBITDA perspective, those initiatives represent over $500 million improvement on an annualized basis. Safety is at the center of every decision we make at Vale, and I'm very proud of the significant progress we have achieved this quarter in dam safety and management. Back in 2020, we made a public commitment by 2025, Vale would no longer have any dams classified at emergency Level 3, the highest risk category. Last August, we fulfilled that commitment. The Forquilha III dam, the last one at Level 3 had its emergency status officially lowered to Level 2 by Brazilian authorities. This is an important milestone in our commitment to society and neighboring communities and a key mark in our safety journey. Also in August, we announced that Vale successfully implemented the global industry standard on tailings management, the GISTM, meeting the requirements of this internationally recognized benchmark. Lastly, in September, we completed the decharacterization of the Grupo Dam in Minas Gerais, marking the 18th structure eliminated under our program. Advancing the dam safety agenda is essential to ensuring non-repetition and becoming a trusted partner to society. We remain committed to delivering results and being a reference for safety and operational excellency in our industry. Our efforts to transform Vale are beginning to be recognized by ESG rating agencies. We've demonstrated substantial improvements in governance, dam safety and management, health and safety and climate change. These advancements have led to upgrades in our ratings now surpassing levels seen prior to Brumadinho. I would also like to highlight that over the last 1.5 years, a relevant number of ESG-focused investors have removed Vale from their exclusion lists. We estimate roughly 1.5 trillion in AUM can now invest again in our shares and fixed income instruments. We remain dedicated to transparently showcasing the progress we've made across the company, and we remain firmly committed to the principles of the UN Global Compact, including respect for human rights, labor standards and environmental protection. I will now pass the floor to Marcelo Bacci to discuss our financial performance. I'll be back for closing remarks before the Q&A session. Marcelo, please go ahead. Marcelo Bacci: Thanks, Gustavo, and good morning, everyone. As Gustavo highlighted, we delivered another quarter of solid operational performance, which gives us even more confidence in the long-term value we are creating for our shareholders. This quarter, our pro forma EBITDA reached $4.4 billion, an increase of 17% compared to the same period last year and 28% higher than the last quarter. As you can see on the slide, this consistent result was driven by robust sales, lower all-in costs across all 3 commodities and more favorable pricing conditions. In Base Metals, EBITDA grew by more than $400 million year-on-year, reaching almost $700 million, thanks to better results in both copper and nickel. In iron ore, EBITDA was close to $4 billion, an increase of almost $250 million, supported by higher realized prices and quality premiums, reflecting the success of our portfolio strategy. This improvement was also supported by the higher sales of iron ore fines, as I'll detail on the next slide. Our iron ore sales increased by 5% year-on-year, reaching 86 million tons, the highest level for a third quarter since 2018. This growth was driven by stronger production performance and solid demand for iron ore fines with benchmark prices staying above $100 per ton for most of the quarter. This quarter, we built up around 4 million tons of inventory. It's important to highlight that this was mainly due to volumes in transit to our 20 distribution and concentrating facilities in Asia and Europe, supporting our portfolio strategy. We expect these inventories to be converted into sales over the coming quarters, helping us maximize the value generated by the business. Now looking more closely at our cost performance. I'm very pleased to see that we are on the right track to meet our 2025 iron ore cost guidance. Iron ore all-in costs declined 4% year-on-year, supported by our portfolio strategy, which led our average iron ore fines quality premiums to increase by almost $2 per ton quarter-on-quarter and $3 per ton year-on-year. Our long-term affreightment strategy is also delivering excellent results, reducing cost volatility and coming in $5 per ton below spot freight rates to China during the period. Our C1 cost, excluding third-party purchases, remained flat year-on-year, reflecting a positive impact from inventory turnover compared to last year, which offset the effects from the exchange rate and higher maintenance and materials costs. These effects led to an increase in our production cost, which reached $20.3 per ton this quarter. The production cost from this quarter, along with the less favorable exchange rate compared to last year are important factors to consider when estimating our C1 cost for Q4, which is expected to increase year-on-year. Despite this, we remain highly confident in achieving our full year guidance of $20.5 to $22 per ton. In Base Metals, our performance stood out once again, showing the great potential of this business as we continue to unlock value through ongoing initiatives. Copper all-in costs decreased by 65%, falling below $1,000 per ton. This was the fifth quarter in a row that we've seen cost reductions year-on-year. In nickel, all-in costs fell by 32% year-on-year to $12,300 per ton, reaching the lowest level since the second quarter of 2022, even after taking into account the impact of the PTVI deconsolidation. These improvements came from Vale Base Metals consistent focus on efficiency initiatives, combined with higher byproduct revenues in our polymetallic sites with gold being the main contributor. Because of the lower-than-expected costs so far this year and the favorable outlook for byproduct revenues, we are once again lowering our 2025 cost guidance. We now expect nickel all-in cost to be between $13,000 and $14,000 per tonne and copper all-in cost to be between $1,000 and $1,500 per ton. This continued cost improvement means an EBITDA increase of nearly $900 million compared to our expectations at the start of the year. Now let's move on to cash generation. Recurring free cash flow reached $1.6 billion in Q3, an increase of $1 billion year-on-year. This improvement was primarily driven by our solid EBITDA in the quarter and a reduced impact from negative working capital. Our total CapEx was $1.3 billion this quarter. We expect investment disbursements to increase in the fourth quarter, keeping us on track to meet our $5.4 billion to $5.7 billion full year guidance. On top of our recurring free cash flow generation, we also had a positive impact from the Aliança Energia transaction, which helped boost total free cash flow in the quarter to $2.6 billion. This strong free cash flow generation and strong cash position were primarily used to return value to our shareholders with the payment of $1.5 billion in interest on capital and a net borrowing of $600 million as part of liability management. Next slide, please. As a result, our expanded net debt decreased by $800 million quarter-on-quarter, reaching $16.6 billion, with iron ore prices remaining above $100 per ton, we expect the free cash flow generation in the fourth quarter to bring us down at least to the midpoint of our target range of $10 billion to $20 billion. In this context, we see increased room to consider additional shareholder remuneration even in the context of the participated debenture tender offer. Before handing over to Gustavo for his closing remarks, I want to emphasize the value we are consistently delivering to our shareholders. Through our growth strategy, cost efficiency and disciplined capital allocation, we are building a more resilient and high-performing company. These efforts strengthen our financial position and create conditions for sustainable and increasing returns to our shareholders over time. Gustavo, please. Gustavo Duarte Pimenta: Thanks, Marcelo. Before opening up for the Q&A session, I would like to highlight the key takeaways from today's call. Safety remains our core value, and this third quarter performance only reinforces that as we continue to advance on building an accident-free work environment and on delivering on our upstream dam decharacterization program. We once again delivered a solid operating performance with cost reductions across all businesses, reflecting our focus on operational excellence. Our flexible product portfolio allows us to maximize free cash flow and long-term value creation under different market conditions, and we are seeing those benefits in our financial performance. We are making solid progress on strategic projects in the Carajás region, leveraging one of the richest and lowest cost mining endowments globally. And finally, our disciplined capital allocation approach ensures we seize the best opportunities to generate long-term value for all of our stakeholders. Now let's move on to the Q&A session. Thank you. Operator: [Operator Instructions] Our first question comes from Rodolfo Angele with JPMorgan. Rodolfo De Angele: My two questions are the following one. So first, I would like to ask Rogério a question about the portfolio strategy. That was a thing that we discussed a lot in the recent investor tour, and it's amazing to see it already showing a large impact already in the third quarter. So I wanted to ask you to give us a little bit more color on how this should progress? What is the potential? Just an overview on what should we expect about portfolio strategy, which seems to be yielding pretty interesting results. And my second question, I think, is for Bacci or Gustavo or for Bacci. I think what we hear from investors is company is showing a very strong performance. The operations seem to be much more -- it seems like you have your hands on the wheel and things are really improving, and we're seeing limited surprises, which is always very good. And when we see a quarter like this one where the company generated over $2.6 billion in free cash flow, the question that I'm getting a lot from investors is how should we think about dividends as one part of the capital allocation strategy going forward? So those are my two questions. Rogério Nogueira: Thank you, Rodolfo, for the question. On the portfolio, I think up to now, our joint actions, and I mean joint because those are actions from the commercial operations and technical areas in optimizing our product portfolio, they have yielded very positive results. Just a few examples for BRBF and SSCJ. SSCJ is our mid-grade product from the northern part, which are both low aluminum mid-grade ores. They have commanded very high premiums versus the index 62%. As Gustavo mentioned, it was close to $3 per ton normalized to a 62% Fe content iron ore, which was a way higher than a year ago. If you look into the third quarter of 2015, fine premiums reached $0.7 per ton, which is actually $2.6 per ton higher than the third quarter of 2024 and $1.8 per ton higher than the 2Q 2025. And this is -- and I would like to say that this is actually despite a relatively lower quality product mix. So I mean, very positive results so far. Last but not least, IOCJ premiums also kept a very healthy level at about $15 per ton, obviously, driven by some good steel margins, but also by wiser product allocation, and we can talk more about it. But I think what I would like to reinforce is that we're very confident in our product portfolio. I think we see that IOCJ and BRBF will remain our core products with a strategic allocation to regions and clients who really require their unique properties. That means that we will sell it, but we're well allocated to clients and regions that actually value or have a higher VIU or pay a higher VIU for these products. SSCJ, as I said, which is the mid-grade product from Carajás that we just introduced, has already achieved sales of about $30 million per ton -- 30 million tons and is becoming a global product with potential to further increase its sales in 2026. So as we look into 2026, we believe that our volumes of SSCJ will increase gradually. Last but not least, our Chinese concentrate, which we started as a -- not such standard product is becoming a highly valued product in the Chinese market. So this is very good news. This product is also commanding very good premiums in the Chinese market. I think the only other one is the pellets market that we have been talking about. 2025 has been a challenging year for pellets. We see 2026, 2027 as years that will gradually recover our pellet premiums, especially with the start-up of new projects that will demand pellets, mostly projects that are going to look into direct reduction, looking for decarbonization. And also with the Chinese exports cooling down a little bit, and which will add more demand for regions that need pellets. Look, I think we will keep proactively optimizing our portfolio solutions, not only based on market demand, but also on our mine plan possibilities as we have been doing with the operations team. And we'll keep observing the market, observing the market needs and our competitors' positioning so that we can define our best allocation in our best portfolio. Gustavo Duarte Pimenta: Rodolfo, Gustavo here. Let me just add one thought here, and then I'll pass to Bacci to cover the capital allocation. But I think what you are seeing in the market is seeing is that one thing we've been sharing with investors is the enormous flexibility that Vale has in its portfolio, right? I think nobody in the industry has that flexibility. We've talked about 20 blending facilities across the globe, several concentration facilities. So that allows us to put into the market what our client needs at the right time. And I think this more dynamic product allocation and development that we've been able to show just reinforces the enormous competitive advantage that we have to play along the cycle. So I'm very happy with the outcome. And I think we'll be able to capture even greater value as we move forward. So to your second question, I will ask Bacci to cover. Marcelo Bacci: Thank you, Gustavo, and thank you, Rodolfo, for the question. As you mentioned, Rodolfo, the stability of the company and the stability of the market are creating better conditions for us to think about the extraordinary dividends for the coming months. As I said during the presentation, the price is above $100 on a consistent way plus the operational performance are creating a very nice cash flow position for us, which is better than we expected at the beginning of the year, plus the positive performance coming from the Base Metals business. So we cannot anticipate the decision right now because there's still a few things to happen, but it is likely that we have extraordinary dividends announced in the coming months. Operator: Our next question comes from Rafael Barcellos with Bradesco BBI. Rafael Barcellos: So as a first question, are there any plans to revise the offering structure of the participating debentures announced in early October? I mean any updates you could share on that front? And that said, maybe connecting with this Bacci speech on the dividends, I mean, what would be the implication or the implications for Vale's dividend payouts, particularly, of course, for extraordinary dividends? And as a second question, first, Gustavo, congratulations for the results that you have been delivering on the copper side. And that said, are there any plans or ways that you could -- that you believe that Vale could accelerate or speed up the growth initiatives in the copper business? Marcelo Bacci: Thank you, Rafael. This is Marcelo speaking. On the participative debentures, I guess, we have to -- first, the offer is to be concluded today. And this offer has been unique. It's the only one that we have ever done since the issuance of those debentures 28 years ago. And I would like to stress out that the executive committee does not expect to make another movement like this in the foreseeable future. We also believe that the price that we're offering is quite reasonable and above the fair value that we believe we have with a 15% premium compared to the price before announcement. So if we consider our production volume guidance, is the offer price of BRL 42 implies an iron ore price of $100 per ton -- around $100 per ton in the long term. So we think it's a very interesting offer to the holders. And of course, if you believe prices are to be above $100 per ton, probably positioning in the shares is a better deal. So I think we are not considering any change to the offer, especially because, at this point, it is about to be closed today. Gustavo Duarte Pimenta: Rafael, for your question. I will pass to Shaun. I think he'll be able to provide more color. What I can say is based on everything I've been hearing from the team, from Shaun and the ExCo of VBM is that the more we look into the growth opportunities in Carajás, the more excited we are. So this is something, hopefully, at Vale Day, we'll be able to talk more about it, give you concrete examples. But let me bring Shaun to the debate here. I think he'll be able to share more details with you. Shaun Usmar: Thanks, Gustavo, and thanks for the question, Rafael. I think the short answer is we will cover more of this as Gustavo say, in Vale Day. But really, we've fundamentally focused on 2 things right now to do exactly what you're saying. The first one is you've seen the industry, I think, on track this year to under-deliver against the original expectations with a series of issues by about 6%. An issue for us, just get the basics right in our existing operations. So you've seen our quarter, I did guide in Q2 that this was expected in both our segments to actually be our weakest quarter with planned maintenance, like at Sossego. And despite that, we've seen our operators do incredible work and we're on track, particularly at Salobo for record performance. And I think we're looking at Sossego a mature asset for the best operating performance, which is tough for an older asset in certainly 5 years, which is exactly what we need as a baseline. The other thing then goes down to capital allocation and the project growth pipeline, specifically on Pará. And here, we're not waiting for an annual time frame. We've taken -- we discussed this a bit during LME Week. Historically, 2024, for example, we do about 20,000 meters of drilling in the district. And this year alone, we've dynamically reallocated R&D spend, we've tripled our drilling this year. And we will share more on what we're finding, but it's incredibly exciting. So it creates this very dynamic question about drilling, drill results, the endowments and how do we actually optimize, not only to accelerate, but to see what we can do to increase volumes over and above what we thought was conceivable. We're very careful to make sure that we don't make the mistakes, I think you see in the sector more broadly, which is get over-enthusiastic. We have to ground this in delivery. But I think as Gustavo said in his opening remarks, first cab of the rank is Bacaba. We've worked with the government to be able to accelerate ahead of getting our work, so we hit the weather window here on early works on the bridge, which is critical path. They're about 40% ahead of plan currently. We hope to get that soon and we'll obviously communicate with the market soon. But we are set up there for lower capital intensity and to do that faster. And I won't spill the lead on some of what we're seeing with the life of business planning our projects, but all of that is around reducing capital intensity, execution risk and working more closely with governments on reducing permitting time frames. And I think we've got some really good news that we're working on in that area. The other thing is we're seeing with the ramp-up also on our polymetallics, we're ahead on both the Voisey's Bay, and we've seen our highest output in Sudbury in 5 or 6 years, we'll put over 5 million tons for Clarabelle this year. We are seeing a significant copper byproduct that is a material, it's over 20% of our total copper contribution. So that is a significant contribution to that business segment's all-in cost improvements as well. Marcelo Bacci: Rafael, this is Marcelo again. I forgot to mention about the question on the effect of the buyback of the debentures on a potential dividend payment. I would say that at this point, there is no effect or a minor effect. So this would not change our strategy in relation to dividends. Operator: Our next question comes from Leonardo Correa with BTG. Leonardo Correa: So a couple of things on my side. And sorry, it's going to be a bit similar to Rodolfo, so sorry, Rodolfo, for that and Vale management. But moving back to these 2 points, which I think are at this point critical, right, for the investment case. Rogério, starting with the commercial strategy, right? I mean great results so far I think you gave a very good qualitative assessment of everything that's happening. Things have been delivered very fast, right? So there's been a, let's say, a U-turn in the direction of things and you can already see an improvement in price realizations of -- depending on how you look at it, right, $1.8 to $2.5 per ton in better realized prices, right? It's natural, I think, for everyone to question, given the fast speed and improvement, where do you think we are in this, let's say, in this S-curve, right, of this entire journey on the commercial strategy? I know there's no guidance, and I know there's -- it's very difficult to quantify, but would you say we're at the early stages of this optimization and that these results, they could continue improving, maybe doubling from where we are? So anything quantitatively, I think would be very helpful, at least to me, so we can understand the, let's say, the economic impacts of what you're doing. The second point, to Marcelo. Marcelo, we spoke a lot about the potential extraordinary dividends. You talked about the [indiscernible] and how they impact that decision, which is close to 0 or very little. You're talking about iron ore prices have been ahead of expectations and how that helps and the cash flow projections going forward, I can imagine, have improved. What we haven't debated yet is the potential changes in regulation in the country, right? I mean Brazil is on the verge of increasing taxation on dividends to 10%. And every single company, every single management team and every single tax department is obviously running the numbers and trying to assess implications and what the next steps are, right? I mean looking into the numbers for Vale specifically, right, I mean, one can simply conclude that there's about 30% of the market cap in retained earnings, right, which is a relevant number. I know leverage is not high but maybe a bit higher than what -- the mid-range of your guidance, but still manageable. I want to see from you if that changes the calculus, right? This potential regime change in Brazil on taxation of dividends, does that change in the short term your calculus on the extraordinary dividend that you're about to announce? Rogério Nogueira: Okay. Well, no, thank you very much. This is a very fair question. Let me break it down in 2 steps. First, let me give you a view of what we're doing and then I'll give you an idea of the potential impact, okay? So what we have been doing is that we keep proactively optimizing our portfolio solutions. So always looking to the market demand, as I said, and looking at our mine plan possibilities. Just to give you a few examples of things we're doing. We're developing additional, more competitive concentration capacity on a global basis so that we have less costly, better logistics for the concentrate production that we produce. And those concentrate production or this concentrate production allows us to think about different optionals in terms of blending. We are establishing alternative blending facilities outside China on a global basis wherever possible. For example, we're putting blending facilities in Sohar, we're putting blending facilities in Europe, we're looking at some other options in Malaysia. So we want to increase our flexibility to distribute on a worldwide basis, and that actually helps us to better allocate the products and optimize not only the service to clients, but also our price realization. Where -- there's a third element, that we're also improving process flow sheets, so to increase metallic recovery in the concentration facilities. We created a small technical group to develop and deploy best practices. This is extremely important because the metallic recovery on those concentration plants do have an enormous value. And last but not least, we're improving logistics. So trying to figure out the places where we should be positioning blending facilities, concentration, so that we can optimize logistics costs. So those are the things that we are doing. But ultimately, to your question, so the potential impact depends a little bit on a few factors. First is the competitors' reaction and how they are developing their own portfolio and how we would fit, complement their own portfolio. Just to give an example, you might see some of our clients their view on product portfolio is decreasing quality to optimize resources and reduce C1 costs. This is where they're going. I mean it's very accretive for them. But as long as they're going this direction, that actually offers us a possibility to put more complementary material into the market. And our view is that this will increase the value in use of our products. So the second one just to think about is how the market will react in terms of this anti-evolution capacity closures. The less capacity you have available to produce the same amount of steel or the same amount of pig iron, the higher the premiums one would expect because the higher quality of iron ore would be demanded to maintain productivity of the remaining blast furnaces. So I'm just giving you a few examples that this game will need to played -- would need to be played as we go, but that we have developed an enormous flexibility and we're monitoring the market very closely so that we can maintain the current premiums and try to optimize it even further. Marcelo Bacci: Well, thank you for your question. Of course, we are monitoring very closely the potential and the changes that have happened and the potential additional changes in regulations, especially related to tax -- income tax on dividends and interest on capital. The situation we have at Vale is that we can pay -- if you look at the minimum dividend policy that we have, most of it, if not the totality of it, can be paid using interest on capital. So the immediate impact on the regulation -- of the regulation on dividends for us is limited. But we are monitoring. Still, there is some confusion in the market about the potential conflict between the corporate law and the new regulation that was created by -- for dividend payments related to profits that already have been recorded, in terms of the -- when those dividends can be paid after declared. So we are still working on that. But we are monitoring that very closely, as I said. And if there is any opportunity to optimize the situation of the company and our shareholders in relation to tax, we're going to look very closely into that. Operator: Our next question comes from Carlos De Alba with Morgan Stanley. Carlos de Alba: Congrats on the solid results. I wanted to focus a little bit on Base Metals. And maybe, Shaun, can you elaborate a little bit more on how do you see the timing of Vale pursuing more aggressively the copper growth opportunity that it has? Obviously, several projects in the portfolio. How do you see the sequence of those? When can we start to see the Board, maybe management presenting the projects for Board approval, and then hopefully start on the path of expanding that copper output? And then my second question, also on Base Metals, will be if you can share maybe some color as to how the cash cost without byproducts or before byproducts in Base Metals has performed. Obviously, kudos to the company and to you on the lower all-in cost guidance. But that definitely were influenced by strong byproducts, which they count, we'll take them. But just if you can shed some light on how the cost performance has been before byproduct benefits. Shaun Usmar: Thanks for that. So the copper growth, I'm going to punch, I think that mostly to give you the detail on Vale Day, as much as I'm jumping it a bit to share with you now. I can just say we've fundamentally redesigned our life of business planning this year and very much with an eye to exactly the dynamics you've mentioned. So we are prioritizing, as I said earlier, dynamically capital to copper in Pará, specifically on R&D spend. And the constraint that we have on copper growth is not throwing more money at that. I just want to be clear. Like our plans currently, we are fully self-funded through our planning horizon, mostly through, not just, as you said, byproduct credits, but really fundamentally through our entire business restructuring, our capital intensity, reducing our working capital and fundamentally reducing our overhead and our cost in this business, so things that we control. So we are seeing opportunity. I will disclose more within weeks of how we're seeing that opportunity to look at sequencing and growth opportunities. And I'd sort of direct you to say, as far as I can see from the market analysis that we see with analysts and others, we're not even getting credit for what we've guided to yet. So I recognize that the market is sort of waiting to see what we're capable of delivering. I hope that we -- I hope that it's evident, particularly against the backdrop of the copper sector that's struggling to deliver. Our assets are hitting records. We have to get that done fundamentally to earn, frankly, the right from Vale and Manara for further capital, and we're delivering that. And then in addition, I think we're finding significant opportunities on how we approach projects and work with our partners and our stakeholders to unlock their copper growth. So I know it's not the -- this is a little of the detail you're looking at, but we will provide that within a matter of weeks. And I am, I think, to just coin what and echo what Gustavo said, the more work we do, the more excited we get. And I expect that as we get more drill results, and we will continue to increase our drilling. The constraint is just getting enough drills, frankly, for us to continue to do more. What we will find is, I think each year, for the foreseeable future, we'll be able to continually dynamically improve. But we've seen a step-change in copper and I'm super excited about that. We see it in our internal valuations. The next, on just more broadly for Base Metals. If you remember in prior quarters, we started restructuring this business about a year ago. In fact, it was about 6 weeks into my tenure in the role. And the team, I was actually with our operating teams out, we do quarterly reviews with all the asset and functional leads, so just last week, I'd say each of our assets is exceeding their internal commitments and plans. It's quite remarkable. And that is looking not at, to your point, byproducts, and as you said, we'll take it, and we're obviously doing the things that we can to enhance recoveries. We've seen Salobo as an example, compared to just a few years ago, we're about 10% ahead on gold recovery. These guys are doing an incredible job, and we're seeing -- we're on track for record copper and gold production this year in Salobo as an example. But at the same time, the focus is on reliability and fixed overhead reductions, which we're seeing flow through, things we control, which we're seeing flow through into the enablement of the decentralized model that we've spoken about previously. And that is manifesting in things like Sossego. Within a matter of months, a controllable 40% reduction in unit mining costs with changes in practices and engaging that workforce. We're seeing fixed cost dilution in practically all our operations, specifically the work that has been done in Voisey's where they're now about 20% ahead. And that has enabled Long Harbour in the first time in its 11-year history within a period of months to actually be achieving its design capacity. It's never done that before. And they're doing that through enhanced availability, reliability of the equipment specifically, but significant cost control and being able to drive that through and enhance productivities. And we've still got a long way to go, I'd say, for the business as a whole. We've done well, but we've got more opportunity to achieve benchmark productivities. Sudbury, I mentioned earlier, is, with the 5 mines, has achieved significant improvements, and they've done it safely. We've had about a 40% improvement in TRIFR. We -- as you heard in the opening remarks, celebrated in September, bringing the Onça Puma furnace 2 on about 13-or-so percent under budget and on time. And importantly, that is -- we're already -- Kilma this year with her team has taken that asset now with the fixed cost dilution. And being ahead of her cost commitments, we'll bring that down into the second quartile, which is the ambition for the nickel business to be sustainable. And I know specifically on that segment, because I know it's been a challenging one historically, the focus that we've mentioned there is not just to be the beneficiary, which we are as we've ramped up, but more byproducts. And to remind you, at the moment, in the Canadian nickel assets, about half of our revenue is derived from nickel at these prices, and the remainder is copper, cobalt, PGMs and precious metals just generally. We are the beneficiaries and we're seeing enhanced volumes and higher prices that are helping us there. But importantly, the increased volumes that we're seeing flow through are significantly contributing to and the low overheads are contributing to the fixed cost dilution and those improvements. And even Thompson, we're seeing the best throughputs in that operation at this stage since, I think, it's 2021. So every asset that I'm seeing at the moment is coming to the party and contributing on what they control. And we have further to go. So I hope that gives you a sense. Operator: Our next question comes from Caio Ribeiro with Bank of America. Caio Ribeiro: So my first question is in regard to your expanded net debt. I just wanted to get a sense from you on if and when you could possibly consider a revision of your current range of $10 billion to $20 billion. What's the rationale behind a decision like that? And if you do make any changes, what implications that carries for buybacks and dividends to be announced going forward, particularly if you increase that expanded net debt range at some point? And then in second place, my question is on pellets and briquettes. This year, Vale took the decision to cut its pellet production as a reflection of less favorable market conditions. I just wanted to see if you can give us a sense of what signs you're looking for to bring that capacity back, and if there is a particular level of premiums for pellets that you're looking for to take that decision. And bringing briquettes into the discussion, I just wanted to see if you can give an update on how the development of this product is evolving and whether you're confident at this point of the large-scale applicability of applications of this product. Marcelo Bacci: Caio, on the expanded net debt we are not envisioning a change in that policy in the short term. I guess the company will gain more and more capital flexibility over time as the relative weight of the reparation commitments becomes smaller in the expanded net debt over time, especially in the next 1.5 years. So a few months from now, we're going to be in a position where the difference between the net -- the financial net debt and the expanded net debt will be lower and lower. And at some point, we're going to have to review the concept. But for the time being, we believe that both the concept and the range are adequate to our reality. Rogério Nogueira: Caio, thanks for the question. In terms of pellets, there has been a decrease in demand, at least up until the end of the year, so steel mills outside China, they are operating at lower capacity utilization, primarily due to competition from imported steel from China. And with that, there is a less need for blast furnace productivity, what impacts negatively blast furnace pellet demand. So that's the scenario that we are facing. Also we have had some additional increase in supply coming from Samarco and from LKAB. The way we see it is the medium term as of end of 2026, 2027, there's going to be a significant increase in demand, especially driven by electric arc furnaces, which are coupled with direct reduction furnaces. So only in Europe, you have many projects ongoing, like all the German companies, from ROGESA Roheisen, Salzgitter, you have Austria with Wüster, you name it. You have, in Mexico, you have Ternium, Psqueria So the amount of the demand for pellets over time is going to increase gradually, also some in the U.S. But the point is we don't have a target for pellet premiums to open up plants and continue to increase volumes. I mean we will react to the market on a continuous basis. So we'll bring volumes to the market as we see fit. But our expectation for the years to come is actually very positive. We need just to overcome the sort of this point in time where China is exporting significantly and hurting steel mills, blast furnaces around the globe. In terms of briquettes and briquettes development, we are extremely confident. I think we have 2 kinds of briquettes, one for blast furnace, which have been -- we have a few blast furnaces which are already operating at very high participation of briquettes in their burden mix, in some cases even 100% with very good performance in terms of productivity, in terms of fuel consumption. And our challenge now is actually to prove it for direct production. We are running some industrial trials by the end of this year, beginning of next year. And our expectation is extremely positive. We should be able to give a better view of the results of this test or these industrial trials in the next call. Operator: Our next question comes from Daniel Sasson with Itaú BBA. Daniel Sasson: Most of them have actually been answered, but maybe I'll try to do one that we don't talk that much or that frequently about, which is on Samarco, right? The company got out of its judicial reorganization in third quarter. For those that have been following the story for a long time, I think, and correct me if you think I'm wrong, but investors in general, have kind of zeroed the dividends received that could be received by Vale from Samarco. And then right after, the dam burst happened and then Vale started to disclose the potential contributions to the Renova Foundation and so on and so forth. . But if you could comment a little bit on how the ramp-up of the second concentrator is doing. And if it's too soon or not maybe to think about the reversal of some of the provisions that you've made for the contribution to the Renova Foundation, if you think that Samarco will be able to take care of those payments themselves and therefore, some that could alleviate the contributions that could be made or that would have to be made by Vale and BHP, that would be great. And my second question, since we're talking about this, the overhangs or most of the overhangs that Vale has solved over the past 1 year, 1.5 years, you've gone a long way, if you have any updates on the legal case ongoing in the United Kingdom, if we've had any developments there, that would be great. Those are my questions. Gustavo Duarte Pimenta: Thanks, Daniel. Gustavo here. I'll do the first one and Bacci will cover the second one. Look, we are very happy with the progress that the team in Samarco has been doing. They've ramped up the second concentrator, doing around 15 million tons. They are about to make a decision of going to the third concentration, so Samarco could be getting all the way up to 28 million tons in a few years out. So we are very happy with the operational performance. They now also incorporated the responsibility for the reparation and they've been doing an outstanding work there. So it is a very strategic asset for Vale I think it's early to talk about impact on provisions. There is still a lot of work to be done there. But from an asset perspective, it is a very strategic asset that we like very much, and we are very excited with the work that the team has been doing so far. Marcelo Bacci: On your second question, Sasson, the U.K. case is still going on. We expect potential decision of this phase of the case in the coming weeks, sometime in November. That could mean the end of the process if we win or actually not we, but technically BHP, but we share any consequences with BHP. But if BHP prevails, that would end the process. If not, that would leave the process to another phase that will take a few years in order to quantify the potential losses of the climates. Important to mention that some of the claimants that were initially part of the lawsuit in the U.K. have decided to join the Brazil agreement, which we believe is the main means to compensate the impacted people. So out of the more than 300,000 individuals that joined the Brazil agreement, half of those at least were part of the U.K. agreement. So they decided to give up on the U.K. in order to join the Brazil agreement, and they have been also already paid in Brazil. And a part of the municipalities also joined the Brazil agreement. And the part that have not joined have been provided for in the provisions that we constituted in Brazil. So we consider that the case in the U.K. still goes on. There may be an additional impact in our numbers coming from that, but part of that has been resolved already. Operator: Our next question comes from Caio Greiner with UBS. Caio Greiner: My first question, to Rogério on China Mineral Resources Group. So Rogério, we understand they have reached a significant portion overall Chinese iron ore purchases. And so I wanted to hear from you. How are the talks going with between Vale and them? There are obviously news of a competitor that has been having some issues on those discussions. So I just wanted to understand what has been Vale's strategy on negotiating with them, and if you can share with us what has been the focus point of those negotiations, if there are any talks of any sort of long-term supply agreement. Any color there would be helpful to us. And the second one, actually a follow-up to the previous expanded net debt question, but more focus on the methodology. I guess for Bacci. More questions have been emerging since you guys announced the perpetual debenture repurchase and whether or not this would raise the expanded net debt figure, if it would impact dividends, which you guys already talked about. But at the end of the day, I think the point is, there are other debt-like instruments on Vale's balance sheet, which are not really included in the expanded net debt methodology. So I wanted to understand, how does Vale internally look at its overall debt burden or obligations, whatever we can call it? And is the expanded net debt method actually the one that you most use inside of the company? And if not, if there are any plans to rethink this methodology, change the methodology going forward and eventually even raise the target range? Rogério Nogueira: Okay. Caio, Rogério, thanks for the question. Now first of all, I think we're following closely the negotiations CMRG has been having with other iron ore players. And we are also in talks with CMRG. But I'd like to just reinforce that China has been a very historical partner for us and we have an extensive history of cooperation with our Chinese partners. For example, we've developed the BRBF with Chinese clients. We have a comprehensive network of blending facilities, which we've developed with the Chinese ports. We've developed the VLOCs with Chinese shipyards and ship owners. So there's a long history of collaboration. So given this, as I say, long-standing relationship, and the value that we place in China, we have held comprehensive conversations with CMRG along the years, but we've always explored win-win alternatives, understanding that and this is important, that we have a product portfolio that is unique and it's very complementary to the all other offering that China has. So having that in mind, we are working with them just to find win-win solutions. I'll be there, I will be -- next weeks. We're talking to them. But we hope to find sort of win-win solutions for Vale and for China. Marcelo Bacci: Caio, on the expanded net debt, it is indeed the indicator that we use internally for the evaluation of our capital structure. We do have the participation of debentures as an additional instrument that is not included in the net debt concept, but that's because of the nature of that instrument. That is a perpetual instrument where we have the net present value of that recorded as a liability but as a nonfinancial liability in our balance sheet. So it is an obligation anyway that will have to be paid in terms of the interest or the semiannual interest that we pay. But the principal amount is recorded in another balance sheet line. We continue to think that the expanded net debt is the right way to look at this because we still have a significant amount of reparations to be paid. As I said, during '26 and '27, a very important part of those payments will have to be performed. So by the end of '27 or mid-'27, we're going to have a much lower difference between financial debt and expanded debt, which means that we may be in a position to review the concept. It is important to notice that the obligation related to reparations is different from a regular debt because it cannot be refinanced. We need to pay as they mature. So that's why it's important to keep that concept at this point. But as I said, in the coming years, we're going to be in a position to review that. Operator: Our next question comes from Marcio Farid with Goldman Sachs. Marcio Farid Filho: Rogério, another one for you. You're In very high demand today. How should we think about the change in the benchmark grades into next year? Obviously, Platts is moving from 62% to 61% FE, alumina and I think phosphorus benchmarks also increasing into next year as well. Seems to be part of a natural industry transition into lower-grade assets. But how should we think about that? And our understanding is that, especially for flat steel, which is -- I think is becoming more relevant than long steels now in China, flat steel is relatively more -- it's more important, especially when you think about phosphorous content, and I think they are more sensitive to that. So how does Vale places into that trend in terms of benchmark change and the change in terms of product mix in China going forward as well? And maybe the second one to Gustavo. Gustavo, obviously, good job on the operational front being done in the last year or so. I think you've been talking on the media and you've mentioned that Vale has regained the first part in terms of the largest iron ore producer potentially this year, but with higher confidence next year. So it's great. But obviously, when we look at company size in terms of market cap or whatever other metrics you want to look at, Vale has clearly lagged peers as well, right? So everybody is asking about how we can expedite copper growth. And we obviously have other iron ore projects to be delivered into next year as well, especially in the north. So there's more value to be created for sure. But is that an ex-side from the Board or from management to catch up to that to that lag. I mean when we look at Vale's ranking on a global scale, again, it's lost some position, right? So is that an ex-side to there? Or is it just it is what it is and you keep doing what you have in terms of internal endowment? That's obviously another way to ask about M&A or any other ways to grow the business in a faster mode. Rogério Nogueira: Marcio, to begin with the benchmark with the PRAs, this is a very good question. Indeed, there's a bit of uncertainty right now as most of our competitors are moving their product grades more towards 61%, such as the Pilbara Blend at 60.8%. The agencies are discussing about migrating from the index 62% to an index 61%. At this point in time, they are going to be publishing a very differential between the index 62% and the index 61%. But probably down the road, the prevailing index will be a 61%. We are -- our products are actually higher, even our BRBF is a 63% FE content. We're discussing with the index, for example, the possibility of launching and with the PRAs, that we're talking about metal bulletin platts, argus [indiscernible] okay? About the possibility of launching a low alumina 61. It's important to say that our products are always sold at the specification, which is higher FE. Let's say, BRBF is 63% but when we bring it to an index, it's normalized for FE, okay? So there shouldn't be much of a change. We will be discussing with the agencies what makes sense for us to sort of to compare our products with, what is the best reference, what's the most liquid reference. But this is still ongoing, okay? In terms of FOS content, you're absolutely right FOS is becoming more and more important, especially when you have such large volumes of products such as the Yandi from BHP and Rio Tinto coming out of the market. And FOS should be one of the specific elements that has to come into the specs, has to be valued and put into a value difference. We are working on this front, so we'll give you more update as we firm up a solution. Gustavo Duarte Pimenta: So Marcio, Gustavo here. On your second question, look, we agree with you. I think there is still enormous opportunity for Vale to unlock value. I think this management team is highly focused on that. And despite some of the rerate we had recently, we still believe there is a lot of opportunities for us to continue to advance and regain our position in the market from a market cap standpoint. That's what we are working on. And this is the legacy we want to leave, be very focused on value creation as we go along. And our view is that the value we will accrue and we'll regain it if we continue to operate our assets well, that we are outstanding in terms of operational performance. So the results you've seen, it is highly encouraging, and I think we can do even better, not only in iron ore, but also in Base Metals. So this is a key priority for us. And in this industry, this is one of the most important things that you have to master. But we also see Vale as a company with potential highly-accretive growth opportunities. If we look at the comps and the capital intensity for some of our competitors, just to stand still, is substantially larger than us. And I think sometimes this is underappreciated by the market. Vale has a unique potential to bring volumes and grow with a capital intensity that is substantially better and more competitive than our competitors. So if a few years out we are doing 360 million tons of iron ore, with the right mix of assets, lower cost, this is going to be, for sure, the most competitive iron ore platform in the world, I have no doubt about it. And I'm feeling more comfortable that we'll be able to get to that future. And if we can double the size of copper and tomorrow, do 700 kilotons, not 350, leverage the endowment, another unique advantage of Vale, the endowment that we have. We don't have to go to other places. M&A, yes, a lot of people are doing M&A. But we don't need to do. We do have the resources here. So it may take a little longer. But remember, we are very focused on value creation here. So I'd rather take a little more time, but develop the right projects with the right level of returns and grow consistently. Because I think that's what it's going to, a few years out, create sustainable value for our shareholders. That's what this team is very focused on. And I think it's in our hands to deliver. Operator: Thank you. This concludes today's question-and-answer session. I would now like to close the conference. We thank you for your participation, and wish you a nice day.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Eldorado Gold Third Quarter 2025 Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Lynette Gould, vice President, Investor Relations, Communications and External Affairs. Please go ahead, Ms. Gould. Lynette Gould: Thank you, operator, and good morning, everyone. I'd like to welcome you to our third quarter 2025 results conference call. Before we begin, I would like to remind you that we will be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary statements included in the presentation and the disclosure on non-IFRS measures and risk factors in our management's discussion and analysis. Joining me on the call today, we have George Burns, Chief Executive Officer; Christian Milau, President; Paul Ferneyhough, Executive Vice President and Chief Financial Officer; Louw Smith, Executive Vice President, Development, Greece; and Simon Hille, Executive Vice President, Operations and Technical Services. Our release yesterday details our third quarter 2025 financial and operating results. This should be read in conjunction with our third quarter 2025 financial statements and management's discussion and analysis, both of which are available on our website. They have also both been filed on SEDAR+ and EDGAR. All dollar figures discussed today are U.S. dollars, unless otherwise stated. We will be speaking to the slides that accompany this webcast, which can be downloaded from our website. After the prepared remarks, we will open the call for Q&A. At this time, we will invite analysts to queue for questions. I will now turn the call over to George. George Burns: Thanks, Lynette, and good morning, everyone. We are pleased to welcome Christian Milau as President joining as part of my succession planning. Christian has already been actively engaged with our leadership team through recent budget and strategy discussions and has met with a number of our shareholders and analysts since joining last month. He brings a fresh perspective and a strong focus on our key priorities. His appointment further strengthens our leadership team as we continue to advance our growth strategy and position Eldorado for long-term success. Turning to the outline for today's call. I'll begin with an overview of our third quarter 2025 results and highlights. I'll then hand the call over to Christian for his remarks, followed by Paul on our financials and then Louw and Simon with an update on projects and operations. Turning to Slide 4, our third quarter highlights. We achieved safe production of 115,190 gold ounces and generated approximately $77 million of free cash flow, excluding securities investment. Operational performance remained strong at Lamaque, benefiting from early processing of the remaining portion of the second Ormaque bulk sample. Kisladag had fewer tonnes placed on the pad and lower grade stack as a result of reduced equipment availability and short-term mine plan resequencing as well as placement of ore on a test pad for the whole ore agglomeration project. Efemçukuru maintained stable production, while Olympias had challenges from stockpiled ore containing the viscosity modifier used in the tailings paste backfill that negatively impacted the process water chemistry in the flotation circuit. During the third quarter, we improved management of the stockpile of ore but modest negative impacts on metal recovery may persist as we continue processing material from affected backfill stopes and stockpiles. Given our strong performance through the end of the third quarter, we are tightening our 2025 guidance range on gold production and now expect to be between 470,000 and 490,000 ounces. Turning to cost. We have revised our 2025 guidance upwards. Total cash costs are now expected to be between $1,175 and $1,250 per ounce sold and all-in sustaining costs are expected to be between $1,600 and $1,675 per ounce sold. These increases were primarily driven by: one, record high gold prices and recently enacted higher royalty rates in Turkiye driving higher royalty expense; and second, lower-than-expected performance at Olympias has resulted in lower byproduct sales, higher processing costs with production expected to be at the lower end of the guidance range. Additionally, for 2025, we also expect sustaining capital cost to be at the higher end of our $145 million to $170 million guidance range. In line with previous 2025 guidance, operations growth capital is expected to be between $245 million and $270 million. Lastly, at Skouries, project capital investment for 2025 has been revised upward to between $440 million and $470 million as a result of the acceleration of work originally planned for 2026 across several noncritical path areas and proactive derisking efforts. The estimated overall project capital remains unchanged at $1.06 billion. We are on track with accelerated operational capital and are maintaining our guidance of $80 million to $100 million for 2025. Turning to Slide 5 in the third quarter. Our lost time injury frequency rate was 1.21, an increase from the LTIFR of 1.10 in the third quarter of 2024. We recognize there is always room for improvement and remain committed to continually strengthen our safety performance. Throughout 2025, we're advancing health and safety initiatives. These efforts are reinforced by the multiyear rollout of our Courageous Safety Leadership program launched earlier this year. On sustainability, our team in Quebec recently welcomed a delegation of external and internal verifiers to complete the verification against the standards of: one, our sustainability integrated management system; two, the Mining Association of Canada's Towards Sustainable Mining initiative; and three, the World Gold Council's Responsible Gold Mining Principles. The objective of the integrated verification was to demonstrate our commitment to health and safety, social and environment performance. While the reports are in the process of being finalized, we are encouraged with the preliminary results and look forward to sharing our performance when they become available. During the quarter, we continued to execute on our share repurchase program, buying back and canceling approximately 3 million shares for a total of $79 million. For the 9 months ended September 30, 2025, repurchases have been approximately 5 million shares for a total of $123 million. The program reflects our continued commitment to disciplined capital allocation and returning value to our shareholders. With that, I'll turn the call over to Christian to say a few words. Christian Milau: Thanks, George, and good morning, everyone. I'm very excited to be joining you today in my new role at Eldorado. While I've only recently joined the company in September, pleased with the company's strong culture, talented people and high-quality asset base, including operations and projects in attractive mining jurisdictions with long average mine lives and significant prospectivity throughout the portfolio. I have already spent considerable time with our leadership teams through initial budget strategy meetings. These sessions have given me a strong sense of the ambition, opportunities and discipline that will guide the company during the next phase of the strategy as well as the strong alignment around delivering sustainable value to all stakeholders. What stood out most to me is the depth of talent, the capacity across the organization and the clear commitment to safety, operational and ESG excellence as well as disciplined capital allocation. My focus in the months ahead will be on supporting our teams as we advance our near-term priorities and ensuring that we positioned -- we're positioned to deliver our long-term strategy as we go through the Skouries' cash flow inflection point in 2026. Having just returned from our sites in Turkiye and with visits planned to Greece and Quebec in the coming months, I'll have the opportunity to see all the mines firsthand. The visit so far stood out to me with the excellent commitment and pride on display. It's been impressive to witness the energy and collaboration of our teams on the ground, and I look forward to continuing to engage with more of our sites, communities and investors in the months ahead. With that, I'll now hand over to Paul to walk through the financial results. Paul Ferneyhough: Thank you, Christian. Moving to Slide 6. Our third quarter results reflect consistent operational performance and are aligned with our tightened full year production guidance. Robust gold prices have contributed positively to cash flow from our operations, further supporting our capacity to execute our strategic and operational investments in the coming months. In Q3, Eldorado reported net earnings from continuing operations of $57 million, equivalent to $0.28 per share. Excluding onetime nonrecurring items, adjusted net earnings were $82 million or $0.41 per share for the quarter. The principal adjusting item was a $22 million unrealized loss on derivative instruments, primarily due to gold commodity swaps. Free cash flow for the quarter registered a negative $87 million. However, underlying free cash flow, excluding capital investments in the Skouries project amounted to positive $77 million. Turning to our producing assets. Cash flow from operating activities before changes in working capital totaled $184 million during the quarter. Our corporate gold price collars will continue to settle monthly through the year-end with approximately 50,000 ounces outstanding for the fourth quarter and an upper limit of $2,667 per ounce. Following the expiration of these collars, we will be fully exposed to market gold prices with only minimal hedging derivatives remaining tied to the Skouries project financing facility. Production costs for the quarter reached $164 million, representing a $23 million increase over Q3 2024. 1/3 of this increase is attributable to higher royalties while the remainder stems from the rising labor costs in Turkiye, where inflation continues to surpass local currency devaluation, and at Lamaque where additional labor and contractor expenses were incurred due to the planned deepening of the Triangle Mine. In Q3, total cash costs were $1,195 per ounce sold and all-in sustaining costs or $1,679 per ounce sold. Gross capital investments at our operating mines totaled $58 million for the quarter. At Kisladag, these expenditures included planned waste stripping and equipment costs related to construction of the North Heap Leach pad second phase. At the Lamaque Complex, investments focused on the Ormaque development as well as construction of the North Basin water management facility and initial procurement for the recently approved paste plant. Progress continued at Skouries, including facility and process construction as well as early mining activities in both the open pit and underground areas. Throughout the quarter, approximately $138 million was invested in the project, supplemented by an additional $18 million in accelerated operational capital for self-performance of open pit mining operations. Current tax expense for quarter 3 was $52 million, reflecting a $13 million increase from the prior year period, attributing to improved profitability in Canada and Turkiye. Deferred tax expense stood at $2 million compared with a recovery of $11 million in Q3 2024. This included a $4 million expense related to net movements against the U.S. dollar, mainly driven by the lira and euro partially offset by the reversal of temporary differences. Advancing to Slide 7. Our balance sheet remains robust, providing the flexibility needed to support growth initiatives and return capital to shareholders. With liquidity totaling approximately $1.1 billion, we continue to be well positioned to invest in our cash-generating assets, advanced Skouries towards completion and create additional value through disciplined capital allocation and the NCIB program. Earlier this month, and with Skouries production coming ever closer, several staff members attended LME Week in London, the foremost annual event for the global metals community. Productive discussions were held with traders and smelters regarding the sale of our high-quality, clean copper-gold concentrate from Skouries. As a result, we anticipate finalizing initial multiyear offtake contracts by year-end. With this overview concluded, I will now hand the call over to Louw, who will present the highlights of our Greek assets. Louw Smith: Thanks, Paul, and good morning, everyone. Let's begin with Slide 8, which highlights the progress at our Skouries Copper Gold project. As of the end of Q3, overall progress on Phase 2 construction reached 73% and 86% when including Phase 1. We remain on track to achieve first copper gold concentrate production towards the end of the first quarter of 2026. With commercial production expected in mid-2026. We now have approximately 2,000 personnel on site, including 236 members of the Skouries operational team. This strong workforce has enabled us to derisk several areas early. Our skilled labor ramp-up began with concrete, structural and mechanical trades and is now transitioning to electrical, piping and control systems. While we've exceeded our labor targets, our focus remains on aligning skilled resources with active work fronts to support our execution plan. From a productivity standpoint, construction performance continues to track at or slightly above plan across the site. On the bottom of Slide 8, you'll see a photo of the open pit. This week, our fourth crew started operating, enabling the transition to a 24/7 rotation. As of the end of October, we had stockpiled approximately 531,000 tonnes of ore from the open pit and an additional approximately 93,000 tonnes from the underground, containing an estimated 21,000 ounces of gold and 5.5 million tonnes of copper, positioning us well as we prepare for commissioning and initial concentrate production. Turning to Slide 9. The photos here and on the following slides illustrate the steady advancement of work underway. Infrastructure around the process plant continues to progress. Final foundations for support buildings were completed in early October and structural mechanical piping and electrical work are ongoing across the key areas, including the substation, line plant, flotation blowers, compressors at guar area. The control building structure is complete with electrical installations underway on the first 2 levels. We have completed pre-commissioning of the concentrate filter presses and water testing of the flotation cells and tanks, preparation for pre-commissioning the pebble crusher are in progress. Moving to Slide 10. Progress continue on the thickeners, water testing of the first two thickeners is complete and piping installations have commenced following completion of the pipe rack installations. Slide 11 focuses on the filter tailings plant, which remain on the critical path. As of the end of October, structural steel installation at the filter tailings building was approximately 92% complete. The time lapse video showcasing this progress is linked for reference. Mechanical work progressed with the assembly of the filter presses with 4 complete at the end of the third quarter and the remaining tool on plan for completion in November with each press equipped with 98 plates. The compressor building steel structure is 98% complete and all 6 compressors and all -- and air receivers have been installed. As seen on Slide 12, construction of the crusher building structure is progressing. Concrete workers reached the final elevation above the foundation with the final wall lifts advancing. The primary crusher is assembled in position and work is underway on cable tray and internal structural steel stairways and platforms. Conveyor foundations between the primary crusher and the process plant, including the coarse ore stockpile are now complete. Conveyor preassembly and support steel installation are well underway. At the coarse ore stockpile on Slide 13, the stockpile dome foundation is nearing completion and assembly of the dome has commenced. The first of the 3 reclaim feeders and associated chute work has been installed with preassembly continuing on the remaining 2 feeders. Moving to Olympias on Slide 14. Third quarter gold production was 13,597 ounces and total cash costs were $1,869 per ounce sold. Production was impacted by flotation circuit stability issues earlier in the year, which led to a modification of the paste backfill blend to eliminate viscosity modifiers in the backfilled stopes. While plant operations recovered substantially in Q2, affected stockpile ore continued to be processed in the third quarter despite efforts to minimize negative impacts in the processing circuit, ongoing process water chemistry challenges further reduce the metal recovery during the quarter. While mitigation measures are underway, modest negative impacts on the metal recovery may persist as we continue processing material from affected backfill stopes and stockpiles. Progress continued on the planned mill expansion to 650,000 tonnes per annum during the quarter, with the early works advancing and demolition activities underway within the concentrator. All of the major equipment, including the verti-mill, flotation cells, thickeners, cyclones and E-room have been delivered. We expect progressive commissioning and ramp-up in the second half of 2026. We remain committed to driving transformation at Olympias. A comprehensive program is now underway to modernize and optimize the process plant and surrounding infrastructure alongside leadership and skills development program aimed at strengthening capabilities across all levels of the organization. I'll stop there and hand it over to Simon to discuss the Turkish and Canadian operations. Simon Hille: Thanks, Louw. Starting in Turkiye on Slide 15. Kisladag production totaled 37,184 ounces with total cash costs of $1,309 per ounce sold. The decrease in production during the quarter compared to Q2 2025 was primarily due to lower tonnes mined as a result of lower-than-planned equipment availability and the resulting short-term resequencing of the mine plan. Fewer tonnes placed on the pad and lower grades from prior periods along with the placement of ore on the test pad to support the whole ore agglomeration study. The decision has been made to proceed with a whole ore agglomeration at the capital cost of approximately $35 million, reinforcing our commitment to enhancing permeability, improving leach kinetics and shortening the leach cycle. Over the life of mine, we expect operating and capital cost savings driven by a shortened leach cycle specifically the shortened leach cycle is anticipated to reduce sustaining capital expenditures through lower consumable requirements such as liners and associated pipeline. Installation of the agglomeration drum is expected in 2027, with long lead items expected to be ordered in Q4 of 2025. We made a strategic decision to decouple the whole ore agglomeration from the HPGR screening reflecting our continued focus on capital discipline. To support future optimization, geometallurgical studies, continue in order to characterize future mining phases and will evaluate the benefit of additional screening for the HPGR. These studies are expected in the first half of 2026. On Slide 16, at Efemçukuru. Third quarter gold production was 17,586 ounces at total cash costs of $1,522 per ounce sold. Gold production throughput and average gold grades were in line with the plan for the quarter. And now moving to the Lamaque Complex on Slide 17. Lamaque delivered production of 46,823 ounces at total cash costs of $767 per ounce sold. Third quarter production was positively impacted from higher throughput driven by processing the remaining portion of the second Ormaque ore sample. The high-grade ore was treated in a blend with Triangle ore and performed very well. I would also like to congratulate our team at Lamaque hosting during the quarter nearly 30 Quebec members of Parliament of Canada. The visit was a proud moment for our team as they showcased our commitment to innovation, operational excellence and sustainability leadership. And with that, I'll turn back to George for his closing remarks. George Burns: Thanks, team. Before concluding today's call, I'm pleased to announce that yesterday, we finalized the sale of the remaining gold project, Certej. This transaction marks the end of a lengthy process aimed at divesting noncore assets within the portfolio. I look forward to monitoring the progress of the project given our retained equity and royalty. Gold prices have remained strong, but we've seen some sharp swings lately. Through this environment, we remain strongly committed to disciplined cost management, to protect and expand our margins. Capital allocation continues to be a key priority. We're returning capital to shareholders through our enhanced share buyback program while at the same time advancing our high-return growth initiatives across our global portfolio. This positions us for sustained growth, margin expansion and driving enhanced shareholder value as we enter the next phase of Eldorado's transformation. Thank you for your time. I will now turn it over to the operator for questions from our analysts. Operator: [Operator Instructions] The first question comes from Cosmos Chiu with CIBC. Cosmos Chiu: Welcome, Christian. Maybe my first question is on the transaction that happened earlier today. Fresnillo buying Probe gold with the support of Eldorado Gold. I guess my question is, George, has this always been the desired outcome for that investment? And then I guess broader scale, M&A is heating up in the sector. How do you see Eldorado positioned? George Burns: Sure. On Probe, I mean, we took a toehold in Probe a number of years back with the view that there was a property package that could have potential supplemental ore to feed our really permitted mill capacity that exceeds our current run rate. And so our hope was that they would discover some high-grade, high-value underground opportunities that subsequently could be part of the Lamaque complex. Really how that has evolved as they've discovered a large, low-grade open pit opportunity. And as we assessed that opportunity, it really didn't stack up with our other capital allocation opportunities. And so when we heard this week that Fresnillo made an offer, it didn't fit our strategic initiatives going forward. And so we didn't agree to sign on to support that acquisition. On the bigger, broader M&A opportunities ahead, I mean, at Eldorado, our focus is head down, deliver the high-value project Skouries, Olympias expansion and other investments across the portfolio. That's our priority. As we come out of delivering Skouries in the first half of next year, and we're going to be positioned to continue to invest within the portfolio, but look for other opportunities externally. So I think we're in a great position in a great market. But for now it's head down focused on what we're doing. Cosmos Chiu: Perfect. Maybe switching gears a little bit to Skouries. Certainly, sounds good to hear that it is on time for first concentrate in Q1 2026. As you have mentioned, the filter tailings plant is on a critical path. Louw did a good job in terms of summarizing it. But is there anything else that's on the critical path? That's number one. And number two, it is a fairly tight schedule, delivering first concentrate by Q1 2026 and it kind of straddles your holiday season. I know there has been some changes in the schedule in terms of work schedule. But how have you factored in potential workers taking time off during the holiday season. Does it really go kind of dead in Greece during those months or during those weeks? And how should we look at it in terms of kind of like looking at the risk on the time line for delivery by Q1 2026? George Burns: Thanks for the question, Cosmos. Yes, so for a critical path, the dry stack filter plant given the short or the small footprint that we're dealing with there is the key focus for us. Obviously, everything in front of that has to be done and constructed on time to be able to put ore through that filter facility. But I did tell there's nothing at this point that we're worried about. Now looking forward, you hit the nail on the head. It's the transition to get the additional trades on piping the electrical and control system that are critical to delivering everything ahead of the dry stack filter plant. I'd tell you we have good visibility on that. The transition is evolving week-over-week, month-over-month and will continue right up to the first quarter, and then there'll be a dramatic drop off in construction workers and a huge focus on preparing for commissioning. So we're feeling good about that transition. We've got visibility on the required workers over the next 5 months, say. And as we say, we're on track to deliver first concentrate at the end of the first quarter. Cosmos Chiu: Great. And maybe just one last question on Kisladag quickly, the whole ore agglomeration project. Could you maybe remind us what's the potential impact here on recovery, on throughput? And is it really just overall kind of potentially having less wear and tear on the HPGR longer term? Is that what we're trying to do here? Simon Hille: Thanks, Cosmos. It's Simon. The whole ore agglomeration, the purpose of that is primarily to enhance permeability in the leach pad, so that we get a good contact with the lixiviant and the ore particles. And so where we see the best benefit there is, as we've reported previously, we've got a very long leach cycle. Our leach cycle currently is sort of around 300 days on average with enhanced permeability that comes with the whole ore agglomeration. We expect to see that reduced to 200 days. That provides us with the primary benefit of obviously getting our returns faster in terms of metal recovery, but also less infrastructure requirements in the longer term because we need less footprint in order to leach the tonnes in the plan. So at the moment, we're not planning any enhanced recovery in the model but faster kinetics generally are a positive sign for that in the long term. Cosmos Chiu: Yes. Thanks, Simon. I forgot that the leach cycle is that long at 300 days. So 200 days certainly gives it much needed benefit. Operator: The next question comes from Tanya Jakusconek with Scotiabank. Tanya Jakusconek: Welcome, Christian, on board. So maybe, George, can I start with you? Just on Skouries, can I just review with you, we've got that end of Q1 for the concentrate first gold pour. We are then going commercial by mid-2026. Can you remind me again what your definition for commercial production is so that we can monitor the correct 60% of the mill or whatever, however you're going to define it, so we can model that? And then can you remind me from commercial, when do we actually get to steady state? And what do we need to get there? So that's my first question. George Burns: Yes. Thanks for the question, Tanya. On the commercial production, we're expecting to be at 80% of design nameplate throughput at that point and then expect to get the rest to 100% by the end of the year. So that's the key criteria. We're feeling comfortable with that given that it's a single floatation circuit. Olympias is much more complex with 3 concentrates. And we've got already some of our operators from Olympias at Skouries going through training on that particular facility. And I think we're in good shape to deliver that ramp up. Tanya Jakusconek: Okay. 80% of designed nameplate capacity to go commercial, is that 80% over 30 days? George Burns: I believe that's correct. Tanya Jakusconek: Okay. And then from midyear, you expect 6 months really of ramp-up to get to nameplate by the end of 2026 is what I heard. Is that correct? George Burns: That's correct. That's what we're assuming. Tanya Jakusconek: Okay. And then -- sorry. And with that, the old technical report and I say old because it is quite outdated, when are we going to have a better understanding? Obviously, as soon as you operate, you have a better understanding on operating costs, but when is the market going to be given an update on costing for this operation, both on the operating and sort of the capital sustaining costs? George Burns: Yes. So we'll be updating the market on our 2026 guidance in Q1. And with that, will include the remaining capital spend and the operating cost post commercial production. So that will be the first window. Just to reference back to the technical study. So I mean we completed that technical study just prior to getting the financing in place and then initiating construction. So it's only as stated as the construction has been. But again, we'll be updating that as we work our way through next year and getting the actual results that can then be built into an updated technical study. Tanya Jakusconek: Okay. So we would -- so you are expecting to give us an updated technical study in 2026? George Burns: No, I'd say we're going to collect the data from 2026, and that will inform the timing and results in an updated study. So we haven't had a date on that. We're waiting for the results. Tanya Jakusconek: Okay. All right. And then just secondly, as we come towards year-end, I know in December, you'll be releasing your -- and we're literally a month away or thereabouts for your reserves and resources. Can you talk to me about how you were thinking about cutoff grades? What are you thinking about inflation on your costs, gold price inputs. And how do these reserves look and resources? George Burns: Yes. So I mean, the first thing on metal prices. So we're in the process of determining where to land on update on our reserve price assumptions. We use a look back on metal prices as well as staying consistent with our peer group. So we're expecting a modest increase in metal prices. Our focus is to keep our reserve price conservative, ensuring we have very strong margins to drive profitability in the company. So I'd just tell you, it won't be consistent with the peers, a modest increase in metal price assumptions, and we do all this in the fourth quarter at Eldorado so that we have the latest and greatest information to support our budget for next year and our guidance that we'll set in the first quarter. So -- and then in terms of inflation, cutoff grades, I mean, we're working through all those as we speak, and we use actual data and project through our life of mine studies that are done during the summer to set those assumptions. So it's work in progress. I would tell you we're not expecting any radical change in any of those inputs, a modest increase in metal price assumption. Tanya Jakusconek: Okay. And do you expect to replace, do you think your reserves this year? George Burns: Yes. I mean, we haven't finished the work. We're feeling good about it. Stay tuned. We're not far away from releasing that information. Tanya Jakusconek: Okay. And then I guess my final question would be to Christian. Welcome on board, Christian, and you've mentioned in your opening remarks that you're looking forward to the next phase of the strategy and you visited all of the operations. So maybe you can share with us as you look at the company, what are your top 5 priorities for the next 12 months? Christian Milau: Yes. Thanks, Tanya. And actually, just to clarify, I haven't visited them all yet. I said in the next month, I'll visit Quebec and Greece. I'm sort of following along with the preplan visits in our budget strategy cycle here. But I've been really impressed with what I've seen so far. Obviously, I've seen a lot of mines around the world and the ones at Tüurquie I got to visit last week and the week before, very impressive in terms of an ESG approach, in terms of how they operate, the longevity of the team and just the skill and experience and reputation in the industry. In terms of priorities, really for me right now, it's really getting an opportunity to settle in for me when I came in, looking at the culture and how I can slot into a team and really the transition with George, I think it is a wonderful period of time for me to just get caught up without the pressure of having a quick change. And you see in our industry, it happens quite often overnight and get up to speed with the budgets. We're going through that next phase of strategy for the 5 years coming once Skouries is up and running. And I think critical to us will be that post-Skouries cash flow inflection point and how to allocate the capital. So in our sort of 2030 strategy planning, that will be something we're going to be looking at very closely. And I don't have any answers for you today specifically because I think we're going through that process, but it's a wonderful time to be joining a group like this where, for me, the culture fit was really good. I think the team is diverse and deep. And I think the spread of assets is wonderful and the exploration upside and the long lives already in the portfolio are really exciting. And there's growth projects here are very valuable from our own cash flow. So it's kind of building all those into that next phase of the strategy as it sort of inflects and turns to cash flow generation from pure spending and building Skouries over the last couple of years. Tanya Jakusconek: Okay. So I guess what I'm hearing from you, and maybe I don't want to have my own assumptions, but maybe you can tell me if this is correct. So you've taken a look at the team, the culture, you're happy with that. You're looking to get Skouries behind and producing so that we can then, number two, look at capital allocation, whether that's continued share buyback, dividends, et cetera, et cetera, for return to shareholders. Maybe you can talk about the portfolio itself, like what does Perama stand in here? Any of the other assets, Probe is noncore, anything else that you see noncore, other assets that you want to push through further in the Eldorado strategy? Christian Milau: That's a fulsome question, Tanya. I think at this stage, when I looked at it, exploration and just continuing to extend and advance mine life is critical. And now there's an opportunity with these kind of gold prices in this environment. And again, my superficial early look is there's real opportunity to spend some money and focus on that. There's a great team here, I think, that has some plans and excitement around our current assets and in the countries we currently operate. So I think that will be one of the key elements. And Perama Hill, I mean, literally going through that phase of, I think, getting GIA updated and submitted. So assuming there's a permit over the next year or so, it would be nice to put that into the plans. I don't think we're quite ready to actually build the timing in yet. But I think there's been a good job done in Greece to build the sort of social license and the acceptance of the relationships. And when you look at Skouries and Olympias, there's a really nice platform. So I think Perama could come in afterwards, but I can't commit to timing at this stage, obviously. And as George alluded to, I think there are these opportunities, which Simon was saying in Turkiye to continue to improve, enhance and some of the operations are already underway and are performing well. In Quebec as well, there's exploration opportunities. There's already good results coming out of Ormaque underground, and there's an ability to expand that plant if there's enough ore there. So all those things could be part of the plan, but timing and specific commitments, I think it's a little bit early on that, but that's a good place to park some of the capital over time, I think. Tanya Jakusconek: Okay. Well, good. Look forward to working with you. Christian Milau: Thanks, Tanya. Operator: The next question comes from Don DeMarco with National Bank Financial. Don DeMarco: Maybe I'll just start off with Olympias. So obviously, the challenges in the flotation circuit were evident in Q3. And I heard on the call that they may persist for some time. And then concurrently, you've got this expansion underway. Does that expansion perhaps complicate things with regard to resolving the challenges in the flotation circuit? And maybe if you could just give a little bit more detail on when you think you might see a rebound in recoveries? George Burns: Well, maybe starting with recoveries. I mean, we've seen a rebound just in the last 2 months. So when we're successful at managing the ore fed into the plant and not getting a slug of this viscosity modifier in the plant, we're seeing good recovery. So it's been good in the last 2 months. But if we get a slug of this material in, it messes up the process water, and it takes time to clean it up. So we end up lowering throughput. We end up getting lower recovery. And that's the reality looking backwards. As Louw mentioned, this is a cut and fill mining method underground. And so these -- we put this viscosity modifier in the cemented backfill in stopes between Q3 of last year and Q1 of this year when we realized we have this problem. So as we mine next to all those stopes during that period, we have the risk of getting the viscosity modifier into that fresh ore. And that residual risk will remain until the second quarter of next year. Obviously, our mine operators and our plant operators are day to day, shift by shift, managing the blends. We do have a design to take the higher risk stockpile ore and -- ore will be coming out of the underground and process it before it goes into the plant. So there were crushing and screening and taking the coarse material. It won't have a significant amount of that modifier in it, and that goes into the mill. The fine material, we're looking at permitting and the ability to wash it and remove that most of that viscosity modifier. So later on, that could be put in the plant. So these are the things that we're doing. And it's fair to say there's some risk remaining into Q2, but I'd say we're getting better at managing it. We're trying to be as proactive as we can to not have another significant upset. But as Louw said, the risk will remain. In terms of the expansion, really, there's no connection between this problem and the expansion. We're basically having to move some of the infrastructure like piping and cable trays to make room for the equipment that we're installing. So that work is in progress. We'll get that construction completed next year. It will be a staged approach. Some of the equipment will get stalled earlier in the year that will help improve the performance of the mill. The throughput won't happen until we get the grinding mill in and that happens in the second half. So we're expecting some really exciting results that come out of Olympias once we get this expansion completed. That's no longer the bottleneck. It will be back on the underground mine ramp up. And as we've talked over the last 2 years, we've done a really good job of debottlenecking the underground. So we get this mill expanded. Production goes up, margins expand, and we get this viscosity modifier behind us, Olympias will be a key contributor to cash flow. Don DeMarco: Okay. And then on to something else then. With the guidance adjustment that we saw with Q3, costs are higher. But of course, some of the drivers of those costs are outside of your control, such as the Turkiye royalty rates and so on. Could you just give us maybe a rough percentage of looking at the delta in that cost increase, how much was within your control and how much was not? Paul Ferneyhough: It's Paul here. So I think I heard you, you were breaking up a little bit, but the question is around our increase in our guidance for all-in sustaining costs. There's 2 things basically that have driven that. One that is in our control and that we've been dealing with and one that isn't. And they split about 50-50 in terms of how it's impacted our guidance for the rest of the year. So the first one is around gold price. If you remember, our original budget was set with a gold price of around $2,300. We're now assuming an average price to the end of the year of $4,000 an ounce. And at that level, we continue to see increased royalties, both from the absolute cost, but also the increase in the slate of royalties that we saw in Turkiye early in the year, and that's responsible for around 50% of the increase. And then the second 50% is really just a reflection of Olympias performance with those recovery issues and lower volume, and that has pushed up our per ounce costs. So it's 50-50 between them. We're not actually seeing any real inflation in costs in terms of -- versus our guidance for the year outside of that. Don DeMarco: Okay. And then just as a final question. Also in Q3, we saw a big increase in your share buybacks quarter-over-quarter. So I just was wondering, going forward, do you expect to maintain the level of buybacks in Q3 or maybe ease a bit, increase a bit? Just kind of -- just to get your sense at this point? And then also while on the top of capital allocation, maybe even any additional color on the dividend or the timing of the dividend as I know Christian brought that up in his response to Tanya. Paul Ferneyhough: Yes, sure. So as far as the share buybacks are concerned, we signaled at quarter end Q2 that we had extended our NCIB program for another 12 months with a maximum repurchase of 5% of our outstanding share capital. We do intend to be opportunistic around that. We think our shares are incredibly good value at the current level. But really, it's when there's opportunities in the market or if we're underperforming, then we will actually use the NCIB program to purchase those shares. As a good sort of working average, I would assume over the next 3 quarters that we continue to buy at approximately the same rate, okay? As far as dividends are concerned, I think we haven't changed our messaging around this. Next year is an inflection point for us in terms of cash flow generation as Skouries comes into operation. And that feels like a great time for us to then be considering if it's the right moment to put in place a sustainable dividend that we can stand behind going forward. And so I think that will be back on the agenda for us in terms of capital allocation as we move into next year. Operator: The next question comes from Lawson Winder with Bank of America. Lawson Winder: Thank you for today's update. If I could maybe push you a bit more on 2026 and the CapEx outlook. So for 2025 sustaining CapEx, we're running at the high end of the $145 million to $170 million. When you look to next year, I mean, is that higher end of the 2025 a pretty reasonable baseline for 2026? And actually, you know what I had asked a similar question for the growth capital at the operations. I mean, is that is the current $245 million to $270 million range, a decent level heading into next year? George Burns: Well, again, we'll be updating you in the first quarter on next year's guidance, maybe a couple of comments that might help. So the Olympias expansion, that's obviously underway in Quebec. We're completing the second bulk sample, but we're in the middle of permitting for a paste backfill plant, an operating permit. So the timing on that is uncertain, but there'll be capital to spend on Olympias when we get those permits. So stay tuned for that. As well, Simon's walked through the whole ore agglomeration, and we've committed that $35 million. So we got to build all that into next year's plan depending on permitting. I'd say those are the moving parts. The rest of the portfolio is pretty consistent. And then on the growth capital, well, beyond that is Skouries, obviously, we've kind of walked through that Q1 is the bulk of the spend next year in Skouries and we're commissioning in Q2. So there'll just be some residual growth capital happening there. As you look forward on Skouries though, remember that the pit is up and running, we're in good shape there. The plant will be running next year. We've got the first blast on the test, but over the next 3 years, we'll be investing in that underground to get the infrastructure in place for it to ramp up to be the sole feed to the plant at the end of the next decade. So there's incremental growth capital that will be happening over the 5-year plan. Next year, some of that capital on the underground will begin to be spent, but the ramp-up really starts happening at '27. So it's hard to give you specific numbers on next year. Hopefully, I gave you a little bit of color there, and it's not too far away from given the specific updated guidance on '26. Lawson Winder: Yes. Actually, that summary was very helpful. And I just would want to say, it's impressive that, that Skouries remains on track. And if I may, and just to cover off potentiality, should there be any delay, what would be a rough weekly or monthly holding cost of just keeping that going for a slightly extended period of time? George Burns: Yes, the way I would describe it, we're comfortable. We have all the equipment and materials there. So there's no risk on that side. We have the workforce. We're over 2,000 people at site right now, construction and operations ramp up. So the impact next year if for some reason, it took a little bit longer to get the first concentrate, those fixed cost that we were going to spend on a monthly basis is about $15 million. So that's really the impact of a delay. Lawson Winder: Okay. Relatively small percent of the overall CapEx. And then if I could -- I think I've asked you this before, but like I acknowledge you do not like to give guidance on gold production for -- on a quarterly basis. Just with Kisladag, there's obviously a lot of variability when it comes to the leaching times. Can you give us any sort of directional point or hint here on Q4, just when you consider what was stacked at the end of Q2, what was stacked in Q3? And yes, I'll just leave it there. Anything would be very helpful. George Burns: Yes. I mean, again point you back to guidance, although Q3, we had some negative impacts, we're still going to hit our guidance at Kisladag for the year. As you say, Q4 is a little bit tough. We had lower placements, precisely understanding how that's going to impact Q4 versus Q1, it's difficult to say. There's a bit of art and science in heap leaching. But all I can tell you at this point, we're comfortable we're going to be within guidance at Kisladag for the year. And so Q4, don't expect anything dramatic one way or another. It's going to be a good year at Kisladag. Operator: That's all the time we have for today. This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Welcome to the OneMain Financial Third Quarter 2025 Earnings Conference Call and Webcast. Hosting the call today from OneMain is Peter Poillon, Head of Investor Relations. Today's call is being recorded. [Operator Instructions] It is now my pleasure to turn the floor over to Peter Poillon. You may begin. Peter Poillon: Thank you, operator. Good morning, everyone, and thank you for joining us. Let me begin by directing you to Page 2 of the third quarter 2025 investor presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP measures. The presentation can be found in the Investor Relations section of the OneMain website. Our discussion today will contain certain forward-looking statements reflecting management's current beliefs about the company's future financial performance and business prospects. And these forward-looking statements are subject to inherent risks and uncertainties and speak only as of today. Factors that could cause actual results to differ materially from these forward-looking statements are set forth in our earnings press release. We caution you not to place undue reliance on forward-looking statements. If you may be listening to this via replay at some point after today, we remind you that the remarks made herein are as of today, October 31, and have not been updated subsequent to this call. Our call this morning will include formal remarks from Doug Shulman, our Chairman and Chief Executive Officer; and Jenny Osterhout, our Chief Financial Officer. After the conclusion of our formal remarks, we will conduct a question-and-answer session. I'd like to now turn the call over to Doug. Douglas Shulman: Thanks, Pete. Good morning, everyone. Thank you for joining us today. Let me start by saying we're really pleased with our results this quarter. We had very good revenue growth and continue to see very positive credit trends. This led to excellent growth in capital generation, the primary metric against which we manage our business. We also made meaningful progress in our new products and strategic initiatives, all of which sets us up for significant value creation in the near and long term. Let me talk about a few of the highlights for the quarter. Capital generation was $272 million, up 29% year-over-year. C&I adjusted earnings were $1.90 per share, up 51%. Our total revenue grew 9% and receivables grew 6% year-over-year. Originations increased 5%, driven by our expanded use of granular data and analytics, combined with continued innovation in our products and customer experience. We continue to see positive trends across our credit metrics. Our 30-plus delinquency was 5.41%, which is down 16 basis points year-over-year as compared to up 2 basis points in the third quarter of 2024. C&I net charge-offs were 7% in the quarter, down 51 basis points compared to the third quarter of 2024. Consumer loan net charge-offs were 6.7%, down 66 basis points compared to last year. We're really pleased with the improvement in net charge-offs year-over-year, which reflects ongoing careful management of our portfolio and the strong performance of recent vintages. Despite some continued economic uncertainty, our customers are holding up well. Delinquencies are in line with expectations, losses continue to come down and we really like the credit profile of the customers we are booking today. Last quarter, I provided an update on some recent initiatives that are helping to drive originations in our core personal loan business, even as we maintain our conservative underwriting posture. They include a simplified debt consolidation product, new data sources that automate customer information to reduce friction in the application process, streamlined loan renewal for certain customers and creating a loan origination channel through our credit card business. We are continually innovating across our company to expand reach, enhance offers and improve customer experience. For example, we've been expanding a strategy to increase customer eligibility by offering smaller initial loan amounts to some customers, then letting them grow with us as they exhibit positive credit behaviors. This has allowed us to expand our customer base without taking on more risk and provide more customers responsible access to credit. We are constantly optimizing and using data and analytics to find additional pockets of growth by fine-tuning pricing, loan amounts and product offerings at a very granular level. Let me turn to the progress we are making in our Brightway credit cards and OneMain auto finance businesses. Across our multiproduct platform, we now provide access to credit to about 3.7 million customers. That's up 10% from a year ago. Much of the growth in our customer base is attributable to credit card and auto finance. In our credit card business, we ended the quarter with $834 million of receivables. And earlier this month, we passed the 1 million mark in credit card customers, a notable milestone for the business. Since 2021, when we launched our card business, I have said it is strategically valuable and complementary to our traditional personal loan franchise. It adds a daily transactional product to our more episodic personal loan product. And credit cards create meaningful, long-term deep relationships with customers. The average card customer has a credit card for about 10 years. Our customers often start with a $500 or $700 line of credit, which can grow over time. A card customer is more engaged than a typical borrower, checking their balance, making payments and selecting rewards. Our average customer logs into our app every week. And we have the ability to offer customers alone or other products over time with 0 cost of acquisition since they are already on our platform. So with 1 million customers and growing, this business is very valuable to our franchise. Additionally, I'm really pleased with what we're seeing in some important financial metrics of our card business. Revenue yield continues to increase, now over 32% and our credit card net charge-offs were down nearly 300 basis points from last quarter. While some of the improvement is due to typical seasonal patterns, the strong performance was also a result of continual efforts to refine underwriting, enhance servicing and the overall maturing of the business. In our auto finance business, we ended the quarter with over $2.7 billion of receivables, up about $100 million from the last quarter. Similar to our personal loan and credit card businesses, we have maintained a conservative underwriting posture and feel great about our auto portfolio, which continues to perform in line with expectations. We believe that our experienced team, underwriting rigor backed by decades of serving the nonprime consumer and our ability to offer loans through both independent and franchise dealerships are all competitive advantages. As we grow our credit card and auto finance businesses, we are focused on carefully managing credit, enhancing our product offerings and driving efficiencies to reduce unit costs as we scale. This quarter once again demonstrated the strength of our balance sheet. We issued 2 unsecured bonds totaling $1.6 billion with tight spreads. We've now raised $4.9 billion in 2025 across 4 unsecured bonds and 2 ABS securities at attractive pricing, and we've also expanded our forward flow program. Our strong balance sheet and sustained access to diversified capital sources gives us a distinct competitive advantage. I want to highlight 2 things that exemplify who and what we are as a company. First, I've spoken before about Credit Worthy by OneMain, our free financial education program. Since its inception, Credit Worthy has reached almost 5,000 high schools or about 18% of all high schools nationwide. As we deepen our impact across the U.S., recently, we surpassed the mark of teaching 500,000 students, the importance of building and maintaining good credit and how to do just that. With hundreds of employees volunteering as teachers and mentors in the program, we are dedicated to helping teams across America, build a strong financial foundation. Second, I'm also pleased that OneMain has been named as one of America's Top 100 Most Loved Workplaces for 2025 by the Best Practice Institute. This recognition is based on direct feedback from our team members who create tremendous value for our customers and our shareholders. It gets to the heart of our culture of teamwork, respect, growth, innovation and accountability. I truly believe that if you have team members working together and going the extra mile every day, it will drive outstanding results for the company. The expanded reach of Credit Worthy and our recognition for the fourth year running as the most loved workplace speak to our differentiated business model with deep ties in the community and a culture that rewards delivering results while providing outstanding service to our customers, both of which are critical to the long-term success and shareholder value of OneMain. Let me end with capital allocation. As I've said before, our first use of capital is extending credit to customers who meet our risk-return thresholds. We then make strategic investments in the business that drive long-term shareholder value, like product innovation, our people, data science, technology and digital capabilities to name a few. We are committed to our regular dividend and are increasing it by $0.01 quarterly or $0.04 on an annual basis. The annual dividend is now $4.20 per share, which translates to a 7% yield at our current share price. Excess capital beyond that will largely be used for either share repurchases or strategic purposes. This month, our Board approved a $1 billion share repurchase program from now through 2028. All things being equal, we expect share repurchases to be a bigger part of our capital return strategy going forward as we drive more excess capital generation in future years. This quarter, we repurchased 540,000 shares for $32 million. Year-to-date, we've repurchased over 1.3 million shares already meaningfully exceeding our repurchases in 2024. Our dividend increase and new share repurchase authorization reflect our continued confidence in the strength of our business. In summary, we feel great about the quarter and the first 9 months of the year. The strong performance is the result of our continued disciplined actions to optimize our credit box, deliver innovation to drive originations and expand our product offerings and distribution channels. With that, let me turn the call over to Jenny. Jenny Osterhout: Thanks, Doug, and good morning, everyone. Let me begin by saying we had a great third quarter. The results reflect broad-based continued improvement across our key financial metrics, highlighted by continued strong revenue growth, good credit performance and capital generation that grew 29% year-over-year. We also further demonstrated the strength of our funding program by raising $1.6 billion across 2 bonds in the quarter. Third quarter GAAP net income of $199 million or $1.67 per diluted share was up 27% from $1.31 per diluted share in the third quarter of 2024. C&I adjusted net income of $1.90 per diluted share was up 51% from $1.26 in the third quarter of 2024. Capital generation, the metric against which we manage and measure our business, totaled $272 million, up $61 million from $211 million in the third quarter of 2024, reflecting strong receivables growth across our products, higher portfolio yields and continued improvement in our credit performance. Capital generation per share of $2.28 was up 30% from $1.75 in the third quarter of last year. Managed receivables ended the quarter at $25.9 billion, up $1.6 billion or 6% from a year ago. Third quarter originations of $3.9 billion were up 5% year-over-year, consistent with our expectations. As discussed last quarter, we are now more than a year into the successful personal loan growth initiatives that we implemented in June of last year. We identified pockets of growth in high credit quality segments that met our capital return framework, while maintaining a tight credit posture, and we've been able to achieve strong growth without relaxing our underwriting standards. We continue to execute new initiatives utilizing deep analytics to optimize pricing in low-risk segments of the business that will drive profitable growth in the quarters ahead. In fact, we expect originations growth to increase to high single digits in the fourth quarter. Third quarter consumer loan yield was 22.6%, flat from the second quarter, but up 49 basis points year-over-year. The improvement was driven by the sustained impact of our pricing actions taken since the second quarter of 2023. This tailwind was partially offset by an increasing mix of lower yield, lower loss auto finance receivables. We expect we can maintain yield at approximately this level for the near term. Also, as Doug mentioned, we saw a nice increase in our credit card revenue yield compared to the third quarter of 2024. It was up 151 basis points to 32.4%. The combination of these yield improvements across our businesses is a notable driver of our year-over-year revenue growth. Total revenue this quarter was $1.6 billion, up 9% compared to the third quarter of 2024. Interest income of $1.4 billion grew 9% from the prior year, driven by receivables growth and the yield improvements I just mentioned. Other revenue of $200 million grew 11% compared to the third quarter of 2024, primarily driven by higher gain on sale associated with our larger whole loan sale program and increased credit card revenue associated with the growing card portfolio. Interest expense for the quarter was $320 million, up 7% compared to the third quarter of 2024, driven by the increase in average debt to support our receivables growth. Interest expense as a percentage of average net receivables in the quarter was 5.2%, flat to the prior year, but down from 5.4% last quarter, reflecting the actions we took to proactively manage our debt stack, most notably the refinancing of our 9% bond due in 2029. The strong execution of the funding we've done so far this year, combined with our liability management, enabled us to reduce our funding costs below our initial 2025 expectations. Third quarter provision expense was $488 million, comprising net charge-offs of $428 million and a $60 million increase to our reserves, driven by the increase in receivables during the third quarter. Our loan loss ratio remained flat quarter-over-quarter at 11.5%. I'll discuss credit in more detail momentarily. Policyholder benefits and claims expense for the quarter was $48 million, up from $43 million in the third quarter last year. As I've previously mentioned, we expect quarterly PB&C expense in the low $50 million range in the quarters ahead. Let's turn to credit, where our performance continues to be very good. I'll begin by looking at consumer loan delinquency trends on Slide 8. 30-plus delinquency on September 30, excluding Foursight, was 5.41%, down 16 basis points compared to a year ago as the back book continues to run off and the better performing front book grows. 30-plus delinquency increased by 34 basis points sequentially, which is consistent with pre-pandemic seasonal trends. On Slide 9, you see our front book vintages comprised of consumer loans originated after our August 2022 credit tightening, now make up 92% of total receivables. The performance of the front book remains in line with our expectations and is driving the delinquency and loss improvements we are seeing. While the back book continues to diminish, now making up 8% of the total portfolio, it still represents 19% of our 30-plus delinquency. Though relatively small, the back book continues to disproportionately weigh on credit results. We expect it will contribute less each quarter ahead with our newer vintages increasing in share. And I should note that the pace of performance contribution will depend on the rate of growth of new originations as well as the back book's performance. Let's now turn to charge-offs and reserves as shown on Slide 10. C&I net charge-offs, which include credit cards, were 7.0% of average net receivables in the third quarter, down 51 basis points from a year ago. Consumer loan net charge-offs, which exclude credit cards, were 6.7% in the quarter, down 66 basis points year-over-year. This follows the trends we have seen in improving delinquencies along with better back-end roll rates and recoveries, and we are really pleased with the trajectory of losses. We continue to see strong performance from our newer vintages. While there will be typical seasonality, we expect to see continuing year-over-year loss improvement over the remainder of 2025 and into 2026. Let me update you on the credit trends of our $834 million credit card portfolio. Net charge-offs in our card portfolio improved sequentially by 288 basis points to 16.7%. We anticipated a significant improvement in card losses based on prior quarter's delinquency trends, which were better than typical card portfolio seasonality. The strong performance was further aided by enhancements in our servicing and recovery capabilities in our card business. We remain pleased with the overall quality of the credit card portfolio and feel confident that we are building an enduring profitable business for the long term. Recoveries remained strong this quarter, amounting to $88 million, up 12% year-over-year and 1.5% of receivables as we continue to optimize our recovery strategy. Loan loss reserves ended the quarter at $2.8 billion. Our loan loss reserve ratio, which remained flat to prior quarter and prior year at 11.5% at quarter end, includes a 40 basis point impact from our higher yield, higher loss credit card portfolio. Now let's turn to Slide 11. Operating expenses were $427 million, up 8% compared to a year ago. The 6.6% OpEx ratio this quarter is modestly better than last quarter and in line with our full year expectations as we continue to invest in technology, data analytics and new products. We feel great about the inherent operating leverage of our business, which has been consistently demonstrated over the past several years as our OpEx ratio has declined from 7.5% in 2019 to its current level. We remain disciplined in our spending, balancing responsible investments with our focus on driving long-term growth and efficiency to deliver operating leverage for the future. Now let's turn to funding and our balance sheet on Slide 12. During the quarter, we continued to optimize our balance sheet. We believe our focus on balance sheet strength is a clear competitive advantage and enhances the stability of our business. As a leading issuer over the years, we've consistently invested in our capital markets program. We focused on maintaining best-in-class execution and controls and as a result, have built a loyal and diversified investor base. In August, we issued a $750 million unsecured bond at 6.13%, maturing in May 2030. The proceeds of that issuance were used to redeem the remaining balance of our most expensive security. The 9% coupon bond scheduled to mature in January 2029. In September, we issued an $800 million bond at 6.5%, maturing in March 2033. Both bonds had strong demand from new and returning investors and were issued at near record tight credit spreads. Including these 2 bond issuances, we now have issued 7x the last 6 quarters in the unsecured market, lowering our issuance costs, derisking our balance sheet and reducing our secured funding mix to 54%. This creates a lot of flexibility for us going forward. We also recently signed a $2.4 billion whole loan sale forward flow agreement with a long-term partner. The agreement substantially increases and extends a current loan sale commitment that provides further capital and funding optionality for the future. The current agreement that calls for $75 million of loan sale commitments per month will continue through the end of this year and then increase to $100 million per month starting in January. We're very pleased with the terms and the economics of the agreement and believe this further demonstrates the attractiveness of our loans and great confidence in the performance of our portfolio. Overall, from a balance sheet perspective, given the strong issuance year-to-date and the larger forward flow whole loan sale program, we feel great about our ability to continue to opportunistically issue when markets are most attractive in the quarters ahead. Additionally, our overall liquidity profile is as strong as ever with bank facilities totaling $7.5 billion, unchanged from last quarter end and unencumbered receivables of $10.9 billion. Our net leverage at the end of the third quarter was 5.5x, flat to last quarter. Turning to Slide 14, our full year 2025 guidance. First, we're narrowing our full year managed receivables growth guidance to the higher end of the range. We now expect managed receivables to grow in the range of 6% to 8% compared to our prior 5% to 8% guidance held previously. And given our growth in receivables, along with our improving asset yields, we now expect full year total revenue growth of approximately 9%. This is above our guidance range of 6% to 8%. We continue to expect C&I net charge-offs to come in between 7.5% and 7.8%, at the lower end of the range we gave at the beginning of the year. And our expected operating expense ratio remains unchanged at approximately 6.6% for the year. As all our key financial metrics move in the right direction, we expect capital generation in 2025 will significantly exceed 2024, reflecting strong momentum in our business. We have another excellent quarter in the books, as we approach the end of the year and look ahead to 2026. We see opportunity to continue to deliver outstanding shareholder value in the quarters and years ahead. And with that, let me turn the call over to Doug. Douglas Shulman: Thanks, Jenny. Let me close by saying we really like our competitive positioning. We built our business for the long run with best-in-class credit management and a fortress balance sheet. We are driving growth by innovating across products, digital experience and data science. We are deeply committed to the communities where our customers live and work and have a great team delivering for our customers every day. The strong results of this quarter are a reflection of all of this, and we look forward to continuing to drive value for our customers and our shareholders going forward. With that, let me open it up for questions. Operator: [Operator Instructions] Our first question comes from Terry Ma with Barclays. Terry Ma: So there's been a lot of chatter about the health of the nonprime consumer. Maybe some cracks showing up in auto, both of which you have exposure to. So maybe just talk about what you guys are seeing more recently. Maybe help us tie that to your commentary about higher origination growth in the fourth quarter. Douglas Shulman: Sure. I guess regarding auto, we're not seeing anything negative in our auto credit. All of our auto continues to perform in line with expectations. I think zooming out on the consumer, I think you got to keep in mind that we see plenty of opportunity, and we lend to individual consumers. And the customers we have on our books and the customers we're seeing come through our channels are holding up very well, and we underwrite net disposable income. So after somebody is paid, pays their taxes, covers all of their other credit, pays all their expenses, how much is left over. We're seeing net disposable income for the consumers who come in, continue to be strong. And as you know, we have a lot of different cuts that we use for our underwriting, whether it be risk, the collateral, the type of product, the geography. And so we're seeing lots of opportunity, and we're not seeing issues with the customers that we have on our books. I think the consumer generally and the nonprime consumer generally has been stable for the last 18 months. I mean if you look at the macro data, while unemployment has ticked up some, it's still at a -- in a good place. Wages cumulatively have increased. They don't seem to be increasing as much anymore. Inflation is much more in check than it was, and savings remained pretty stable for the last 18 months. We also do a qualitative survey of our branch managers on a regular basis who are out talking to our customers, seeing new customers. And we look at how's the customer doing, are you seeing signs of stress, et cetera. That is stable. We just did one. The results are very similar this year now as they were a year ago. We also have unemployment insurance for a subset of our customers, and we've not seen increase in unemployment insurance claims. And so we are always on the lookout, and I do think there still remains very broadly for the U.S. economy, some macro uncertainty, whether it's around tariffs or what's going to happen with interest rates, et cetera. But we feel good about the health of the consumer. Terry Ma: Great. That's super helpful. Maybe just a follow-up question on credit for Jenny. Like net charge-offs continue to improve year-over-year, delinquencies are also improving year-over-year just ex Foursight. But as I look at the magnitude of delinquency improvement ex Foursight, it's kind of moderated. So maybe like just any color on kind of what's going on there and help us think about maybe just the direction of travel kind of going forward for delinquencies. Jenny Osterhout: I think most importantly, to your point about the direction of travel, we feel like the direction of travel is good. These delinquencies are in line with our expectations. And we expect the delinquency improvement year-on-year to vary some. So we're really focused on where the book is going and our expected losses. And we mentioned earlier, but we consistently have seen better roll rates and recoveries. And we expect continued year-on-year improvement in our consumer loan net charge-offs, which you saw dropping this quarter by 66 basis points. And so I think as we look at the consumer loan net charge-offs, we expect for them to get back within our historical range of below 7% over time. Operator: We'll go next to Mark DeVries with Deutsche Bank. Mark DeVries: Doug, given some of your comments about the macro uncertainty and the kind of the stable consumer, where do you think you sit right now in kind of the spectrum of underwriting between tightening and loosening? And given that some of the factors, what's your kind of bias going forward in terms of which direction you'd be moving? Douglas Shulman: We really, for the last several years, have had quite a conservative underwriting posture. Specifically, what we've done is our models will tell us and all of our data science will tell us, depending on the customer, what do we think the losses will be over their lifetime. And we put a 30% stress overlay on top of that for our credit box, which basically translates into -- even if that customer's peak losses during their lifetime were 30% more than we think they're going to be, we would still meet our 20% return on equity threshold. And so across our personal loans, our credit card and our auto, we've chosen not to loosen that up. I think there just remains macro uncertainty. We're not seeing it on our book, and we're getting plenty of customers to book that meet our return threshold. I think to open that up some, we do weather vane testing. So we're always booking a set of loans across product, customer type, geography that are in the 15% to 20% ROE, and we need to see those pop above. Our current vintages are performing in line with our expectations, but they're not outperforming. And so we need to see outperformance. And I think we need to see a little more clarity in the macro. Our basic bent is always to err on the side of having really good customers who can pay us back, who meet our risk-adjusted return thresholds. We don't see a lot of advantage in taking extra risk. Our originations year-on-year for the first 3 quarters of the year are up 10%. So we're finding plenty of pockets of growth. And we'd rather innovate around the kinds of things I talked about earlier: product, customer experience, channel because this is how we built a really strong, stable company that through the cycle is going to have good returns. So our bent is not to reach for growth, but instead to stick with our discipline and keep finding growth by innovating and serving our customers well. Mark DeVries: Okay. Makes sense. And just a follow-up for Jenny on funding. I think you mentioned in your prepared comments that funding costs came in lower than you expected for the year. Is this more of a product of term or spreads coming in better than you expected? And you also alluded to enhanced mature -- I mean, the flexibility, right? I think you have very low maturities anytime soon and a lot of liquidity. How are you thinking about taking advantage of that added flexibility in the funding markets? Jenny Osterhout: Yes. Thanks. Obviously, funding is critical to any lending business. And I think for us, we really see it as a differentiating strength and a competitive advantage. So we're always looking at the opportunities as they come. And I think what we saw this quarter was we were able to go out for that first $750 million unsecured bond at 6.13% due in 2030. And what we were able to do with that was use the proceeds to redeem the remainder of our 9% 2029 unsecured bonds. So that really allowed us to take in sort of that higher pricing that we had and bring that in. So our interest expense went from an expectation of closer to 5.4% to come in to closer to 5.2%, like you saw this quarter. So that was really what drove that. I mean I'd say then we were also able to go out and do another issuance at 6.5% and go all the way out to 2033. So I think we were very happy with the spreads and with the performance of what we were able to do this quarter. I mean I would also say, I mean, we've gone out now 7x in the past 6 quarters. So I think we've really been able to go out there, and I think that's a testament to the team and to what they've built over time. And the flexibility that I mentioned is really about -- if I look forward, our next unsecured maturity is about $425 million in March of '26. And then we don't have anything maturing until January of 2027 when we have about $750 million maturing. So we can continue to look for opportunities of where we can, pay down some of our price bonds that are callable in later needs and we can also look at our needs for growth. We also obviously are looking at our unsecured and secured mix, and this has allowed us a little bit more flexibility there to determine which market we want to go into. So we really like that flexibility because it just allows us to continue to focus on maintaining a really conservative balance sheet. Operator: Our next question comes from Mihir Bhatia with Bank of America. Mihir Bhatia: Maybe to start just staying on the topic of buybacks or capital, I guess, you obviously upsized the buyback this quarter. Should we be -- any markers you can give us on like what kind of sizing we should be thinking about every quarter? Like what are you trying to solve for? Is there a capital -- like what can we look at? Is it just distributing net income? Is it capital? What payout ratio? What is the target internally that we should be thinking about? Douglas Shulman: Yes. Look, we've had a pretty consistent capital allocation strategy, which includes -- I'll go through it again, that is, first, we're going to make every loan that meets our risk-return thresholds, and we put about 15% of any loan is equity we put into it. So some of it will depend what kind of opportunities and what kind of growth we have. Then we're going to invest in the business for long-term franchise value. Then we're going to have the dividend. And after that, we're either going to allocate it to other strategic purposes or buybacks. As I mentioned, we anticipate more buybacks now that we're going to have more excess capital at the bottom of that waterfall. I think you've seen us ticking up our buyback. I think you can anticipate it ticking up into next year. I think the best I can give you is we've looked at it and we've allocated $1 billion through 2028. I don't think it's necessarily going to be linear. And we don't have specific guidance about what's going to happen quarterly. Mihir Bhatia: Fair enough. Maybe switching a little bit just on gain on sale. You've had a nice step-up this year. I think you in your prepared remarks, you talked about further increasing the forward flow. Should we expect another step-up in '26 as that forward flow comes in? And maybe also just take the opportunity to talk about private credit. How does that compare with your traditional channels today? Any desire to expand forward flows further and leverage the demand from private capital? Like give us a peek under the hood in terms of the hold versus distribute equation. Jenny Osterhout: I'm going to start with your second question first, and then I'll come back again on sale. Just in terms of private credit, I mean, I think what I'd just say there is we're always looking to evaluate opportunities. We've got -- I just talked about, we've got great access to capital in the public markets. And so we're really looking at opportunities really to provide either funding flexibility. And then we're also quite focused on the economics and the terms of those deals. So I did mention we increased that and extended that whole loan sale program. It's forward flow with attractive pricing. And I think we're happy with the diversification that gives us and we'll evaluate those opportunities as they come. And I wouldn't -- I think of this as additive to our current strategy. So I just think of this as one more way that we go access funding. If I go back to gain on sale, gain on sale was about $17 million this quarter. That increased from last year, about $10 million from that whole loan sale program. If I think going forward, I'd say I'd look more at total revenue because this will both benefit, I'd say, a little bit gain on sale, but also think of servicing fee revenue. So I'd focus on the total revenue line, and it should help some. Operator: Our next question comes from Moshe Orenbuch with TD Cowen. Moshe Orenbuch: Great. And it's very encouraging to see the increase in your guidance for originations and loan growth. And can you just talk a little bit about the competitive environment, the pricing environment? And if it's not too much to also say that if -- how would those -- how would your efforts be enhanced if your ILC charter is approved? Douglas Shulman: Sure. Look, it's -- there's plenty of competition out there, but we think it's quite constructive for us. I think our results show that year-to-date originations, as I mentioned, are up 10% from last year, even with our tight credit box. We expect fourth quarter, we'll see some uptick in originations from this quarter. We're really focused on originating to good customers that meet our risk-adjusted returns and meet all of -- have the right credit profile for us. Over 60% of the customers that we're booking today remain in our top 2 risk grades, which is where it's more competitive and there's more people playing. And so -- and that's remained steady. So we're still getting plenty of pickup in really competitive spaces. Our pricing has held. We've not needed to bring down pricing as you see with our yield, and that's been -- has ticked up. And as Jenny said, we expect it to be pretty steady going forward. I think there's always opportunity to drop price and pick up more. We're always fine-tuning pricing, loan size, the type of product, the collateral, the data sources that we use to book loans. So I think the key for us is to continue to innovate. But we like the competitive environment. We like our positioning, and I think we're really comfortable. I've said it before, we just don't chase growth. We book really good loans that are going to have good returns that are going to be accretive to the franchise and to our shareholders, and we're seeing plenty of opportunity there. Look, I think the ILC, I've said before, is if we get it is accretive to our strategy. It's going to allow us to serve more customers. It's going to allow us to have some deposit funding. It'll allow us through the deposit funding potentially to do some more lower end of prime kind of customers. It'll allow us to book our credit card through our own ILC rather than through a partner. And so I think it is good for long-term franchise value. We'll start to compete in the market, but I think it would be a net positive. Operator: And we'll go next to Don Fandetti with Wells Fargo. Donald Fandetti: Doug, I was curious to get your perspective. I mean there's been a lot of volatility in ABS markets. And I just want to get your thoughts on how you think those markets are going to hold up in terms of access and if you think there'll be tiering for kind of seasoned issuers such as OneMain? Douglas Shulman: Yes. I mean, look, I'll let Jenny say. What I'd say is through lots of volatility for many years, we've always been able to access the ABS market because people trust us as steady hands who know how to underwrite and the collateral we put into our trust are ones that we understand well. So I think for us, there's going to be plenty of access. I'll let Jenny talk more broadly. Jenny Osterhout: Yes, I'd just say the team is obviously constantly talking to folks in the market, and I feel like we've built a pretty strong reputation and have a pretty developed program that's been out there for a long time. And so I think we're quite confident in our ability to go out into the ABS market. And obviously, we'll see what unfolds there. But I think we're pretty disciplined operators and our partners feel pretty good about the way we run our program. So I think we're feeling pretty good about being able to go back into ABS. Operator: We'll go next to Kyle Joseph with Stephens. Kyle Joseph: Just wondering if you're seeing any impacts from the government shutdown and if this had any impact on the outlook for this year? Douglas Shulman: We're not. We've been through a number of government shutdowns. It's a very small part of our book, folks who work for the government. So we don't see any material impact and definitely no impact on our outlook. Kyle Joseph: Got it. And then just one follow-up for me. Yes, given all the volatility in auto, I know you guys highlighted that you're seeing stability in your portfolio. So is that something -- are you seeing kind of a competitive advantage in that? Is that an opportunity? Are you getting more aggressive in terms of deploying capital there? Or is it one of those things where there is a lot of volatility and you're shying away or just kind of unchanged overall? Douglas Shulman: I'd say unchanged. We're still a very small player in auto. We have a lot of room to grow, but we're very disciplined operators. So we're pacing it. We're developing more dealer relationships. We're continuing to mature the business. We're continuing to mature the models. And so we like what we're booking. We like the pace we're doing it at. There's obviously been a lot of noise, not necessarily around our customer base in auto, but there's been lots of different divergent noise about things with the title auto, but it really hasn't affected. We're going at pace carefully, but we're going to continue to grow the business. Operator: We'll go next to John Pancari with Evercore ISI. John Pancari: On the -- back to the origination front on your high single-digit expectation for the fourth quarter, I know you indicated that you're not necessarily unwinding or loosening standards here and your -- it sounds like you're not yet taking a more active pricing posture or anything. So can you maybe give us a little bit more of a detail around what changed here in terms of your expectation for originations to leg up a bit in terms of the pace of growth for the fourth quarter as you look at it? Douglas Shulman: Look, I think the biggest thing is we are always fine-tuning where we're seeing some credit outperformance in a very small pocket, opportunities to increase the loan size a little bit, do things on pricing. We're also always adding channels. And then I've given you the list before. We've been really leaning into product origination -- or I'm sorry, product innovation and investing in it for the last 18 months, and I think you're just seeing the results of that. We have an enhanced debt consolidation product. We've reduced friction for certain really good credit customers in the renewal process, which increases book rates. We have added new data sources, whether it's bank data, DMV data, other kind of data like that. We've allowed people to split their paychecks and pay us directly from their paycheck, which is better credit performance, which has allowed us to book people who choose to do that. And so a lot of it is just grinding away every day, finding pockets, pushing on it, making sure we offer a great product to customers and we're refining the business all along. So I think that's mostly what you're seeing. Jenny Osterhout: I can just add one piece of context for that. Just on originations, we were at about 5% year-on-year growth, and I mentioned this earlier, but we expect to be in the high single digits for the fourth quarter. So I just want to put some context around it. I mean, I think Doug mentioned, it's through a lot of constant sort of looking and refining, but I just want to give that context. John Pancari: Yes. Got it. And then separately, just given the very favorable capital generation that you cited and your expectation for buybacks to leg up a bit, how do you -- any change in how you're looking at M&A opportunities, specifically as you look at still growing the card business? And then on the auto side, is there -- or even outside of that, are there opportunities you see out there that could present from an inorganic point of view? Douglas Shulman: Anything that is in the market or we might want to be in the market that we think could accelerate our strategy around personal loans, card or auto or underlying things that we continue to develop, whether it'd be data science, digital capabilities, et cetera, we look at. And so we look at lots of opportunities every year. We've looked at well over 100 opportunities in the last 5 years. And we've acted on 2 of them, which were 2 small tuck-in acquisitions. And so what I'd say is, if there's an opportunity that strategically makes sense, accelerates our strategy, financially makes sense, we think we can execute on it. It is in our kind of risk and profile of the kind of company we want to be in the reputation. We want to be as the responsible lender who actually helps customers move to a better financial future. we'll look at it. It would have to be accretive to shareholders, and it has to be something that we wanted. So we're very selective, as you've seen over time, but we're always looking at opportunities. Operator: We'll go next to Vincent Caintic with BTIG. Vincent Caintic: First question, just kind of a follow-up on the 2025 net charge-off guidance. You've had really good credit results this year, both delinquencies and losses. The 2025 guide being unchanged, it kind of does imply a very wide fourth quarter range. So I'm just wondering if you're seeing anything that maybe gives you uncertainty for fourth quarter? And if you could describe that would get you to the low end and the high end of the range? Jenny Osterhout: Vincent, it's Jenny. Last quarter, we updated our guide from 7.5% to 8% to 7.5% to 7.8%. So I think we really thought that we already brought that in a bit. I think as we look -- we'll be looking at those roles to loss and -- we've mentioned a little bit about the drivers of those, but I mean, we've been very happy with what we've been able to do in terms of using digital tools to both be in contact with more customers who go delinquent and then also our recoveries and being able to do more with recovery. So I think we just -- I think we're happy with having brought down the guide last quarter, and we'll be looking at those at those roles each month as we go forward. Vincent Caintic: Okay. Great. That makes sense. And then if you could update us on your kind of long-term thoughts on capital generation. It was nice to see the share repurchases, which, to your point, indicates your confidence in OneMain's capital generation. So just wanted to update, is $12.50 a share of capital generation is still a good bogey for 2028? And what are the factors that get you there? And does that $12.50, if that's still the right bogey, does that rely on the bank charter? Douglas Shulman: So we feel really good about capital generation. I said before, our goal is to generate more capital each year going forward. our North Star remains $12.50. We haven't put a date on it. We definitely don't need the bank charter to get to $12.50. It would be accretive. I've said before, a bank charter would be something we think we're well qualified for, meet the requirements, would be additive to the business, but not necessary. But as you said, this is a business that really generates a lot of capital for our shareholders. We're really happy that we have now moving into a place where we have more excess capital, and we can use it for strategic purposes. I think we're at the top of the hour. So I want to thank everyone for joining. As always, feel free to reach out to us with follow-up and we'll look forward to seeing you during the quarter and on the next call. Operator: Thank you. This does conclude today's OneMain Financial Third Quarter 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.
Allison Chen: I hope you can hear us. If you guys -- if you cannot hear us, please let us know. So before we get into it, let me share the agenda for today. So we will have Tan Choon-Siang, who will get us through the third quarter key highlights. After that, we'll delve into the Q&A. And then please also note that this meeting will be recorded. A quick round of introductions of the management. We have today here Choon Siang, our CEO; Mei Lian, our CFO; Mei Peng, our Head of Investment; Yi Zhuan, our Head of Portfolio Management; and I'm Allison, Investor Relations at CICT. Okay. Now let's bring on Choon-Sian to share his highlights. Choon-Siang, please. Choon-Siang Tan: Good morning, everyone. Thanks for joining us today. I know you guys are excited to ask us questions. So we'll try to spend just a couple of 3 minutes. You probably have gone through the slide deck. I think safe to say this is quite a good quarter in terms of operating performance as well as financial performance. You can see that we are pretty much firing on all engines. Office is doing well. Retail is doing well. AEI is getting complete contributing and acquisitions are helping to help with the growth of the operating numbers as well as the financial numbers as well. So NPI up about -- for the year-to-date, we are up 0.2%, but that's, of course, due to the fact that we sold 21 Collyer Quay. Like-for-like up about 1.4%. On a quarter basis, it's quite similar numbers. Gearing is up 39.2%. I think some of you might be surprised why the number went up compared to last quarter, but it is because of the distribution that we did as well as the advanced distribution that we did as a result of the EFR. So there's a reason why the gearing creeped up slightly. Cost of debt, as expected, came down slightly, 3.3%. Bear in mind that this is a year-to-date calculation of cost of debt. So you don't expect it to move by quantum leaps because you are averaging over 9 months, whereas the previous quarter, we are averaging 6 months. We did a good financing, $300 million for the quarter. You guys have seen the news, 2.25%, probably the lowest financing done by the REIT this year. Operating metrics, maybe I'll just quickly skip to the next slide. I think operating metrics, we can talk about it a bit later. So AEI, we have -- I think we have announced some of this earlier, but we have now started works on these 3 projects already, at least from this quarter onwards. Lot One, we have gotten commitment from FairPrice to expand into Basement 2. This will be a conversion of the existing carpark. So that will be a good uplift in terms of NLA and should help contribute meaningfully from next year -- towards the end of next year onwards. Tampines Mall, we have already started work. If you have visited, you would have seen some of the works at the entrance area. We will also be moving the works further in once that exits. We have already got a commitment from some of these key tenants that you see here. So a very exciting list of new tenants that we hope will uplift the overall mall. And then we are also starting work on Raffles City. But this is not really a significant asset enhancement. It's more an upgrade of existing facilities given some of the facilities and some of the amenities that are lacking compared to some of the newer buildings. For example, end-of-trip facilities, which is common for new buildings now, which is not present for R City. We're trying to add that as an amenity for our tenant in Raffles City Tower. Next slide, please. I think financial performance, we've talked about that. We are up 1.5% year-on-year in terms of gross revenue, NPI as well, about 1.6%. So fairly happy with the numbers. So contributions from all areas from rental reversions, from improvements in occupancies as well as the acquisitions are contributing to the numbers. Next slide, please. Next slide, I think year-to-date, we talked about it. Leverage ratios and capital management numbers, we've touched on the key numbers in terms of gearing and average cost of debt. So I don't think we need to dwell too much. Next slide, please. I think we don't have to focus on this. Maybe just go through the rental reversions and occupancy. Next slide. Yes, maybe just a quick one on occupancy. I think all of our assets are doing well, all in Singapore, Germany as well as Australia. Office occupancy has improved due to improvements in Australia as well as Germany. We have leased out some additional space in 100 Arthur as well as MAC. So that's a very positive news for us, given the lack of momentum over the last few quarters for leasing some of this. And now we are seeing some green shoots. So we are very happy with the outcome. Integrated development occupancy came down slightly due to mainly Raffles City. It's a accumulation of a few different buildings. So it adds up to about 0.5% due to Raffles City Tower as well as Funan. There are some exits, but we have already backfilled some of the spaces and we are continuing to see some momentum in terms of backfilling. So I don't think we see that as a major concern. Next, Rental reversions, very pleased to say that improvements against the last quarter, you guys probably have seen the numbers already. If you look at it compared to second quarter, these numbers are up compared to last quarter. Last quarter, overall, retail, we are probably up 7.7%. Now we're up 7.8%. I think the more meaningful number actually is office. Office is up 6%. Rental reversion is 6-plus percent compared to 4.8% last quarter. Retail sales, very positive quarter. So I think as we highlighted in previous briefings, I think second quarter was a bit muted, partly due to liberation day, right, it was purely based on effects of that, in April and May. So we had a slight -- I mean, excluding ION, we had a slight downtick in terms of tenant sales, but now it's back up about 1% per annum year-on-year growth if we exclude ION. If you ION, of course, there's a more significant growth rate. So I think overall, it does look like the momentum is swinging back to positive. So very pleased with the outcome as well in terms of operating numbers. Next, some of the new brands, I don't think we want to spend too much time, but I think if you have visited some of our malls, I think we have quite a lot of exciting brands. Hai Kah Lang, if you have gone to Funan, you'll see that every day, there's a long queue there. Legendary Hong Kong in Tampines Mall is doing very well, some new brands in some of the others. I think it's probably not your focus. Maybe just one last bit, one last slide. This is the improvements in occupancy across the 3 countries, as you can see, we are indeed improving the occupancy as what we promised. I think we wanted to improve the asset performance for some of our overseas assets, and we have delivered on that. Germany is now up to -- we leased out a major space in bank, which has been quite stubborn. So now occupancy there is about 86%. And bear in mind, this is you excludes Gallileo. So if you include Gallileo, that number will probably move a little bit higher. Australia, we also managed to lease up -- actually, the only challenging asset in Australia was 100 Arthur, so that we have leased up quite a big space over there. So now that moves the average of the 3 buildings up from 88% to 91.2%. Okay. Sorry, I think that's probably more than 3 minutes, but maybe we can move to Q&A. Allison Chen: [Operator Instructions] I see quite a few raised hands, but perhaps then we will go to Mervin. Mervin Song: Congrats, Choon-Siang and team. Very good business update. I can't see many negatives per se. Can you touch on the tenant sales? FCC also reported improvement. I'm just wondering what's happening for third quarter? And do you think this will continue into fourth quarter considering the last 2 Decembers has been down year-on-year? And the second question I have is in terms of cost of debt guidance noted it did fall Q-on-Q. Do you have updated guidance for year-end as well as FY '26? Choon-Siang Tan: So I think -- I think that -- I would say that Q2 is more an anomaly. So we are back to normalized pattern, I mean going up. Normally, you wouldn't have been so excited if we tell you tenant sales are up 1%. I think you will see that as business as usual. I think it was because second quarter, we were down and now it looks like an uptick. But I feel that second quarter was more an anomaly because of Liberation Day, there was a lot of caution thrown into consumer spend. So I think some of that savings that people locked up in second quarter might have contributed to the uptick in third quarter. And of course, if you look at year-on-year, 1% growth means that the third quarter sales was higher than 1%. So it's quite strong momentum. I think part of it was also contributed by CDC vouchers, right, because those went up in July, but probably did not account for that full delta. But in fact, we probably saw an increase overall across most of the trade categories and not just supermarkets. Okay, so I think our second part of the question is whether we can see that continuing in Q4? I think that's a bit hard to -- I mean, hard to extrapolate. It always depends on how much time people spend traveling outside of Singapore. I think that's always a big determinant of whether a lot of them spend days in Singapore. Sorry does answer your question on December numbers? Mervin Song: Not a problem, yes just wondering your thoughts. A lot of negativity in the retail space, but I think this is a positive data point. We will just to need to keep writing on LinkedIn about how great retail in Singapore is. Choon-Siang Tan: I mean negative news always gets more eyeballs. That's all I can say. So don't always believe everything you need in the newspapers. Mervin Song: And cost of debt... Choon-Siang Tan: At the macro numbers from [indiscernible] right? I think the retail sales numbers are actually up in third quarter quite a bit as well. So it's not just limited to sales in malls. I think overall macro across the country, retail sales are up quite a bit. I think if I'm not wrong, it was about August or July up about 4% to 5%. Yes, I think August 4.6% retail sales. Mei Lian Wong: Then there was a question on cost of debt. So the averaging down of Q-on-Q is that we're actually seeing lower cost per Q, it is close to about 3.17%, so guiding towards the end, we continue to see the cost of debt slightly down. But to the nearest decimal point, it is probably close to 3.3% -- but when we round it up to the nearest, it is still around 3.3%. Mervin Song: Sorry, you're a bit softer. So can I say that -- so the third quarter itself was 3.17%? Mei Lian Wong: Yes, yes. Mervin Song: Yes. Okay. So next year, it will be at least 3.1%, if not 3%. Mei Lian Wong: Yes, yes, closer to 3.1% to 3.2%. Mervin Song: Next year. Allison Chen: All right. Next, shall we move on to Geraldine? Geraldine Wong: Choon-Siang team, maybe just following on to Mervin's question. If your full loan book resets at today's rate, what could your average cost of borrowing look like? Choon-Siang Tan: Well, theoretically, it should be the same as what we just borrowed, I mean it is 2.25%, right? Geraldine Wong: Okay. Choon-Siang Tan: Yes. I mean I'm just giving a very simplistic -- I mean, we have the capability of borrowing at 2.25% today. So if we reset the whole loan book, it should be that or even lower because there was a 7-year bond, right? Technically, our average term to maturity is 4 years typically because you have some nearer data ones and some floating. Floating are usually even lower. So if you -- I think 2.25% is probably conservative if you reset today, but yes. Geraldine Wong: Okay. Yes, it's the lowest rate we've seen in a while. Maybe just on office, if I just look at 3Q reversions, it looks to be closer to 10%. So just wondering what's driving the numbers? Is it more Australia? And how much of it is due to the CapitaSpring consolidation? Unknown Executive: Our reversion numbers does not include the overseas properties, just the Singapore reversion numbers. We saw some of the leases in some of the properties, but currently however the reversion number is pretty strong. Geraldine Wong: Okay. So it's [indiscernible] plus CapitaSpring console. Unknown Executive: Yes, there's a bit of a blend across the board. Geraldine Wong: Okay. Okay. Maybe just last quick one on acquisitions. Now with CapitaSpring already under your belt, what could be next for us to excite the market? Choon-Siang Tan: You're not excited enough? Geraldine Wong: Very exciting, but... Choon-Siang Tan: Well, we are looking at a few things that I'm quite excited about, but I don't think I'm ready to share with you. Okay. I think in terms of things that are visible, the only thing we can share, I guess, is sponsor pipeline, right? I mean those are at least clearly visible. Sponsor pipeline, I think what is left in the books is Jewel and Jewel is quite an exciting project, but we don't know whether -- yes, I guess that's a matter of timing as well. So that's one potential. I'm not sure whether it's something for '26 or '27 or '28. So we'll see what happens. Also looking at some other stuff, but yes I think the other thing that is getting us also excited is also I think we do -- we are trying to do a few AEIs. And I think those have quite meaningful contributions. I mean they are a bit smaller in terms of capital deployment, but they do add vibrancy, add some new tenants and also contribute meaningfully to our numbers on a consolidated basis. We're also exploring new potential AEI for some of the other malls. So as and when they are ready, we'll be sharing that next year if they come to fruition. Allison Chen: Next, [indiscernible]. Unknown Analyst: Three questions. The first one is on ION. Tenant sales have been very strong. How long can this sustain? Choon-Siang Tan: So far, I think so good. I will say that ION sales, if you look at it compared to -- I mean, the numbers are because it's absent last year, right? I think on a year-on-year basis, I will not say that it's -- I will not say that it's stronger than our other malls. I think they are probably more in line. So actually, they do trend quite similarly to some of our downtown malls. So I wouldn't treat ION sales as separate in terms of trending. They still remain quite correlated with, for example, Raffles City or even some of the suburban malls. Even though we see it as slightly higher end and maybe slightly higher tourist content, but I think at the end of the day, it's still about 70% domestic. So it's still highly correlated with our domestic traffic. But we are hopeful that the numbers will continue because bear in mind, ION is not operating at 100% capacity. If you go to ION today, you will see that some of the shops are still not fully operational because we have been doing a bit of a rejigging, moving some of the tenants and trying to elevate the experience on the ground floor and moving some -- shifting some of the tenant. So if you ask me on that basis, actually, there is some room to grow because if all the tenants are operating, actually, you should expect tenant sales to improve. And I think if you look at tourist numbers in Singapore, I think ION does have some reliance on tourism in terms of spend, right? If you look at tourist numbers, while we do not have big concerts like Taylor Swift, which contributed quite meaningfully to last year, but the government and tourism board still does -- makes a very good effort. If you look at tourist numbers, actually, it is still -- it is higher -- we are tracking higher than last year. So there is still strong momentum. There are a lot of -- my calendar is very strong. And bear in mind, this year, F1 was actually in October, not in September. So F1 numbers on a like-for-like basis actually have not contributed to September numbers. So that you might see some skew and some positive momentum in the October numbers. Unknown Analyst: Okay. Then my second question is on your comment on Jewel, right? What's the passing rent for Jewel? Can you share? Choon-Siang Tan: Oh, it's not our asset. I don't even know the numbers. Unknown Analyst: Then is there anything on the market right now that is exciting -- that is making you excited other than your sponsor pipeline? Choon-Siang Tan: I mean, you know in Singapore, there aren't that many opportunities... Unknown Analyst: Others on the market are not so exciting in terms of pricing? Choon-Siang Tan: No, I think if it's a third party, unfortunately, I think in terms -- it could be exciting, but the pricing usually is not as exciting. If you have to run through a competitive process, it's usually a bit harder. We also want to stay disciplined in terms of acquisitions. We want it to be exciting, but we also want to price to be exciting also. It doesn't really answer your question. But we are looking at a few things also. Unknown Analyst: Yes. I was just thinking about next year, what's the plan? Is it going to be a quiet year? Because this year has been relatively busy for you from the beginning of the year to date. Choon-Siang Tan: Yes, we hope it won't be quiet. Unfortunately, it's hard to articulate very clearly. If you ask -- if you look back 9 months ago, you probably thought this year might be a quiet year too. Unknown Analyst: Yes. Because I look at AEI. AEIs doesn't really leave much to your -- it doesn't bring much to your portfolio because your portfolio is so huge, right? You add another $10 million, it's like it doesn't move the needle, yes. Choon-Siang Tan: Unfortunately, it's very hard for us to share things that we are working on unless it's quite finalized anyway. So usually, this question is very hard to answer. But, we are excited a lot. In any case, next year, actually, we do still will benefit from the existing organic. I mean we have only -- even for this year, CapitaSpring has only contributed 1 month starting from September onwards. So it will still continue to contribute next year. There are things that are announced already. I mean, while it's not a new acquisition, like, for example, it has not contributed for the last 18 months, but we are quite excited that it will contribute -- start contributing early next year. And this one is substantial because it's an entire building, right? Allison Chen: We shall move on to Rachel. Unknown Analyst: Can you hear me? Choon-Siang Tan: Yes. Unknown Analyst: Yes, I don't know why my video is not working anyways. Yes. Maybe just following on, on this exciting transactions or assets that you're looking at. Is it still Singapore office or retail? Choon-Siang Tan: If we were to look at -- if you were looking at staff, it will probably be Singapore for now. Unknown Analyst: Okay. Office or retail or both? Choon-Siang Tan: I think we are open to both depending on -- we are quite pragmatic people. I mean, at the end of the day, it depends on pricing, right? So we are value hunters. We like -- as long as we think it's -- it adds value to our portfolio, and we think that we are able to acquire something at a reasonable valuation, yes. So it's a matter relative to market. Although if you look at -- I mean, most people -- if you look at it simplistically, you know that retail trades at a higher yield, right? Technically, it's more feasible and easier to do retail. Of course, the risk is different. So people cannot just look at you solely as well. Unknown Analyst: Okay. Is the Paragon's portfolio still in your this exciting assets or not really? Choon-Siang Tan: I think Paragon, I'm not... Unknown Analyst: Paragon REIT. Choon-Siang Tan: So I suspect that might take a while. I don't think it's in -- I mean, I don't know, but it doesn't feel like it will be in the market in the near term given that they have to do AEI. Unknown Analyst: Okay. Okay. But there are other assets in Paragon as well, right, Paragon REIT, ex-Paragon. Choon-Siang Tan: I think that's Clementi Mall, they're running a process now, right? I think that's public knowledge. And the other one -- they only have Marion after that, which is in Australia. I think these are the 3 assets that you have. Unknown Analyst: Okay. All right. Then my next question is on Gallileo. Now that you have leased up, is looking good. Are you keen to sell? And is the market ready to sell? Choon-Siang Tan: I think we focus on handing over to the tenant first. Actually, it's not completely done. While we have started -- actually, it's a multiphase handover. So we will only be completing the handover to the tenant, probably coming close to the end of Q1, which is another 5 months from -- 4, 5 months. So I think we want to focus on -- and when you do handover, there could be issues at the beginning. So we'd rather try to be a good landlord and sort of all these issues with the tenant to ensure a very smooth handover first. Unknown Analyst: Okay. But the income from this Gallileo will be full contribution starting from end first quarter, is it when you are fully handing over? Is it full? Choon-Siang Tan: Yes. No. So it will be staggered. So it will also -- contribution will also be based on phases. We only get rent for the area that we have handed over. Unknown Analyst: Okay. So when should we expect like the full... Choon-Siang Tan: Full contribution was -- partial maybe Q1 and full probably Q2 onwards. Unknown Analyst: Okay. Got it. Choon-Siang Tan: We already own 94.9% of the asset. So when we say full, we mean the full contribution from our share. Unknown Analyst: Yes. Okay. And just one last one, quick one. In terms of ION, I know there's some rejigging. When can we expect all this rejigging to complete and then we will see some flows in income? Choon-Siang Tan: It will probably take a while because we are actually -- because actually, we are doing a few movements, and you cannot do all at one time. So that's sort of as a bit of a musical chairs. Tenant A move to tenant B, tenant B moves to tenant C. So it will be ongoing for a while, I think, at least it will continue until next year. But at least those that are not operating now when they open and contribute, then you will it will be incremental. Yes, we don't expect everything to open up to get the... Allison Chen: Next, we hear from Brandon. Brandon Lee: I just want to touch a bit on your asset sales, right? Can you share what's your guidance here? I mean we have been seeing cap rates compressing quite a bit domestically. So are you still looking to sell if we do see that, is it more office or retail? Choon-Siang Tan: I think we have done some divestments in the last 12 months already. In fact, yes, it's really still within the last 12 months. We've done 2 asset disposals [indiscernible] and the service residence at CapitaSpring. So I don't think we are in a hurry. But as you rightly pointed out, it does seem like the market yields are compressing quite fast, partly due to probably no good assets available for sale in the market and also coupled with the sharp decline in interest rate in the last couple of quarters, right? So there's been -- I mean, we are looking forward to what currently the mall transacts at eventually. But we do think that, yes, the cap rate compression is quite significant. So -- it could make us reevaluate our portfolio a little. But I think safe to say we are generally quite happy with our portfolio construct now. We do think that most of our portfolio are very strategic and quite core to our business. I would say that if we were to divest, we may want to look at -- I mean, I think some of you alluded to some of our overseas assets that will be more meaningful for us to look at in terms of divestment. In Singapore, I don't see us divesting significantly. We could potentially look at 1 or 2 assets, but not urgently because they are all yielding quite well. So we will also have to evaluate. So when they are yielding well, unless we get a very significant uplift to our valuation of book value, it's likely to be dilutive. So we have to evaluate that quite carefully. So it depends on what kind of yield I can get. Brandon Lee: So basically, at the current 39.3% gearing, you're quite comfortable. Choon-Siang Tan: Okay. So 39% is not -- actually because we did advanced distribution, right? So in a normal quarter, if we didn't do advanced distribution, this gearing would have been lower. So when we were comparing it to like, say, a few quarters ago, it does look a bit higher. But we must bear in mind that we have advanced distribution. Other quarters, we normally don't have advanced distribution, right? So without -- if you remove that effect of the advanced distribution, the gearing would probably have been 38% plus. But I guess the underlying message in your question is that should we be comfortable with 39-plus percent gearing? I think we would like it to be a bit lower. Brandon Lee: Okay. And just one last one, right, for the potential inorganic, right, would you be keen to look at some of these GOS mixed use with a retail component like something like -- along Central Mall -- because in the past, we did see like CSE going for Bedok site, right? Choon-Siang Tan: I think we will evaluate all opportunities. So it all depends on how it affects our numbers in terms of whether we have the capacity to do it and whether it's overall accretive or makes sense for us from a portfolio perspective. Yes. So I think to answer your question is, yes, we will look at all opportunities as long as the -- it's relevant to our portfolio. Brandon Lee: Okay. Sorry, just one quick one. Is [indiscernible] considered your sponsor? Choon-Siang Tan: No. Brandon Lee: No, okay. Choon-Siang Tan: What do you mean by sponsor? I guess when we say sponsor, we mean we have a ROFR to their pipeline, right? Then, the answer is no. Allison Chen: Derek, please go ahead. Derek Tan: Just a few questions, right? Firstly, on acquisitions, right, I'm just looking at some of your peers, I'm not sure whether they're peer, but gone into suburban Australia. I'm just wondering whether is that part of the world interesting for you? Or you still want to focus on Singapore for now? Choon-Siang Tan: I think we want to focus on Singapore for now. We still see opportunities in Singapore, so until such time where we think that we run out -- I think -- but for now, I think we still see some pipeline in Singapore. So we -- I think our investors would rather want us focus on Singapore for now as well, I think. Derek Tan: Certainly. Okay. Got it. Got it. And just to also reconfirm, I think previously -- I mean, we hear from a great buyer that this Bukit Panjang Plaza was on the market, right? So that is off the market already. Just any thoughts on that? Choon-Siang Tan: I mean, was it in the market? Derek Tan: Don't know. So not in the market? Choon-Siang Tan: I just want to make sure because maybe it was there in the market before I joined, so I need to clarify. So, I cannot answer for those. Well, I think I'm just checking with my colleague whether it was in the market, right? No, right. We never said that was in the market. Mei Lian Wong: Normally, it wasn't. Choon-Siang Tan: Yes, I saw the newspaper article, so I wasn't sure whether it was from us. Derek Tan: Okay. No problem, no problem. Sorry, my last question, I mean, just a quick one. I mean results are really good and straightforward. Could you give us the guidance for your reversions and maybe going to next year? I think my thinking behind it is that this year, you had the consumption vouchers, right, and boosted spending a little. I'm just wondering whether at this moment, are you still okay to push reversions to the same level? Do you think you can maintain? Choon-Siang Tan: No, I think we have always said that high single, probably not so sustainable. We're probably going to target between mid to -- yes, about 2% per annum sounds more reasonable, right? I mean, Inflation is also not that high. Derek Tan: Got it. Got it. Got it. Sorry, just last one. If you think about the ION, the LLP potential, right, is that still something you're working on? Is there a time line that you can look forward to, to convert -- sorry, convert to LLP? Choon-Siang Tan: Yes. So I think we have -- I think at the last briefing, we have also said, you already are in the long time, not to be -- probably not something that you want to work into your numbers in the short term. But of course, rest assured, at the back end, we are running at 100%, but doesn't -- even when you run 100% to try to get it, it will still take a very long time because yes -- so yes, I will not assume it in the short term, but you have to get it done. Derek Tan: I'll leave that as a surprise. Allison Chen: Next, can we hear from [indiscernible], please? Unknown Analyst: Can I follow up on the reversion, I guess you were guiding for reversion to moderate for some time, but it seems that things are actually improving. So what's actually driving this positive surprise here? Choon-Siang Tan: I think -- I guess, overall, Singapore economy is doing quite well. If you look at GDP growth, it's always -- it's been surprising on the upside every single quarter as well. So I guess -- yes, I think generally, equity market is doing well, CDC vouchers does seem like people are prepared to -- I mean, when people are prepared to spend -- continue to spend when the market moved, it's general market is doing well. What is driving it? I guess, while we have always said CDC vouchers is driving part of it. Some of it was probably due to -- like I mentioned, I think Q2 was a slightly lower base, right? So improving from Q2. Q2 was probably muted because of Liberation Day. I think we probably felt it most in April and May in terms of tenant sales. And some of the bounce back is not as surprising actually. And then you probably have some savings, right, because people spend less in the last quarter. But I think overall, market and economy is doing well. So we do expect sales momentum to improve. Unknown Analyst: Second question on tax transparency, right? So our forecast is usually 3 years forward. So by saying that we should not factor this in, does it mean we shouldn't expect it to happen within the next 3 years? Choon-Siang Tan: No, I wasn't thinking from your point of view. I was thinking from my point of view. My point of view is 12 months. Allison Chen: Jonathan, you're up next. Unknown Analyst: First question, for those of us who missed the first 3 minutes, don't mind, could you run through what's driving the higher occupancy for the office portfolio? And then second question, as we come towards end of the year, do you expect sizable revaluation gain when you do your revaluation for December? Do you expect cap rate compression for retail and office portfolio? Which segment would contribute more divestment gain? Would it be office or retail? Choon-Siang Tan: Okay. So office occupancy went up largely because we managed to lease out our 2 assets in Germany and Australia quite well. So we -- in Germany, occupancy went up 5%, right, close to 5% because of MAC, which is only a single property. So that was a single tenant, large lease. So we're quite happy with the outcome. Australia, actually, 2 of our office buildings are pretty much fully leased already. It's just 100 Arthur Street. We managed to lease out 100 Arthur Street and also a fairly large long-term lease as well to Flight Centre, which took quite a big space. So that improved our -- and this is a 3 percentage point increase in Australia over 3 buildings, right? But actually, the stand-alone building was more significant. So these 2 contributed to the uptick in office occupancy. So that was your first question. Second question is on valuation, right? We do hope for our Singapore assets to be -- to show improvements in valuation. As to how much, I think it's hard to say. If you look at some of the other REITs that have year-ends in September or June, they have reported a healthy valuation uplift for the Singapore portfolio at least, yes. Unknown Analyst: Yes. I mean would it come more from retail given like maybe transaction in the market? Choon-Siang Tan: I think it will be both office and retail. You might look at retail, I guess, because I think office cap rate is already quite tight, right? So the room to move is probably slightly less than retail. And of course, if you look at our performance reversions and in terms of occupancy, it's also slightly higher for retail. So all of those get factored into future cash flows, right? I mean I'm just giving like some of the drivers and what could potentially move. So at the end of day, it depends on how the valuers do their numbers as well. But if you look at broad numbers, of course, retail number seems to be -- have a higher -- better momentum in terms of rents. Allison Chen: Vijay, you have a question to share? Vijay Natarajan: Just adding on to this Jonathan's question. In terms of overseas markets, do you think -- see that things have bottomed out over there? Do you expect this occupancy gain to sustain? And probably can give some color in terms of incentives for some of these leases you have signed? Choon-Siang Tan: Okay. Maybe Yi Zhuan do you want to take some questions. The other questions, I have to defer to my colleagues. Lee Yi Zhuan: Yes. So I'd say generally, the overseas markets, and I will go into Australia first, right? So for Australia, at this point, we do see a bit of signs of bottoming out in terms of some of the occupancy vacancy that we are seeing, but we are also, at the same time, right, incentive levels are stabilizing, but it's nearing the peak. As for the leases that we signed, I won't go too much into the details, but for the 100 Arthur one it's pretty much in line with what we are seeing some of the newer buildings in the area doing -- so unfortunately, for North Sydney at this point, is on the elevated side of things compared to the main Sydney core CBD area. But the good thing is generally, while we are seeing North Sydney compared to a couple of quarters ago, the Flight to Centre would be right where a lot -- which has been benefiting the core CBD for a while. We are seeing a lot more inquiries now also coming for North Sydney coming from some of the Macquarie Park or Chatswood and some of these other tracings that is further out. So hopefully, some of these translates eventually into more deals in the area. For MBC side, I think it's pretty much in line with what the market is doing. The rent free is a little bit long for the submarket in airport district at this point. But at this, we do not really see something that is odd in that. The good thing about some of these leases is that the commitments are coming quite early like Flight Centre, we are already seeing the tenant taking the space early next year. Vijay Natarajan: Okay. Would you say the occupancy has bottomed? Lee Yi Zhuan: Sorry? Vijay Natarajan: Would you say the occupancy has bottomed out? Lee Yi Zhuan: We will still see a little bit of volatility in the next few quarters in terms of the occupancy for our assets because there will be some exits. But I think right now, the momentum in getting them back still is essentially quite the key. Vijay Natarajan: Okay. Got it. My second question is in terms of portfolio, broadly looking at next 3 years, do you have any redevelopment opportunities in your portfolio like CapitaSpring or CapitaGreen, which you see in your portfolio, specifically in your portfolio or even with the sponsor assets combined together like Class assets or CLIs assets, which you can redevelop together in the next 3 to 5 years? Lee Yi Zhuan: Redevelopment. So for redevelopment is, of course, we do study some of the possibilities in view of some of the things we see in the master plan. But a lot of all these things, we have to actually engage the authorities as well as look at what eventual schemes we are getting because it only makes sense for us. Most of our -- if I say we get a very good GFA uplift. But if you look across most of our properties, right, they are trading pretty well, the kind of occupancy and it is actually also quite strong. So there must be meaningful upside for us to undertake redevelopment. Vijay Natarajan: Okay. But at this point of time, you don't see any? Lee Yi Zhuan: We will have to study and see what the market can bring us. Allison Chen: Can we hear from Terrance, please. Unknown Analyst: Congrats on the strong results. Can I ask on the office -- what drove the stronger office reversions this quarter? I mean you report on a 9-month basis versus first half basis. So it's actually quite strong, specifically for this quarter. And how is tenant demand trending, especially I understand AST2 had a bit of lower occupancy in the first half of the year. So how is that doing? Lee Yi Zhuan: I would say that generally, if I look at Singapore office market, right, the key trends -- trends are still pretty much the same, right? The flight to quality, people are paying for quality at this point, limited supply. And of course, we see some of the upgrading demand, even though generally relocation is still something that a lot of companies are a bit careful because of the CapEx commitment. And we also start to see like some of the landlords in the market are starting to look at, especially for the smaller spaces, right, looking at fitted out suites and fitted out options. For this quarter, in particular, we do see pretty strong reversions for 2 properties, mainly Capital Tower as well as Six Battery Road. It's very hard to say why suddenly because actually, like, for example, if I go a quarter before, these are the assets that probably the reversion is on the lower end. And then -- but this quarter is on the slightly higher end of things. So it's really deal specific rather than anything that is jumping out for -- as a key driver. Unknown Analyst: And for AST2, how is that doing occupancy-wise? And is that something that we have to worry about? Lee Yi Zhuan: Yes. AST 2, I think generally, that area has a little bit of activities in the past few quarters because we have Marina 1, we also have IOI filling up. So definitely, when it comes to filling spaces, it's a bit more competitive. But we are in talks with some of them to backfill. I think we are in some advanced discussions with some of the tenants. Hopefully, you can convert them soon. But with some of the supply and tightening around the area, those will -- I would say that this will probably give us a bit of opportunity to see a bit of improvement in the occupancy in the coming quarters. Unknown Analyst: Can you share the occupancy this quarter for AST2? Lee Yi Zhuan: Just give a second. Unknown Analyst: Yes. And then I'll just ask a final question. For retail side, any concerns on cinema or tenants? And maybe could you give us a sense of which segments are doing better, which segments are a bit more challenged? Lee Yi Zhuan: Okay. Maybe AST2 this quarter, our occupancy is actually slightly higher at around 95%. Yes. As for the retail, you were talking about retail, right? Yes. So for retail side, our good thing for cinema trade is that we are not overly exposed within our portfolio. It's less than 5% from NOA perspective. And generally, the rent contribution is even lower. So I think sub-2% from GRI contribution perspective. And -- but so far, at least we don't have a real issue with our cinema. And hopefully, I think we will promise that next year, there's a better lineup of shows. So hopefully, it converts with less cinemas around better shows, hopefully translates to better performance from the cinema side. As for the rest of the trades, I would say, generally, we do still see for F&B, right, the operators generally are still -- quite strong interest coming from there. So dining out has been still quite resilient demand across the board. So actually, a lot of the well-capitalized overseas operators are showing quite a lot of interest coming to Singapore. Having said that, I think generally, manpower limitations, wages, cost of supply also means that a lot of all these operators tend to get a bit more strategic in the way they choose and also in terms of the size. So we also see a little bit of shift from what used to be a lot of traditional fine dining now moving more into experiential kind and affordable food. So -- and I think this trend will probably persist in the coming quarters. You will see a lot more new concepts in terms of food. For fashion side, generally, the fashion retailers are a little bit careful for expansion now. And a lot of them are trying out like the new-to-market brands tend to look for pop-up space. So actually, there's a lot more inquiries for pop-up where they want to come in, take a space, either have these or take up even some of these space for pop-ups, right? And then they will try to do like a short campaign, and they will seek to test the market whether there's acceptance for it and before they look at a more permanent space. But this quarter, one of the standout performance is actually the hobbies. Generally, hobbies are doing quite well this quarter. The hobbies trade. So your [indiscernible], ActionCity, some of those are doing quite well. Last year, for -- if I talk about entertainment, partly because maybe we will have to see how the F1 weekend goes. But generally, if you look at it, last year, there are a lot of recovery for the nightlife, the entertainment. So -- but year-on-year, we see the entertainment coming off a bit this year, yes, for the clubs and the bar. Allison Chen: Derek. Derek Tan: Just a quick follow-up on that cinema percentage of GRI, that's for retail, right? So overall, it will be even lower, right, sub 1%... Allison Chen: You're breaking up. Can you repeat your question? Derek Tan: No. Just following up on Yi Zhuan's answer on cinema operators accounting for less than 2% of GRI, that's retail GRI, right? So overall be even lower? Lee Yi Zhuan: This is actually your GRI retail. Derek Tan: Okay, this is retail? Lee Yi Zhuan: Correct. Derek Tan: Okay. Okay. Got it. And just can I also ask on the occupancy costs for retail, given that I see a disconnect between the reversions and the tenant sales, what's the occupancy cost right now? And how does that compare... Lee Yi Zhuan: Our occupancy cost, if I compared to first half of 2025, actually, it came up a little bit, very marginally. But I would say quite stable around [indiscernible]. Derek Tan: Okay. Okay. Is there a breakdown between downtown and suburban? Lee Yi Zhuan: Just if we are talking about cost, if you're talking about downtown, suburban generally is around 16.5%, plus/minus. So it will fluctuate around the area. Downtown is about 18%. Derek Tan: Okay. And just moving to office. I'm not sure if I caught -- was there a reversion outlook for office in Singapore next year? Lee Yi Zhuan: Probably around the same low to mid-singles, I would say, for those at this point. Derek Tan: Low to mid-single digit. Okay. Got it. All right. Got it. And just lastly on potential acquisitions right now. I think Choon-Siang did mention a more of a preference for malls for retail. Within that, would suburban or downtown make more sense to you right now? Choon-Siang Tan: Derek, I think we didn't say that -- we said that retail yields are higher, but I don't think we have a preference for that. It all depends on the relative value. We are open to both -- as evident in our last 2 acquisitions, right? One was office and one was retail. So it depends on what's the pricing for each of them. But of course, to make the numbers work, retail yields are higher. So it's always a bit easier in terms of that, but we have to look at it from a portfolio construct point of view as well. I think your question is whether it's retail -- the thing about Singapore acquisitions and pipeline is -- it always depends on what's the opportunity. So it's hard to -- I don't think we are necessarily try to ring-fence around a specific area. I think it always depends on the specific opportunity. I think we are more concerned about the location advantages and whether there is a great catchment and whether there's a great transport node attached to the asset. So these are more important considerations rather than whether it's retail or whether it's suburban or office or downtown. Derek Tan: And I guess following on that, what we sensed also is the dominant nature of the mall, right, let's say, if it's 200,000 square feet, that's imminent -- that's far more attractive to you? Unknown Executive: Yes. Yes. So I think definitely for us, it has to add meaningful scale. I think not so interesting for us if it's a very small asset, it doesn't move the needle for us. Derek Tan: You spoke about pricing as well. I guess would it -- could we benchmark against on a per square foot basis, maybe the current assets that you have, some of the more better mall -- suburban malls, for example, at 3,003, 2,006 per square foot. So that will be a number that's more comfortable for you, right? Choon-Siang Tan: Yes. So I think we have to look at a few metrics. One is cost per square foot, as you rightly pointed out, that's relevant. I think the other thing, of course, because also cost per square foot can vary depending on whether it's a more horizontal mall or more vertical mall, whether there's basement or no basement, that kind of stuff. So I think the other more important metric, of course, is yield. I mean, because at the end of the day, that's the income that we'll be getting. And also the third number that we always focus on is accretion and whether how it contributes to our overall portfolio. So these are the few things that we typically focus on and try to be disciplined around it. Allison Chen: Next, we have Terence from UBS. Terence Lee: My first question is on tenant sales. Do you mind sharing a bit on the third quarter year-on-year trend for retail because it seems to be flat for 9 months and it appears to lag that of peers. And it's kind of counterintuitive because I would expect that you should have gotten the lift from the SG60 vouchers coming in from July onwards. Choon-Siang Tan: Yes. So I think these numbers are year-to-date, right? So if you look at it from that perspective, this quarter actually is higher than 1%. As to what it should have been, you sound like you are expecting a much larger number. Terence Lee: No, your peers are reporting somewhere around, say, 3% to 4% year-on-year increase. Choon-Siang Tan: Is that for 3 months or is that for 9 months, though? Terence Lee: It is probably in the third quarter. Choon-Siang Tan: Yes. So that's a difference. That's why I highlighted that this is the year-to-date numbers. But maybe we can share a bit more color. Yi Zhuan can share a bit more color. Lee Yi Zhuan: Okay. So for third quarter, if I -- year-on-year, if we exclude just like-for-like properties, excluding ION are also around 3-plus percent for the retail portfolio. Terence Lee: Okay. And perhaps do you mind sharing perhaps your thoughts next year when SG360 vouchers roll off, like should we then expect sales to flatten out, potentially even decline? Lee Yi Zhuan: Actually, I wouldn't think so, to be honest, because they were offset with at least some of the growth that we see and the broader economy, how it is doing. So I wouldn't particularly say that, that on its own will actually really -- because actually, right now, we see the SG60 vouchers, probably there's a little bit of transfer effect between people having a bit more disposable income to spend given that some of the other day-to-day things they already use the voucher to offset. But we also see some of them take the money and travel overseas and spend it overseas. So I wouldn't say that actually next year, we would expect this number to really come off. Terence Lee: Okay. Got it. And on -- I think in Tampines Mall is done to close down in November 2025. Should we expect that there will be some vacancies? Or how is the backfilling progress? Lee Yi Zhuan: Yes. Definitely, that one on its own space is about, if I'm not mistaken, around 38,000 square feet, right? So as it closes down, there will be a transitional vacancies that we will see. But actually, at this point, we have already been in advanced discussion with a lot of the tenants to -- some names are already very, very close to some of these names to just a choice. It's already kind of like well backfill. Because actually there's -- sorry, maybe I'll just elaborate a bit on this because it's actually sitting on 2 floors, the ground floor and the upper floor. So the ground floor as the first space of some of the works that we are carrying out, right? Those we have actually largely kind of gotten the name kind of filled it up. The second floor is the one that's some of the details we still have to work through to finalize with the different brands because it involves a bit of reconfiguration. Terence Lee: Is it fair to say that this might involve some degree of cutting up large plate into small plate and there is that effect of like positive reversions coming out thereafter? Lee Yi Zhuan: Yes, there will be a bit of reconfiguration. Some of the floors will definitely become the smaller ones, especially the ground floor, you probably see a bit more of that. Net-net, we will expect it will generate higher income. So basically, the per square foot rent for some of the spaces will be much higher than what it is getting today. Allison Chen: Next, Rachel. Unknown Analyst: Just some follow-up question. In that Isetan, if I look at your numbers, your Tampines Mall ROI is only roughly about 7%. But now you are cutting up space in Isetan, should we expect more ROI? Lee Yi Zhuan: But we have to offset with a slight loss in NLA also. Unknown Analyst: Oh, okay. Unknown Executive: I mean, 7% is taken into account... Choon-Siang Tan: [indiscernible] contribution. Yes, we have taken into account the effect of reconfiguration. Lee Yi Zhuan: Sorry, yes, if there's a question, yes, the whole project's ROI includes everything. Unknown Analyst: Okay. Okay. All right. And then for the retail leases that was signed during COVID, has that all already been mark-to-market already? Or do we still have a few more left? Lee Yi Zhuan: It is mostly mark-to-market right now, yes. Unknown Analyst: Okay. And on the office side, you said that the key trends are still there. So I'm just wondering because of the limited supply, are you still able to push rents up or generally, the rents are actually quite stable now as you discuss with tenants? Lee Yi Zhuan: I would say that at this point, generally as a market, while there's limited supply, we also see that there's actually -- I wouldn't say the new demand coming in is very strong. Even though some of the leases we have seen recently, especially done at IOI and Central -- sorry, Marina One, right? Actually, you see big companies who actually book marginally bigger space than what they had previously. So that kind of reflects also within our portfolio, if we see this year-to-date, right, we actually see a net expansion of space among our existing tenants. So -- but a lot of the movements in the market is actually a bit of musical chairs, right? So I would not say that at least at this point, there will be a lot of -- I would say it's actually flattish and very moderate growth rather than to expect a very -- landlords are really stretching rents a lot. But of course, in some instances where we actually have tenants that moved out and some of these tenants probably have been with us for quite a while, right? And then some of the new tenants that we bring in like what we see in City and what we see in Six Bounty Road, there are those where opportunistically, we are able to get pretty strong reversions. Unknown Analyst: Okay. Got it. Yes. And the new tenants -- new to Singapore tenants are very, very small now, right, for office. Lee Yi Zhuan: Yes, I would say new to Singapore tenants demand not really that much. In fact actually, if we see startups, there's actually -- what we hear is that there are a bit of more start-ups coming from Chinese and Indian companies, right? Some of them also coming through for the tech space of things. And usually -- some of these smaller setups, they usually either go for fitted offices or they go for those kind of co-working spaces that we see. Allison Chen: We'll circle back to Mervin again. Mervin Song: Yes. I just had a question in terms of the office NPI margins. It fell Q-on-Q and year-on-year. Just wondering what's happening there? Is it the incentives you're having to pay for Germany or Australia? In terms of second question I have is electricity costs. How much you're paying today? And do you still expect further savings ahead? And for 101 Miller in North Sydney, are we getting closer to doing a more substantial AEIs, especially the retail space, which is connected to the train station or at least the forecourt to activate the space, perhaps have a more comfortable clock. Lee Yi Zhuan: I'll probably take the last 2 questions first. And so for Greenwood Plaza, we are having plans to actually do some of the repositioning works for the Greenwood Plaza sometime next year. Some of the plans we are working through, and we are also talking to some of the brands working with our JV partners definitely. So we do expect to see a little bit -- because earlier this year, we did a bit of work around the lobby for the office side. So I think the whole repositioning exercise for the office was quite well as we can see the uptick in the occupancy. Right now, then the next one to focus on is with Greenwood Plaza. With station completing later part of this year, we also see that there's a bit of a shift in the gravity of where the traffic flows in the center of gravity, right? So definitely, we need those a little bit of things to kind of anchor where and what GWP can bring in terms of footfall, in terms of the sales and stuff. In terms of electricity rate, I will only say that in '26, we probably expect tariff rates to come off what we have currently in '25. And for the occupants -- sorry, the NPI margin for the office side, I think partly came off maybe includes CapitaSpring. We have that little bit -- CapitaSpring's margin on average kind of have a little bit of impact on the overall office portfolio and what is the... Mervin Song: And this -- the NPI margin hasn't been this low for a while. Should it normalize higher over time or this is the new level? Or the first half was normally higher, and it is only 6.4%? Lee Yi Zhuan: I would say that normalized should be around [indiscernible] . Mervin Song: Okay. Sorry, just on electricity costs, would it be in the mid-20s at this point in time, going to low 20s? Lee Yi Zhuan: Do you mean as in? Mervin Song: The tariff rate? Lee Yi Zhuan: It's probably around, it is slightly [indiscernible]. Mervin Song: But it will be going to low 20s next year, I presume? Lee Yi Zhuan: Oh you are saying 2025 of 2026? Mervin Song: So, on 2025 going into 2026. Lee Yi Zhuan: So, it is slightly above, right now we are going slowly below. Mervin Song: Okay. And your contracts, 1-year contracts or you do more longer term? Lee Yi Zhuan: The contract is always long... Mervin Song: Look forward to exciting pipeline in the future. Allison Chen: Any more questions? No. Okay. So it looks like we've got everything covered for now. If anything else comes to mind, you know how to get to us. And thank you for the time today. Have a good week ahead. Choon-Siang Tan: Thank you, everyone.
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.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Ingersoll Rand Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the conference over to Matthew Fort, Vice President, Investor Relations. Please go ahead. Matthew Fort: Thank you, and welcome to the Ingersoll Rand 2025 Third Quarter Earnings Call. I'm Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; and Vik Kini, Chief Financial Officer. We issued our earnings release and presentation yesterday afternoon, and we will be referencing these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference call will be available later today. Before we start, I want to remind everyone that certain statements on this call are forward-looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. Please review the forward-looking statements on Slide 2 for more details. In addition, today's remarks, we will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release. Both are available on the Investor Relations section of our website. On today's call, we will review our company and segment financial highlights and provide an update to our full year 2025 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to parts. At this time, I will turn the call over to Vicente. Vicente Reynal: Thanks, Matthew, and good morning to all. Beginning on Slide 3, in a dynamic macro environment, we continue to deliver durable growth driven by disciplined execution and the strength of IRX. Year-to-date, organic orders are up 2% with a book-to-bill of 1.04x. Our disciplined approach to M&A continues to be a key driver of our success. Our acquisition pipeline is robust with a strategic focus on targeted bolt-on opportunities that enhance our existing portfolio. Finally, our teams are focused on controlling what we can control and leveraging IRX to navigate the dynamic market environment. On Slide 4, our value creation flywheel remains a central engine of our performance, generating strong free cash flow that fuels disciplined high-return capital deployment and strategic flexibility. It is our ownership mindset, employees acting and thinking like owners that propels IRX and drives our outperformance. This combination of culture and system delivers durable value creation. We remain committed to our capital allocation strategy, using our strong free cash flow and disciplined M&A approach to pursue targeted high-return bolt-on acquisitions that add market-leading products and technologies to our portfolio. Year-to-date, we have executed with both pace and precision, closing 14 transactions with 9 additional transactions under LOI. These high-return bolt-ons averaging a 9.5x pre-synergy multiple expand our technological capabilities. Our disciplined M&A engine continues to compound durable above-market growth. We remain on track towards achieving our annual target of adding 400 to 500 basis points of inorganic revenue acquired on an annual basis. Our acquisition of Dave Barry Plastics is the second addition that we have made to our Life Science platform this year. A designer and manufacturer of custom cleaning room solutions, Dave Barry Plastics enhances our capabilities within life science applications in biopharma production and their products are highly complementary to our existing biopharma business. I will now turn the presentation over to Vik to provide an update on our Q3 financial performance. Vikram Kini: Thanks, Vicente. Starting on Slide 5. Orders showed continued strength in the third quarter, up 8% year-over-year or up 2% organically with a book-to-bill of 0.99x. Sequentially, from Q2 to Q3, we saw low single-digit growth both in orders and backlog. It is important to note that since the end of 2024, backlog is up high teens from a percentage perspective. Order performance remains positive with both our ITS and PST segments delivering year-to-date organic order growth in the low single digits. The third quarter finished largely in line with expectations for revenue, adjusted EBITDA and adjusted earnings per share, showing strong execution despite the dynamic market environment. The company delivered third quarter adjusted EBITDA of $545 million with an adjusted EBITDA margin of 27.9%. We have delivered solid sequential growth in adjusted EBITDA margin over the course of the year. Additionally, we have recently implemented proactive measures to optimize our cost structure. While these actions will have limited impact in 2025, they position us well heading into 2026. The year-over-year margin decline was primarily driven by tariff-related dilution and targeted investments to support organic growth. Corporate costs were $30 million, largely reflecting incentive compensation adjustments, which are aligned with performance. Our Q3 adjusted tax rate was 23.9% and adjusted earnings per share was $0.86 for the quarter, up 2% year-over-year and up 11% on a 2-year stack. On the next slide, free cash flow for the third quarter was $326 million and is approximately flat year-over-year on a year-to-date basis. With $3.8 billion in total liquidity, our balance sheet remains a strategic asset, enabling continued investment in high-return opportunities. Leverage increased modestly to 1.8x, driven by proactive capital deployment, including $249 million in M&A, $193 million in share repurchases and $8 million in dividends within the quarter. The $193 million in share repurchases made during the third quarter represented approximately 2.5 million shares. Year-to-date, we have deployed $460 million to M&A at an average pre-synergy adjusted EBITDA purchase multiple of approximately 9.5x and returned approximately $700 million to shareholders through share repurchases. This performance reinforces our ability to effectively deploy capital while maintaining top-tier balance sheet flexibility. In addition, with our strong balance sheet, we will continue to evaluate more share repurchases without affecting our M&A bolt-on approach. I will now turn the call back to Vicente to discuss our segment results. Vicente Reynal: Thanks, Vik. On Slide 7, third quarter orders for IPS finished up 7%. Book-to-bill for the quarter was 0.99x, and it is 1.04x year-to-date. The segment delivered organic order growth in the low single digits, making the third consecutive quarter of positive organic order growth. Revenue declined slightly year-over-year, driven mainly by tough comps in renewable natural gas projects in the U.S., but momentum across other end markets remain solid. Adjusted EBITDA margins finished at 29%. It is important to note that we view the current dynamic tariff environment as a temporary impact on our margin expansion. Additionally, we remain committed to delivering our long-term Investor Day targets of 30% adjusted EBITDA margins by 2027, and we see continued opportunities for further expand margins within ITS over the long term. Moving to the product line highlights. Compressor orders were up high single digits, demonstrating continued momentum. Industrial vacuum and blower orders were up low single digits and power tools and lifting orders were up also low single digits. On a regional view, we saw orders in Americas and Europe, Middle East, India, Africa up high single digits and Asia Pacific up mid-single digits. We're very excited to announce a game-changing leap in our innovation journey. This month, we introduced in Europe our META Contact Cool Compressor. Packaged in a remarkably compact design, this compressor offers unmatched best-in-class efficiency, thanks to very advanced newly engineered airs, motors and packaging for enhanced performance. The META 45 produces up to an 11% increase in flow while occupying 40% less space. Additionally, the META compressor delivers a 14% reduction in energy consumption, delivering productivity and reducing total cost of ownership for the customer. Originally introduced under the CompAir brand, this product reflects Ingersoll Rand's multichannel, multi-brand approach as this technology will also be launched in 2026 under other key brands across the world. Turning to Slide 8. Q3 orders in PST were up 11% year-over-year with a book-to-bill of 1.01x. Organic orders were up 7%. Year-to-date, PST has delivered organic order growth of 2% with a book-to-bill of 1.02x. Third quarter revenue finished up 5% year-over-year, driven by a relatively equal balance of organic growth, FX and M&A. PST delivered adjusted EBITDA of $128 million, which was up 8% year-over-year with a margin of 30.8%. Adjusted EBITDA margins improved 130 basis points sequentially and up 80 basis points year-over-year, demonstrating continued strong execution. We continue to see nice sequential improvements and remain well positioned to meet our long-term Investor Day target of delivering adjusted EBITDA margins in the mid-30s. For our PST innovation in action, we're highlighting our Flexan product line within the Life Science business. Leveraging its expertise, Flexan successfully transferred the manufacturing of critical Class III implantable silicon-based devices without any disruption to downstream manufacturing or patient care supply chains. As a result of this seamless transition, customer product yield rates saw a substantial improvement, increasing from 55% to over 90%, reinforcing our value proposition in Life Sciences. As we move to Slide 9, our full year guidance for total revenue and our expectations for organic volume growth remain unchanged. The midpoint of our adjusted EBITDA guidance has been modified to $2.075 billion, largely driven by 2 main factors. First, the effect of incremental Section 232 tariffs and other tariff increases announced in August. Pricing actions have been executed to offset these incremental tariffs. However, based on the timing of customers' notifications and the timing of those pricing actions to convert from orders to revenue, we expect this pricing to be realized in 2026. And second, our backlog has continued to grow, resulting in a delayed realization of pricing actions previously taken in the second half of the year. These 2 drivers have been partially offset by lower corporate costs, which largely reflect adjustments to incentive compensation. As a result, the midpoint of adjusted EPS guidance has been reduced to $3.28 from $3.40. Our revised view of 2025 incorporates a prudent view of Q4 based on both the timing of tariffs and price realization. We expect both segments' adjusted EBITDA margin percentage to be approximately flat on a sequential basis compared to the third quarter. It is important to note that our current guidance does not reflect any of the potential tariff reductions, which were announced yesterday. For the rest of the components of our full year guidance, we anticipate our adjusted tax rate to be roughly 23.5%, net interest expense to be about $220 million and CapEx to be around 2% of revenue. We have updated our share count assumptions to approximately 402 million shares, which reflects the impact of the share repurchases made year-to-date. We remain committed to leverage our robust balance sheet to strategically deploy capital and drive value for our shareholders. Finally, on Slide 10. As we conclude this portion of the call, I want to emphasize that we remain nimble and prepared to adapt to a continued dynamic global market environment. Our teams continue to demonstrate resilience and execute at a high level, delivering strong results despite ongoing macro volatility. We remain disciplined in our approach to capital allocation, leveraging our robust balance sheet to generate durable long-term value for our shareholders. And to our employees, thank you for your continued dedication and focus. Your ownership mindset and the use of IRX enable us to stay agile and control what we can control, delivering another solid quarter of performance. With that, I'll turn the call back to the operator and open it for Q&A. Operator: [Operator Instructions] Our first question will come from the line of Mike Halloran with Baird. Michael Halloran: Maybe just some more color on what you're seeing from an end market perspective and how you see momentum playing out into 2026. If you could do that for both segments as well as maybe geographies. Thought process here, Vicente is you've kind of been floating around from an end market perspective for a little while now with choppy end markets. And so the question here is, do you see anything on the horizon that can break you out of that more systemically? Any green shoots and kind of just walk through the regions and some of the categories. Vicente Reynal: Yes, Mike, I'll say that, first of all, I'll say we're pleased how the organic orders have continued to progress sequentially so far in 2025. Clearly, they're going to translate here into the revenue. But I think from an order perspective, we -- this is the third quarter of positive organic orders. Q3, to put in perspective, it was positive across all regions, except basically the vacuum and blower business in Europe, which, as you very well know, this tends to be a little bit more lumpy, but we still expect that to be positive on a second half view perspective. So I would say that the trend continues to improve. Clearly, you saw how PST has continued to accelerate the orders momentum. And I think in the ITS, indeed, we're seeing some better sequential improvements. You saw sequential orders kind of improve Q2 to Q3. Having said this, I think we need to see a bit more clarity on the tariff situation to remove completely the uncertainty in the industrial landscape, which is what I would consider maybe the main drag. We think yesterday was definitely a very good step in terms of what the administration said about what the new tariff regime or new tariff policy could turn out to be. So -- but in the meantime, I think, Mike, we continue to focus on controlling what we can control. I think we're moving into 2026 with a heavy backlog. We expect a full year of 2025 book-to-bill to finish at or slightly above 1. You saw how Q3 also was basically approximately 1, which here, usually Q3 and Q4 tends to be below 1 in the 0.9 kind of range, but we did better than that. And there is also the benefit we're seeing in terms of the good exposure that we have to some secular trends, whether markets around wastewater or even the life science investments that we have done, whether it could be biopharma, medical device and some of the tools business, just to name a few, that could potentially help us offset some of that slower recovery in the core industrial end markets. But again, if you think about marketing qualified leads, the long cycle funnel, all of that continues to move in the right direction, and we see no cancellations whatsoever, which again bodes well for when things will start getting unlocked that we see that incremental momentum. Michael Halloran: And then just focusing on the margin commentary you made in the prepared remarks about confidence in the 2027 EBITDA margins for the 2 segments. Maybe just put that in context from 2 perspectives. One, as we get to '26, are we going to see a little bit of an uptick here as things balance out more on the price cost side and get back to that normal equation? And then maybe help just bridge what needs to happen for those 2 segments to get to those targets from here? Vicente Reynal: Yes. Look, I think as we said, so from an ITS perspective, well, let me just kind of first step back. I mean, we expect margin expansion to -- as we go into 2026 to maybe remain a little bit muted during the first half of the year as we will continue to come to tariffs, which have been put in place throughout 2025. We will continue to offset these costs through pricing as well as leveraging IRX for some of the self-help initiatives like I2V and also the operational tariff mitigation and continued target actions that we just talked about. I would also remind that gross margins continue to be flat to maybe slightly up. So obviously, that reflects the fact that we continue to -- we have continued to invest in SG&A, particularly more on the sales and the commercial initiatives and that you've seen that kind of some of the offsets. ITS is at roughly 29% EBITDA margin. I mean, we're basically right there in terms of what we said we could get by 2027. Clearly, no concern based on all the activity that we're doing. And you're seeing how the PST now at roughly squiggly 31% margin that we achieved here in Q3 and that has seen some good sequential improvement throughout every quarter in 2025, we see the momentum still relying there and the changes that the team are doing to continue to accelerate that. So again, that's why we get that level of confidence that by 2027, we'll definitely be able to get into the targets that we set out to be by -- during Investor Day. Operator: Our next question will come from the line of Julian Mitchell with Barclays. Julian Mitchell: Maybe I just wanted to understand, so the -- I suppose the guide midpoint this year suggests that you're running at kind of incremental sort of EBITDA margins, total company is sort of in the mid-teens this year in terms of the kind of drop-through from 5% sales growth into EBITDA. That's clearly well below what you should be doing. So maybe just parse out for us the main headwinds within that, that there's maybe an M&A headwind, the price/cost aspect, maybe something in mix. And when we're looking at next year, should we assume that EBITDA margins remain muted in the first half, kind of flat or down year-on-year as you try to work through the tariff headwind? Vikram Kini: Yes. Let me start with the first part of that. In terms of kind of the margin profile you've seen and kind of, as you said, the incrementals and things of that nature, I think there's probably 2 kind of probably, what I'd say, large drivers of that or 3 drivers of that here in 2025. First, clearly, the biggest driver is just the impact of tariffs that you've seen in the course of the year. Clearly, that's been probably the single biggest, what I would say, drag on the margin profile and obviously subduing what are typical incrementals. But that being said, as Vicente just mentioned, gross margins have effectively been flat across the board, which I think does speak to the proactive measures that the teams have taken with regards to pricing actions as well as kind of the general productivity equation. The other piece, Julian, there is what I would say, I wouldn't necessarily describe it as mix, but I would say it's probably the deleverage you're seeing on the organic volume drop, which is being offset by what I would say, M&A and FX. But clearly, those come in at slightly different margin profiles, particularly on the M&A as we kind of bring it in, in first year. Clearly, that comes in at a lower margin profile than the overall segment or the overall company, but one that we bring to generally fleet average by year 3, if not sooner. So those are probably the biggest drivers as well as what Vicente just said on the ongoing commercial investment. This is something we've been hyper focused on across the businesses as well as areas like demand generation to continue to drive ongoing organic growth. And then the second part of your question, yes, I think I'll go back to what Vicente just said, more muted impact as we move through the first half of the year, digest the comps on tariffs and things like that and then a little bit better coming out of that to the back half of the year. Julian Mitchell: That's helpful. And then just my follow-up would be, you called out price and the sort of lag on that working through on Slide 9. Just wondered if you could maybe kind of quantify for us that split of price versus volume in the third quarter and how we should think about the pace of price ramping up in the next sort of couple of quarters? Vicente Reynal: Yes, Julian, in Q3, from an organic growth, price was roughly 3%, 2.7% to be exact for the total company. And as you think about the change in the fourth quarter guide, is largely driven by 2 factors. I mean, 2/3 is the change driven by the incremental effect of the recently enacted tariffs that we just talked about. And the remaining 1/3 is the change driven by what we saw in Q3, which is the delayed realization of the in-year pricing due to the backlog growth. Vikram Kini: And maybe, Julian, just to add another point to that. I think in Q4, you should expect to see pricing from a percentage perspective be relatively consistent to what you saw there in Q3, the number Vicente I just mentioned. Operator: Our next question is from the line of Jeff Sprague with Vertical Research. Jeffrey Sprague: Maybe just come back to tariffs. Just a simple question. Can you just tell us what the gross headwind is and what the incremental impact of the 232s in August were? Vikram Kini: Yes, Jeff, I'll take that one. So I think as you remember, in our last call, we said approximately $80 million in year. What we'll say here is that, that number is slightly in excess of $100 million at this point in time. And clearly, as Vicente mentioned in the prepared comments, we've taken the requisite price actions. It's just a matter of timing, and we expect that to kind of catch up as we move into 2026. Jeffrey Sprague: Yes. And then I understand the comment about kind of backlog and taking a little while to come through and maybe that impact on the first half. But also, you do have a lot of shorter cycle business where arguably the price should be coming through as soon as maybe even the fourth quarter, but certainly the first half. I mean, correct me if I'm wrong, are there some other kind of short-cycle versus long-cycle backlog conversion dynamic that we should be thinking about? Vikram Kini: No, Jeff, I think the way you're thinking about it is correct. I mean, remember, we've taken pricing actions. It's not just been one pricing action over the course of the year. It's been a multitude of pricing actions just in relation to the tariffs and kind of how we operate as a global business. To your point, the short-cycle business does exist. It's -- but still, there's typical cadence and lead time on those orders. So I think the way you framed it up is correct that with backlog having grown, we do expect that pricing to come through. It's just going to come through a little bit later than expected, and that's why we say this will catch up here as we move into 2026. Operator: Our next question will come from the line of Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Vik, can you give us a little more color regarding how your end market verticals are doing in ITS, just focusing on clean energy. As you know, clean energy was the largest vertical of ITS if we go back to '23. And today, you mentioned renewable natural gas weakness. So could you give us some more color on that vertical? How much of a drag it is right now? And would you say comps begin to get a lot easier in '26? Vicente Reynal: Yes. Andy, as I mentioned on the call, it was definitely a drag as you think about the ITS, particularly in the America or call it, North America. I'll say Q3 was, from a revenue perspective, the one that we now comped that out. When you look at the orders, in reality, the ITS Americas, North America particularly was up mid-single digits from an organic perspective, orders. So that actually, as you can see, shows very well from that perspective that despite that industrial market, the Americas team delivering positive organic orders. And in addition to that, as compressors being up on a high single-digit basis too as well from orders. So I'd say that some of the tough comps on clean energy are kind of gone. I think clean energy, as we said before, continues to be a good end market when you think about countries like Brazil or even some countries in Europe and even India that India is now pushing -- the government is pushing for some major investments in biogas. So it's all still a good end market. I think the large tougher comps that we saw due to the acceleration of IRA back last year that did not continue to happen this year is gone at this point in time. Andrew Kaplowitz: And then PST orders, as you said, were up 7%, which is a relatively significant inflection versus last quarter. Was that just ILC Dover becoming organic and having easier comps? Or did you see more material improvement across the portfolio? And could you comment on your legacy Gardner Denver Medical business and how that's doing? Vicente Reynal: Yes. I'll say it was a good combination of all the different businesses within the PST playing fairly well. I mean, obviously, some better than others. But clearly, the Life Science platform, which includes the legacy Gardner Denver Medical performed very well. But even also on some of the other kind of short-cycle industrial businesses, we saw some good momentum too as well. So I'd say very evenly good performance across the entire segment. Operator: Our next question will come from the line of Nigel Coe with Wolfe Research. Nigel Coe: I just -- I don't know if you want to touch this third rail or anything, but any initial thoughts on 2026 based on what you've seen in the backlog, customer conversations, MQL momentum. I think if I just unpick what you kind of talked about in response to an earlier question, gross margins, I think you said flattish in '26, that imply overall margins flat in '26, but any color would be helpful. Vicente Reynal: Yes. Nigel, I'll say, as we kind of look into 2026, again, first of all, we're positive, enthusiastic about continued momentum on the organic orders, and particularly here in the third quarter, where we saw organic orders really across all regions, all businesses, except with one, and we call it out as that to be basically a timing perspective. And so as we move into 2026, yes, I mean, we're very pleased with how backlog continues to progress and build. We were expecting that full year book-to-bill is going to finish slightly above 1, which again, that implies very good momentum here still in the second half, which typically book-to-bill is less than 1 in the second half, but we're seeing -- we expect that to be slightly different here in 2025. And so I think at this point in time, too early to call it out. We're going to provide you clearly more detailed commentary as we go into our next call. But so far, it seems to be more positive. Nigel Coe: Okay. That's great. And Vik, you called out $100 million of in-year tariff inflation. Again, how does that look for 2026 when we just annualize and all the inventory turn stuff? So the full kind of -- the full sort of impact in 2026. And is it just price and surcharge actions you're taking here? Or are you adjusting supply chains to mitigate some of these 232 tariffs? Vikram Kini: Yes, Nigel, so I will start with the kind of the second part of that question first. Clearly, it's a combination of both. I think as we talked about earlier in the year, we kind of took a dual approach surcharges and kind of more list price actions. I would say that's kind of more fading off to now more just everything kind of converting to normal course list prices, kind of which is what we've indicated kind of originally. Absolutely, we are working on what I will call operational tariff mitigation efforts, and it takes on kind of all the forms you would expect in terms of whether it be resourcing, things around small, I'd say, supply chain from an intercompany perspective, things like that. And so right now, we expect that to probably have a little bit more of a meaningful impact into 2026 just because it takes time for those to realize and for inventories to bleed down and for those changes to happen. And clearly, there's been a lot of change over the course of the year. As far as the 2026 impact, I'll just say, clearly, numbers are changing quite considerably. So we're not going to get into trying to size, quite frankly, the gross impact into 2026 at this point in time just because even frankly, as of yesterday, things have continued to change. But I think we feel quite comfortable that with the pricing and the operational mitigation actions we kind of have in place that we are -- we have those covered. I will also go back to kind of what Vicente mentioned during the prepared comments that the way we framed up Q4 and kind of the tariff numbers that have been embedded, we do view as, I'll call it, a bit of a worst-case kind of view at the point in time and one that we'll obviously continue to monitor, particularly as the macro environment continues to change quite considerably. Operator: Our next question will come from the line of Joe Ritchie with Goldman Sachs. Joseph Ritchie: I want to maybe pull on the thread that Jeff started earlier on how pricing kind of builds and how your backlog builds typically through the year. And so typically, the way I think about it is like you've got your backlog build in the first half, then you ship the backlog in the second half. And this like interplay between tariffs and pricing and being able to kind of offset the increased tariffs. I just -- is it because like in the first half, as you're building your backlog, you're not contemplating the type of cost environment that has played out now through the second half of the year. And so you're off sides to some degree. I just want to make sure that I understand that correctly. Vikram Kini: Yes, Joe. So I think a couple of things to think about. I think the way you're framing it out is the right way to think about it. As just kind of a reminder, the book-to-bill, you typically see above 1 in the first half, you typically say below 1 in the second half. That kind of gets to a rough average of 1 for the year. And I think as Vicente mentioned here, what is kind of the change at this point in time is we are definitely seeing book-to-bill kind of steady around that 1x number here in the back half of the year. So what's happening here is the typical backlog burn that you see in the back half of the year is not as big as it typically is. And so what's happening here is as we've done pricing increases over the course of the year, I'd say more of those orders with recent price increases are going into backlog, whereas we would typically have seen those flush through the second half. And then clearly, with the -- I'd say, the Section 232 tariffs and quite frankly, all the other tariff-related actions that happened at that same time with India and Brazil and some of the other kind of components that happened in late August. So as Vicente mentioned, as we've now taken the measures to counteract those with the normal notifications to customers and then the typical order to revenue conversion, that's just now pending now into 2026. The good news is, obviously, we feel like we've taken those actions. We see those actions coming through when we look at bookings and things of that nature. So we feel pretty confident moving into 2026 that, that equation will kind of get, I'd say, back more to normal. Joseph Ritchie: Got it. That's helpful, Vik. I guess maybe just then the corollary to this. So what happens in an environment where tariffs go away? Like do we see like will we see a meaningful expansion in your profitability and your margins? I know you're using both pricing and surcharges. But in an environment where you have materially lower tariffs going forward, does that impact your business? Vicente Reynal: Well, Joe, so pricing will be sticky. So pricing will not -- we have never done price reductions based on this. And as we said before, I mean, these -- all any surcharges have been translated into price. So the pricing will definitely stay. What we have always said is that all this kind of tariff pricing that we have been doing is being based on a 1:1 ratio to just primarily cover the cost. So maybe as tariffs will go away, there could be a benefit. Operator: Our next question comes from the line of Chris Snyder with Morgan Stanley. Christopher Snyder: Could you maybe provide some color or just numbers on how organic ITS orders came in by region, just to get a sense for some of the industrial momentum we're seeing across the geographies? Vicente Reynal: Yes, sure. I'd say from an Americas perspective, organic orders in Q3 ITS, Americas was up mid-single digits. China or Asia Pacific was also positive with China actually up low single digits, the rest of Asia Pacific up mid-teens. Then EMEA, Europe, Middle East, India was basically down, say, high single digits. And as I called out on the -- or mentioned on the call, really driven by timing on our industrial vacuum and blower business, which is heavily project related. But if you look at India, India continues to be very positive, and it was just basically solely co-located to one business in Europe that it is a matter of timing. Christopher Snyder: I appreciate that. And then maybe just to follow up on some of the tariff price cost commentary from earlier. I guess it seems like if the tariff headwind this year is going from $80 million to something over $100 million, it seems like there is very significant wrap on that into next year if we isolate that $20 million, $25 million incremental into just Q4. So I guess, will -- is the tariff headwind bigger next year than it is this year? And then just kind of related to that, like this 232 does feel very incremental. I mean is there any reason why the company is deciding to not use surcharges or just kind of quicker price action this time around relative to what we saw in the spring? Vikram Kini: Yes, Chris. So I think to your first part of the question, do we see a wraparound impact into 2026 on the tariffs? Yes. And that's why we said we do expect margin expansion in the first half of the year to be relatively muted. But in the same -- at the same time here, we feel like we've taken the requisite pricing actions and those are coming through. Those are in backlog and will continue to come through into the first part of 2026. As far as the list price versus surcharge equation, listen, as we said before, we have done an equitable mix of those, I would say, over the course of this year. I think it's kind of the norm, particularly as things start to stabilize a little bit more. And I do think we're going to start to see a little bit more stabilization, at least at this point in time moving forward. It's kind of always been the intent to move those to more list price actions. And even surcharges, remember, they don't happen instantaneously, right? There's an appropriate notification and things like that. So in that respect, surcharges kind of mimic list price in the context of the timing and realization. But again, it's always been our intent to kind of migrate to that list price equation, and that's exactly what we're doing at this point in time. Operator: Our next question will come from the line of Stephen Volkmann with Jefferies. Stephen Volkmann: I hope you don't mind, I'm not going to ask anything about tariffs. Just quickly, Vik, I think you mentioned in your comments some additional cost actions. And I just wanted to make sure, is there something else going on with footprint or headcount or anything? Or is it kind of what you've already outlined? Vikram Kini: Yes, Steve. So I would say we -- if you see the financials, we obviously did record a specific charge with regards to restructuring actions. I think it speaks to -- in the prepared comments, we spoke about what I'll call some proactive cost measures that we're taking as a result kind of the environment and what you would expect. So I think the simple way to say it here is we are -- we have taken actions. I would call them somewhat normal course in the context of prudent cost measures in this environment. I would call them largely headcount oriented as opposed to footprint or anything else like that. And the impact of that is, I would say, more pronounced into 2026 just based on the timing of when we have taken set actions and I'd say the normal course in terms of how kind of some of those restructuring actions typically play themselves out. Stephen Volkmann: Great. Okay. And then maybe, Vicente, how should we think about -- we've seen some very big announcements relative to pharma and some of the life sciences sort of reshoring that may be happening here. I'm just curious, are you seeing sort of quoting activity? Have you had any kind of orders that you might ascribe to that trend? And maybe also just comment on kind of your fair share of that kind of end market. Vicente Reynal: Yes, Steve, it's definitely real. We're seeing it. We're actually in very close conversations with large companies. Obviously, it doesn't happen immediately, as you can imagine, it takes time. I think you saw maybe one of the larger life science companies say that they expect revenue from those to be more in like '27, '28. We'll see. But yes, it's real. I think the exciting piece here is that a lot of the investments are happening in what they call APIs, biopharma APIs. And a lot of it is kind of more what around maybe could be small molecule APIs, which this plays very well to the investments that we have done with ILC. And so we're leveraging the customer intimacy that, in this case, ILC has to find also ways on how can we expand the portfolio of offerings that we can do to some of those companies such as vacuum pumps or even oil-free compressors in this case. So I think very -- it's exciting to see, and it could be a good growth vector for us here as we move forward. Operator: Our next question will come from the line of Joe O'Dea with Wells Fargo. Joseph O'Dea: I wanted to start on PST. And it looks like over time, the sort of coincident correlation of kind of orders and revenue has gone up, meaning a little bit more book and ship within the quarter. And so if, in fact, that is happening within the business and anything about mix that would be driving that? And then tying that into the comment about some delayed realization of price because of backlog growth, if you could just expand on that, if that's sort of certain mix within the portfolio that's seeing that. Vikram Kini: Sure, Joe. So I think your comment around the kind of PST composition and things of that nature, I think it is a fair statement. This business, not too dissimilar to ITS has a distinct component that's kind of short to medium cycle. And then there is projects that are typically longer cycle in nature. So I think that's a fair statement. I think particularly in some of the PST or some of the life sciences businesses, that tends to be a touch more book and ship or shorter cycle comparatively speaking. So I think that's kind of a fair statement. Now as far as the kind of backlog dynamics and pricing that we've mentioned, I would say there's a multitude of factors driving this. But I think without question, it's probably a little bit more pronounced on the ITS side comparatively speaking to PST. I think that's clearly a fair statement in the context of where you're seeing that pricing delay in terms of the realization. So as far as PST though, I mean, I think the business, as we mentioned, has continued to perform quite well. I think Vicente had obviously made some remarks about the organic order momentum. But clearly, this is a business that's continued to see good, healthy both year-over-year and sequential margin expansion, 80 basis points year-over-year, 130 basis points sequentially. It's playing close to now about 31% EBITDA margins. We would expect Q4 to be in a similar zone. And obviously, the year-over-year will look quite healthy given where Q4 PST margins were last year. So we feel continued, I'd say, optimism on where PST is trending. And I'd say they're doing the requisite work on the tariffs and mitigation as well. Joseph O'Dea: That's great color. And I guess it means this isn't necessarily a persistent shift. It's just a matter of as projects come back then you could see a little bit more of a return to maybe a 1 quarter lag. It's just lower project activity right now would be a factor. Vikram Kini: Yes. Joseph O'Dea: Okay. And then just in terms of appetite on the inorganic side and as we see kind of the broader deal environment heating up, how you're approaching the bolt-on versus larger deal opportunity kind of set? And how you think about something like appetite for size at the ILC or larger level in the next 12 to 18 months versus kind of laser-focused on bolt-on? Vicente Reynal: Yes. I think right now, we continue to be very laser-focused on the bolt-ons. You saw how many we have done so far this year. We continue to have 9 under LOI, and we're finding the investments to be excellent. I mean, pre-synergy multiple of average 9.5x that we know can deliver mid-teens ROIC by year 3 on all these bolt-ons. So I think that for right now, as we always said, every 3 to 5 years, we might do a larger and then we do more bolt-ons. That's exactly what we're doing here with -- we did one like ILC last year, and now we're doing bolt-on now, where we have done 3 bolt-ons into that platform. Operator: Our next question will come from the line of Nathan Jones with Stifel. Nathan Jones: I guess first question, you guys had talked over this year and probably late last year as well about elongating quote-to-order times. Can you talk about any changes that you've seen there in aggregate for the business or any pieces of the business where you may have seen that either getting worse or getting better as a leading indicator for more customer confidence as we head into next year? Vicente Reynal: Yes, Nathan, it is definitely not getting worse. And I think maybe I would call it out to be more like stable, a little bit of a few pockets of getting better. But right now, no incremental change that we are seeing. Good news again what we have in the funnel is not getting... Nathan Jones: You said what you have in the funnel is not getting canceled? Vicente Reynal: Yes, that's correct. Nathan Jones: And I think the other -- one of the other things that you talked about as a headwind when demand was maybe a little bit healthier was a lack of engineering resource, a lack of front-end kind of ability for customers to get these projects designed, get them moving as a bottleneck. With a little bit lower demand that we've seen here, has that alleviated at all? Or do you still see that as a headwind to maybe some reacceleration when customer confidence improves? Vicente Reynal: I would say [indiscernible] has alleviated. But keep in mind that some of these engineering firms, they tend to also work on a lot of the hyperscaler investments that are happening. And so it goes through the same, in some cases, areas but it's not as what we might have seen before. I would say slightly better. Operator: Our next question will come from the line of Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Just a couple of tie-ups. We've obviously gotten through a lot here. I guess maybe piggybacking on to Steve's question about the actions that you're taking with respect to costs. Anything on sizing that, Vik, the impact as we kind of roll into 2026? Is it like one-for-one versus what you spent? Just kind of get a sense of that. Vikram Kini: Yes. So typically speaking, that's probably not too far off in terms of what you've seen. So typically speaking, on headcount actions, it's a mix across the globe. So roughly speaking, a 1-year payback or somewhere in that general ballpark is not that far off. So that's probably a pretty decent proxy to use as you think about moving into next year. Nicole DeBlase: Okay. Perfect. And then with respect to buybacks, I know if we go back to the second quarter call, you talked about doing up to $250 million additional buybacks in the back half. We're now at $193 million of that as of 3Q. So any thoughts on appetite for continued buybacks during the fourth quarter? Vicente Reynal: Nicole, we definitely have the strength in the balance sheet to be able to do more. So as we continue to see more continued dislocation, yes, I mean, we will be doing more in addition to continue to do the M&A. I mean, so we believe we can continue to do both. Operator: Our next question will come from the line of David Raso with Evercore ISI. David Raso: I was curious, the competitive dynamic with the recent Section 232. If I'm correct, it includes some compressors that maybe weren't involved before. Just curious how that plays into your competitive dynamic and maybe also thinking through your ability to make some of these price increases stick or have maybe further headroom to raise price? Vicente Reynal: Yes. No, David, great question. I mean if you were to look at the details of the 232 that happened here in August, it was basically removing any of all the exclusions that were on air and gas compressors. So obviously, that puts a strain not only on some of our components, but also a lot of the competitors that kind of have to import product from other countries. So with our in region for region, I mean, that kind of offers eventually a bit of a better competitive advantage for us. And it's still too early to see how this will play out. But obviously, we're taking this as a great opportunity for us to accelerate our market share and penetration. David Raso: And when it comes to the backlog, I appreciate it's not easy to do with customers, but is there any opportunities to reprice some of the longer-dated backlog? Vicente Reynal: The very long cycle projects, the projects that tend to be 12 to 18 months, those have some clauses that as their changes that we can actually make adjustments based on special alloys and things of that nature. So I would say that from a long cycle, clearly, we're not worried about that. I also -- I will say that on the long cycle, we have the opportunity to work with the supply chain to find ways on how we can mitigate the cost. But I say -- so that is mainly on the long cycle. The short and medium cycle, it's difficult to go back and put anything in the contract and have to go back and change. I mean you're reopening the invoice, reopening the purchase orders, and it's just a bit more messy. Operator: And this concludes our question-and-answer session. I'll turn the call back over to Vicente for closing comments. Vicente Reynal: Thank you, Regina. I just want to say one more time, thank you to our employees. I mean, in this very dynamic macro environment that we're playing, we continue to deliver durable growth that we believe is done by a very disciplined execution and strength of IRX combined or compounded with our ownership mindset. So thank you to our employees, staying focused on controlling what we can control and leveraging IRX to navigate this dynamic market environment. We believe we're making the right investments for the long-term future, and we'll definitely see long-term value creation. Thank you again. Operator: This will conclude today's call. Thank you all for joining. You may now disconnect.
Unknown Attendee: Hi. Good afternoon, and good morning to everyone, depending where you are located. We are very proud here to be today to present our strategic plan to 2031. I'm joined today by our Chairman, Mr. Paolo Ciocca; Mr. Paolo Gallo, our CEO; Pier Lorenzo Dell’Orco, CEO of Italgas Reti and Gianfranco Amoroso that you all know, our CFO. I leave now the floor to the Chairman. Paolo Ciocca: So good morning and good afternoon, ladies and gentlemen, and thank you for attending today's presentation of Italgas 2025-2031 strategic plan. There are moments in our company's history when progress isn't just represented by financial or industrial results, but rather by recognition of its deepest identity. And by the way, Italgas' history is not at all a short one. This said by, as you well know, a young newcomer to the company. Italgas identity is the cornerstone around which the group has developed in recent years, the cornerstone of an exciting journey that has seen the group establish itself as a global benchmark for innovation, model transformation, anticipation of the future. Today, 1 year after the previous strategic plan, we can say that our future mapping worked out well and ahead of schedule. The group is further strengthened by its international leadership and has established itself also in terms of size as the leader in gas distribution in Europe. But it is not just a question of numbers. It is a question of vision and responsibility and the ability to drive energy transformation as enablers of decarbonization. Our commitment is clear. We want industrial innovation with energy transition. We create networks that don't just distribute energy, but also enable molecules to change their nature from fossil fuel to renewables, from natural gas to biomethane, hydrogen and synthetic methane. We believe in technological neutrality as a guiding principle. This means evaluating all available solutions, building a resilient, competitive energy system that is ready to meet the needs of family, businesses and institutions. In these recent years, we have demonstrated that the energy transition can be substantive, a substantive project. We have done so by extending and digitizing our networks, developing a market around the various areas, let's say, uses of hydrogen in the network and focusing on research and development. Our aim is to make things happen. The plan we are about to present to you today is at the heart of this new phase and outlines how we intend to remain true to our nature, continuously evolving, faithful that our vision of the future of energy and our values because Italgas is changing, growing and expanding, at the same time, it keeps its 188 years old distinction in Italy, a force that builds a real progress and generates value at the service of communities and territories. Now let's go to the [indiscernible] and let me welcome Paolo and its leadership team. Thank you. [Presentation] Paolo Gallo: Good afternoon, everyone, and good morning for the person that are connected from abroad. It is for me a great pleasure to be here to present this strategic plan that represent the first strategic plan after the acquisition of 2i Rete Gas. In this plan, we are setting a commitment that has never taken in the whole history of Italgas, a clear sign of confidence that we have for the future and the vision that we have for the future about our infrastructure. And we feel that today, we are going to share the vision with you, the investment, the technology and the people that will make this plan happen, shaping the energy of the future. But let me start with the where we stand today. One year ago, we announced the acquisition of 2i Rete Gas, the largest -- the second largest gas DSO in Italy. And we have created with such acquisition, the largest European DSO. As you can see, those are the numbers. We serve nearly 13 million customers in the gas distribution. We serve directly and indirectly 6.3 million customers in Italy and Greece. We manage nearly 160,000 kilometers of network. But moreover than that, we do all this activity, thanks to an incredible 6,400 employees that is the result of the combining of the 2 company. 7 months ago, we closed the deal, and now we wanted to show you the progress that we have made in such a short period of time. At the same time, we want to show you and share with you our vision for the next 7 years. Let's take -- show you about our strategic vision. We want to maintain our leadership in innovation, in technology, in digital transformation, maximizing the value for all our stakeholders. The vision is built around, as I said, innovation, AI transformation, energy transition and with a focus, a never-ending focus on operational efficiency. Three business area, you know very well that they are gas distribution in Italy and Greece, which remain in our core business. Water service, a sector where our digital capability that we can apply from our experience in gas distribution can make a difference. Energy efficiency that we feel it has been a little bit forgotten, but it's a key element for the energy transition, and we strongly believe on that. And on top of that, we think we can take a great advantage from unlocking all the possibilities and opportunities coming from the massive application of [ AI ] to our processes, our assets and our way in which we manage the company. But before going on, let me take for a few moments, a look at the past. I think the past 9 years at Italgas has been extremely exciting and successful. And I think it is worth spending a few words about what we have achieved, where we stand today and which is our ambition. We have invested up to the end of 2024, nearly EUR 7.5 billion growing the RAB up to EUR 10 billion before the acquisition of 2i Rete Gas. We delivered an impressive OpEx reduction, minus 40% since 2018. We distributed more than EUR 2 billion dividends to our shareholders. At the same time, we were able to maintain a solid financial structure. And we have done all of that reducing our carbon footprint, reducing our energy consumption. Then 2025 make the difference. We acquired the second largest DSO in Italy, and we become the first DSO in Europe. We were already the first DSO in terms of innovation and technology, not in terms of size. Now we cover also the size parts. And we achieved in Italy a market share of 55% -- now we are planning that is the ambition to invest in the next 7 years, EUR 16.5 billion, including the acquisition. That includes, of course, the acquisition of 2i Rete Gas. And we expect that our EBITDA and our EPS will grow at double-digit numbers, starting from 2024 based. And the financial structure, as Gianfranco will show you later, is very strong, very robust, and we start deleveraging already in 2028. But let me move more on the -- what we see the scenario of the gas for the future. I remember that in the industry, I was probably one of the first person to talk about the energy trilemma. And I remember that I was talking about that in London a few years ago during an interview that I had with Bloomberg. At the time, nobody were talking about the energy trilemma. Since then, as you can see from the trilemma today, something has changed, has shifted. After the Ukraine invasion, the focus was to guarantee the energy supply, security of supply was at the top. And since then, since 2022, I think the situation in Europe has significantly changed. Most of the country have been able to get rid of the Russian gas and be able to build a different supplier, different supply flow. Today, the focus has shifted to the cost of energy. And the cost of energy has become get the major attention of all the European countries, not only for industry because industry means competition, being able to compete at the world level, but also for the end customers, for the residential. And I think one of the solution is the use of the gas infrastructure. DSO is part, is the heart of the solution. And there is a growing recognition that the trilemma cannot be solved just using ideological position, but a more pragmatic, a more neutral approach from a technological point of view will bring the solution. It's not going to be easy. It's not going to be linear, but that's the only way in which we can solve a complex problem like the energy. And I think -- and we feel that the gas network bringing in the future, today in the future, renewable gases will help to solve the trilemma from a cost point of view and security point of view. Let me show you some numbers, very interesting one. The evolution of the energy price and the gas price in Italy before the Ukraine invasion and today. As you can see, the cost of energy, the gas in terms of euro per megawatt hour has gone back more or less, not yet, but it's not very far from the price that we had before the Ukrainian invasion. We cannot say the same for the electricity. Electricity price is 3x the gas price. And that makes even more difficult to think about electrification in certain sector. And if you couple that with the fact that we are going to see in the coming months and years, an increased demand of electricity, think about AI data-driven consumption, then will pose even more problem. The gap may even become bigger, not only, but if you think about what happened in Spain just before summer, more renewable you put in the system and you need to recover the rigidity that the renewable put in the energy system because renewable, it's production is not capacity. And in this context, gas will continue to be in different form, crucial to maintain an energy system stable, efficient, secure with a cost that is affordable by everybody. And we -- I brought you an example of the day-by-day life of the life of ourselves when we need to face certain decision to change, for example, a very traditional gas boiler for the heating system. And we made this comparison based on the number that you saw with no subsidies. That means that we are comparing apple with apple. 3 options: one that I consider probably the best effective one, very simple, high-efficiency boiler gas. The second one is heat pumps with limited modification of the heating system. The third one is probably the one that the ideological people will say that is the best solution. Heat pumps change all your heating system, put what is the underfloor coils, you will be happy. For 25 years, you will be happy because it will take 25 years to pay back the investments. What does it mean that by -- in 25 years, you will probably change everything. So you will never get there. And that is when you compare apple with apple with no subsidies. But there is the solution. And the solution part of the solution is let's go back to what the European Commission made it years ago after Ukraine's invasion that probably has been forgotten for a long time. That is the REPowerEU. They clearly identify 3 path in order to reduce the dependence on Russia and at the same time, to reduce also the cost. That is the development of biomethane, the development of hydrogen production and importation and the last one, increase the energy efficiency in our real estate activities in everything in our industry, everywhere. Why it has been forgotten? Because it's too difficult, again, -- that's the problem. But that is the solution because biomethane is something that is today available is competitive. Hydrogen, we will talk in a moment. And energy efficiency is the other area where there is a lack of interest, but it's -- again, it's one of the most effective tools that we have in order to reduce energy consumption and reduce our cost. If I look -- if I take a look at the same situation in Italy, what we can say is that biomethane is a very high potential area. Many studies and our evidence about connection request to show that we will have an increase of biomethane production as an average by 50% every single year through 2030. That will let us reaching the goal of 5 billion cubic meters of production that represent about 7% to 8% of the total demand of gas in Italy. And there are positive signal. One is the latest auction that was made about awarding the grants from our resilience recovery plant to upgrade the existing biogas into biomethane. Hydrogen. Hydrogen is let me say, a longer-term opportunity because of the cost. But I think we should continue to invest in research and development to research in the use of hydrogen. Our plant in Sardinia, Pier Lorenzo will talk to you about that. I around, it's a clear demonstration that we can build an ecosystem that is based on hydrogen. Is it competitive? Not yet, but still, there are very nice signal about that competition. Think about that the energy conversion into hydrogen is 55% in a small plant. So if you scale up the plant, you can even reach higher efficiency. And finally, the e-Methane that is for us and for Europe is probably the new frontier. For Japan, it's not. Japan is testing significantly e-Methane. See, e-Methane as the solution for gas supply in Japan. It's the combination of CO2 capture with hydrogen. So what I'm telling you with this example is that with a pragmatic approach, you find many solutions that can bring you security of supply, energy transition and cost of the energy altogether as a solution. And the fact that the gas will continue to be there today, fossil, tomorrow, renewable is also shown by this graph. After the shock in 2022, we have already seen some recovery in '24. And if I look at the first semester of '25 in respect of '24, we saw an increase in 6% -- and we have just closed the numbers at the end of September, and we look at what we injected in our network in respect of the previous year and the growth is still close to 6% also at the end of September '25. And as I said before, more electrification expands, more renewable in the picture and the more we need the molecule to compensate the rigidity of the electrification. But let me now move and give a quick outlook about the progress that we made on the 2i Rete Gas integration. You remember, I don't want to go through all the story about the different steps, but I wanted just to stay on the fact that 1st of July, we merged Italgas Reti with 2i Rete Gas. And I think that has been an incredible achievement, 90 days to complete that process. And then to complete the all 2i Rete Gas acquisition, we need to satisfy also the mandatory request by the antitrust. As you know, that has been recently closed, let me say, the agreement with the 4 buyers, the 600,000 redelivery point that were requested to be put on sale, we received 12 acceptable from a price floor point of view offers for a total of less than 250 redelivery point, which were considered also acceptable from the antitrust point of view in terms of requirement that the buyers should have. The process will involve the disposal of the delivery point together with the personnel, the systems and all the assets that are needed to operate this redelivery point, this network. The RAB value associated is EUR 218 million. The overall price that is paid will be paid is set at EUR 253 million, significant premium paid over the RAB. We expect the closing to be happened before the end of the first quarter of 2026. But of course, it will depend about also the buyer. Regarding what has not been sold, so the remaining 350,000 redelivery point, we don't have to do any second round of disposal on this redelivery point in this network will be applied the so-called soft remedies that will be applied when the tender process of the award of this asset will take place. So -- but let me say, I wanted to share with you another point that is we always said and I have already said at the beginning that we are -- that we are the best in our industry. But I wanted to bring you data facts to show you that our statement is true. So we made a comparison with our international peers. And we have looked at the different topics that for us makes the difference. So smart meters, we are close to 100%. If you look around Europe and worldwide, there is no one that is passing 50% of the installation. And the majority are below that number significantly. Network digitization, this is where the gap is huge. there is no one, no one that has made such an upgrade of the network. And when I say network digitized means that I can control remotely everything that I can manage the network remotely everything. Pier Lorenzo will tell you more in detail what does it mean that. And on top of that, we are going to implement the AI transformation in which we see some other example. But to me, to be extremely effective and to be able to adopt on a massive -- at a massive level AI, you need to have a network fully digitized and you need to have a collection of billions of data in order to be able to really leverage the application of AI. On the biomethane, that buys from country to country. We know that there are other countries that are better positioned than us. But I think Italy will recover this gap very soon. On the network ready for hydrogen. If I look at our plant in Sardinia, we can say that our network is 100% ready to accept 2% or 20% of hydrogen. In fact, we have a protocol with the Ministry of Industry and Energy to scale up the 2% that is the minimum up to 20%. If I look at the average of the network in Italy, then we can say that 80% is ready for 20% blending. But I also can say that by the end of the plan, we will have 100% of our network ready for a blending of hydrogen up to 20%. Let me go through some more significant progress we have made in the months since the acquisition of 2i Rete Gas very quickly, but I think extremely representative of our ability to make things happen. On the operational point of view, we have fully reorganized our territorial footprint, redesigning our territorial model, reducing the area of overlapping. At the same time, we have closed 19 office. We have reduced our fleet car by 13%, thanks to the to the synergy that we are starting to extract. The core of the activity has been the IT. We moved 1 petabyte of data, 1 petabyte of data. I don't know how many 0 they have it. So forgive me for that, in 90 days with no problem at all. And I think that makes -- that show our -- let me say, the strength of our IT infrastructure in dealing with such a large number. We have started in-sourcing activity, and I start mentioning Picarro. We have the largest fleet in the world of Picarro machines. We know how to manage, we know how to drive them, we know how to use them. We immediately stopped the third-party contract that 2i Rete Gas had, and we immediately start in sourcing that as well as we started to in-source activity like the integrated supervision center and other ones with a termination of a number of contracts with third party. And finally, we started to implement the digitization plan that we have for 2i Rete Gas. But let me start now to look at the numbers because I think you are here also not only to listen my and our vision, but also to see the numbers. And I'm starting from the ones that you like most, synergies in cost and revenues. So I'm starting from the synergies from revenues. From April, when we closed the acquisition, we had several working groups working together between Italgas and 2i Rete Gas, Ex-Ri-Rete Gas people in order to find out the area of synergies and to find out the area where we have to invest in order to upgrade the network to the level that we have in Italgas. And we find out that there are more investment that we expected that we presented to you last year, EUR 800 million. And we find out that there are more up to EUR 900 million. At the same time, the revenue contribution from this additional investment moved from EUR 80 million to EUR 100 million at the end of the plan. Just to mention some of the initiatives that are included in this EUR 900 million investment replacement, we find out that there are still some traditional meters in 2i Rete Gas network that are not be replaced. So that is the first thing that we started. We will finish by early 2026. But then we find out all the area where we need to upgrade, not only upgrade the single equipment, but also changing, for example, the authorization system to our standard. And based on that, we have a clear and detailed digitization plan that has already started and will deliver the EUR 900 million additional investment and the EUR 100 million additional revenue. But probably the most interesting one for you are the cost of synergy that you have already seen in our plan. And I want to remind you that last year, some of you, I don't know if many of you or a few of you were very skeptical about our ability to reach the EUR 200 million. We raised the bar. Now we are at EUR 250 million. And I think our history and our track record makes this number credible. And how we find out this EUR 250 million over time, because, as I said, the working groups have been working for months, identifying which are the areas that we can improve, where we can extract value, when we can have synergies and we have a detailed plan for each of the activities. So we know also in terms of time frame when this synergy will happen. And you can see in this graph, the previous plan in terms of time, in terms of value and the new plan in terms of time, in terms of value. So the upgrade was driven by a shift from an outside in to an inside in perspective. And it clearly reflects an optimized. There are a lot of activity that will be in-sourced -- with our ambition to avoid any redundancy, there will be no redundancy in our plan. There is no redundancy in our plan, but we will maximize in-sourcing, bringing inside the company what we feel are the core activity of the company and with the ambition to retain our top talent. We -- if you remember, last year, we were talking about 3 pillars of synergies, traditional digital and AI. Well, during the activity of the working group, we realized that the first 2 pillars sometimes are crossing one to each other. So now you will see only 2 pillars, traditional and digital and AI. And I promise to you that I will show you the time frame of the 2 categories, and I will show you and give you an example of what we are doing and what we will do. So the first one represent traditional and digital. If you remember, the sum of the 2 last year were in the range of EUR 120 million, EUR 140 million. We gave you the range. Now we are EUR 180 million. So the delta in the EUR 50 million that we are talking about are concentrated in this area. The cost saving benefits related to such initiative will be fully visible already in 2025, some of them, a few of them, still they will be visible. And you have already noticed in the 9 months result that there are some cost savings that are coming from the synergies from the acquisition of 2i Rete Gas. In '26 and '29, we will continue in-sourcing core activity. That is the main driver, including some example, authorization measurement, metrology inspection, emergency response service, those are core activity that we cannot leave to a third party. And we will use digitization and AI to work on an approach that is applying the predictive maintenance. Supplier will be part of this effort. Supplier base will be rationalized. We want our supplier to grow because we are a different company in terms of size with respect to the past, and we want to improve from a quality and economic point of view, the procurement condition. This initiative combined together will let us achieving the majority of the EUR 180 million by 2028. And then in the last 3 years, we will see a massive rollout of our Nimbus smart meter, and we will complete the digitization of 2i Rete Gas network. Regarding the AI, AI is a little bit more difficult in a sense that is from one side, the most exciting journey. From the other side is less predictable because we don't have any example, especially in our industry. The numbers today is set at EUR 70 million and does not include any additional initiatives that may arise in the future, but have not been yet identified. We have tried to list for you some of the initiatives, some of the use case that we have already been working, we have been identified use case that we have identified for which we have started working on that. These initiatives are expected to deliver most of the anticipated benefit over the next few years. Some examples, you can read it, AI-driven automatic scheduling algorithm, which allows to improve planning optimization, increase intervention sussection rate, taking into account external factor. We have already developed, I have already mentioned to you a couple of times, a predictive algorithm for faulty smart meters that is capable to anticipate by a few days. The occurrence of faults, optimizing our intervention and reducing the penalty risk. We have also identified AI opportunities also in the same IT. For example, we are implementing the first level end user support agentic automation for the IT system and application, very difficult to explain. So don't ask me what is exactly meaning. But what I can tell you that these initiatives application has been recently awarded by Databricks that is a leading platform for data engineering. We will use agentic AI also in the commercial activities in order to manage requests and claims reducing external cost and increasing our productivity. To do all that, we have set up AI rooms. So you know that we have a digital factory. Well, now the digital factory is split into 50% is always devoted to develop digital application. The remaining 50% is devoted to develop AI application, AI algorithms. So we are going to have not only digital rooms, but also AI rooms. That is what we have already planned and that is covering the portion of the synergy that is evidenced that are underlying in this chart. For the remaining, so we are talking on a medium, long term, there are a number of use cases that we have already identified that will be approach later in the plan that regard virtual coach for productivity enhancement, basic drafting, so we'll touch the engineering activities, autonomous network management, smart meter activation, remote smart meter activation. And finally, to use the autonomous driving for leak detection. In that case, we need to have a policy approval, but I can tell you that we have already started working with the Politecnico the University, Politecnico di Milano and di Torino in order to have the first prototype of autonomous driving for gas leakage research next year. It is important to highlight that this transformation will be also an opportunity for our personnel to change their skills to reskill and upskill and move from low added value activity to, let me call it, AI governance that is much more interesting than not doing the low value-added activity. Now I will move in the numbers. I have already anticipated the total investment for the plan period, including the acquisition already done of 2i Rete Gas is EUR 16.5 billion, plus 5.7%. If we take out -- if we exclude the acquisition of 2i Rete Gas and the tenders, the increase is 10%, more than 10%. In order to facilitate the comparison, we have reclassified -- last year plan, you remember that to avoid to share publicly what was our expectation about antitrust disposal, we merged the 2 numbers together, tenders and disposal. So now we took out the disposal. So now the tenders that you see are the gross tender or gross tender are the tenders in order to facilitate the comparison. And you can see that the 2 numbers of 2i are different, are higher in this plan, not because we pay more, but in fact, the reality is that we pay less than expected, but we retain more assets than not the one requested by the antitrust. So the EUR 4.8 billion, EUR 4.9 billion that is the explanation. Regarding the other area, the driver and Pier Lorenzo will tell you in a moment, is the gas distribution in Italy, an increase of EUR 1 billion. Greece remains stable in terms of EUR 1 billion investment as well as the other 2 activities, water and energy efficiency. Finally, the tenders, 1 year has passed and 1 year has been, let me say, another year of delay. That's normal. I mean that is common to the last 10 plans that we presented to you. So nothing new. And that is the reason why we reduced the number from EUR 1.7 billion to EUR 1.5 billion. That number accounts for less than 10% of the overall investment. If we look at different perspective, that is also interesting, I would like to ask your attention on the right part of the slide, it's interesting to look about the different areas. Largest amount of investment is allocated roughly for 40% of the total on network development and upgrade of the network in Italy and Greece, nearly 20%, 19% of digitization and AI. I would like to ask you if you know any other gas DSO that is investing such significant amount of money in digital and AI. And finally, Water and ESCo accounts for 5%, while tenders account for 9%. Trying again to give you a full picture of our investment plan. Our effort is focused on 3 main pillars. As we said before, network development upgrade and maintenance. We are leveraging our scale. We are leveraging our skill in order to move to a predictive maintenance that is driving and will drive our CapEx plan to improve reliability and performance of the network. The second pillar is asset digitization. We need to bring the 2i Rete Gas at the same level of our network as well as AI transformation. That is where we have the bigger difference from our competitors. There is where we have the big expertise in terms of network automation, in terms of digital transformation and in the coming years in terms of the AI application. The third pillar referred to the other initiative, water and energy efficiency. Here, we think that extending all the innovation that we have brought to the gas distribution into water and energy efficiency will make the difference. We'll make the difference because on the water sector, we will see significant reduction of leaks as well as gas, but gas is already very low. And then we will enhance infrastructure resilience in gas and water. We will improve operational efficiency. You have already seen some results, reducing energy consumption and dispatching green gases. These are the things that are taking together all these activities. But now I will go into more details, and I will leave the floor to Pier Lorenzo, who will talk to you about gas distribution in Italy and Greece, please. Pier Lorenzo: Thank you, Paolo. I'm really excited to be today on this stage to present the investment plan on gas distribution in Italy and Greece of Italgas, which is the largest in our long history. And let's start with the biggest chunk of the plan, which is dedicated to our core network investments in Italy and in Greece. It accounts for EUR 7.7 billion, and we will develop the plan along 3 lines. starting from repurposing of the grids, basically by replacement of older assets driven by predictive maintenance and active leak search through our cutting-edge technology, Picarro, which you already know. But on top of that, we will invest on grid development and extension basically to execute the commitments that we have undertaken as a result of the already awarded tenders and in Greece for the extension of the existing grid, driven by the requests for new connections. Furthermore, we plan to invest more on top of that as a result of the awarding of new tenders. And last but not least, we will invest on the infrastructure enhancement with several initiatives ranging from the installation of small-scale LNG plants in Sardinia and again in Greece, development with -- of reverse flow plants, innovative reverse flow plants, which will help us debottlenecking the existing grid to promote biomethane connections and power-to-gas pilot project plant, which has been already put in operation just a few weeks ago. Let's deep dive into the investments that we are planning in Italy, the organic investments dedicated to network. So these investments accounts for EUR 5.4 billion, and they include network development and centralized investment. They do not include new tenders. Amongst others, we will invest to execute the commitments that we have undertaken as a result of the 8 items that we have already been awarded all across Italy, plus 2 additional items tenders that we expect to be awarded in a very short period of time. This piece of plan accounts for about EUR 1 billion, and it underpins about 2,000 kilometers of networks in terms of both extensions, new networks and repurposing of existing networks. Along with that, we will invest -- continue to invest in Sardinia, where we have completed 100% of the network, more than 1,000 kilometers. We will invest basically to convert the large cities of the region, namely Oristano, Sassari, Cagliari and Nuoro by 2026. We will do that by deploying against small-scale LNG plants where the cities cannot be connected directly to a methane pipeline. Moving to the tenders. As of today, in Italy, all in all, we can record 11 officially awarded tenders -- and there is still a long road to do to the end of this process. We have still 166 tenders to go. So this year, as always, we have reviewed the schedule of the tender based on the actual progress status of the process. We believe strongly that the tenders represent a great opportunity for Italgas to further consolidate the markets. We can leverage on our current features to be best positioned to win the tenders. We have a strong track record. We have recorded 8 wins out of 11 tenders, but I should say out of 9 tenders because we took part to 9 tenders out of the 11. So the track record is really very successful. And all in all, with this plan, we are devoting EUR 1.5 billion to the new tenders, which will result in an increase in delivery points that we project to step up to EUR 2 million by the end of the plan horizon. Moving to Greece. As Paolo anticipated, we're basically confirming EUR 1 billion of investments. In this area, the investment will be dedicated primarily to the extension of the network driven by the request for new connections. This will result in the realization of 2,500 kilometers of new networks with an increase in terms of RAB up to EUR 1.3 billion by the end of the plan horizon. And in parallel, a sharp increase in terms of number of users, stepping up from more than 600,000 to nearly 1 million redelivery points by the end of the plan with a CAGR of plus 6.5%. Let's talk about green gases. We confirm our full commitment in promoting green gases and in particularly biomethane and hydrogen. Concerning biomethane, we can record as of today, 11 connections of biomethane plants to our networks. We had only just 3 years ago. So this is a sharp increase. But what's more, we have more than 38 new projects of connections under development. What's more, we have installed 3 reverse flow plants. This is a very innovative type of plants, which is vital to debottleneck the local distribution grids in order to promote the full injection of biomethane into the grids. So all in all, we are projecting by the end of 2030 to increase the production capacity of biomethane injected into Italgas grids up to 1.2 billion cubic meters per year. Talking about hydrogen. We have inaugurated just a few weeks ago, the hydrogen hyround project. This is a very innovative project, basically a power-to-gas hydrogen plant. It is in Sardinia, near Calgary, and it stands out as of today due to its very high efficiency, 55%. But what's more, it is really a showcase of the entire supply chain of hydrogen, starting from the production of real green hydrogen from a photovoltaic plant nearby, which produces the electricity needed to generate the hydrogen. Then we have storage. And then we have the demonstration of various end users of the hydrogen. We have a refueling station for vehicles over there. We have a pipeline for direct connection to a nearby industrial site. And the most distinctive feature, we are blending the hydrogen together with natural gas to feed the local gas distribution network of the city of H2. And we plan in the next 12 months to increase the percentage of blending starting from the current 2% of hydrogen up to 20% of hydrogen. This will make hyround project a unique site all over Europe. Let's move to digitization. We have dedicated in this plan EUR 3.1 billion of investment in Italy and in Greece. We will develop the investment addressing basically 3 clusters of initiatives. First of all, we are going to digitize all the assets that we have acquired from 2i Rete Gas, so that these assets will be completely controlled and monitored remotely by DANA from our control rooms in Turin and Florence. Second cluster, we are going to deploy our brand-new smart meter, Nimbus in Italy. We have validated the project. We have patented that meter. It is patented in Italy, in Eurasia, and we have a patent pending in Europe. The meters has confirmed to have superior performances compared to all the smart meters presently available on the market. So we have decided to massively roll out the meters in Italy and in Greece. And the third cluster will concern AI transformation and IT infrastructure upgrade in order to develop AI-driven new algorithms. Talking about digitization in Italy. This has become basically a trademark for Italgas. We are dedicating this plan EUR 2.9 billion in order to complete the digitization of all the assets that we have acquired from 2i Rete Gas. It's quite a large portfolio of assets. I recall that 2i Rete Gas has brought to us more than 1,200 City Gates, 12,000 district governors, more than 70,000 kilometers of networks, and we have to digitize all the bunch of pieces of equipment in a very short period of time. So we have envisaged a step-by-step approach. The first step will come to completion by the end of 2027. We will fully digitize the 1,200 City Gates so that the entire network will be remotely controlled by DANA from our control rooms in Turin and Florence in Italy. In parallel, we will digitize the 12,000 district governors, which are basically smaller plants. so that by the end of the plan horizon 2013, we will have completely digitized the entire asset portfolio of former 2i Rete Gas. AI. Let me first recall what we have done so far. We started in 2017 with a visionary approach to digitize our operation and our assets. We set up a digital factory at our headquarters in Milano. And I think that we have been very successful. Over the period of time, 2017, 2024, we have deployed more than 50 innovative digital solutions. We have reviewed more than 300 processes. But what's more, we have involved a huge amount of our employees -- and this makes the digital factory and the digital approach a change management project, more than 750 people involved in the last 18 months only. So now we have to face the second stage, the second phase starting from this year to the end of this plan, which will be focused on AI transformation. And Paolo has mentioned some of the first projects that we are already executing. So for sure, we will address data quality. We will develop algorithms in order to achieve operational excellence, and we will improve in general, our operational skills. We will evolve the digital factory from digital rooms to AI rooms in order to design all the AI stuff that is needed for this transformation. DANA will evolve, will change, will transform from a basic software for remote control and command of the network to a real platform for AI-enabled automation. And as I've mentioned before, we have already 100% of our network legacy 2i Gas Rete fully controlled by DANA. By the end of 2027, we will extend this control capability to the new grids, the new assets acquired from the former 2i Rete Gas. And meantime, we will deploy DANA by the end of 2026 also in Greece, so that DANA will cover the entire portfolio of assets of the group. The other important cluster of investment concerns metering. As I said, in this plan, we are planning a massive deployment of our Nimbus meter in Italy, primarily in order to address the replacement of the first generation of smart meters, which are based on GPRS technology or 2.5G. This technology will soon come to obsolescence. So we have decided to massive replace these meters with the Nimbus. In parallel, we will do the same thing in Greece, where the installation is driven by the need of replacing traditional meters, not even smart meters. And on top of that, the new connection, the new users, which will be driven by the extension of the grid that I already mentioned. Let me conclude my presentation by confirming here our full commitment to reach the challenging targets in terms of reduction in net energy consumption and green gas emissions -- greenhouse gas emissions, sorry. We have reviewed these targets on the basis of the successful performances that we have recorded so far. We are ahead of our original schedule, together with the extension of perimeter resulting from the recent acquisition of 2i Rete Gas. So in this plan, we're setting these new targets. In terms of reduction of net energy consumption, we aim at reaching a target of minus 35% by the end of 2030 compared to the baseline of 2020 and minus 11% compared to the baseline of 2024. We will do that progressing with the project initiatives that we have already undertaken on our legacy networks and will extend to the former 2i Rete Gas networks. So energy efficiency projects for industrial consumption and for civil consumptions, optimized fleet -- car fleet management and also a reduction of the uses of cars driven by AI. Concerning emissions, we are setting new targets on Scope 1 and 2. The new targets are a reduction of minus 55% by the end of 2030 compared to the baseline of 2020 and minus 26% compared to the baseline of 2024. We will do that with our innovative technology of Picarro for gas leak detection with smart maintenance and also with the energy efficiency initiatives that reduces energy consumption, but as a byproduct reduces also emissions to the atmosphere. These targets are in full alignment with the 1.5-degree Celsius scenario of the Paris Agreement, and we will target net zero by 2050. Scope 3 emission, again, -- we are confirming our commitment towards achieving the target in terms of reduction of minus 24% by 2030 compared to the baseline of 2024. This, of course, we will achieve by tight collaboration with our partners, vendors and suppliers. So thank you very much, and I give the floor back to Paolo for Water and ESCo. Paolo Gallo: Before getting into the numbers before giving the floor to Gianfranco, I would like just to spend a few words regarding the other 2 activities that we have in the group that are water distribution and energy efficiency. As I said before, our approach is whatever we have developed in the gas distribution, we are going to apply, especially in the water side, but also we are using in a mutual support, the energy efficiency as energy efficiency company is testing the solution to us. We are providing them ideas about innovation and then the tested solution will be put on the market. So that is the -- what is behind the link between gas distribution, water distribution and energy efficiency. On top of that, on the water, Pier Lorenzo described DANA. We will have very soon a DANA for water exactly the same as long as we will have digitized the network, we will be able to manage the network, the water distribution network remotely similar to what we are doing on the gas distribution. On the water, we will carry out large-scale replacement of all pipelines in order to reduce together with the digitization, also the water leakages. In the energy efficiency, there has been a change in respect to the previous plan. We have less M&A. We find that was not the best way to grow the business. We are moving to let me say, traditional between brackets because it's not really traditional EPC business development. So it's going to be organic development. We will have -- we will see in the numbers, less revenues, higher profitability. We are going to apply in that case, I'm saying it traditional, but it's not really traditional. We are going to apply advanced technical solution, innovative solution in order to manage and to keep the customer loyal to us. And always remember that energy efficiency is also helping us in order to reduce and to achieve the targets that Lorenzo has described before. Give you a few examples about the water, what we are doing. Since the acquisition, we have managed the company independently of the consolidation perimeter. So we manage the company being the industrial partner. And we are committed over the plan period to invest EUR 450 million. [indiscernible] EUR 450 million is what we consolidate in our numbers. If you look at the overall numbers, independently of the consolidation, the number looks bigger, it's EUR 800 million. That includes network replacement, extension, completing the development of infrastructure to increase water availability. We show you in the picture the desalinization plant that we have already built in Sicily to improve the availability of water. And on the other side, Ventotene Water Treatment Plant that has been also done. You probably know the Ventotene Island was a way to increase the quality of the water. Of course, we use a lot of funds, local and the national resilience recovery fund in order to accelerate what we feel it is essential to transform the water distribution in a better service for the customers. The plan is very -- the plan is written in this presentation. You see that our goal is to digitize the water distribution. There are a difference between the first 2 company and the second one because the first 2 are distributing up to the final customer. The other 2 are just transportation. But apart from that, the approach is exactly the same. We want to fully control the network remotely, and we want in that way to reduce significantly the water losses. The numbers of the sector, investing EUR 450 million will bring the RAB at the end of the plan over EUR 300 million. Revenue will be EUR 220 million higher than the previous plan as well as the EBITDA that will pass the EUR 100 million. That is the numbers. But to me, more -- even more important are the other objective that is the leak reduction. We want to bring down significantly the leakages of water to a number that is well below the average -- the Italian average, either in distribution and transportation. We can do that only if we digitize the network, only if we replace the older pipelines. And this objective can be reached only if we are going to invest the numbers that I mentioned before. In the meantime, energy efficiency, our company, ESCo, will work to support this company to reduce the energy consumption. 33% is our goal by 2030, even though we have experienced in 2024, a significant increase in the energy consumption due to the drought that we had not only in Sicily, but also in other parts of Italy. As well, we want to reduce by 33% Scope 1 and 2 with always the same target to get to 2050 with a net zero carbon footprint. Finally, on energy efficiency. as I told you at the beginning, was one of the 3 pillars designed by the European Commission in the REPowerEU to reduce the energy consumption, to get rid of the Russian supply energy to diversify the energy supply. That was a pillar that has been forgotten very soon. Why? As I told you, it's difficult, but it's fundamental to reach the energy transition goal. And our strategy is to offer to the 3 segments that you see, residential, industrial and public administration, innovative solution, digitized solution because that's the only way in which we can reach the targets set by the REPowerEU or in any case, set by the energy transition. We are going to invest nearly EUR 400 million, EUR 340 million throughout the plan period, mainly on the EPC contract development with limited amount of M&A contribution to growth. That means slower revenue growth, but higher profitability. As I said, our focus is on residential and industrial segment as well as public administration. With that effort, we will reach a total revenue by the end of the plan and EUR 260 million with a margin that will be 20% of EBITDA with an EBITDA margin of 20% -- if you have look at the numbers in the first 9 months, we are already there, I mean, very close, 19%. And we will continue to be there. We don't want to have -- we don't want to offer low-value solution. Our solution will be high value, innovative from a technology point of view and digitized. Now I leave the floor to Gianfranco for the conclusion of the presentation with the numbers. Gianfranco Amoroso: Good afternoon, everybody. I will -- thank you, Paolo. I will give you a quick overview over the 9-month results of this year. And immediately after, we will have another deep dive into the financial performance of the strategic plan. So let's start with this picture. I like it very much because it's very clear. is a clear demonstration of growth. Basically all the KPI of the profit and loss accounts are in the same direction. The direction is a clear growth. Italian gas distribution is the main contributor to these results made of different elements. There is the recovery of previous gap, of course, as you know very well since the first half. So the recovery of the deflator, the recovery of the OpEx recognizing the tariff by the new provision issued by the regulator. And all this, of course, together with the contribution of 2i Rete Gas consolidated starting from the 1st of April, more than offset the impact -- the negative impact of the WACC, the 60 bps this year compared to last year. In the meanwhile, in parallel Water, Greece and ESCo are continuing their trajectory positively contributing to the performance. And most importantly, as we will comment a few later after, there is a gaining momentum on the efficiencies. So benefiting of the first contribution of the initial synergies that we are implementing in this first 6 months. So basically, the EBIT marks a growth of more than 50%, 53.8%, notwithstanding the negative impact of the PPA, we made the preliminary allocation of the PPA starting from 1st of April, and this accounts for around EUR 10 million in this 6-month period. Cash flow generation is massive. We exceeded EUR 1 billion, of course, a record high for this period of time in the year and will cover -- is able to cover all the technical CapEx and part of the dividend, of course. CapEx, we will comment briefly after accounted for EUR 773 million, growing 40%, 40.7% compared to last year. And net debt, of course, increased reaching EUR 10.9 billion, of course, impacted by the acquisition. So the price paid, the debt assumed through the consolidation of the company, net of the proceed of the capital increase successfully executed in June. So all these elements will support an improving of the guidance for 2025 that I will comment later on talking about the strategic plan. I will -- sorry, I will go directly to the performance. So revenues and operating costs. So the most important thing that I want to remark here is the new element that you see on the right side of the slide, that is the minus 3.5% on a like-for-like basis in the efficiencies. This is the result of the first activities, the starting of the activities that we started last April. And this made of all the action that Paolo and Lorenzo explained before. The number attached to this potential is EUR 14.6 million that is already, let's say, an indicator of the progression of the total number that we had commented before. Going back for a while to the total revenues. I mean, the -- as you can see, the main contributor is 2i Rete Gas, of course, due to the consolidation. There is also the positive contribution in terms of RAB growth made by both the Italian gas distribution and the Greek distribution and also the impact of the resolution of ARERA that I commented before. The negative is, of course, the negative impact of the WACC accounting for about EUR 38.7 million, while on the -- over the EUR 42.7 million water and ESCo, ESCo contributed approximately EUR 426 million. So if you go to the following slide, we can see the performance in terms of adjusted EBITDA, a robust profitability, benefiting from the updated perimeters of the consolidation and also the action for the reduction of the cost. EBITDA growth compared to the last year of about 35.6%. Distribution was usually the main contributor to this performance with a positive of EUR 347 million, while Water and ESCo contributed also with EUR 12.6 million. In terms of EBIT, very short comment apart from the, let's say, contribution of the EBITDA, there is, of course, the change in the D&A that is negative. This, of course, is the impact of the consolidation of 2i Rete Gas, the CapEx executed in the last quarter and let's say, that more than offset the positive contribution due to the, let's say, termination of the Rome concession last year. In terms of net profit in the following page, of course, the growth, as we have seen is double digit in terms of net profit adjusted, up to 36.8% versus last year. Of course, there is the impact of 2i Rete Gas acquisition in terms of positive contribution of EUR 274 million, while on the negative expected impact of the financial charges due to the increase in the debt linked to the acquisition, the bridge financing, the bond that we issued in February, the interest on the debt consolidated through the acquisition of 2i Rete Gas. And the total impact of all of that is around EUR 77 million, as you can see. On the taxable income and tax rate, you see that there is a negative of EUR 58 million. This is due to the increase in the EBIT -- total that has driven the tax rate to 28.1%, a slight increase from the 27.6% of last year. So if we move to the technical investments briefly, as I commented, the total amount of CapEx in the period has been of EUR 773 million, up to 40.7% compared to last year. I would underline a couple of things. The first is more than 600 kilometers of new network pipes execute deployed during the period, of which 360 in Greece. And the starting of the activity, the preparation works for the upgrade and the digitization plan of the perimeter of 2i Rete Gas. Now on the cash flow. As I said, the remarkable number is the EUR 1 billion of operational cash flow. There is -- these results very positive as, let's say, more than offset the slightly negative impact of the net working capital, about EUR 22 million that is, let's say, typical for this period of the year due to the billing seasonality. And then, of course, this more than EUR 1 billion of operating cash flow has fully covered the CapEx executed in the period of EUR 827 million and has also covered part of the dividend paid in May of EUR 350 million. So all of that results, of course, in a variation of net debt that is impacted by the acquisition for, let's say, the debt and the price paid for the acquisition of 2i Rete Gas. So I think now we can move forward to the plan, back to the plan in order to comment the financial of the strategic plan. First, let me comment on that, let's say, broad picture. Our plan has the target to deliver a 10% EPS growth that has been, let's say, made possible by a disciplined capital allocation between the different components of our CapEx plan, an improvement in the level of efficiencies. And all this, of course, make the shareholders benefiting through the dividend policy that we will comment later on. So the 3 pillars are investment plan, of course, upgraded and increased by more than 5%, 5.7% compared to previous year, out of which the technical component reached EUR 10 billion compared to the EUR 9.1 billion of the previous plan. Second, very important, already commented and discussed the operational efficiency and extra revenues coming from the investments. that have been improved by more or less 25% compared to last year. Finally, but very important, the strength of our balance sheet. This is, let's say, supported by an increase in the level of operational cash flow aggregated for the whole life of the plan of more than 7%. Of course, this has made possible the full coverage of the technical investment done during the period, the payment of all the dividend. And of course, as usual, there is headroom for tenders and potential M&A activities. So this is not to be commented because we discussed at length, but help me to explain this one, so the development of the RAB. The development of RAB as usual, let's say, clarified with tender and without tender. If you look at the figure overall, including the tender, we are moving from EUR 10.2 billion reported '24 to a level of EUR 20.3 billion, of which 90% is gas -- Italgas distribution in Italy. If we exclude from the tenders from the numbers, the overall RAB is expected to reach EUR 18.9 billion with an average CAGR of 9.2%. Of course, tenders will contribute to EUR 1.4 billion additional RAB to the figures that I just commented of EUR 18.9 billion. The increase of RAB compared to last year plan is upgraded. If you look at the RAB, if you remember the level of the RAB in 2030 or last year plan, there is a difference with the lending number of 2031 of around EUR 1 billion. This is, of course, due to the increased level of CapEx of this plan and also there is also the impact of the deflator that we have already explained. Talking on the right side of the redelivery point, also in this situation, we can consider the number including the tenders, and we have a CAGR on the plan of 10.1%. If you exclude the tender, the number is 7.8%. Talking about profitability, we have seen increased level of investment, capital allocation, increase of RAB revenues drive to an increase of EBITDA. The rate of a CAGR of EBITDA is more than 12% higher than the RAB CAGR, meaning that we have also the possibility to have an extra growth due to the extra activities and investments that we are planning into the plan and also the efficiencies. We have done, let's say, a segmentation in order to give you the starting point of EUR 1.35 billion, the intermidpoint that will be the guidance for '25 of EUR 1.87 billion. And then the landing point at the end of EUR 3 billion of the EBITDA. Of course, most of this -- the large part of this increase is linked to the inclusion of 2i Rete Gas as expected. Another important portion is linked to synergies, efficiencies and AI. And then we have the contribution of the tender, of course. Let me say that out of the EUR 3 billion at the end of the plan, the gas distribution of the -- Italian gas distribution will have 80% of, let's say, contribution to that number, 6% will be the contribution of Greece, while ESCo, Water and other will account for 6%, same number, 8% the tenders. On the right side, you have the evolution and the trajectory of the OpEx cost basis in, let's say, as a starting point, we have here the 2024 on the '23 that we have commented before. Of course, you see the increase due to the consolidation of 2i Rete Gas, cost linked to the tenders and the synergy and efficiencies that, let's say, contributed to the reduction arriving to the level of 2031. All that allow us to make a projection of the EPS jointly with the financial charges that we will comment soon. So the EBITDA expansion, financial discipline, driving a double-digit growth of 10% throughout the plan. We start from a level of EPS adjusted for IAS 33 of EUR 0.59 in 2024. And approaching the end of the plan, there is also a very important year, the 2029 year in which the net income will exceed EUR 1 billion. So it is considered a very important achievement, of course. All that is, say, possible also due to the financial strength of the balance sheet, the third pillar. And this is the clear evidence of that. If you look on the left side, you have the maturity profile of our debt, very well spread all over the years of the business plan. Our financial strategy is focused on, of course, maintaining a solid liquidity buffer, have a mix of fixed and floating rate around 70% and 30% and increase the duration through the issuance of the new bonds in the plan. The strong, let's say, the improved cash generation profile allowed us to achieve in the plan the level set and agreed with the rating agencies 1 year earlier than projected last year in the plan. So we are now able to meet the 65% threshold not in '28 in '27. This is a clear situation of deleverage that allow us to have financial flexibility in our plan. You see on the right, the evolution of the credit ratios, net debt over RAB will end at the end of 2031 more or less at 60%, but clear deleverage starting from now. And also the funds from operation over net debt has a very positive and incremental trajectory. The result of this strategy is a cost of debt that, of course, will evolve during the year due to the refinancing of the maturities of older bonds, but we remain well below 3% throughout the plan. So finally, let me recap and give you the guidance. For the current year '25, supported by the result of the third quarter, we are improving our guidance with adjusted revenues of EUR 2.5 billion versus previous EUR 2.45 billion, adjusted EBITDA of EUR 1.87 billion versus a range that we gave of EUR 1.85 billion, adjusted EBIT of EUR 1.19 billion versus previous range of EUR 1.12 billion, EUR 1.16, while we are confirming our expectation in terms of technical CapEx around EUR 1.2 billion and net debt, excluding IFRS 16, around EUR 10.8 billion. Jumping to the final year of the plan 2031, including tenders, we are projecting revenues of approximately EUR 3.8 billion above the previous plan of EUR 3.6 at the year before 2030. EBITDA of EUR 3 billion above the previous 2030 level of EUR 2.8 billion, EBIT of EUR 2 billion above the last year plan of EUR 1.8 billion in 2030. The intermediate year 2029 will have revenues for EUR 3.4 billion, EBITDA of EUR 2.7 billion and EBIT of EUR 1.8 billion. RAB will surpass EUR 20 billion, EUR 20.3 billion versus EUR 19.2 billion of the previous plan ending in 2030. The leverage, as discussed, is improving and will end, as I said, at 60% at the end of 2031. Now I give back the floor to Paolo for the dividend policy. Paolo Gallo: Thank you. I'm going to the end. The last but not least, the dividend policy. And I'm closing that. I will leave just final remarks on slide, and then I will open the floor for questions. Let me say that has been approved yesterday by our Board of Directors, and we decided based on the results of the 9 months based on the plan that we have approved to extend the dividend policy up to 2028, maintaining the same payout ratio, 65% on adjusted EPS. And we have just changed the floor -- so instead of starting from 2023, we started from -- we use 2024 DPS as a reference point and with an increase of 5% per annum. It's not insignificant. Anna Maria will tell me that the number is not 5%, but I disagree with her, but that I will mention also Anna Maria point of view. I think it's not insignificant because not only we extend the dividend policy by 2 years, but we significantly increased the reference point. But I also would like to remind you that in the past year, we have never, never used the floor. So our result has been always above the floor and the increase provided by the floor. According to Anna Maria and probably IAS33 for which don't ask me what it is, adjustment, the increase is not -- the increase expected -- the minimum increase expected in 2025 is not 5%, but is 11.7%. You know that you know better than me IAS 33, but still, I'm very basic person. So I'm saying I want to guarantee an increase of 5% over the last dividend that we paid this year over 2024 result. That's the end of the presentation. Thank you for your patience. It has been quite long, but we are here for -- to answer to any question you may have. Maybe not all of them, but some of them, yes. Thank you. Unknown Attendee: So thank you to everyone. [Operator Instructions] James for a long time. So we start from the back there, James Brand. James, if you can stand up and... James Brand: It's James Brown from Deutsche Bank. I wanted to just, obviously, a very impressive plan and a lot of synergies and cost efficiencies that you're delivering. I just wanted to ask what you're assuming in terms of any potential regulatory clawback at some point? Because as I understand it, there's a cost review that will be coming in 2027 for 2028. And there's also this whole debate about do we switch to like a TOTEX system, but nobody seems to know exactly what that will mean at the moment. So I was just wondering, I guess, what you've assumed in your plan? And perhaps it's impossible to know, but maybe you could just talk us through a little bit how you think about the risk of getting some of the cost efficiencies claw back from you and how you think about TOTEX. And that was kind of going to be one question, but I think it's probably about 3 already. So I'll leave it at that, and I'd be very grateful to you. Paolo Gallo: Let me say that we are more than happy to give our efficiency for a time horizon back to the system. It's the way to repay institution to repay our customers, to repay the market. Just to give you a number, and then I will go back to your answer. Just to give you a number. In between '18 and '24, we gave back EUR 300 million to the system. So I think that is the game. I think we have demonstrated in the last 9 years that no matter we give the money back to the system, we are able to achieve better performance. And we have never changed that approach. So let me say, the focus on cost efficiency is one and then the regulatory is another one. But I -- the whole management is focused on cost efficiency, forgetting that the regulatory period will somehow later asking something back. To your point, what we have assumed in the plan, we have assumed an X-factor consistent with what we have experienced up to now. So we have already embedded in the plan less revenues as a way to give this money back, this efficiency back to the system. And regarding '28, '28 is difficult to shape because, as you know, there will be a new system, the TOTEX, we call ROS, but it's the same. I think that will change the rules of the game. For us, we see an opportunity because we can become even more -- we can even more implement an industrial approach because you mix altogether OpEx and CapEx and you make -- and you decide based on which is the best solution for you as an industry to allocate, let me say, money on the OpEx or on the CapEx. But because we don't have -- because there is no consultation yet on the market, we don't know how the regulatory body will shape the ROS. We know the general terms of the ROS. So what we have thought about is it's another opportunity for us to be even more efficient. But in the plan is embedded and X-factor similar to what we have experienced up to now. Unknown Attendee: We have Julius there. Julius Nickelsen: Julius Nickelsen from Bank of America. Two questions on the synergies and then just one clarification. The first one, I mean, I understand that the last time you put out the EUR 200 million, this was before you actually run the assets and now you upgraded it. Is that number now here to stay? Or are there any surprises left where you think some areas in the business that could still bring some more synergies? I don't want to be greedy. And then in terms of what have you already achieved in 2025 and what is left in 2026? I see you saw the EUR 14.6 million of cost synergies in this quarter, but could you maybe give a little bit more precise split? And then lastly, just to have ask, I assume these numbers assume that the allowed return will stay at 5.9% for the plan. Paolo Gallo: Okay. Starting from the last question, we have assumed that 5.9% will remain. So we assume flat WACC. Regarding the first question, we have already presented -- we just presented a new plan. Now you are asking me, there is something more. We need to wait 1 year and maybe we will find something more, not now. I think -- but apart the joke, I think that what we have done, thanks to -- mainly to Pier Lorenzo because he has run all the -- and the other team has run all the detailed analysis. We were able to build on a bottom-up basis really the -- all the activities that are needed to be put in place in order to achieve the synergies. So while 1 year ago, we were -- we made more an approach top-down saying, okay, what we can achieve, what with a similarity of the results that we have achieved in the past in Italgas Today, we are here and we say EUR 250 million that again, it's a round number, but it's EUR 252 million. So if you want, you can get another EUR 2 million on top of that. It's a true number based on all the detailed activities and results that we expect to achieve. What has been already achieved in '25 is the number that you have seen. It's a combination of synergies and ongoing focus on cost cutting. We cannot -- from now on, we will not be able to separate what it was if we were alone and what it is now because now 2i Rete Gas is not an entity anymore since July 1. So you should look at the numbers as the total -- so our ability to continue to reduce the cost, our ability to produce synergies, I would say, mainly in the traditional and digital part. AI will come later. It will not come. We'll probably see some numbers in '26. But as you have seen in the curve of the graph, it will come later. But I cannot tell you, if you are asking me in '26, what are the synergies, what you have -- it's impossible because now the company is one company, the organization is one organization. So I will be focused on what we will be able to achieve as a cost cutting and synergies in comparison to what was the baseline in 2023. Unknown Attendee: We have Francesco, Francesco Sala: Francesco Sala, Banca Akros. Congratulations for your results and the presentation. The first one is on the -- your inflation assumption, especially for the RAB until 2031. The second is what makes you think there's going to be a pickup in tender activity in the next few years? And if there is any evidence you have to back this assumption or if something has changed in the last few months? And thirdly, you wish that there were more opportunities in the water segment, but there have been very few in the last few years. I wonder whether you think something is going to change in this regard in the next future? Paolo Gallo: The first one, I mean, we have assumed on the long run an inflation rate of 2%, very simple. So we were not so creative. So we just flat the inflation to 2%. On the tender side, we have seen a 2025 that probably has been the best year ever since the launch of the tender in terms of number of the tenders that has been awarded and tendered, '26 look similar. My point is, and probably you have read on the newspaper, my point is that as the Ministry [indiscernible] said, tenders process need to be reviewed. And I think the point is need to be reviewed in terms of size of the tender, so increase the size of each single item, reducing the number of items. And on the other side, having let me say, an institution on an authority that authority is not the right term. A body that is running the tender that is more effective, can be local, can be regional, can be central, but should run the tender. The problem is as of today is that there are so many that have not taken this as a clear commitment to run the tender and to complete the tender. What you said on the water distribution is true. You said few, I would said 0 opportunity. I will make it few to 0, not only, but each opportunity, we need to look very carefully because we don't want to have an opportunity that is not an opportunity that is a problem. So we will look only if there are serious opportunity in the market. As of today, there is none. But on the other side, the plan will continue to deliver better quality of the service, less leaks, operational efficiency in the perimeter that we have acquired from Veolia. Unknown Attendee: So we have... Paolo Gallo: We will answer to all your questions. So don't worry. Unknown Attendee: Okay. So Aleksandra there and then we go in the line. Aleksandra Arsova: Aleksandra Arsova from Equita. So 3 questions on my end. The first one, so again, not to be too greedy, but maybe on dividend since you provided an improved growth profile, faster deleverage. So I'm thinking maybe is there any room maybe next year to further improve either the payout or the growth in EPS? This is the first one. The second one is maybe more a curiosity. You are mentioning the potential changes to the concession regulatory framework. But if this -- the timing of these changes, I mean, are quite uncertain. And so I was thinking maybe on the other hand, is there any possibility or is it viable from an antitrust point of view to do further M&A in Italy, maybe many bolt-on M&As? And the third one is a follow-up, a clarification on the unitary OpEx tariff. So you said previously, if I understood it correctly, that you assumed the X factor, which is similar to the one you have at the moment. But if I remember correctly, the consultation paper under review currently assumes a lower X factor at least for '26, '27. So you are more conservative at the moment vis-a-vis the proposal by ARERA? Paolo Gallo: On the first question, you know the answer, so I don't answer to you exactly. I said that I don't know how many times. I think -- and I'm -- on that point, you can be flexible. But the point is that with that dividend policy that we applied over 9 years, we were able to acquire 2i Rete Gas. So the answer is there. On the second one, there are many discussions around tender and concession. I don't think it is viable to extend the validity of the concession because the concession has been expired in '12. So it's strange to because somebody is proposing to extend the concession. But the problem is different. The problem is tenders have been set 13 years ago. The process didn't work. I think we need to face this situation and try to solve it. Further M&A, while the tenders are going on, you will be scrutiny again by the antitrust. And as of today, there is nothing again on the market. for the OpEx. We have used the -- for '26 and '27, we have used the numbers in the consultation, but then from '28, we use a flat number higher than the ones for '26 and '27. Unknown Attendee: And then Fernando. Okay. Unknown Analyst: First question is regarding the slide in Page 19. This is related to the time line of cost savings. I mean I was doing a visual calculation there. It looks like you are getting around 50% of the cost savings already in 2026. My question here is this is something that you expect in 2026 or maybe more end of the year. I'm saying this is because this could have significant implications of next year earnings. So that is my first question. Then second question, I think that you say that you assume a flat WACC for the period until 2031. So there, I would like to know what is your expectation in terms of the activation of the trigger mechanism for next year. I assume that you don't expect it, but you can clarify. And a follow-up question on that is France lost the AA rating in October. I would like to know your opinion on what has to be done in this scenario? And what could be the implications for the sector? Paolo Gallo: Always remember, you referred to Page 19 that this number is as a reference of 2023 cost. So part of that has been already achieved in '24. Part of that will be achieved in '25. So the '26 is already a cumulative number that takes into consideration what was already achieved. It will be, as you see, mainly traditional in '26, some digital, and they represent about, let's say, 40% of the total. On the second one, we have -- on the WACC, we have assumed, as you said, flat period, so trigger will not apply according to us also because France should be out of the reference country because they lost the AA rating. They are now in A+. So according to the regulatory framework that set the characteristic of the countries to be compared with, they said they should be AA countries. France is not anymore AA countries. So I think that is my -- I mean, reading the paper of the regulatory and applying just in a very simple way. Last year, France was probably still considered because if you remember last year, France was AA-. So they still have the AA somehow. Today, 1A is lost completely. So they have A+ only. Next... Unknown Attendee: We have Sarah there. Yes, Alberto, [indiscernible] to you. Sarah Lester: Sarah Lester from Morgan Stanley. And I really do apologize one more on synergies, and then I think we'll stop on the synergies. '27, '28. So tying a bow on, I think it's Slide 15, 19 and 20, it feels like you're in the ballpark of EUR 180 million in '27, 2028. Just doing a sense, check if they're kind of sensible numbers. And then I also have a high-level question on future mapping. You're obviously incredibly strong at extracting value from acquisitions. Would you consider expanding outside of Europe? Paolo Gallo: If you go back to page -- page, I'm coming to Page 20, you will see that by 2028, the majority of the synergies that are EUR 180 million are reached, not all, but a significant portion of that. So you're right. The second question is relevant to potential acquisition. I'm not saying nothing about that because it's -- we don't have anything in our end. I always say which are the principles that drive us. First of all, Europe is our area of interest, of course. But the second point for which we look at the outside Italy are, first of all, macroeconomic scenario of the country and then even more important, the regulatory framework. That is what we did in Greece. At the time, macroeconomic scenario was not looking very good, but we saw at the time, significant signal of improvement. So we strongly believe at the time that Greece, and we were right, would come out of the situation that they were and now they are in a very good macroeconomic condition. And the second element, even more important, regulatory framework was very stable, was clear, was similar to our. So those are the 2 elements that we normally look before considering anything outside Italy. Europe, of course, is the best area where we would like eventually to invest if the 2 conditions that I mentioned to you are met. And there is somebody that is willing to sell, of course. There is no one that there is no interest. Unknown Attendee: Yes, so Christabel. There? Christabel Kelly: Chris from UBS here. Just one question on the financing strategy. I noticed that this time, you're aiming for a fixed floating ratio of 70% to 30% and an increased duration. Can I assume that that's reflective of your view on where interest rates are going, cost of financing for Italy and for Italgas going forward? Paolo Gallo: Yes. I think if I well understood your point, the strategy is based on the expected structure of the rates in the future, of course. In this plan, we are assuming a level of the fixed rate more or less stabilized on the current levels, while we are expecting a decrease -- a sharp decrease in the short-term rates. For this reason, the ratio changed a bit from the previous 20% to 80% to 30% to 70%, meaning that we will go more for, let's say, short-term or variable rates that could be also a long-term fixed rate swap into a variable in order to take benefit of this situation of the rates. And the combination of the 2 situation, coupled with also the increased duration will result in the level of cost of debt that I have commented in the slide. Next. Alberto de Antonio Gardeta: Alberto de Antonio from BNP Paribas. My first question will be on Greece. You have given the targets for 2021 in terms of revenues, EBITDA and RAB. Maybe could you disclose what your assumptions behind in terms of WACC inflation, X-factor or any additional potential revenues? And my second question will be regarding the biomethane opportunity. And let me understand if -- are you investing directly in any plans or how this business works and how this is going to impact your company in terms of maybe CapEx, potential additional revenues or just decarbonation of the molecules? Paolo Gallo: Okay. Regarding Greece assumption, if I well understood, we have assumed similar to the overall plan, flat rate, flat interest rate, flat allowed return similar to what we have today. There may be some correction over time, but we don't think this is going to be significant. That was the assumption that we used. and inflation as well. So we use the same numbers that we are using for Italy, we use also for Greece because, as I said before, the 2 countries are very similar today as well as the other. Regarding biomethane, what we have assumed in the biomethane, maybe Pier Lorenzo can elaborate a little bit more is not that we are investing in biomethane production plant, but we are making the connection easier for them to accelerate the development of biomethane new plant and the connection. Maybe Pier Lorenzo can say a little bit more about our approach in how we can help biomethane production plant to be connected. Pier Lorenzo: Yes. As Paolo anticipated, we see biomethane not really as an opportunity to invest in directly, but as a gigantic opportunity for our country to address the decarbonization of the end user and consumptions together with the security and supply because biomethane, we have to remember here in U.K., you have a lot of production as well, is made locally. So looking at Europe as a whole continent, which is strongly dependent on importation of gas, biomethane production can mitigate this issue concerning security of supply. So all in all, our approach here is to promote the development of the industry in Italy, facilitating, making easier to connect these plants to the local grids. And we do that, we have done in the past, and we will do more and more by streamlining the design of the connections so that they cost less and less and by investing in reverse flow projects. The main issue that can arise in a project of connection of biomethane to a local grid is the fact that the local grid at the exact site where the developer of the plant wants to install the biomethane plant is not fully capable of receiving the entire amount of production of gases in every hour of the year, especially when the demand is very low. So thanks to reverse plants, we can debottleneck the local network so that virtually we can -- or really not virtually, we can connect any kind of biomethane plants wherever the developer wants to develop the plant. And connecting a biomethane plant to a local distribution network is definitely less expensive than connecting the same biomethane plant to a transportation network, which is run operated at definitely higher pressure, so they need compression and blah, blah, blah. So we have to promote and we want to do that, the connection of biomethane plants to local low-pressure distribution network. That is our aim. Of course, we reflect all these in our CapEx investment plan in terms of CapEx strictly related to the connection of the plants. So pipes and pieces of equipment that we need to connect. Unknown Attendee: Ella from Citi. Ella Walker-Hunt: I have 3 questions, if that's okay. First question is to do with the WACC trigger. The WACC trigger. -- if it is triggered, can you just give us a sensitivity of us know how the earnings would be impacted if there was a downside trigger. My second question relates to AI synergies. So I remember in the last plan when you were discussing your EUR 200 million synergies, you said that EUR 80 million were going to come from AI synergies. And then in this plan, it's more like EUR 70 million. So can you just talk about the difference there in terms of the EUR 80 million and EUR 70 million? And then my last question refers to the tenders. So you -- in terms of the 247,000 connection points that you're selling, you sold them at a great price, 16% premium to RAB. But if you do -- if we do a quick back of the envelope calculation in terms of your plan, then you have EUR 1.5 billion CapEx for the tenders to bring on EUR 1.4 billion RAB. So it's like 7% premium to RAB. So I was just wondering about the difference there. So why do you think -- I guess, yes, just the acquisition price at a much lower premium versus what you sold at? Paolo Gallo: The last question we need to interact because it was not very clear to me. Let's start from the first one. The impact of a potential trigger for which we don't believe is going to happen is EUR 45 million. EUR 15 billion of RAB multiplied by 30 bps, that's the impact in terms of less revenues. AI synergy, which -- what is the difference? Let me say what we said is, of course, pretax revenue, the EUR 45 million is pretax. In terms of AI synergies, let me say that last year, we have estimated between -- I remember, I said EUR 70 million to EUR 80 million, but it's true. We mentioned EUR 80 million because we thought the number came out from the fact that the impact that was generated the digital transformation in the 7 years previous plan that generated a certain number would have been similar or better. The synergy impact would have been similar to what was generated by the digital transformation previous plan, and that the number came out from. So it was not a bottom-up. It was a clear top-down numbers. Now we were more -- much more detailed in building see -- AI cases and say what is going to happen with the application of the AI. There will be more productivity, less personnel involved, less use of cars and other stuff like that. So we were able to detail and the number came up to be EUR 70 million. So I strongly believe the EUR 70 million is more reliable than 80 million of last year. EUR 80 million was, and I always said was taking as a similarity. But I have also to say that between now and the next couple of years, other AI uses will come up. So I would take this as a floor, the EUR 70 million, and I will not take it as a final number. Based on the knowledge that we have today, that is the best reliable number we can give it to you with the time frame that we have envisaged. But it's going to be changed. Yes, because AI is something that is evolving. I don't think anyone -- anyone in our industry, but in general, anyone in industry like ours has been able to predict with such detailed way the AI impact on the cost of the company. The last one I have -- let me just recap, okay? We bought what we bought at a limited premium. And then we sold RAB EUR 218 million with a certain premium higher than what we bought, okay? That's the end of the deal. Tender is another matter. You know the tender we buy at RAB by definition because there is no competition on the value of their assets. So that is the fact that has been reduced the amount of the tender is only due by the delay. Remember that the number is made of acquisition of existing network plus CapEx that is requested to upgrade this new network acquired through a tender. So the delay in the tender means that there may be some items that are not in the plan period anymore. But if you delay the tender also the CapEx, technical CapEx connected to the tender may be delayed, too. But there is nothing to do with premium. I don't know if I'm clear. Okay. Unknown Attendee: If there are no more questions from the room, we can take the question from the conference call. Operator: The first question is from Javier Suarez of Mediobanca. Javier Suarez Hernandez: I'm really sorry to jump with questions after a long presentation. So the first question is on the EBITDA margin that is embedded into your plan. That means -- that means an expansion versus 79%... Paolo Gallo: Can you start again because now your voice is back. Javier Suarez Hernandez: Okay. Can you hear me now? So the first question is related to the expansion on the EBITDA margin to 79%, which is the number that is embedded into your guidance for 2029 and '31. So the question for you is that if you can help us to understand that expansion in the EBITDA margin that is going to be by the end of the plan, significantly different between the old Italgas 2i Rete Gas, Depa and the water business. So further detail on EBITDA marginality between your different activities would be very helpful. The second question is on the tendering process and what may be done to incentivize and to stimulate the process. So you can share with us any proposal to the new -- to the administration in Italy to make the system more virtuous and probably quick. And if you think that what it is happening or is the discussion for the electricity distribution concession is something that could be replicated to the gas distribution concessions as well? And the very final question is on Slide 60, when you are showing the credit metrics. So there is a vertical a significant decrease on net debt to RAB and a significant increase in the FFO versus net debt. So the question is, philosophically, where do you think that a company like Italgas should be seated if it is a correct interpretation to say that beyond, say, 2028, the company is maintaining some financial flexibility to capture additional opportunities related to M&A or the tendering process, if that is a correct interpretation? Pier Lorenzo: Okay. Let me start -- maybe start Frank, on the first EBITDA... EBITDA trajectory in the plan. clear, you are right, meaning that it is true that there is a clear direction in terms of improving the EBITDA margin, both for Italian gas distribution. We are approaching at the end of the plan a level of 88% basically. And so starting from a level now that is around 80%. In terms of the same trajectory is also followed by -- in parallel by Enon, by Greece, but on the lower scale, of course, you remember that in the past, we considered Enon as, let's say, like [indiscernible] in Italy, so a smaller perimeter with headroom for improving efficiency. So also Enon will improve the EBITDA margin at the end of the plan, approaching 76%, 78% more or less. The driver behind that, of course, are the operational efficiency synergies, revenue synergies that we commented, mainly I would say. Paolo Gallo: Yes. I'm just adding 2 points. EBITDA is growing because the costs are going down. There is a clear difference between -- you remember that we put the ambition of Greece and the ambition Greece, we are on the trajectory of that ambition. But we have always said that because of the size of the Greece they will never be able to achieve the same EBITDA margin that we are able to achieve, thanks to the size that we are having in Italy. But also in Greece, we are using -- we have applied digital transformation. We will fully digitize the network. We are doing that. We are very close. By the end of this year, we will complete that. AI application will be moved to Greece too, but the scale will determine, of course, a different -- slightly different EBITDA with a margin that is probably lower than the one in Italy. On the tender side, my only comment probably Javier didn't hear what I said before. The proposal on the electricity distribution is to extend the concession, but concessions are in full force today. So the comparison between gas distribution and electricity distribution is not comparing apple with apple because gas distribution concessions have expired by law back in 2012. We have talked for many, many years about what we can do in order to accelerate the tenders. Our opinion, our position that is shared among the association is that we need to reduce the number of items. So we need to reduce the number of tenders. And we need to have a clear commitment by whoever take the responsibility to run this tender to run this tender because otherwise, you can even reduce the number of tenders increasing the size of the item, but that if no one is taking the responsibility to run the process in in a time manner, then we will be sticking the same situation. So 2 elements should be addressed. Number of items reduced and a clear and committed responsibility to run the tenders. I think regarding the last question, what we have presented always is deleveraging over time. And as in the past, we have always find a way to use and to invest properly eventually any additional fund we may have in order to increase the profitability of the company. So I would not -- we need to stay below 65%. That's no doubt about that. That is our target because we want to maintain the same rating that we have with the rating agency. Apart from that, everything else, if there is a room, we will try to use in the best way like we did in the past, available funds. Unknown Attendee: Next question from the call, please. Operator: The next question is from Davide Candela of Intesa Sanpaolo. Davide Candela: I have just 2. The first one is with regards to the nanometers rollout. It looks like to me that by 2030 and the year after, there could be a little bit of deceleration in the rollout in Italy. I wonder if you can share why is that if it is because you are reaching a certain point that no more should be installed or you're waiting for something and maybe some assumption behind the cost you are assuming in the plan for the rollout of those meter -- and second... Paolo Gallo: Excuse me, you are talking about rollout, but rollout of what? Davide Candela: Of the smart meter. Sorry for that. And second question, really high level with regards to the data centers. And we have recently seen a potential role of hydrogen with the fuel cell technology in the data centers. I was wondering if you could just share your view very high level and maybe if there is a role in future for gas distributor in there? Paolo Gallo: Regarding the first one, just to make it clear, the meters that we are going to replace are the first generation, I think Pier Lorenzo said very clearly. So the GPRS, not narrowband IoT, not the latest that we are going to install. That's the reason why we still have EUR 6 million, the combination of 2i Rete Gas and Italgas Reti of GPRS. You know the GPRS is a technology that the telco will probably soon discontinue. So we are planning to replace them. The structure should be very similar, let me say, the impact on our profit and loss and depreciation is exactly the same that we had when we replaced the traditional one with the smart one. So we expect that the regulator in order to face a situation where at a certain moment in time, this smart meter will not transmit anymore because GPRS will disappear. They will issue a regulation for which to encourage the operator to replace the GPRS with new ones. That's the reason why there is EUR 6 million on that. Regarding use of hydrogen for data center, if that is the request, honestly, I don't have an answer. So I don't know how to use hydrogen in the data center, if that is the question that I understood. Unknown Attendee: Next question please. Operator: The next question is from Bartek Kubicki of Bernstein. Bartlomiej Kubicki: Congratulations. I hope you can hear me well. A few things from my side. First of all, on the regulation as such. As we remember, there is quite some volatility with regards to gas distribution regulatory framework in the last couple of years, unexpected WACC cut, OpEx cut back in 2019. My question is, what are the key -- in your opinion, what are the key upsides and downsides from the regulatory point of view to your business plan not included in the business plan? And I'm not talking about the trigger mechanism, something which is out of the common discussion, including here the potential remuneration of the smart meters of the existing smart meters and the faster depreciation of those existing smart meters. Second thing, I would like to -- just a clarification on your leverage. Of course, you will degear very quickly from, I suppose, more than 70% net debt to RAB to 60% net debt to RAB into 2031. Just a quick question. What do you assume with regards to the famous Rome concession? Because I remember there was always some kind of EUR 0.5 billion potential payment to keep the Rome concession for longer. What do you assume here? I mean, is it still assumed in the business plan or not anymore? And the last point on your synergies and efficiencies, will it cost anything? Meaning I know that you said there will be no redundancies, but will you be incurring any additional restructuring costs to get to those synergies? Paolo Gallo: First question is, honestly, what I can say is that for me, '26 and '27 is very clear the regulation. So we don't expect no upside, no downside. Then from 2028, there will be the ROS taking place. In the ROS, we may see maybe some remuneration of the fully amortized asset, for example, similar to what currently Enon is enjoying if they keep in proper operation, fully amortized, fully depreciated assets. That's one element, but it's not so -- it comes to my mind. But generally speaking, the ROS application or the TOTEX application starting from 2028 for me, from the vision that we have, it could be an upside from an industrial point of view for Italgas in a sense that to be constrained OpEx and CapEx will be one single box in which you really leverage your capability in managing network and deciding which is better to spend in OpEx or to spend in CapEx, depending which is the best result from an industrial point of view. So if I look at the framework, I welcome the ROS, the TOTEX framework coming because it will give us more opportunity to use our industrial competence in order to increase our results. I'm just closing on the third point, and then I will leave the floor to Gianfranco for the Rome concession. I said no redundancy. We didn't any redundancy in the past. There's no cost associated. We don't have any redundancy. Our goal is today, and we have already started is to start reskilling our personnel in order to handle different kind of process and different kind of activity. We don't have to wait AI to be massively used. We need to do it now, and we will do it now in order to be ready when the AI will be used in a more extensive way to be able for our personnel, for our colleague to take other jobs consistent with the new organization from one side, the new process from the other side. So there is no cost associated. There will be no redundancy at all. Gianfranco Amoroso: On the Rome concession, the assumption in the plan is very straightforward because we have a receivable for around EUR 300 million in our balance sheet. Simply the business plan assumes that this receivable is paid during the plan. Consider that the other important assumption is that we are assuming in 2028 the taking of control after the tender of Rome of the concession. So this payment can happen before this date or I would say at the latest at this date. So you will have the cash in the cash position during the plan. Paolo Gallo: The impact of deleverage, EUR 300 million over EUR 11 billion of that is.. Gianfranco Amoroso: Not meaningful. Paolo Gallo: Exactly. But the assumption is that by -- in 2028, the concession, there will be a tender completed. Our assumption is that the Comune di Roma will continue to keep the ownership of the existing infrastructure by them and that is what is inside the plan. Bartlomiej Kubicki: May I just ask one more clarification on point number one, please? Paolo Gallo: Please. Bartlomiej Kubicki: Yes. Regarding the smart meters and the remuneration of the quicker depreciation of the currently existing smart meters. How confident are you that the regulator will be happy to allow you for another smart meters rollout while you have basically just a few years ago completed the smart meters rollout, which costed you probably EUR 1 billion plus. So there's additional kind of investments going into the network, additional, let's say, impact on the customers' bill. So how are you -- how confident you are that the regulator would be happy to approve a similar scheme to what we had back in 2019, '22? Paolo Gallo: It is not a matter to be happy or not happy. It's a matter that if GPRS will be discontinued. We will have 6 million smart meter not working anymore. So it's not a matter to be happy or not happy. It's a matter to understand the reality and say, okay, the previous smart meter that was developed and installed back 12 years ago, now has to be replaced with new ones because technology has changed. So the happiness should be -- there is a new technology that is much better than the old one. And of course, they have to consider the loss of depreciation. But consider, as I said, the first smart meter were installed back in '13, '14. There will be not a significant amount of depreciation to be paid. Unknown Attendee: Thank you, Bart. There are no more questions from the conference call. I reckon everyone here has been asking a question. IR team is available. So thank you, everyone. Paolo Gallo: Thank you. Thank you for coming.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 FTAI Infrastructure Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alan Andreini, Investor Relations. Please go ahead, sir. Alan Andreini: Thank you, Michelle. I would like to welcome you all to the FTAI Infrastructure Earnings Call for the third quarter of 2025. Joining me here today are Ken Nicholson, the CEO of FTAI Infrastructure; and Buck Fletcher, the company's CFO. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including adjusted EBITDA. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Ken, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and the forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Ken. Kenneth Nicholson: Thank you, Alan, and good morning, everyone. Welcome to our earnings call for the third quarter of 2025. As we typically do, we'll be referring to the earnings supplement, which you can all find posted on our website, and I will get right into it by kicking things off on Page 3. The quarter was an extremely active one. In our Rail segment, we closed on the acquisition of the Wheeling & Lake Erie Railway, a transformative transaction in many ways and expect to be one that sets the stage for significant growth in our Rail segment in the quarters to come. Also during the quarter at Long Ridge, we commenced gas production in West Virginia, and we're now producing in excess of 100,000 MMBtu per day, well above our power plants consumption. And most importantly, the company delivered strong financial performance. Adjusted EBITDA for the quarter was $70.9 million, up 55% from $45.9 million last quarter and nearly double adjusted EBITDA year-over-year. Importantly, the reported figures reflected only 5 weeks of contribution from the Wheeling, which we closed into a voting trust on August 25 and just under 5 weeks of contribution from West Virginia gas production. Our results for Q4 and going forward will reflect these activities entirely, so we expect the reported results to continue to grow in the periods ahead. The events of the third quarter, together with agreements in place at our Jefferson and Repauno segments put us in a position to generate in excess of $450 million of adjusted EBITDA on an annual basis, excluding any organic growth or new business wins. On the right side of Slide 3, we break down the components of that target, and I'm going to walk through it briefly. First, for purposes of the bar chart, we have adjusted our reported results to reflect the Wheeling acquisition and West Virginia gas production as if they had both occurred at the beginning of the quarter. Next, once approval is received to release the Wheeling from the voting trust, we have confidence in approximately $20 million of annual savings through realizing economies of scale. And finally, we had the financial impact of agreements in place at Jefferson and Repauno, which will commence revenue service at various points between now and the end of next year. I will note that our $460 million annual target excludes several important opportunities, including a number of meaningful new revenue opportunities on the combined Transtar Wheeling platform, behind-the-meter developments at Long Ridge or any further activities at Jefferson and Repauno. Flipping to Slide 4. I'll briefly touch on the highlights at each segment. At our Rail segment, adjusted EBITDA was $29.1 million, which included $8.4 million attributable to the Wheeling for the 5 weeks we owned the company. On a stand-alone basis, the Wheeling generated approximately $20 million of adjusted EBITDA for the full quarter. We hope to obtain active control of the Wheeling soon and are excited about the opportunities that lay ahead. At Long Ridge, reported EBITDA for the quarter was $35.7 million, up materially from Q2, driven by the full period impact of higher capacity revenue and partially by sales of excess gas in West Virginia. With current production exceeding 100,000 MMBtus per day across our gas production operations, we anticipate Long Ridge to achieve its $160 million annual EBITDA run rate in this fourth quarter. At Jefferson, EBITDA was $11 million, in line with last quarter's results as we prepare to commence revenue service under 2 contracts, each with minimum volume commitments that represent approximately $20 million of annual adjusted EBITDA. And Repauno construction of our Phase 2 transloading project is fully funded and progressing on plan. We have 2 contracts and 1 LOI in place at Repauno for Phase 2 that together represent $80 million of annual EBITDA once operational. And earlier this month, Repauno received a long-awaited permit for the construction of our Phase 3 cavern system. It's been a productive year-to-date, but we have a handful of important priorities we're focused on over the next few months, and we briefly list those on Slide 5. First, we'll take active control of the Wheeling immediately upon approval by the Surface Transportation Board. The timing is a bit uncertain, but given the current federal government shutdown, but we do believe our application is a priority for the STB. Second, at Long Ridge, with the business reaching our base financial targets, we intend to pursue strategic alternatives, including a potential monetization of the business. It is a great asset and a great market environment to be exploring a sale, and I'll touch base some more on our plans for Long Ridge in just a bit. And finally, we plan to refinance our existing parent level debt with a new bond issuance in the coming weeks. That financing should put us in a position with a strong long-term balance sheet that allows us for deleveraging over time. Moving to Slide 6. I'll talk a little more about the capital structure. Our capitalization at the end of September reflected the new credit facility and preferred stock that we have issued in August, simultaneously with the acquisition of the Wheeling. Total debt was $3.7 billion, of which $1.2 billion was at our parent level and $2.5 billion was at our subsidiaries and is nonrecourse to the parent. As I mentioned, prior to year-end, we plan to refinance our existing parent level credit facility with a new long-term bond issuance. We expect the new bonds to be the only debt at our parent level and benefit from cash flows that we receive from our business segments. All of the operating cash flow generated by our Rail segment is permitted to be distributed to the parent level. And with the new business coming online at Repauno and Jefferson, we expect to generate additional cash flow available for parent debt service from those entities. The result is more than ample cash flow beyond debt service for reinvestment or deleveraging. In addition, any proceeds in the event of the sale of Long Ridge will be available for further deleveraging. Moving to Slide 8. We'll dig a little deeper into the quarterly results and activity at each of our segments, starting with the Rail segment. We posted revenue of $61.7 million and adjusted EBITDA of $29.1 million in Q3 compared with revenue of $42.1 million and adjusted EBITDA of $20.7 million in Q2. At Transtar, overall carloads, average rates and revenues for the quarter were stable. Coke volumes came in lower for the quarter, resulting from the incident at U.S. Steel's Clairton production unit. We've seen coke volumes rebound and expect them to be back to historical levels in the coming months. Away from coke volumes were up for the quarter, offsetting the bulk of the lower coke volumes. Transtar operating expenses also continue to be stable as fuel costs and other material cost items have been largely unchanged. We're bullish about the quarters to come at Transtar and expect the investments committed by Nippon Steel to drive expansion of revenue and profits next year and beyond. More importantly, the Wheeling. I'm pleased to say even in the short period of time that we have now owned the company, the business is exceeding our expectations. Volumes and revenues at the Wheeling were up approximately 10% versus the company's second quarter and EBITDA was up 20% versus the company's 2Q. These strong results reflected practically none of the $20 million of annual efficiencies that we are targeting and our outlook for the new business opportunities for the combined business continues to grow. While the third quarter is typically a seasonally stronger quarter for the Wheeling, we're off to a good start in October, and we hope to maintain the strong momentum in Q4. Flipping to Slide 9, I'll talk a little bit more about our integration plans for the Wheeling. We went through a similar slide on our second quarter call. But given the recent strong performance from the Wheeling, we have slightly increased our financial targets from last quarter and now expect EBITDA for the combined Transtar and Wheeling of at least $220 million run rate by the end of 2026, up from our $200 million original estimate. The building blocks to that target are provided in the bar chart. For the most recent third quarter, the 2 companies generated combined annual EBITDA as is of $164 million, with $83 million attributable to Transtar and $81 million to the Wheeling. Our $20 million target for annual cost savings is comprised of a detailed line item-based work plan that we plan to implement together with Wheeling senior management. We expect the entirety of these savings to be implemented within the next 12 months. The 2 next components relate to high confidence revenue opportunities. The first is a specific opportunity connected to our Repauno terminal. For that project, Repauno customers plan to source natural gas liquids from fractionators located directly on the Wheeling rail system. Total quantities represent about 30,000 carloads annually. At current market rates per carload, that's approximately $20 million of incremental annual EBITDA at the Wheeling. The second revenue opportunity is a Transtar where additional freight volumes into and out of U.S. Steel's facilities will be substantial as a result of the commitments made by Nippon Steel. Nippon has committed to invest a total of $5 billion to expand production, specifically at U.S. Steel's Pittsburgh and Gary, Indiana facilities. We expect these investments to result in 10% to 20% increases in shipments or approximately $15 million of annual EBITDA. The bar chart excludes a number of additional items, including organic growth and pricing gains and a pipeline of new business opportunities that we are pursuing at the Wheeling as well. Next on to Long Ridge. Long Ridge generated $35.7 million of EBITDA in Q3 versus $23 million in Q2. Power plant capacity factor was again at the top of the industry at 96%. We did take a brief scheduled maintenance outage here in the month of October. So our capacity factor for Q4 will reflect that, but we expect West Virginia gas production revenues to more than offset the outage. With West Virginia now online, we're producing over 100,000 MMBtu per day versus the 70,000 MMBtu per day required at the plant. So we expect to see higher revenues from excess gas in Q4 and higher than we experienced in Q3, of course. And we continue to push forward on a number of initiatives to drive growth at Long Ridge. The 20 million -- sorry, the 20-megawatt uprate in our power generation continues to advance. While precise timing of receiving approval and implementing the uprate is not a prescribed event, we are highly confident in the outcome. Adding 20 megawatts of generating capacity at today's power price adds $5 million to $10 million of annual EBITDA to the P&L. And we continue to see more inbound interest from behind-the-meter projects. Potential structures we're considering include partnering with others to develop new data center facilities on our land or just a direct lease of the land that we own to generate a valuable fixed income stream or potentially providing backup power for a standby fee together with the land lease. Either way, the market continues to be active, and we think this bodes well for Long Ridge's value proposition in the months ahead. Now moving on to Slide 11. With Long Ridge now running at its $160 million annual EBITDA target and continued strong momentum on behind-the-meter opportunities, we plan to explore strategic alternatives for the business. Long Ridge is an incredibly high-quality asset. The plant ranks at or near the top of the list nationally in efficiency, reliability and profitability on a per megawatt basis. With the macro environment as strong as ever in the current feeding frenzy for low-cost power generation, we have high expectations for the potential sale of the asset. On to Jefferson. Jefferson generated $21.1 million of revenue and $11 million of adjusted EBITDA in Q3 versus $21.6 million of revenue and $11.1 million of EBITDA in Q2. Volumes at the terminal were slightly lower, driven by softer crude oil imports, but were offset largely through higher average rates per barrel. As discussed previously, we have 2 contracts, representing a total of $20 million of incremental annual EBITDA commencing in the coming months. In addition, we're in late-stage negotiations for additional contracts with multiple parties to handle conventional crude and refined products as well as renewable fuels. And some of these negotiations involve business that would commence in the coming months with little to no incremental investment or CapEx. And finally, I'll close out with Repauno. Phase 2 construction is proceeding as planned and toward our goal of completion by the end of 2026. We have 2 customers signed up under long-term contracts and an additional customer with whom we executed a letter of intent and expect to finalize the long-term contract by the end of this year. In the aggregate, these 3 pieces of business represent minimum volumes of 71,000 barrels per day and approximately $80 million of annual EBITDA for Phase 2. The 2 contracts are each for 5-year terms commencing upon completion of Phase 2 construction, while the third letter of intent is for 5 years with a 2-year extension at the option of our customer. And we're excited to have announced earlier this month that Repauno received the permit for the construction of our Phase 3 underground handling system. While it has been a long time coming, I want to reiterate how important a milestone this can be for Repauno. The cavern project, of course, can convey attractive economics and cash flows in the future. But in our view, receiving the permits also creates value in the near term as our market can now appreciate the much larger potential for our business and our strategic position in the growing market for liquid exports. In conclusion, we're happy with our team's progress during the quarter, and we look forward to reporting to you all in the near term with updates on each of our key priorities in the months ahead. I will now turn the call back to Alan. Alan Andreini: Thank you, Ken. Michelle, you may now open the call to Q&A. Operator: [Operator Instructions] Our first question comes from the line of Giuliano Bologna with Compass Point. Giuliano Anderes-Bologna: Congrats on a very impressive quarter and this quarter. As a first question, it's pretty clear that FTAI is evolving into -- evolving from being a development company to being much more of an operating company. And with that transition, are you expecting any material increases in your SG&A and your cost structure? Kenneth Nicholson: Fundamentally, no. Our G&A really is more of a fixed expense. And as the company grows, revenues, EBITDA grow, G&A shouldn't be a variable item linked to that type of growth. It should stay relatively flat. I mean I will say, on a quarterly basis, if you just look back, Q4 has always come in slightly higher as we have some end-of-year adjustments in the G&A line and what have you. But that's just a quarterly thing. Across the year, the aggregate expense is something we expect to stay relatively consistent, Giuliano. Giuliano Anderes-Bologna: That's helpful. And now that you've completed the acquisition, can you give us some examples of the synergies that you'll really get between Wheeling and Transtar having those 2 businesses together? Kenneth Nicholson: Yes, absolutely. There's just a tremendous amount that we are identifying and eager to act upon. Obviously, we're not in a position to act on much of this until we're out of the voting trust. But immediately, thereafter, we're getting it going on a long list of opportunities. I mean we talked about the $20 million of cost savings and efficiencies. That's a long list of discrete items, pretty, frankly, straightforward stuff. We have high confidence in those items, combined purchasing power, elimination of redundant expenses, et cetera, et cetera. I think we feel very confident around that $20 million target. Above and beyond that, there is a much longer list of potential combination, I would just say, enhancements, things like network optimization. I mean, an example would be where today, Transtar may take volumes out of a U.S. Steel facility and quickly hand those volumes at an interchange off to another freight rail provider for shipment of that product out to, let's just say, the West Coast. Well, tomorrow, when we jointly operate with the Wheeling, we will keep those volumes on the Wheeling system potentially for a longer period of time. And that just means more revenue for us. And then we'll still hand it off to the same railroad or maybe a different railroad at the end. But when you think about the math of that, that's good for the customer. And obviously, that's good for our business. Other dynamics are existing customers who now can benefit from the expanded reach of the connected rail systems. Customers today who may not have access into the Pittsburgh market or into various markets in Ohio. If you're a customer who originates on Transtar and want access to the Ohio market in a more simple and direct way or vice versa, customer in Ohio who wants access to the Pittsburgh market, we now can provide that access holistically. So that's a new opportunity for the customer who may otherwise be using another railroad to access the markets we now serve on a combined basis. There's a long list of those sorts of things, and we're eager to set out and make those things happen. None of that is included in our outlook or the $220 million target for the railroad. So I do think there's some, hopefully, upside in those targets we've laid out. Giuliano Anderes-Bologna: That's very helpful. And maybe a quick follow-up on a very similar topic. Now you have a sale platform with Wheeling and Transtar together. If you do more acquisitions going forward, what kind of synergies do you think you can realize by having a dorsal platform and continue to add tuck-in acquisitions even if the acquisitions are not physically next to the current system? Kenneth Nicholson: Yes. Yes. I mean I think bigger is better. And this is something we've done with our historical rail investments and each incremental investment is that much more accretive. So we're excited about it, and we're excited to keep up the effort to go execute on more M&A in the rail space. The types of synergies would be roughly the same. Obviously, if they're not a connecting railroad that we would be investing in, some of the revenue enhancements wouldn't be there, but the same types of cost eliminations would be there. And so -- and I'm excited about it. I think we've now got a bigger, better platform, and we're even better positioned to go out and buy more railroads. Operator: Our next question will come from the line of Brian Mckenna with Citizens. Brian Mckenna: It's great to see all the momentum in the Rail segment, specifically with Wheeling. I appreciate all the detail on the quarterly trends and then the near-term and the longer-term outlook. But do you have an updated time line around STB approval? And then is it still a reasonable expectation that gets done by year-end? Or has that maybe gotten pushed a little bit just with the government shutdown? Kenneth Nicholson: No. My guess is that is still a reasonable expectation. I mean what I can say is look, yes, the federal government shutdown does affect the Surface Transportation Board. So prior to the shutdown, the STB had communicated a target for end of November for reaching a decision. I have a decent sense that at the STB, this is a priority for them. I'm not aware of any detractors regarding this combination. And so our assumption is when the government reopens, this will be -- continue to be a high item on their list of priorities. Yes, I think it's hopefully sooner versus later. It's anyone's guess as to when the government reopens, but hopefully, shortly thereafter, we should get the green light. Brian Mckenna: Okay. That's helpful. And then just a follow-up on the Rail segment. So how much cash did the segment generate in the quarter? And then is there a way to think about kind of the full quarter run rate of cash generation within the Rail segment? And then again, can you just remind us what is the top priority? I think I know the answer to it, but what's the top priority for uses of this excess cash? Kenneth Nicholson: Yes. The EBITDA on a combined basis, assuming the full -- the way to think about it is just the actual third quarter before anything, before $20 million of efficiencies, before all these revenue opportunities and what have you, EBITDA was about $40 million. CapEx at Transtar was near 0. CapEx at the Wheeling was, I want to say, $6 million or $7 million. It's a little higher in Q3 for them with a number of big projects that they took care of during the warmer weather will not be that high in the fourth quarter. So it's not necessarily a great indication of CapEx to come. But call that cash flow, let's just say, on a normalized basis of about $35 million, rounding up $32 million to $35 million. All of that cash will be available to shoot up to our parent, and it will be used initially for debt service. We expect that cash flow to grow materially, $20 million a year of cost savings, revenue enhancements, what have you. And so -- but -- so we do expect there to be excess cash available at the parent level. What will we use the excess cash for after debt service, that will depend in part upon the investment opportunities we see at the time. Look, deleveraging, I think we view would be a good thing for us and the debt we're putting in place will certainly be one we could deleverage with. Obviously, we talked about Long Ridge as well and with that transaction, should it occur, there'll be meaningful deleveraging as well. So I think that excess cash right here, absent a highly accretive investment opportunity, we would probably use to deleverage over time. Brian Mckenna: Yes. Okay. That's great. And then just one final question for me real quick. Just in terms of the bridge refi, what's the base case expectation in terms of getting that done? I'm assuming you maybe want to get that done by year-end. And so that's the first part of the question. And then just in terms of the specifics, like does an asset sale need to take place in order for that to get done? And then how are you thinking about the duration and cost of this debt capital? Kenneth Nicholson: Yes. So yes, definitely want to get done by year-end. Don't need any monetization of another asset in order to get it done. We're ready to go. I think we've got a great structure that is a great fit for the company. I'm not going to talk about duration. It will be at least 5 years or pricing, if that's okay. I just -- we're going to commence the marketing process here shortly. So I'll just -- I'm going to leave that to the side for now and maybe we can comment on that once we start the marketing. But look, it's going to be a bond, not terribly different than the bond we previously had outstanding. The previous bond was a 5-year term, no call to I think you should expect something generally similar to that. I like a shorter call protection period because with the ramp-up in cash flow, particularly the cash that will be coming from Jefferson and Repauno starting throughout the next 12 months, we're going to want to use cash to deleverage and having a shorter window of expensive premiums and call protection, I think, will be advantageous for the company. But outside of that, it will be a typical senior notes offering. Operator: Our next question comes from the line of Greg Lewis with BTIG. Gregory Lewis: I would love for you to talk a little bit about Repauno. We saw the news about getting the permit for Phase 3. Kind of curious what next steps are, maybe roughly how much CapEx that might be involved? And then probably more importantly, when we think that could be ready and start generating some revenue? Kenneth Nicholson: Greg, thanks for the question. Yes, it was a marathon getting here, needless to say, obtaining the Phase 3 permit was a lengthy occurrence, but we're thrilled to be where we are and now is when the sprint portion of the development begins. We are -- look, I think it's a very big deal for Repauno. This is really what it's been about for quite some time. It's a tremendous expansion of the asset. Phase 3 represents effectively a doubling of what Phase 2 is. Phase 2 is 1 aboveground storage tank at just over 600,000 barrels. Phase 3 as permitted is 2 underground caverns each at 640,000 barrels. So it is a big deal, a game changer for the economics of Repauno. We have a great macro with continued demand for export and gateways out of the East Coast. We are effectively sold out on Phase 2. And so we're eager to get going on Phase 3. What we need to do is finalize some of the construction contracting. Our estimates today, estimates are that building 1 cavern, 1 cavern would take about $200 million. Whether there would be additional handling systems connected to that cavern or not will depend upon the ultimate throughput and what have you, generating about $70 million to $80 million of annual EBITDA. So the economics are pretty compelling. I mean it's like a 3-year payback. Timing will depend upon the competitive bidding with our contractors. It's realistically probably between 2 and 3 years to build a cavern. If we build 2 at the same time, it would be the same time frame. It's not like a sequential event. But look, the economics are wildly compelling. The macro is super. And so we're eager to get going on commercial contracting, final cost estimating and getting construction contracts ready and then we can hit the financing markets and get the thing going. Gregory Lewis: Okay. Great. Appreciate the color. And then my other question is around Long Ridge. You highlighted the potential strategic alternatives. I wanted maybe a little bit more detailed question. What is the -- how does it -- how should we think about Long Ridge as a power generation facility versus the natural gas wells, which are outside of that? And I don't know who the buyer is, but I could see a situation where a lot of buyers might not be interested in having natural gas wells. Just kind of curious how you're thinking about that? And could we see a scenario where maybe we maintain those natural gas wells for the production? Just kind of curious how we should be thinking about how this plays out? Kenneth Nicholson: Yes. I think there is a broad spectrum of potentially interested parties from all types of backgrounds, and that's a good thing. You're right about the integrated gas, and that is, in our opinion, a huge differentiator and driver of value. So I would expect that the ultimate transaction involve a sale of the entire business, the entire asset, the entire business, the gas, the power plant, the land. It is, of course, possible, you're right that the buyer prefer to just take the plant and the land, we keep the gas that anything is possible, we could do anything. Our focus, of course, is on maximizing value. I will tell you, right now, with the feedback and the inbounds that we've been getting, we haven't had anyone indicate they'd be interested in just one asset. The interest has been in the whole site. It's why it is such a wildly profitable asset, and those profits are effectively locked in with power swap sales. And I think maintaining that balance and that integrated aspect of the asset is actually an important thing and the buyer universe appreciates that. So I think it's possible. It could end up being cut in 2, if you will, with 1/2 sold and 1/2 kept. My view right now is that's less likely. Operator: And I would now like to hand the conference back over to Alan Andreini for closing remarks. Alan Andreini: Thank you, Michelle, and thank you all for participating on today's call. We look forward to updating you after Q4. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Operator: Good morning. My name is Christa, and I will be your operator today. [Operator Instructions] At this time, I would like to turn the call over to Stacy Alderson, CN's Assistant Vice President of Investor Relations. Ladies and gentlemen, Ms. Alderson. Stacy Alderson: Thank you, Christa. Welcome, everyone. Thank you for joining us for CN's third quarter financial and operating results conference call. Joining us on the call today are Tracy Robinson, our President and CEO; Pat Whitehead, our Chief Operations Officer; Janet Drysdale, our Chief Commercial Officer; and Ghislain Houle, our Chief Financial Officer. As a note, we have forward-looking statements and non-GAAP definitions for your review on Page 2 of our presentation. These forward-looking statements include estimates, goals and predictions about the future based on our current information and educated assumptions. These come with risks and uncertainties. And with that, there is always a possibility that outcomes may differ from expectations. That being said, forward-looking statements aren't guarantees and factors like economic conditions, competition, fuel prices and regulatory changes could affect actual results. It's now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson. Tracy Robinson: Thanks, Stacy, and hello, everyone. Now before we turn to results, I want to take some time here at the outset to talk openly with you about what we see and to give you some facts and context on how we're responding. And when I joined CN, we launched a new operating plan. We moved to a scheduled operating model that would drive velocity, efficiency and strong customer service. And this was to be the foundation for driving value, both by capitalizing on volumes inherent in an expanding economy and those created by some unique opportunities that leveraged our network. We've executed well in many parts of our plan. I'm proud of the work that we've done and the results that we're delivering. And what we didn't do well was predict the volume environment we've encountered since then. And yes, we can rightly point to the challenges of a markedly worse macro and the impact of unanticipated shocks from tariffs and labor, which have impacted CN more than other rails. But the reality is the lower volumes have prevented us from delivering on the full earnings growth we forecasted. Now we can do better on guidance, and we will. We're not alone in facing a challenging growth environment, but it's important to remember that even with the unique shocks we faced, we've delivered. Over the last 3 years, revenue and EPS growth CAGR is at or near the high end of our North American peers, and we have consistently delivered top or near top margins. The macro headwinds have been an industry issue, but our operating ratio has been more resilient than most over this period. That said, I know we can do more. Over the past 12 weeks, we've been intensely focused on adjusting our approach to address the ongoing macro challenges while continuing to position CN to deliver for customers and shareholders regardless of the economic backdrop. Now we've initiated several actions that I want to point you to today. First, we're announcing that we're setting our capital spend in 2026 to $2.8 billion, down nearly $600 million from this year's level. Now this will put our spend at mid-teens from a percentage of revenue standpoint, and we expect it to remain at or about this level going forward. The vast majority of the change in spend is driven by the completion of capacity expansion projects and our locomotive and railcar fleet upgrades. And this is no regret capital needed to address capacity bottlenecks in the West and to get our fleet to the right place. The work we've done here is important, and these investments will pay dividends. That said, both the network and the fleets are now properly sized for this volume environment. Now we're also driving efficiencies in our capital execution, and we're getting real traction. There's more to realize here, and we're going to continue to push hard. And second, the team is doubling down on productivity efforts. Now adjusting cost structure is critical, especially in a soft macro environment, and we're pursuing all opportunities across our full workforce and asset base, including taking $75 million out of management labor costs as part of our plan to continue to drive improvement in our operating efficiency. And we know there's more to get here, and we're after it. Third, we're increasing intensity around enhancing shareholder value. Now free cash flow will continue to accelerate in 2026, as capital spend is reset and costs remain in check. This incremental cash will be returned to shareholders. We accelerated our share buyback in Q3. It's the right thing to do given the attractiveness of our share price. And we're committed to returning excess capital to shareholders while balancing a continued focus on maintaining a strong balance sheet to preserve dry powder in what is a very uncertain macro environment and in an industry with an eye to M&A. And finally, on guidance, you can expect us to provide full year 2026 guidance when we report Q4 results. Now I know how we've handled guidance over the past 2 years. It's been a pain point for many. We've heard this, and we're listening to shareholders about what items truly matter to them, and we'll have more on this in January. So with that said, I want to give a few thoughts on the year ahead. As we look to 2026, we see another year of limited volume growth with a weak outlook for North American industrial production and housing starts and some mix headwinds given the continued impact of tariffs on forest products in particular. Now we're not accepting the macro reality as our fate. We're just going to have to work harder to achieve our goals. We've announced Janet as our Chief Commercial Officer. Congratulations, Janet. She's been working with the commercial team for 3 months now, and I'm impressed with the change in level of urgency and focus. Now Janet has launched an intense boots on the ground sales program that is chasing every opportunity, no matter the size. This effort has brought in $35 million in Q3 and is closing in on $100 million in Q4, and it's helping offset weakness in other areas. We know where our capacity is, and we'll be aggressive in selling into it. She'll give you an update on the markets in a few minutes. We are open-eyed about the environment in which we are operating and about our performance. We have a strong foundation, and we're already in flight on the efforts needed to deliver an improved set of returns. We're finding ways to deliver no matter the backdrop. Now with that, let's turn to Q3 results, which were strong and reflect the early impact of the changes we've made throughout the year. During the quarter, we achieved 6% growth in EPS and an operating ratio improvement of 170 basis points to 61.4%. Our network continues to perform well. We're seeing the best levels of many of our operating metrics in the last decade. Our operating performance has been strong and consistent, and it continues to deliver for our customers. Pat will take you through the details shortly. And we delivered volume growth in the quarter of about 1% in RTMs and 5% in carloads. Overall, volumes were a little softer than expected, especially in merchandise segments due to the macro and tariff overhang. And we ran lean in the quarter as well. We've managed crews and assets tightly through this year, and we did the same in Q3. Coupled with some targeted management adjustments, this positions us well for the future as the organization continues to flex on managing variable costs. Ghislain will dive deeper into the savings we are delivering and the impact of the reductions in capital. We're seeing the benefit of this in free cash flow, which is up 14% year-to-date, a sequential acceleration that will continue into 2026. And last point, I want to address something I know is on many of your minds, M&A activity. The industry does not need a merger to provide better service to the North American economy. What we need is more cooperation and less regulation. Now no level of mitigation can offset the reduction of options and the increased cost of service to customers. Now that said, we intend to be an active and engaged participant in the merger review with a view of protecting our franchise and more broadly, competition. And if the regulator decides to approve the merger, we will, as we always do, entertain all options to create value for our shareholders. So to sum it up, we've taken significant steps to move CN into a position that is tighter and front-footed to deliver for our shareholders. We've taken decisive action and we'll continue to do so. Our commitment to delivering value for customers and shareholders is steadfast through all economic cycles. Now our actions and increased focus on commercial intensity, operational agility, streamlining costs and realigning capital to reflect current realities begun to deliver. So with that, I'll turn it to Pat. And as I do, let me say something on the change in approach to COO. The dual COO structure was important for us. It was a forcing mechanism to balance our day-to-day delivery with some critical work we needed to get done on the forward plan and capital efficiency. We're seeing the benefits. It's time to bring this back together. I'm excited for Pat to elevate the impact that he's been having over the past 2 years with his focus on network excellence, capital efficiency and disciplined execution. Congrats to you, Pat, and over to you. Patrick Whitehead: Thanks, Tracy. I'm excited to step into this role after 2 years as our Chief Network Operating Officer. During that time, our collective efforts have been focused on operating a disciplined scheduled railroad. The momentum we've built together is powerful. Now as we look to Q4 and 2026, I'm eager to channel that energy towards our new priorities, beginning in our yards and intermodal terminals to continue driving strong, sustainable performance with an emphasis on safety as always. A great example of this is our cross-functional terminal reviews where we go to key locations on a regular cadence and optimize staffing and resources to fit volume. We believe we can further improve our cost structure, making necessary tweaks to our operating plan to optimize total car handlings without sacrificing exceptional service to our customers at the first and last mile. We're aiming for constant improvement and will never be satisfied with the status quo. We're confident this effort will continue to yield positive results. Now let's turn to Slide 7. On safety, our year-to-date reportable injury and accident ratios are up 4% and 14%, respectively. We responded swiftly with targeted campaigns focusing on the most frequent occurrences and saw improvement through September and into October. Heading into winter, our leaders are out in the field, visible, engaged and helping teams prepare. Now on to operational performance. The team delivered another strong quarter in Q3, and we're carrying that momentum through Q4. Car velocity for the quarter was 211 miles per day, a great indicator of network fluidity. Our yards were in good shape and through dwell improved 1%. Local service commitment performance remained robust at 95%, underscoring the consistency and service reliability for our merchandise customers. It's clear the network is delivering and it's doing so with a sharper focus on costs. Turning to Slide 8. On the resourcing side, training engine labor productivity improved 20% year-over-year, the result of disciplined crew management and acceleration in furloughs through the quarter where volume has softened. We continue to hire in our hardest to staff locations and are pacing onboarding in step with what the commercial team is seeing for demand. Our equipment story follows the same playbook. We've added back locomotives and cars to support grain, but stayed measured, keeping over 6,000 system cars and roughly 160 high-horsepower locomotives or about 10% of our fleet parked and ready. On the motive power side, the productivity gains are clear. Locomotive dwell and failures are both down 12% year-over-year, pushing locomotive availability to 93%, a full point improvement. We're also seeing gains in fuel efficiency, which improved 2% in the quarter. These are the results of steady fleet modernization and predictive maintenance. We have gone from the oldest fleet 8 years ago to middle of the pack. Again, we're running lean, not light. By investing in our people and equipment, we've cut contractor spend by approximately $120 million year-to-date and reduced overtime to its lowest level in a decade, while also improving our train operations with both fewer planned and unplanned delays across the network. The same cost discipline extends to our infrastructure. Despite inflation pressures, we've reduced our installed cost per tie by over $15. Annualized, this amounts to around $20 million in savings. On Slide 9 and staying with infrastructure, the capital projects I touched on in Q1 are advancing as planned. Our yard, siding and double track projects, namely on the Edson sub, are scheduled to come online in the fourth quarter. Reflecting on our progress since 2022, we've lifted West Coast throughput substantially. Capacity is up 25% between Edmonton and Jasper and about 20% to Vancouver and Prince Rupert. Our EJ&E investments have increased fluidity around Chicago and reduced the crew start to Western Canada, a direct cost and efficiency gain. The investments we've made are delivering. Locomotive availability is strong. The network has headroom and our teams are operating with precision. When budgeting, we collectively discuss the right level of investment by reexamining every project in place and every dollar being spent. Our $2.8 billion budget for 2026 reflects a continued commitment to efficient maintenance CapEx and a list of growth projects that continue to exceed our return requirements. These consider a downside pressure to volumes. With a strong foundation in place, we've delayed select projects to reflect a softer economy. We're focusing on maximizing the value of what we've built, protecting cash, preserving flexibility and positioning the company to accelerate when the market turns. When demand is there, we'll be ready to move quickly. With that, I'll pass it on to Janet. Janet Drysdale: Thank you, Pat. Good afternoon, everyone. I want to start by thanking our customers for their support and collaboration. Turning now to Slide 11. Revenues in the quarter grew 1% on 1% higher RTM and 5% higher carloads, reflecting growth in Intermodal. Volumes were softer coming into the second quarter than expected, mainly due to transitory issues in refined petroleum products and in frac sand. The Canadian grain harvest was also slower to come off the fields this year, especially in CN's draw territory. Having said that, weather conditions were just right in the final weeks of growing, and we are now expecting a record crop. Intermodal was up on a year-over-year basis given last year's labor disruption, but not as strong as we expected given ongoing tariff challenges. Throughout all of it, our service continues to perform exceptionally well, and rails are hustling boots on the ground and getting every carload we can, including some recent market share wins in chemicals and plastics. Same-store pricing continues to come in ahead of our rail cost inflation. I'll provide a few key highlights on the quarter before moving to the outlook. Petroleum and chemical volumes rose across most major segments. Plastics and chemical RTMs were up 8% on market share gains. NGLs were up 4%, driven by increased export volumes via Prince Rupert and crude was up 6%. Within Metals & Minerals, iron ore shipments were impacted by a mine idling in late Q1. Lower frac sand volumes were due to reduced drilling in BC, and we saw less cross-border shipments of aluminum steel, although we were able to partially mitigate the impact with more intra-Canada and intra-U.S. moves. We also had higher volumes of scrap metal and pipe. Forest products, especially lumber, saw a year-over-year decline, mainly due to weak demand and the impact of duties, which more than doubled on August 1. In terms of Intermodal, domestic units were up 18% and international units were up 14%. Volumes across all Canadian ports were up, benefiting from easier comps given last year's rail labor issues. Notably, Prince Rupert volumes were up a full 30%, driven by the new Gemini service. In domestic, our strong service continues to help us win market share. Turning now to the outlook for the remainder of the year on Slide 12 and starting with Intermodal. For domestic, transporter shipments remain soft, but we are focused on market share gains in Canada by leveraging our strong service. For international, we expect to see year-over-year growth given last year's port strikes and given the strong Gemini volumes through Prince Rupert, which should be roughly consistent with Q3. Canadian grain is expected to run hard to year-end. In Petroleum & Chemicals, the last of the refinery outages are now behind us, and we are seeing positive momentum going into Q4 across multiple segments. In Metals & Minerals, we will continue to help our steel and aluminum customers find alternative markets. Frac sand demand is expected to be tempered for the balance of this year, but we continue to have very high conviction in the growth potential of the Montney Shale region for frac sand and natural gas liquids. The auto outlook for Q4 is stable. In Forest products, we expect a step down in the Q3 run rate for lumber with the additional 10% tariff that came into effect on October 14. So to close out, while the macro environment remains challenged, there is still plenty to be excited about. Our service is strong. The team is selling into our capacity, and we're chasing wins by being strategic and pragmatic. Ghislain, over to you. Ghislain Houle: [Foreign Language] Turning to Slide 14 for the quarter. We reported an EPS of $1.83, up 6% versus last year's EPS of $1.72. Revenues were up 1% year-over-year on 1% higher RTMs. The operating team continued to perform very well, delivering best-in-class service for our customers and a year-on-year operating ratio improvement of 170 basis points, coming in at 61.4% versus last year's operating ratio of 63.1%. Moving to Slide 15, let me break down the earnings drivers for the quarter. Volumes in the quarter were a little softer than expected, especially in merchandise segment due to macro and tariff overhang, but we were still able to grow volume. We also had a fuel price headwind of $0.03 of EPS or 30 basis points unfavorable to the OR. On the plus side, we're very pleased with our solid cost takeout, rightsizing our resources to align with volumes. Q3 was an important inflection point where we began to see the early impact of the increased cost discipline brought to bear throughout the organization as well as the steps taken to reduce our capital spend to reflect the continued weakness in volumes. Throughout the organization, our teams have rallied behind the call for increased productivity. We have identified meaningful cost savings across all levels and across all departments and are bringing a rigorous approach to managing our spend. On Slide 16, let me provide you with more details of some of the operating expense categories in the quarter, which I'll speak to on an exchange-adjusted basis. Labor was 2% higher versus last year, mostly due to higher year-over-year incentive compensation and wage inflation, partially offset by 5% lower headcount. As Tracy outlined, our workforce reduction initiative will be completed in Q4, some of which is CapEx and is a deliberate step to position the organization for long-term agility and sustained value creation. Purchased services and material was down 1% on tight cost management with lower repair and maintenance costs led by the engineering team. Fuel expense decreased 20% versus the same period last year due to the elimination of the Canadian federal carbon tax, a 2% decrease in price per gallon and a 2% favorable fuel efficiency. Other costs were up 7% versus last year, mostly driven by higher incident costs. Productivity is a mindset, a habit, not one-off, and we are bringing this mindset to bear across all levels of the organization. In addition to increased cost savings in the quarter, we are also still expecting to reduce our capital spend by $150 million year-over-year. The result of these efforts is that we generated over $2.3 billion of free cash flow through the end of September, up 14% versus the same period last year, and you should expect a continued sequential acceleration through 2026. Leverage at the end of Q3 was 2.54x, consistent with the 2.5x adjusted debt to adjusted EBITDA target. We cranked up our share repurchases in Q3, taking close to 8 million shares out of circulation for just over $1 billion. We will continue to execute opportunistically on our current share buyback program, which runs through February 3 of next year. Moving to Slide 17. Let me provide some visibility on the balance of 2025. We expect the uncertain macroeconomic environment we've experienced so far this year to persist through at least the next several quarters. Our year-to-date volumes in terms of RTMs are essentially flat versus last year, and our full year volume growth assumption continues to be in the low single-digit range. We continue to assume WTI to be in the range of USD 60 to USD 70 per barrel and assume foreign exchange for the balance of the year to be between $0.70 and $0.75. Our effective tax rate continues to be in the range of 24% to 25%. We are, therefore, reaffirming our guidance of mid- to high single-digit EPS growth in 2025. We also continue to expect our 2025 CapEx envelope to end this year at around $3.35 billion. Turning the page for next year; while the environment remains dynamic, we're not expecting a big change in the macroeconomic environment. As Tracy discussed earlier, we are looking at an overall capital envelope of $2.8 billion in 2026. This will put our capital intensity in line with our U.S. peers and will contribute to solid free cash flow conversion. In conclusion, let me reiterate a few points. We are pleased with our Q3 results and are well positioned to deliver on our full year guidance. The network continues to operate very well with strong operating and service metrics. We continue to expect to have volume growth in the fourth quarter as we lap port labor disruptions from last year. We've accelerated cost initiatives to ensure the long-term competitiveness of this franchise. We are planning a 2026 capital envelope of $2.8 billion, reflecting our strong capacity position and continued weak volume growth in the near term. Let me pass it back to Tracy. Tracy Robinson: Thanks, Ghislain. Christa, we'll go to questions. Operator: [Operator Instructions] The first question comes from the line of Walter Spracklin with RBC Capital Markets. Walter Spracklin: Congrats on the good results here and the proactive measures you're taking. Zeroing in on one of those, the CapEx cut that you're announcing here this morning. Obviously, whenever we see the immediate concern is that it may jeopardize some of your capacity or your ability to flex up in a rebound. I know you spoke to some of that, but love to get a little bit more color on what kind of projects are going to be cut. I know at Investor Day, you zeroed on some very attractive CN specific growth opportunities. And so when we see a recovery, I just want to make sure we're not jeopardizing your ability to capitalize on those when that recovery comes. Appreciate that. Tracy Robinson: Walter, thanks for the question. Listen, when I joined CN 3.5 years ago, we had some issues that we needed to deal with. We had a lot of congestion in the western part of our network where, as you know, we have the most significant growth opportunities. We had the oldest locomotive fleet in the industry. So these needed to be addressed, and we have. The work that Pat's been doing over the last 3 years on the Edson sub, on the Vancouver corridor, on Northeast BC, we've got -- we've had more than 20% kind of workload growth in the Vancouver corridor since the last peak. He's built enough capacity to accommodate that and more. He's focused on the Edson sub. Right now, we have, what, Pat, between more than 60% of the Edson sub double tracked right now. And so this has accommodated not only the volume that we have, it's accommodated -- it's created 7 more trains a day of volume capability. So we've got lots of room to grow there. It's improved our speed across that important kind of bottleneck on our network, and it has significantly increased our resilience and our reliability up there. Our locomotive fleet is now, as I said, middle of the pack in the industry. And really importantly, we are much more efficient now in the way that we deploy and execute on our capital program. We're getting -- you heard Pat talk a little bit about some of the proof points on that. We are more effective in the way that we do that. So for this environment right now, we are exactly where we need to be. We're well positioned for this volume, and we've got room to grow in the western part of our network. So it's important now that we pull this capital back in and it's set at the proper place for next year. Operator: Your next question comes from the line of Fadi Chamoun with BMO Capital Markets. Fadi Chamoun: Look, I think, like you indicated, Tracy, you've been railroading quite well in recent years. You're in the middle to the top of the pack there. And the bigger issues have been really volume and a lot of challenges, obviously, outside of your control. So really, my question is to Janet, like do you see an opportunity here to reenergize how CN goes to market in terms of the commercial strategy? And if you can talk maybe about any unique opportunities that you see that you want to tackle as you go into 2026? And any high-level maybe thoughts about how we should think about the volume in '26? Is there an opportunity to grow volume next year if the economy doesn't really help you or economy is flat from where we are today? And by the way, congrats on the new role, Janet. Tracy Robinson: Before Janet gets into that, Fadi, let me just say this. As we indicated, overall, given this macro kind of economic environment and what we see on tariffs, we don't see overall a big lift. It's going to be more of the same for next year. But embedded in that, we've got a very diversified book of business. So there's areas of considerable strength that Janet is driving in the energy sector. We've got a very strong ag sector. We've got strength in a lot of the industrial products. It's offset by some pretty kind of tariff and economic headwinds in forest products, in particular, in the mix that we've -- the mix impact of that. But Janet, I will say it again, I'm impressed with her boots on the ground approach. She's making things happen out there. Janet? Janet Drysdale: Yes. Thanks, Tracy, and thanks, Fadi. What I would say is that our go-to-market strategy doesn't change. We're going to continue to provide the service that helps our customers to win in their markets. We're going to price to the value of the service that we provide. Now where I do see opportunity for change is really our level of intensity and urgency. We are driving decision-making down, and we're out there the whole team with boots on the ground, knocking on doors, competing hard for every opportunity and listening to and collaborating with our customers. So you all know the macro challenges. We're going to have to work harder, and we're going to have to work faster and smarter, and that's exactly what we're doing. And I will say it's working. We've had recent share gains in domestic intermodal. We've captured recent spot moves of soybean meal, plastics and coal. And we're also innovating in the products that we're moving. We actually just moved our first unit train of scrap iron. It was a test move. I'm very pleased to report that our operating team hit it out of the park. In support of the Toronto Blue Jays, I am going to try and use as many baseball analogies in my answers today. So I just want to reiterate that the operating team hit it out of the park. They beat our own aggressive service plan, and we're going to keep working with our customers to innovate and win. So stay tuned. There's more to come. We are all in the same environment, but we're going to work harder, smarter, faster, and we're going to get more of what's out there for our growth. Operator: Your next question comes from the line of Ken Hoexter with Bank of America. Ken Hoexter: Good luck tonight in the game. So Tracy, a lot of talk about negative impact to the Canadian rails from M&A since you opened up the subject. There's a desire to move more U.S. origin. Can you talk about the risk you see there? And is there any move instead of waiting for transcon? Any thoughts of being involved or proactive before options disappear? And I guess just to hit on that, the lowest CapEx to revenue since 2002, is that limiting your growth going forward in some fashion? Tracy Robinson: Thanks for the question. There's a lot in there. Let me start by taking the last piece first because we've spoken about it in the first question. We've looked -- we look very carefully at our network. And the work that Pat has done on the Western corridor, in particular, we've done a little bit around the EJ&E that's going to allow us to take a crew start out and give us a great return on that. But the big focus from a capacity perspective has been in the western part of the network. We have the capacity to grow there, both over the Edson sub into Rupert and into Vancouver. He's got 2 projects left that will finish at the end of 2027, one siding outside Vancouver and the Zanardi Bridge in Rupert, and we will watch this as we go. So I'm not concerned at all about limitations in our capability to grow. We are ahead of that from the network perspective. As I think about our network, we've got some real advantages. We're sitting up here the very strong origination network on top of an incredible natural resource base. And yes, if you think about some of what's going on in the tariff world these days, we're feeling the impact of that in certain areas like forest products, a little bit in steel and energy. But we are also -- as we see trade between Canada and the U.S. decline year-over-year, we've seen trade between Canada and the U.K. and Europe and Asia increase. And as we sit here with the network that has the most extensive port to access in Canada. And on top of these natural resources, we think about our network and driving deep into the U.S. markets. If we think about our access globally to the markets overseas in Asia and other, I like our growth prospects as we -- now we now have the capacity, whether it's access to Rupert, Vancouver or the other ports, we've got the capacity to deliver it. If we think about M&A, this is -- as you know, and we've said and you've heard us say it before, we don't think this is necessary in the industry, and we think that there's more risk than there is benefit to the industry. It doesn't mean it's not going to happen. If it happens, we will be very aggressive in making sure that we not only protect our network, but that we position it so that we can drive some of what we're sitting on up here deeper into the markets in the United States and South as those opportunities present themselves. So we're pretty optimistic as we look out over the longer term that we're positioned with flexibility to respond to whatever happens from an M&A perspective, whatever happens from a global trade flow perspective. We're in the right spot. Operator: Your next question comes from the line of Brian Ossenbeck with JPMorgan. Brian Ossenbeck: Just to follow up on M&A real quick, Tracy. There's a website now that both you and your peers have helping shippers voice their concerns if they would like to. So is that created because there have been some concerns that have been voiced. Maybe you can give a little bit more background on that. And then maybe for Ghislain and Janet, in terms of forecasting better, you're going to give more details in a couple of months, but we've heard that a few times now. I mean, it's obviously difficult this year is an example of that. But what are some of the building blocks to help be able to do that better? Is it communications? Is it technology? Maybe you can give some thoughts on how to deal with this constant volatility. Tracy Robinson: I'll start, Brian. Listen, everybody in this industry wants to grow and grow sustainably. And that, as we all know, means gaining market share against the trucking industry. And if we're going to do that as an industry and as a company, I think that the idea -- what we need to figure out is how we offer more competitive options, not less. And so if we want more competitive options, the better path to that is better collaboration, more service innovation. And we think the right way to do that is through these pro-competitive alliances that you see the industry putting together. We think that's the right path forward and we see it as a far lower risk path forward than the alternative of a big merger. Janet, do you want to talk about forecasting? Janet Drysdale: Yes, for sure. Thanks, Brian, for the question. So what I would say is forecasting in this kind of environment is very difficult, particularly point forecasting. So when we think about going forward, I think we're going to try and be more in a range. And we'll try and share more of that with you as well, Brian. What are the things that could bring us upside? What are the things that could bring us downside so that you can follow what's going on in the macro or with certain customers and understand whether those are good or bad for us. I think part of what we need to do, though, as well is get better at our agility in responding to changes in actual volumes. The other area where I'm very preoccupied is just the ease of doing business and making sure that we're out there as aggressive as possible, getting what we can. So I think it's a whole mix of things. The team is fully engaged in this, but I don't want the commercial team looking backwards, trying to explain why things didn't happen or did happen. I need them looking forward and being out there and selling. To your point, there were some really difficult things for us to call out there, whether that was the repeated port disruptions, whether it was the rail disruption, whether it was the size and scale of what's gone on in the tariffs. And frankly, just the unpredictability of the tariffs. It's on, it's off again, it's back on. So we're going to focus on being agile, being responsive and remaining really close with our customers and also giving you a better sense of the range of potential outcomes. Operator: Your next question comes from the line of Chris Wetherbee with Wells Fargo. Christian Wetherbee: I guess, Tracy, maybe if we could zoom out a little bit and think about what you think sort of the growth algorithm is for CN going forward. So CapEx coming down to mid-teens, similar to your U.S. peers, you generally sort of had a higher growth profile than the U.S. peers. I guess in an environment that maybe is a little rocky, I guess, 2 questions. Are you assuming that we just kind of stay in a slower growth volume environment for CN for the foreseeable future? And if that's the case, maybe what is the sort of EPS growth algorithm for the world that you see today? Just want to get a little bit of sense of how you're thinking about because clearly, you're making some, I think, more structural changes to how you're operating the business financially. Tracy Robinson: We have, as I said earlier, a very diversified book of business. So -- and probably a bigger merchandise portfolio than some of our peers. But if you think about the natural resource base that we're sitting on, whether it be metallurgical coal, our very significant ag portfolio, if you think about energy portfolio and potash and fertilizer, these are commodities that are less impacted by the macroeconomic and the comings and goings of the strength of the North American economy and consumer. These are largely commodities that find their way to markets, whether they be globally or North American. So we have a very strong position in those and a lot of growth in those. LNG Canada has announced recently that they're turning on Train 2. And the Phase 2 of LNG Canada is a priority for acceleration for the government of Canada. And so that drives our frac sand expansion that we've grown considerably. That drives our NGL expansion, which is increasingly exported through the Port of Prince Rupert. And if you think about the refined products and the growth that we've seen in that, so there's going to be tremendous areas of growth that is enabled by the network that we have, the positioning that we have in the north through the ag sector and our access to ports like Prince Rupert and Vancouver and even if you look into the East. And so that's going to be -- Janet's leaning into that. That is structural, that's partnership, that's strategic growth for us as we go forward. If you look at the components of our system that are more related to the macroeconomic environment, particularly in North America, whether it be forest products, it's impacted by housing starts, but also significantly by tariffs. We've seen that sector come down by about 60% since its peak a number of years ago. There's a structural adjustment in that, and we need to -- we've been doing a good job of backfilling that volume in the past. It's getting -- we'll see where that business goes as housing starts ultimately pick up in the United States and across North America. If you look at the auto franchise, it will be interesting to think about where that may go, but we've got a great U.S. franchise as well. So some of the merchandise commodities are more directly related to the macroeconomic, and we're going to have to watch that. So what we've been doing is being proactive around making sure that we've done the right things in advance for a slower macro environment. We've got the right network. We've talked about that. We've got the capacity that we need. We're increasingly efficient from a capital perspective. We've taken some early actions throughout the year. But in honesty, we've been working on productivity for 3 years, getting tighter and tighter on it. It's why our operating ratio has been so resilient despite what's been thrown at us, we've been the first or second operating ratio in the industry for the past 3 years, and we did it again this quarter. It's because we've been proactive on productivity. So that isn't finished. That's part of what we do and a muscle that's getting stronger and stronger, and we're going to continue on that. So that's going to allow us even when the volume growth overall isn't significant, it allows us to grow cash -- free cash flow. It allows us to kind of continue to position ourselves to increase returns. And we are highly leveraged as the macroeconomic comes back. So we're highly leveraged to volume increases. So as I look forward, I can tell you, we can't call when the economy will turn, and I can't call these trade deals, whether it's Canada, U.S. or whether it's U.S., China, whether it's Canada, China. Those are difficult things to call. What our job is to be ready for the environment that we find ourselves in, and I'm comfortable that we've done all that we need to do that, and we're leaning into it further as we go forward. So I like our position. I like where our network is. I like the long-term kind of strategic plays that we have, and you'll see us continue to push forward. Operator: Your next question comes from the line of Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: As it relates to the decision to streamline to a single COO structure, can you talk about what impact, if any, that has on sort of the make the plan, run the plan philosophy? And particularly for Pat, just how much time you spend boots on the ground now as part of your day-to-day? Tracy Robinson: Thanks, Cherilyn. So this -- as I said earlier, the COO structure, the dual structure has worked for us, and I'm really happy with the impact that it's had. It was a forcing mechanism. It gave Pat the opportunity and it forced him to kind of focus full time on the network, on capital efficiency, on making sure that we had the plan. We had Derek, who's a very capable operator focused on the day-to-day. We've got the momentum from that. We've -- but Pat spent most of his career in transportation, I think. He's been a Chief Mechanical Officer. Now we spent 2 years deep in engineering, and it's time to pull this back into one COO, and I'm pretty confident that he's going to lift his place to the next level. The strategy doesn't change at all. We are make the plan, run the plan, sell the plan business. And what changes is the level of productivity that he's going to drive in this, right, Pat? Patrick Whitehead: Absolutely. Let me start by saying, first of all, I'm extremely excited and honored to lead the operations team here at CN. I have the utmost confidence in this team of professional railroaders to safely deliver exceptional service that our customers demand. Look, for the past 2 years, Derek and I have worked hand-in-hand. We are in a good place from an operations standpoint. And I want to be clear and reiterate Tracy's comments. There is an urgency around this entire organization as it relates to safety, service, productivity, developing our people and cost. I've been in this industry for 33 years. Tracy outlined, I've spent most of that in transportation, boots on the ground. I started in the train and engine craft, as did my father. I spent a lot of time in mechanical and I've been overseeing engineering for 2 years. I know what I've seen over that time, and that's what works, a clear plan, disciplined execution of that plan and our leaders staying very close to their operation. The work we've done has paid off, and I'll just outline a few things. Our shops are more productive with fewer people per repair, and our locomotive availability is at an all-time high for this railroad. The material inventory levels in our shops is down 20% since 2023. In engineering, our operating cost per track mile has completely absorbed inflation and FX, and we have our lowest overtime levels in over a decade. Most importantly, our lost time days from injuries are down 23% from last year, a record low. Our goal, my goal is for everyone on this team to go home the same way they came to work every single day. As Tracy said, the strategy does not change. We're building on what's already working. The railroad is running very well and efficiency is improving across the entire organization. Our goal, my goal now is to take it from better to best-in-class consistency. As it relates to operations, the next thing that we're going to spend time on is tightening the dwell in our yards, removing non-value-added costs and really focusing on cars spending less time waiting and more time earning a return for us. So strategy is unchanged. We're just taking it to the next level. Thank you for the question. Operator: Your next question comes from the line of David Vernon with Bernstein. David Vernon: Pat, Janet, congratulations on your appointments. Tracy, I'd like to ask a big picture industry question, if I could. If you look at the structure of the railroad industry in Canada, you've got sort of the CNCP controlling about 95% of RTMs, something close to 90% of freight revenues. The broad question I have for you is, why is that industry structure good for Canada, but not good for the U.S.? I think that in a network business like a railroad or an airline, where you have greater connectivity, more local traffic, you produce more opportunities to grow, you produce more reliable service, you produce better service levels. And I think most investors would agree that comparing the U.S. rails against Canadian rails on a 15-year view, that's largely been true. I'd just like to understand kind of why you think that further consolidation is a bad idea in the U.S.? Tracy Robinson: Well, if you want to compare the Canadian kind of industry to the U.S. industry, we are structured a little bit differently. But what you get with that kind of transcon network is you get a very different regulatory environment. And if we're going to be successful if we're going forward as an industry, particularly if the focus is to be nimble enough to take trucks off the road, which is the next big growth area, then we need less regulation, more competition. We need to be able to be more nimble, more innovative in how we go to market. And so that's going to be critical. So going down the path of creating big transcon is going to inevitably attract a different regulatory structure. I don't think that, that's going to enable that sustainable growth that we all want. So we got to be eyes wide open about what we're walking into here. Operator: Your next question comes from the line of Scott Group with Wolfe Research. Scott Group: So Tracy, been a lot of management change. Are we comfortable? We're sort of through it all. And then I heard a lot -- you talk a lot about sort of the macro challenges and volume and mix. I didn't hear a lot about price. Maybe just talk about how this macro environment is impacting pricing. And ultimately, like when you add it all together, like are we confident we can get some margin improvement looking out to next year? Tracy Robinson: Scott, thanks for the question. Yes, I like this team. I like this team for right now. We are -- we've got a plan. We're focused, we're aligned, we're ready to go, and we're feeling pretty urgent about delivering this plan. As far as the price goes, let me say an overarching comment, and then I'm going to let Janet answer and give you the details of it. We've been -- we've had very strong price performance over the last 3 years as part of what's driven our results. And as we look forward, expect that to continue. We will -- Janet's mandate is continue to price relative to service, but above rail cost inflation. Janet, do you want to speak a little bit about that? Janet Drysdale: Sure, Tracy. Thank you. Thanks, Scott, for the question. Let me say, first of all, that we know our customers well. We know what our available capacity is, and we know what service levels we're providing. So our overall pricing strategy remains very consistent. First and foremost, we're going to price to the value of our service we're providing. We're going to sell into our capacity, and we're going to ensure -- going to continue to ensure that we're pricing ahead of our rail cost inflation, which is around 3%. I would add that we have really good line of sight on our pricing for the balance of the year and into 2026. Now I would call out that our pricing for regulated grain for the '25, '26 crop is about 1.7%. That's versus nearly 6% last year. So that's just something to keep in mind in your modeling. But the short answer is, yes, we are still growing price ahead of our expense inflation. Operator: Your next question comes from the line of Konark Gupta with Scotiabank. Konark Gupta: Just on the cost side of things, Tracy, I wanted to understand, you have a $75 million program here. How much of that you expect to be recognized in 2025? I mean, I think your guidance is unchanged. And I mean, it sounds like you're expecting a pretty good Q4 here. So I mean, some of that might be from lapping of comps perhaps in November from the strikes and all that, but also some of these costs, right? And then for Ghislain, the leverage ratio philosophy, does it change with the CapEx reduction for next year? Tracy Robinson: So we have been working at productivity improvements for 3 years, and we've been working on it Konark all year this year. The smaller part of it is this management adjustment or adjustment to our management workforce. We're in the middle of that right now. So yes, you will see some benefit of that in Q4, but I think it's going to be smaller. It's really intended for full year impact in 2026. And Ghis, do you want to take? Ghislain Houle: Yes. And I would say as well, Konark, thanks for the question. So out of the $75 million that Tracy talked about, I said, there was a little bit hitting CapEx, but I would say the majority -- nearly 90% of it will hit OpEx. And on the leverage, as you know, we finished at 2.55. We've targeted 2.5. This is something that we debate on a regular basis within management and with our Board, whether we have the right leverage. We like a strong balance sheet. I think the question is how strong does it need to be. So at this point, we're continuing to manage to 2.5, considering the fact that the macroeconomic environment is weak and that there's consolidation out there. So we want to keep some powder dry, but it's something that we debate on a quasi-regular basis. Operator: Your next question comes from the line of Ravi Shanker with Morgan Stanley. Ravi Shanker: Tracy, Prince Rupert is a pretty unique asset. Obviously, huge growth over the years and opportunity as well. How do you see the outcomes there, whether there is a permanent change in the U.S. or not? Do you think there's more opportunity to grow? Do you think there's less? And how does that influence your capital position as well? Tracy Robinson: So Rupert is a very unique asset, and we've been seeing it grow over the years. What has really been interesting about Rupert is to watch it go from a pure intermodal play to more and more of a carload play. And as we think forward about what's going on in the energy sector and in other sectors, ultimately plastics, grain, we see that continuing to increase. And as we look forward and contemplate how global trade flows may adjust from an export perspective and all of what kind of the Canadian government is contemplating, we can see Rupert playing a bigger and bigger role in that as we go forward. We watch our capacity very, very closely. And I'm satisfied right now that we have the capacity in that line. The pinch point was the Edson sub, and Pat's taking care of that. As I said, we've got 7 more trains capacity by the end of this year than we did in this year. So we're well positioned for the capacity as we go forward. We're finishing off the Zanardi Bridge in Prince Rupert, which is going to give us more capacity in the local area. So we are positioned to respond to the growth, both in the immediate and the longer term at Rupert right now. Janet Drysdale: Maybe I could just add a little bit, Tracy, on that. In terms of the intermodal as well, I would reiterate we have a very competitive service offering through Prince Rupert. And you have to remember with intermodal, it's not just the rail, it's the end-to-end supply chain. And so we've seen great growth with Gemini because of our service consistency and some of the other products that we're doing at Prince Rupert, Tracy mentioned the grain and the plastics. This actually helps us load more containers to go export. And so it's really an ecosystem of competitiveness that we have at Prince Rupert that we think is going to continue to make us successful there. Thanks for the question. Operator: Your next question comes from the line of Brandon Oglenski with Barclays. Brandon Oglenski: So I'm not sure if this is for Ghislain or Pat, but -- and maybe this is an unfair characterization, but it sounds like maybe CN is a bit more mature in the network now. Does that change the way you guys look at operationally planning things for next year and thinking about headcount and managing costs? I know it's kind of an open-ended question, but I appreciate it. Patrick Whitehead: I'll take that. I would say that as we think about the network, we have made the right investments over the last several years. You think about what we've invested in the Edson sub to unlock capacity west of Edmonton. You couple that with the NTCF and CN money that's been spent for landing capacity at West Coast ports. I feel very good about the condition of the network. We invested in 2 projects on the EJ&E around Chicago. Our competitive advantage around Chicago, it's taken -- it is now with the last project taken a crew start out of that corridor between Chicago and Western Canada. I would also say that as I think about productivity and the way it has improved, we have learned very quickly the impact of the duty and rest period rules and made adjustments. We have been quick to adjust workforce where volumes softened while continuing to hire in the hardest to staff locations. I feel very good about where we are from a resource standpoint. I feel very good about the network and our ability to grow into it, fill it up. And Ghislain, any comments from you? Ghislain Houle: Yes, I would say as well, it's productivity everywhere, Brandon. It's not only productivity from the operating side, but it's productivity at the headquarters side as well. So we're looking at everything. We're looking at automation in some of the back-office systems that we have. So it's everywhere. We're turning every rocks, and this team is focused, and we know we have a weak volume environment. So we need to address costs everywhere, and that's what we're doing. Operator: Your next question comes from the line of Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I was hoping you could talk a little bit about some of the cost actions that you guys have undertaken and your thoughts in terms of those going into the fourth quarter and then also into 2026, the sustainability of those. Tracy Robinson: Thanks, Stephanie. I think that this isn't just a -- we've intensified over the last 12 weeks given the macroeconomic environment. But we've been working on continuing to improve productivity across the organization over the last 3 years. It's what made us so resilient as we've kind of encountered different economic and different kind of operating environments. In the last 12 weeks, Pat and team have been doubling down on how we're thinking about responding to the volumes that we see coming at us and how we do that with increasing productivity, whether it's train starts, whether it's the way that we're managing the crews, whether it's the continued capital productivity, whether it's the -- what you heard him talk about in the mechanical shops. In head office, on the management side, this was an action that we've taken. It's healthy every now and again to just -- good hygiene to take a look at how you're organized and where you can consolidate opportunities. And so as we've done that, we've done a program here -- and actually, we're in the middle of the program here. And -- but it's just said, we're going to continue to look at where we have the opportunity to get tighter and tighter. This is part of railroading. It's good business to kind of just continue to tighten the way you work and to react to what you see coming at you. A big part as we look at the work that we've done over the past, and we're -- you're going to continue to see the impact of is just adjustment in our contractor workforce as well. Pat has taken a look at that primarily in engineering, but I think broader than engineering and bringing that work back in, we've reduced, I think, Pat, $120 million in contractor fees -- contractor costs year-to-date by investing $20 million in an employee base. So it's those types of things that you're seeing out there. There's no one big item. This is singles across the organization and every month, and you're going to see that continue. Operator: Your next question comes from the line of Tom Wadewitz with UBS. Thomas Wadewitz: I think historically, if you go back, kind of CN was the original OR leader and great carload franchise. I think the kind of biggest miss versus the growth targets of a couple of years ago has really been on the intermodal side. And so I wonder if there's more of the opportunity is Western Bulk, maybe carload, do you get back to kind of an algorithm that produces a stronger OR? Is that a reasonable way to think about it, just looking at carload or bulk as just being naturally stronger OR business. So kind of, I guess, a broader thought, but you think we can see OR improvement and maybe go from low 60s to high 50s, something like that, if your mix of growth is a bit different with more carload and bulk? Tracy Robinson: Yes. We love our merchandise portfolio without a doubt, and it is a great business. And we -- right now, we're suffering a little bit under the tariff impacts to forest products on the merchandise side. But we've got tremendous opportunities growth in merchandise. If you think about the energy sector and others, Janet will talk about that in just a minute as we look. But I've always thought intermodal is going to be interesting to watch. But I've always thought that the right operating ratio for this place starts with a 5. And -- but it is we are highly leveraged to volume growth right now. We've done what we've needed to do from a cost perspective. That's going to continue. We'll continue to lean into it. And as we look at rounding into 2026 with the macro environment we're in, we're going to run tight. We're going to be lean, but we will have the ability to flex up as the volumes turn up, whether those are intermodal international volumes or whether they are merchandise volumes. Janet, did you want to add something? Janet Drysdale: Look, I would just say, Tom, I want all our business to grow. Intermodal, merchandise bulk, everything. And so we're going to be pushing on all levers for growth. There's nothing I would like more than to load up the network and have Pat make some more investments or figure out how to run faster, smarter and better going forward. So mix is something you deal with. But from a proactive perspective, we're going to go out there and we're going to try and get every piece of business we can. In fact, the mantra for the sales team is every carload counts. And I use carload loosely there. That means intermodal units as well. So we're after everything. Thanks for the question. Operator: Your next question comes from the line of Kevin Chiang with CIBC. Kevin Chiang: Congrats to Janet and Pat on their roles. Maybe this is for Ghislain. If we think of a mid-teen CapEx intensity, just how does that play out over the longer term in terms of how you think about ROIC, which looks like it's stuck kind of in that 13%, 14% range kind of for the last 5 years as well as your depreciation intensity, which has been creeping up given your capital spend? Like does that -- I'm assuming that naturally comes down? And maybe if you could just wrap that up in terms of what that means for incremental operating leverage as volumes do come back. Does that look a little bit better just given some of these moving parts with lower CapEx? Ghislain Houle: Yes. Thanks, Kevin, for the question. As you know, ROIC is very, very dependent on earnings because your denominator is the entire asset base. And the ROIC has reduced in the last few years because earnings have been challenged a little bit. So as earnings come back, which they will, I mean, eventually, the economy will get stronger and we will be able to flex up, I think that you will see the ROIC improving. In terms of depreciation, you're right. We've had depreciation headwind year in, year out. I think that sizing up now our CapEx the way we are. And as Tracy said, we see this going forward, I think that, that will help on a year-over-year basis in terms of depreciation. Thanks for the question. Operator: Our last question is going to come from the line of Benoit Poirier with Desjardins. Benoit Poirier: Congrats on the results and for Janet and Pat for the new roles. Tracy, you've been taking some action, putting in place a leaner and more nimble organization with a sense of urgency, as Janet discussed. Looking at the regions, you made some changes with Nicole in charge of Southern region, Brad in charge of Western region. So are you still looking to break down the network in 3 regions? And could you talk about what you expect from these new leaders? Tracy Robinson: Bonjour, Benoit. Yes, we are. We're constantly looking at our organization. And as you know, I take talent development very, very seriously as does this entire team. Nicole has had the opportunity and the benefit of being able to sit on top of the Western corridor for a couple of years. And we're going to -- we've asked her to go down and take a fresh eye look at what's going on in the Southern region, and she's going to have some other opportunities there. Brad is perfectly positioned to step up into the Western region. He knows it extremely well. He's been developed outside of transportation and mechanical and other areas, and we know that he's going to do well at that. But it's about giving our key leaders that next development opportunity, and it's about getting fresh eyes all the time on different parts of our organization. Pat's been very thoughtful around how he wants to structure this. Yes, there will still be 3 regions. There's unique operation, unique opportunities in each of those regions. And every time we bring a different leader in, they have an opportunity to kind of do that fresh eyes look at it. It's going to be part of how we operate going forward is strong focus on developing the team. I like our operations bench strength a lot, and you're just seeing it continue to strengthen. So as we bring -- go ahead, Christa. Operator: This concludes the question-and-answer session. I would now like to turn the call back over to Tracy Robinson. Tracy Robinson: Thanks, Christa. Now just before we conclude here, I want to take the opportunity to thank the entire CN team for all your contributions, your focus and your resilience as a team, we have a plan. We're driving forward. We are in the markets, Janet, next to our customers, driving for every carload of freight. We're being proactive about positioning our costs and our capital for the environment that we're in, and we're increasing cash flow and returns. Now we know that we have an advantaged network that sits at top an incredible resource base that's well positioned in the future no matter how trade flows evolve, and we're committed to driving value through all cycles. Thanks for your time today, and we'll talk to you soon. Operator: The conference call has now ended. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Eldorado Gold Third Quarter 2025 Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Lynette Gould, vice President, Investor Relations, Communications and External Affairs. Please go ahead, Ms. Gould. Lynette Gould: Thank you, operator, and good morning, everyone. I'd like to welcome you to our third quarter 2025 results conference call. Before we begin, I would like to remind you that we will be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary statements included in the presentation and the disclosure on non-IFRS measures and risk factors in our management's discussion and analysis. Joining me on the call today, we have George Burns, Chief Executive Officer; Christian Milau, President; Paul Ferneyhough, Executive Vice President and Chief Financial Officer; Louw Smith, Executive Vice President, Development, Greece; and Simon Hille, Executive Vice President, Operations and Technical Services. Our release yesterday details our third quarter 2025 financial and operating results. This should be read in conjunction with our third quarter 2025 financial statements and management's discussion and analysis, both of which are available on our website. They have also both been filed on SEDAR+ and EDGAR. All dollar figures discussed today are U.S. dollars, unless otherwise stated. We will be speaking to the slides that accompany this webcast, which can be downloaded from our website. After the prepared remarks, we will open the call for Q&A. At this time, we will invite analysts to queue for questions. I will now turn the call over to George. George Burns: Thanks, Lynette, and good morning, everyone. We are pleased to welcome Christian Milau as President joining as part of my succession planning. Christian has already been actively engaged with our leadership team through recent budget and strategy discussions and has met with a number of our shareholders and analysts since joining last month. He brings a fresh perspective and a strong focus on our key priorities. His appointment further strengthens our leadership team as we continue to advance our growth strategy and position Eldorado for long-term success. Turning to the outline for today's call. I'll begin with an overview of our third quarter 2025 results and highlights. I'll then hand the call over to Christian for his remarks, followed by Paul on our financials and then Louw and Simon with an update on projects and operations. Turning to Slide 4, our third quarter highlights. We achieved safe production of 115,190 gold ounces and generated approximately $77 million of free cash flow, excluding securities investment. Operational performance remained strong at Lamaque, benefiting from early processing of the remaining portion of the second Ormaque bulk sample. Kisladag had fewer tonnes placed on the pad and lower grade stack as a result of reduced equipment availability and short-term mine plan resequencing as well as placement of ore on a test pad for the whole ore agglomeration project. Efemçukuru maintained stable production, while Olympias had challenges from stockpiled ore containing the viscosity modifier used in the tailings paste backfill that negatively impacted the process water chemistry in the flotation circuit. During the third quarter, we improved management of the stockpile of ore but modest negative impacts on metal recovery may persist as we continue processing material from affected backfill stopes and stockpiles. Given our strong performance through the end of the third quarter, we are tightening our 2025 guidance range on gold production and now expect to be between 470,000 and 490,000 ounces. Turning to cost. We have revised our 2025 guidance upwards. Total cash costs are now expected to be between $1,175 and $1,250 per ounce sold and all-in sustaining costs are expected to be between $1,600 and $1,675 per ounce sold. These increases were primarily driven by: one, record high gold prices and recently enacted higher royalty rates in Turkiye driving higher royalty expense; and second, lower-than-expected performance at Olympias has resulted in lower byproduct sales, higher processing costs with production expected to be at the lower end of the guidance range. Additionally, for 2025, we also expect sustaining capital cost to be at the higher end of our $145 million to $170 million guidance range. In line with previous 2025 guidance, operations growth capital is expected to be between $245 million and $270 million. Lastly, at Skouries, project capital investment for 2025 has been revised upward to between $440 million and $470 million as a result of the acceleration of work originally planned for 2026 across several noncritical path areas and proactive derisking efforts. The estimated overall project capital remains unchanged at $1.06 billion. We are on track with accelerated operational capital and are maintaining our guidance of $80 million to $100 million for 2025. Turning to Slide 5 in the third quarter. Our lost time injury frequency rate was 1.21, an increase from the LTIFR of 1.10 in the third quarter of 2024. We recognize there is always room for improvement and remain committed to continually strengthen our safety performance. Throughout 2025, we're advancing health and safety initiatives. These efforts are reinforced by the multiyear rollout of our Courageous Safety Leadership program launched earlier this year. On sustainability, our team in Quebec recently welcomed a delegation of external and internal verifiers to complete the verification against the standards of: one, our sustainability integrated management system; two, the Mining Association of Canada's Towards Sustainable Mining initiative; and three, the World Gold Council's Responsible Gold Mining Principles. The objective of the integrated verification was to demonstrate our commitment to health and safety, social and environment performance. While the reports are in the process of being finalized, we are encouraged with the preliminary results and look forward to sharing our performance when they become available. During the quarter, we continued to execute on our share repurchase program, buying back and canceling approximately 3 million shares for a total of $79 million. For the 9 months ended September 30, 2025, repurchases have been approximately 5 million shares for a total of $123 million. The program reflects our continued commitment to disciplined capital allocation and returning value to our shareholders. With that, I'll turn the call over to Christian to say a few words. Christian Milau: Thanks, George, and good morning, everyone. I'm very excited to be joining you today in my new role at Eldorado. While I've only recently joined the company in September, pleased with the company's strong culture, talented people and high-quality asset base, including operations and projects in attractive mining jurisdictions with long average mine lives and significant prospectivity throughout the portfolio. I have already spent considerable time with our leadership teams through initial budget strategy meetings. These sessions have given me a strong sense of the ambition, opportunities and discipline that will guide the company during the next phase of the strategy as well as the strong alignment around delivering sustainable value to all stakeholders. What stood out most to me is the depth of talent, the capacity across the organization and the clear commitment to safety, operational and ESG excellence as well as disciplined capital allocation. My focus in the months ahead will be on supporting our teams as we advance our near-term priorities and ensuring that we positioned -- we're positioned to deliver our long-term strategy as we go through the Skouries' cash flow inflection point in 2026. Having just returned from our sites in Turkiye and with visits planned to Greece and Quebec in the coming months, I'll have the opportunity to see all the mines firsthand. The visit so far stood out to me with the excellent commitment and pride on display. It's been impressive to witness the energy and collaboration of our teams on the ground, and I look forward to continuing to engage with more of our sites, communities and investors in the months ahead. With that, I'll now hand over to Paul to walk through the financial results. Paul Ferneyhough: Thank you, Christian. Moving to Slide 6. Our third quarter results reflect consistent operational performance and are aligned with our tightened full year production guidance. Robust gold prices have contributed positively to cash flow from our operations, further supporting our capacity to execute our strategic and operational investments in the coming months. In Q3, Eldorado reported net earnings from continuing operations of $57 million, equivalent to $0.28 per share. Excluding onetime nonrecurring items, adjusted net earnings were $82 million or $0.41 per share for the quarter. The principal adjusting item was a $22 million unrealized loss on derivative instruments, primarily due to gold commodity swaps. Free cash flow for the quarter registered a negative $87 million. However, underlying free cash flow, excluding capital investments in the Skouries project amounted to positive $77 million. Turning to our producing assets. Cash flow from operating activities before changes in working capital totaled $184 million during the quarter. Our corporate gold price collars will continue to settle monthly through the year-end with approximately 50,000 ounces outstanding for the fourth quarter and an upper limit of $2,667 per ounce. Following the expiration of these collars, we will be fully exposed to market gold prices with only minimal hedging derivatives remaining tied to the Skouries project financing facility. Production costs for the quarter reached $164 million, representing a $23 million increase over Q3 2024. 1/3 of this increase is attributable to higher royalties while the remainder stems from the rising labor costs in Turkiye, where inflation continues to surpass local currency devaluation, and at Lamaque where additional labor and contractor expenses were incurred due to the planned deepening of the Triangle Mine. In Q3, total cash costs were $1,195 per ounce sold and all-in sustaining costs or $1,679 per ounce sold. Gross capital investments at our operating mines totaled $58 million for the quarter. At Kisladag, these expenditures included planned waste stripping and equipment costs related to construction of the North Heap Leach pad second phase. At the Lamaque Complex, investments focused on the Ormaque development as well as construction of the North Basin water management facility and initial procurement for the recently approved paste plant. Progress continued at Skouries, including facility and process construction as well as early mining activities in both the open pit and underground areas. Throughout the quarter, approximately $138 million was invested in the project, supplemented by an additional $18 million in accelerated operational capital for self-performance of open pit mining operations. Current tax expense for quarter 3 was $52 million, reflecting a $13 million increase from the prior year period, attributing to improved profitability in Canada and Turkiye. Deferred tax expense stood at $2 million compared with a recovery of $11 million in Q3 2024. This included a $4 million expense related to net movements against the U.S. dollar, mainly driven by the lira and euro partially offset by the reversal of temporary differences. Advancing to Slide 7. Our balance sheet remains robust, providing the flexibility needed to support growth initiatives and return capital to shareholders. With liquidity totaling approximately $1.1 billion, we continue to be well positioned to invest in our cash-generating assets, advanced Skouries towards completion and create additional value through disciplined capital allocation and the NCIB program. Earlier this month, and with Skouries production coming ever closer, several staff members attended LME Week in London, the foremost annual event for the global metals community. Productive discussions were held with traders and smelters regarding the sale of our high-quality, clean copper-gold concentrate from Skouries. As a result, we anticipate finalizing initial multiyear offtake contracts by year-end. With this overview concluded, I will now hand the call over to Louw, who will present the highlights of our Greek assets. Louw Smith: Thanks, Paul, and good morning, everyone. Let's begin with Slide 8, which highlights the progress at our Skouries Copper Gold project. As of the end of Q3, overall progress on Phase 2 construction reached 73% and 86% when including Phase 1. We remain on track to achieve first copper gold concentrate production towards the end of the first quarter of 2026. With commercial production expected in mid-2026. We now have approximately 2,000 personnel on site, including 236 members of the Skouries operational team. This strong workforce has enabled us to derisk several areas early. Our skilled labor ramp-up began with concrete, structural and mechanical trades and is now transitioning to electrical, piping and control systems. While we've exceeded our labor targets, our focus remains on aligning skilled resources with active work fronts to support our execution plan. From a productivity standpoint, construction performance continues to track at or slightly above plan across the site. On the bottom of Slide 8, you'll see a photo of the open pit. This week, our fourth crew started operating, enabling the transition to a 24/7 rotation. As of the end of October, we had stockpiled approximately 531,000 tonnes of ore from the open pit and an additional approximately 93,000 tonnes from the underground, containing an estimated 21,000 ounces of gold and 5.5 million tonnes of copper, positioning us well as we prepare for commissioning and initial concentrate production. Turning to Slide 9. The photos here and on the following slides illustrate the steady advancement of work underway. Infrastructure around the process plant continues to progress. Final foundations for support buildings were completed in early October and structural mechanical piping and electrical work are ongoing across the key areas, including the substation, line plant, flotation blowers, compressors at guar area. The control building structure is complete with electrical installations underway on the first 2 levels. We have completed pre-commissioning of the concentrate filter presses and water testing of the flotation cells and tanks, preparation for pre-commissioning the pebble crusher are in progress. Moving to Slide 10. Progress continue on the thickeners, water testing of the first two thickeners is complete and piping installations have commenced following completion of the pipe rack installations. Slide 11 focuses on the filter tailings plant, which remain on the critical path. As of the end of October, structural steel installation at the filter tailings building was approximately 92% complete. The time lapse video showcasing this progress is linked for reference. Mechanical work progressed with the assembly of the filter presses with 4 complete at the end of the third quarter and the remaining tool on plan for completion in November with each press equipped with 98 plates. The compressor building steel structure is 98% complete and all 6 compressors and all -- and air receivers have been installed. As seen on Slide 12, construction of the crusher building structure is progressing. Concrete workers reached the final elevation above the foundation with the final wall lifts advancing. The primary crusher is assembled in position and work is underway on cable tray and internal structural steel stairways and platforms. Conveyor foundations between the primary crusher and the process plant, including the coarse ore stockpile are now complete. Conveyor preassembly and support steel installation are well underway. At the coarse ore stockpile on Slide 13, the stockpile dome foundation is nearing completion and assembly of the dome has commenced. The first of the 3 reclaim feeders and associated chute work has been installed with preassembly continuing on the remaining 2 feeders. Moving to Olympias on Slide 14. Third quarter gold production was 13,597 ounces and total cash costs were $1,869 per ounce sold. Production was impacted by flotation circuit stability issues earlier in the year, which led to a modification of the paste backfill blend to eliminate viscosity modifiers in the backfilled stopes. While plant operations recovered substantially in Q2, affected stockpile ore continued to be processed in the third quarter despite efforts to minimize negative impacts in the processing circuit, ongoing process water chemistry challenges further reduce the metal recovery during the quarter. While mitigation measures are underway, modest negative impacts on the metal recovery may persist as we continue processing material from affected backfill stopes and stockpiles. Progress continued on the planned mill expansion to 650,000 tonnes per annum during the quarter, with the early works advancing and demolition activities underway within the concentrator. All of the major equipment, including the verti-mill, flotation cells, thickeners, cyclones and E-room have been delivered. We expect progressive commissioning and ramp-up in the second half of 2026. We remain committed to driving transformation at Olympias. A comprehensive program is now underway to modernize and optimize the process plant and surrounding infrastructure alongside leadership and skills development program aimed at strengthening capabilities across all levels of the organization. I'll stop there and hand it over to Simon to discuss the Turkish and Canadian operations. Simon Hille: Thanks, Louw. Starting in Turkiye on Slide 15. Kisladag production totaled 37,184 ounces with total cash costs of $1,309 per ounce sold. The decrease in production during the quarter compared to Q2 2025 was primarily due to lower tonnes mined as a result of lower-than-planned equipment availability and the resulting short-term resequencing of the mine plan. Fewer tonnes placed on the pad and lower grades from prior periods along with the placement of ore on the test pad to support the whole ore agglomeration study. The decision has been made to proceed with a whole ore agglomeration at the capital cost of approximately $35 million, reinforcing our commitment to enhancing permeability, improving leach kinetics and shortening the leach cycle. Over the life of mine, we expect operating and capital cost savings driven by a shortened leach cycle specifically the shortened leach cycle is anticipated to reduce sustaining capital expenditures through lower consumable requirements such as liners and associated pipeline. Installation of the agglomeration drum is expected in 2027, with long lead items expected to be ordered in Q4 of 2025. We made a strategic decision to decouple the whole ore agglomeration from the HPGR screening reflecting our continued focus on capital discipline. To support future optimization, geometallurgical studies, continue in order to characterize future mining phases and will evaluate the benefit of additional screening for the HPGR. These studies are expected in the first half of 2026. On Slide 16, at Efemçukuru. Third quarter gold production was 17,586 ounces at total cash costs of $1,522 per ounce sold. Gold production throughput and average gold grades were in line with the plan for the quarter. And now moving to the Lamaque Complex on Slide 17. Lamaque delivered production of 46,823 ounces at total cash costs of $767 per ounce sold. Third quarter production was positively impacted from higher throughput driven by processing the remaining portion of the second Ormaque ore sample. The high-grade ore was treated in a blend with Triangle ore and performed very well. I would also like to congratulate our team at Lamaque hosting during the quarter nearly 30 Quebec members of Parliament of Canada. The visit was a proud moment for our team as they showcased our commitment to innovation, operational excellence and sustainability leadership. And with that, I'll turn back to George for his closing remarks. George Burns: Thanks, team. Before concluding today's call, I'm pleased to announce that yesterday, we finalized the sale of the remaining gold project, Certej. This transaction marks the end of a lengthy process aimed at divesting noncore assets within the portfolio. I look forward to monitoring the progress of the project given our retained equity and royalty. Gold prices have remained strong, but we've seen some sharp swings lately. Through this environment, we remain strongly committed to disciplined cost management, to protect and expand our margins. Capital allocation continues to be a key priority. We're returning capital to shareholders through our enhanced share buyback program while at the same time advancing our high-return growth initiatives across our global portfolio. This positions us for sustained growth, margin expansion and driving enhanced shareholder value as we enter the next phase of Eldorado's transformation. Thank you for your time. I will now turn it over to the operator for questions from our analysts. Operator: [Operator Instructions] The first question comes from Cosmos Chiu with CIBC. Cosmos Chiu: Welcome, Christian. Maybe my first question is on the transaction that happened earlier today. Fresnillo buying Probe gold with the support of Eldorado Gold. I guess my question is, George, has this always been the desired outcome for that investment? And then I guess broader scale, M&A is heating up in the sector. How do you see Eldorado positioned? George Burns: Sure. On Probe, I mean, we took a toehold in Probe a number of years back with the view that there was a property package that could have potential supplemental ore to feed our really permitted mill capacity that exceeds our current run rate. And so our hope was that they would discover some high-grade, high-value underground opportunities that subsequently could be part of the Lamaque complex. Really how that has evolved as they've discovered a large, low-grade open pit opportunity. And as we assessed that opportunity, it really didn't stack up with our other capital allocation opportunities. And so when we heard this week that Fresnillo made an offer, it didn't fit our strategic initiatives going forward. And so we didn't agree to sign on to support that acquisition. On the bigger, broader M&A opportunities ahead, I mean, at Eldorado, our focus is head down, deliver the high-value project Skouries, Olympias expansion and other investments across the portfolio. That's our priority. As we come out of delivering Skouries in the first half of next year, and we're going to be positioned to continue to invest within the portfolio, but look for other opportunities externally. So I think we're in a great position in a great market. But for now it's head down focused on what we're doing. Cosmos Chiu: Perfect. Maybe switching gears a little bit to Skouries. Certainly, sounds good to hear that it is on time for first concentrate in Q1 2026. As you have mentioned, the filter tailings plant is on a critical path. Louw did a good job in terms of summarizing it. But is there anything else that's on the critical path? That's number one. And number two, it is a fairly tight schedule, delivering first concentrate by Q1 2026 and it kind of straddles your holiday season. I know there has been some changes in the schedule in terms of work schedule. But how have you factored in potential workers taking time off during the holiday season. Does it really go kind of dead in Greece during those months or during those weeks? And how should we look at it in terms of kind of like looking at the risk on the time line for delivery by Q1 2026? George Burns: Thanks for the question, Cosmos. Yes, so for a critical path, the dry stack filter plant given the short or the small footprint that we're dealing with there is the key focus for us. Obviously, everything in front of that has to be done and constructed on time to be able to put ore through that filter facility. But I did tell there's nothing at this point that we're worried about. Now looking forward, you hit the nail on the head. It's the transition to get the additional trades on piping the electrical and control system that are critical to delivering everything ahead of the dry stack filter plant. I'd tell you we have good visibility on that. The transition is evolving week-over-week, month-over-month and will continue right up to the first quarter, and then there'll be a dramatic drop off in construction workers and a huge focus on preparing for commissioning. So we're feeling good about that transition. We've got visibility on the required workers over the next 5 months, say. And as we say, we're on track to deliver first concentrate at the end of the first quarter. Cosmos Chiu: Great. And maybe just one last question on Kisladag quickly, the whole ore agglomeration project. Could you maybe remind us what's the potential impact here on recovery, on throughput? And is it really just overall kind of potentially having less wear and tear on the HPGR longer term? Is that what we're trying to do here? Simon Hille: Thanks, Cosmos. It's Simon. The whole ore agglomeration, the purpose of that is primarily to enhance permeability in the leach pad, so that we get a good contact with the lixiviant and the ore particles. And so where we see the best benefit there is, as we've reported previously, we've got a very long leach cycle. Our leach cycle currently is sort of around 300 days on average with enhanced permeability that comes with the whole ore agglomeration. We expect to see that reduced to 200 days. That provides us with the primary benefit of obviously getting our returns faster in terms of metal recovery, but also less infrastructure requirements in the longer term because we need less footprint in order to leach the tonnes in the plan. So at the moment, we're not planning any enhanced recovery in the model but faster kinetics generally are a positive sign for that in the long term. Cosmos Chiu: Yes. Thanks, Simon. I forgot that the leach cycle is that long at 300 days. So 200 days certainly gives it much needed benefit. Operator: The next question comes from Tanya Jakusconek with Scotiabank. Tanya Jakusconek: Welcome, Christian, on board. So maybe, George, can I start with you? Just on Skouries, can I just review with you, we've got that end of Q1 for the concentrate first gold pour. We are then going commercial by mid-2026. Can you remind me again what your definition for commercial production is so that we can monitor the correct 60% of the mill or whatever, however you're going to define it, so we can model that? And then can you remind me from commercial, when do we actually get to steady state? And what do we need to get there? So that's my first question. George Burns: Yes. Thanks for the question, Tanya. On the commercial production, we're expecting to be at 80% of design nameplate throughput at that point and then expect to get the rest to 100% by the end of the year. So that's the key criteria. We're feeling comfortable with that given that it's a single floatation circuit. Olympias is much more complex with 3 concentrates. And we've got already some of our operators from Olympias at Skouries going through training on that particular facility. And I think we're in good shape to deliver that ramp up. Tanya Jakusconek: Okay. 80% of designed nameplate capacity to go commercial, is that 80% over 30 days? George Burns: I believe that's correct. Tanya Jakusconek: Okay. And then from midyear, you expect 6 months really of ramp-up to get to nameplate by the end of 2026 is what I heard. Is that correct? George Burns: That's correct. That's what we're assuming. Tanya Jakusconek: Okay. And then -- sorry. And with that, the old technical report and I say old because it is quite outdated, when are we going to have a better understanding? Obviously, as soon as you operate, you have a better understanding on operating costs, but when is the market going to be given an update on costing for this operation, both on the operating and sort of the capital sustaining costs? George Burns: Yes. So we'll be updating the market on our 2026 guidance in Q1. And with that, will include the remaining capital spend and the operating cost post commercial production. So that will be the first window. Just to reference back to the technical study. So I mean we completed that technical study just prior to getting the financing in place and then initiating construction. So it's only as stated as the construction has been. But again, we'll be updating that as we work our way through next year and getting the actual results that can then be built into an updated technical study. Tanya Jakusconek: Okay. So we would -- so you are expecting to give us an updated technical study in 2026? George Burns: No, I'd say we're going to collect the data from 2026, and that will inform the timing and results in an updated study. So we haven't had a date on that. We're waiting for the results. Tanya Jakusconek: Okay. All right. And then just secondly, as we come towards year-end, I know in December, you'll be releasing your -- and we're literally a month away or thereabouts for your reserves and resources. Can you talk to me about how you were thinking about cutoff grades? What are you thinking about inflation on your costs, gold price inputs. And how do these reserves look and resources? George Burns: Yes. So I mean, the first thing on metal prices. So we're in the process of determining where to land on update on our reserve price assumptions. We use a look back on metal prices as well as staying consistent with our peer group. So we're expecting a modest increase in metal prices. Our focus is to keep our reserve price conservative, ensuring we have very strong margins to drive profitability in the company. So I'd just tell you, it won't be consistent with the peers, a modest increase in metal price assumptions, and we do all this in the fourth quarter at Eldorado so that we have the latest and greatest information to support our budget for next year and our guidance that we'll set in the first quarter. So -- and then in terms of inflation, cutoff grades, I mean, we're working through all those as we speak, and we use actual data and project through our life of mine studies that are done during the summer to set those assumptions. So it's work in progress. I would tell you we're not expecting any radical change in any of those inputs, a modest increase in metal price assumption. Tanya Jakusconek: Okay. And do you expect to replace, do you think your reserves this year? George Burns: Yes. I mean, we haven't finished the work. We're feeling good about it. Stay tuned. We're not far away from releasing that information. Tanya Jakusconek: Okay. And then I guess my final question would be to Christian. Welcome on board, Christian, and you've mentioned in your opening remarks that you're looking forward to the next phase of the strategy and you visited all of the operations. So maybe you can share with us as you look at the company, what are your top 5 priorities for the next 12 months? Christian Milau: Yes. Thanks, Tanya. And actually, just to clarify, I haven't visited them all yet. I said in the next month, I'll visit Quebec and Greece. I'm sort of following along with the preplan visits in our budget strategy cycle here. But I've been really impressed with what I've seen so far. Obviously, I've seen a lot of mines around the world and the ones at Tüurquie I got to visit last week and the week before, very impressive in terms of an ESG approach, in terms of how they operate, the longevity of the team and just the skill and experience and reputation in the industry. In terms of priorities, really for me right now, it's really getting an opportunity to settle in for me when I came in, looking at the culture and how I can slot into a team and really the transition with George, I think it is a wonderful period of time for me to just get caught up without the pressure of having a quick change. And you see in our industry, it happens quite often overnight and get up to speed with the budgets. We're going through that next phase of strategy for the 5 years coming once Skouries is up and running. And I think critical to us will be that post-Skouries cash flow inflection point and how to allocate the capital. So in our sort of 2030 strategy planning, that will be something we're going to be looking at very closely. And I don't have any answers for you today specifically because I think we're going through that process, but it's a wonderful time to be joining a group like this where, for me, the culture fit was really good. I think the team is diverse and deep. And I think the spread of assets is wonderful and the exploration upside and the long lives already in the portfolio are really exciting. And there's growth projects here are very valuable from our own cash flow. So it's kind of building all those into that next phase of the strategy as it sort of inflects and turns to cash flow generation from pure spending and building Skouries over the last couple of years. Tanya Jakusconek: Okay. So I guess what I'm hearing from you, and maybe I don't want to have my own assumptions, but maybe you can tell me if this is correct. So you've taken a look at the team, the culture, you're happy with that. You're looking to get Skouries behind and producing so that we can then, number two, look at capital allocation, whether that's continued share buyback, dividends, et cetera, et cetera, for return to shareholders. Maybe you can talk about the portfolio itself, like what does Perama stand in here? Any of the other assets, Probe is noncore, anything else that you see noncore, other assets that you want to push through further in the Eldorado strategy? Christian Milau: That's a fulsome question, Tanya. I think at this stage, when I looked at it, exploration and just continuing to extend and advance mine life is critical. And now there's an opportunity with these kind of gold prices in this environment. And again, my superficial early look is there's real opportunity to spend some money and focus on that. There's a great team here, I think, that has some plans and excitement around our current assets and in the countries we currently operate. So I think that will be one of the key elements. And Perama Hill, I mean, literally going through that phase of, I think, getting GIA updated and submitted. So assuming there's a permit over the next year or so, it would be nice to put that into the plans. I don't think we're quite ready to actually build the timing in yet. But I think there's been a good job done in Greece to build the sort of social license and the acceptance of the relationships. And when you look at Skouries and Olympias, there's a really nice platform. So I think Perama could come in afterwards, but I can't commit to timing at this stage, obviously. And as George alluded to, I think there are these opportunities, which Simon was saying in Turkiye to continue to improve, enhance and some of the operations are already underway and are performing well. In Quebec as well, there's exploration opportunities. There's already good results coming out of Ormaque underground, and there's an ability to expand that plant if there's enough ore there. So all those things could be part of the plan, but timing and specific commitments, I think it's a little bit early on that, but that's a good place to park some of the capital over time, I think. Tanya Jakusconek: Okay. Well, good. Look forward to working with you. Christian Milau: Thanks, Tanya. Operator: The next question comes from Don DeMarco with National Bank Financial. Don DeMarco: Maybe I'll just start off with Olympias. So obviously, the challenges in the flotation circuit were evident in Q3. And I heard on the call that they may persist for some time. And then concurrently, you've got this expansion underway. Does that expansion perhaps complicate things with regard to resolving the challenges in the flotation circuit? And maybe if you could just give a little bit more detail on when you think you might see a rebound in recoveries? George Burns: Well, maybe starting with recoveries. I mean, we've seen a rebound just in the last 2 months. So when we're successful at managing the ore fed into the plant and not getting a slug of this viscosity modifier in the plant, we're seeing good recovery. So it's been good in the last 2 months. But if we get a slug of this material in, it messes up the process water, and it takes time to clean it up. So we end up lowering throughput. We end up getting lower recovery. And that's the reality looking backwards. As Louw mentioned, this is a cut and fill mining method underground. And so these -- we put this viscosity modifier in the cemented backfill in stopes between Q3 of last year and Q1 of this year when we realized we have this problem. So as we mine next to all those stopes during that period, we have the risk of getting the viscosity modifier into that fresh ore. And that residual risk will remain until the second quarter of next year. Obviously, our mine operators and our plant operators are day to day, shift by shift, managing the blends. We do have a design to take the higher risk stockpile ore and -- ore will be coming out of the underground and process it before it goes into the plant. So there were crushing and screening and taking the coarse material. It won't have a significant amount of that modifier in it, and that goes into the mill. The fine material, we're looking at permitting and the ability to wash it and remove that most of that viscosity modifier. So later on, that could be put in the plant. So these are the things that we're doing. And it's fair to say there's some risk remaining into Q2, but I'd say we're getting better at managing it. We're trying to be as proactive as we can to not have another significant upset. But as Louw said, the risk will remain. In terms of the expansion, really, there's no connection between this problem and the expansion. We're basically having to move some of the infrastructure like piping and cable trays to make room for the equipment that we're installing. So that work is in progress. We'll get that construction completed next year. It will be a staged approach. Some of the equipment will get stalled earlier in the year that will help improve the performance of the mill. The throughput won't happen until we get the grinding mill in and that happens in the second half. So we're expecting some really exciting results that come out of Olympias once we get this expansion completed. That's no longer the bottleneck. It will be back on the underground mine ramp up. And as we've talked over the last 2 years, we've done a really good job of debottlenecking the underground. So we get this mill expanded. Production goes up, margins expand, and we get this viscosity modifier behind us, Olympias will be a key contributor to cash flow. Don DeMarco: Okay. And then on to something else then. With the guidance adjustment that we saw with Q3, costs are higher. But of course, some of the drivers of those costs are outside of your control, such as the Turkiye royalty rates and so on. Could you just give us maybe a rough percentage of looking at the delta in that cost increase, how much was within your control and how much was not? Paul Ferneyhough: It's Paul here. So I think I heard you, you were breaking up a little bit, but the question is around our increase in our guidance for all-in sustaining costs. There's 2 things basically that have driven that. One that is in our control and that we've been dealing with and one that isn't. And they split about 50-50 in terms of how it's impacted our guidance for the rest of the year. So the first one is around gold price. If you remember, our original budget was set with a gold price of around $2,300. We're now assuming an average price to the end of the year of $4,000 an ounce. And at that level, we continue to see increased royalties, both from the absolute cost, but also the increase in the slate of royalties that we saw in Turkiye early in the year, and that's responsible for around 50% of the increase. And then the second 50% is really just a reflection of Olympias performance with those recovery issues and lower volume, and that has pushed up our per ounce costs. So it's 50-50 between them. We're not actually seeing any real inflation in costs in terms of -- versus our guidance for the year outside of that. Don DeMarco: Okay. And then just as a final question. Also in Q3, we saw a big increase in your share buybacks quarter-over-quarter. So I just was wondering, going forward, do you expect to maintain the level of buybacks in Q3 or maybe ease a bit, increase a bit? Just kind of -- just to get your sense at this point? And then also while on the top of capital allocation, maybe even any additional color on the dividend or the timing of the dividend as I know Christian brought that up in his response to Tanya. Paul Ferneyhough: Yes, sure. So as far as the share buybacks are concerned, we signaled at quarter end Q2 that we had extended our NCIB program for another 12 months with a maximum repurchase of 5% of our outstanding share capital. We do intend to be opportunistic around that. We think our shares are incredibly good value at the current level. But really, it's when there's opportunities in the market or if we're underperforming, then we will actually use the NCIB program to purchase those shares. As a good sort of working average, I would assume over the next 3 quarters that we continue to buy at approximately the same rate, okay? As far as dividends are concerned, I think we haven't changed our messaging around this. Next year is an inflection point for us in terms of cash flow generation as Skouries comes into operation. And that feels like a great time for us to then be considering if it's the right moment to put in place a sustainable dividend that we can stand behind going forward. And so I think that will be back on the agenda for us in terms of capital allocation as we move into next year. Operator: The next question comes from Lawson Winder with Bank of America. Lawson Winder: Thank you for today's update. If I could maybe push you a bit more on 2026 and the CapEx outlook. So for 2025 sustaining CapEx, we're running at the high end of the $145 million to $170 million. When you look to next year, I mean, is that higher end of the 2025 a pretty reasonable baseline for 2026? And actually, you know what I had asked a similar question for the growth capital at the operations. I mean, is that is the current $245 million to $270 million range, a decent level heading into next year? George Burns: Well, again, we'll be updating you in the first quarter on next year's guidance, maybe a couple of comments that might help. So the Olympias expansion, that's obviously underway in Quebec. We're completing the second bulk sample, but we're in the middle of permitting for a paste backfill plant, an operating permit. So the timing on that is uncertain, but there'll be capital to spend on Olympias when we get those permits. So stay tuned for that. As well, Simon's walked through the whole ore agglomeration, and we've committed that $35 million. So we got to build all that into next year's plan depending on permitting. I'd say those are the moving parts. The rest of the portfolio is pretty consistent. And then on the growth capital, well, beyond that is Skouries, obviously, we've kind of walked through that Q1 is the bulk of the spend next year in Skouries and we're commissioning in Q2. So there'll just be some residual growth capital happening there. As you look forward on Skouries though, remember that the pit is up and running, we're in good shape there. The plant will be running next year. We've got the first blast on the test, but over the next 3 years, we'll be investing in that underground to get the infrastructure in place for it to ramp up to be the sole feed to the plant at the end of the next decade. So there's incremental growth capital that will be happening over the 5-year plan. Next year, some of that capital on the underground will begin to be spent, but the ramp-up really starts happening at '27. So it's hard to give you specific numbers on next year. Hopefully, I gave you a little bit of color there, and it's not too far away from given the specific updated guidance on '26. Lawson Winder: Yes. Actually, that summary was very helpful. And I just would want to say, it's impressive that, that Skouries remains on track. And if I may, and just to cover off potentiality, should there be any delay, what would be a rough weekly or monthly holding cost of just keeping that going for a slightly extended period of time? George Burns: Yes, the way I would describe it, we're comfortable. We have all the equipment and materials there. So there's no risk on that side. We have the workforce. We're over 2,000 people at site right now, construction and operations ramp up. So the impact next year if for some reason, it took a little bit longer to get the first concentrate, those fixed cost that we were going to spend on a monthly basis is about $15 million. So that's really the impact of a delay. Lawson Winder: Okay. Relatively small percent of the overall CapEx. And then if I could -- I think I've asked you this before, but like I acknowledge you do not like to give guidance on gold production for -- on a quarterly basis. Just with Kisladag, there's obviously a lot of variability when it comes to the leaching times. Can you give us any sort of directional point or hint here on Q4, just when you consider what was stacked at the end of Q2, what was stacked in Q3? And yes, I'll just leave it there. Anything would be very helpful. George Burns: Yes. I mean, again point you back to guidance, although Q3, we had some negative impacts, we're still going to hit our guidance at Kisladag for the year. As you say, Q4 is a little bit tough. We had lower placements, precisely understanding how that's going to impact Q4 versus Q1, it's difficult to say. There's a bit of art and science in heap leaching. But all I can tell you at this point, we're comfortable we're going to be within guidance at Kisladag for the year. And so Q4, don't expect anything dramatic one way or another. It's going to be a good year at Kisladag. Operator: That's all the time we have for today. This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Jaime Marcos: Good morning to everyone, and thank you very much for attending our 3 Quarter 2025 Results Presentation. This morning, before the market opened, we published this presentation, along with the rest of the usual financial information at the CNMV and on our corporate website. For this presentation, we have today our Chief Financial Officer, Pablo Gonzalez. As usual, the presentation will last around 20 minutes, and it will be then followed by the regular Q&A. So without further delay, I will give the floor to Pablo. Pablo Gonzalez Martin: Thank you very much, Jaime. I will start on Page 3, where we show the main highlights of the quarter. Starting with the commercial activity, I would like to highlight that business volumes continue to improve 2% year-on-year, supported by stable loans and deposits and a significant growth in off-balance sheet funds, mainly in mutual funds, where we are growing an impressive 24% year-on-year, making 9% of net inflows market share. Total performing loans have stopped declining. And as you can see, they were stable in the year-on-year terms, supported by a 39% increase in new lending. Regarding profitability, gross margin grew by 4%, while total provisions fell 19%, leading to a net profit of EUR 503 million in the first 9 months of the year. That is 11.5% above the first 9 months of 2024. This is quite positive because I would like to remind you that a bit more than 1 year ago, when we presented our 2027 Strategic Plan, we explained you that the initial idea was to reach a net income above EUR 500 million in each of the 3 years of the plan, and we have already reached that target in the first 9 months of the first year. This improvement has also allowed us to reach a return on tangible equity adjusted by the excess of capital higher than 12%, while keeping the cost to income ratio at 45%. Recent trends in credit quality have also remained positive. The net NPAs ratio is now below 1% with gross NPA ratio at 3.7%, which is 115 basis points below the one we had 1 year ago, explained by a significant decrease of 25% in the stock of these assets. Total coverage continues to grow to 75.4%, well above the 70% that we had 1 year ago. The cost of risk also presented a positive trend, falling to 24 basis points in the quarter, which is below our initial guidance, and that is why we are now improving 2025 guidance. Finally, the bank's solvency and liquidity have also been strengthened. CET1 improved by 27 basis points in the quarter to 16.1%. The tangible book value per share plus the dividends already paid in the last 12 months grew by 10% year-on-year. The loan-to-deposit ratio remained at 70% and the liquidity coverage ratio close to 300%. So all-in-all, as you can see, during the third quarter, the trends remained quite strong, confirming recent positive trends. I will continue with the commercial activity on Page 5. As you can see, the total customer funds grew 2.9% year-on-year with the on-balance sheet funds stable and off-balance sheet funds growing 12.6%, supported by an impressive 24% growth in mutual funds. Bear in mind that mutual funds balances have gone above EUR 16 billion compared with less than EUR 13 billion 1 year ago. On the following page, we show you the details of the assets under management and insurance. As I just mentioned in the previous slide, assets under management have grown 13% year-on-year. In the case of mutual funds, the growth has been 24%. The market share in net inflows remain at 9%. On the right, we show the revenues from these two business that have improved by 10% in the last year, representing now 18% of total revenues in the first 9 months of 2025. Regarding loans during the quarter, total performing loans fell owing to second quarter seasonal advances. Excluding such effect, total performing loans fell 0.7% in the quarter. However, they were stable compared with the same month of last year. By segments, private sector loans fell 0.8% year-on-year with corporate loans decreasing a bit more than 2% and stable loans to individuals. As you can see, total performing loans are more stable than a few quarters ago, owing the improvement on new loan production that we show on the next slide. Private sector lending grew 39% year-on-year to EUR 7.1 billion, showing positive trends in all segments one more quarter. Business and self-employed segment is particularly noteworthy where formalizations in the first 9 months grew from EUR 3 billion to almost EUR 4.5 billion, representing a 47% increase. Mortgages, new lending grew 24%. And in consumer lending, we grew another 37%. On Slide 9, we would like to briefly remind you that we continue to make progress in our commitment to sustainability as part of the Strategic Plan. In addition to advances in social and governance matters, here I want to focus on the commitments made regarding the climate transition, where I would like to highlight a couple of figures. On one side, we have EUR 2.1 billion in green label bonds issued to date, which have allowed us to save 81,000 tonnes of CO2 in 2024 with ample collateral to continue issuing in the green format. On the other hand, as you can see, decarbonization targets cover a significant part of the finance portfolio, where we are showing strong progress. This is supported by our sustainable business, which we continue to drive by assisting our clients in their decarbonization pathway and offering specific ESG products. We now are continuing with the review of the P&L in the next section in Slide 11. Starting with quarterly trends. Net interest income was stable in the quarter, growing by a small 0.2% because lower cost of deposits and wholesale funding compensated the ongoing repricing of loans at lower rates. Total fees supported by non-banking fees were also stable despite the usual seasonality of the quarter. Gross margin reached EUR 515 million which is 5% below the previous quarter, mainly due to lower dividend seasonality. that, as you all know, is relatively higher every second quarter. Total costs grew 1% quarter-on-quarter, leaving pre-provision profit at EUR 276 million. Total provisions and other results were better than the previous quarter, among others, because we have a capital gain of around EUR 10 million from the disposal of a banking license this quarter. All these left pretax profit at EUR 232 million and net income at EUR 165 million, which is 5% above the third quarter of last year. In the first 9 months of the year, the net interest income fell 3.5%. However, higher non-interest income, including a 2.8% increase in fees left gross margin at EUR 1.573 billion. Total cost continued to grow at mid-single digit, in line with our guidance, leaving pretax profit at EUR 862 million, 2% above the previous year. The lower provisions booked this year left pretax profit at EUR 708 million, which is 8% above last year and net income at EUR 503 million, 11.5% higher than the first 9 months of 2024. As I said before, it is worth noting that when we presented our new business plan 9 months ago, we guided for a net income above EUR 500 million for the full year, something that we have already achieved this quarter. As we usually do, we will now review the P&L in more detail. Starting with the net interest income, on the next page we have the customer spread evolution. As you can see, customer spread fell 8 basis points in the quarter, mainly owing to the ongoing repricing of floating loans that was only partially mitigated by lower cost of deposits. However, our net interest margin grew 3 basis points in the quarter. As we have explained in the past, in our case, owing to our balance sheet structure with much more deposits than loans, customer spreads only shows one part of our business with clients because it is not considering the income that we do with the excess of retail funding that comes into the P&L through the structural debt portfolio. This is why for banks like Unicaja with a 70% loan-to-deposit ratio, it makes more sense to follow the net interest income margin trends and not only the customer spreads by itself. On the following page, we show the details regarding the quarterly evolution of net interest income that grew a small 0.2% in the quarter. As you can see, the lower cost of liabilities, mainly of customer deposits, mitigated one more quarter, the negative impact from the repricing of the loans at lower rates. Two different effects of similar amounts that explain the net interest income remaining stable for another quarter. If we move now on to fees, we can see how they were stable in the quarter and grew 2.8% year-on-year, a positive evolution explained by higher income from non-banking fees, mainly from mutual funds and insurance that are the 2 business where we are focusing our commercial efforts, compensating the lower banking fees that, as you know, are explained by the implementation of loyalty plans. In Slide 15, we show the details of the rest of revenues, which also shows a positive evolution in the year on all the lines and mainly due to the new banking tax, which, as you know, is now included in the tax line of the P&L, while in 2024 it was booked in other operating charges. Regarding total cost, personnel expenses continue to grow due to the salary improvements agreed with the unions and new hirings. Other administrative expenses also reflects some of the initiatives needed to implement our business plan, leaving total cost 5% above the previous year, in line with our mid-single digit growth guidance. In the right-hand side, you have our cost to income ratio that remained stable at 45%. On the next page, we continue with the cost of risk and other provisions. As you can see on the left-hand side, the cost of risk in the third quarter of '25 was 24 basis points, which is below our initial guidance of 30 basis points, one more quarter. This is why we have decided to formally improve such guidance to below that level for the full year. Other provisions that mainly include legal provisions were lower this quarter, but in line with our current guidance. Finally, other profit and losses included a positive one-off of around EUR 10 million in the quarter from the disposal of the BEF banking license. Overall, total provisions and other results improved from EUR 279 million 2 years ago to EUR 191 million in 2024 and EUR 155 million in the first 9 months of 2025, a very positive evolution that also has helped to further improve the profitability of the bank as we can see on the following slide. The ROTE of the bank continues to improve, reaching 10% in September 2025 or 12% when we adjust the excess of capital. As we saw before, our net income has improved from EUR 285 million in the first 9 months of 2023 to EUR 451 million in 2024 and above EUR 500 million in 2025, a significant improvement that has increased our return on CET1 to 17%. As most of you know, we believe that in our case, the return on CET1 is a good reference that isolates the relative larger accounting equity that Unicaja needs to have to fully absorb its higher solvency deductions. Finally, on the right-hand side, we have also included the tangible book value per share plus dividends that, as you can see, it has grown 10% during the last 12 months. Let's move now to the credit quality section in Slide 20. As you see in the slide, positive trends remain in place. NPLs are down 20% year-on-year with the coverage growing to 74%. Overall, NPAs are also down 25% year-on-year with coverage also improving to 75%, a very positive trend that remains and leaves total net problematic exposure below 1%. If we now move to solvency on Page 22, you have the quarterly bridge. Retained earnings represented 21 basis points after considering AT1 coupons and the accrual of a 60% dividend cash payout. The mark-to-market of our stake in EDP added another 9 basis points and the rest of the moving parts, mainly higher risk-weighted assets, explain a small negative of 3 basis points in the quarter. All in all, the CET1 fully loaded, reaching 16.1%. On the next page, we show you our MREL position. As you can see, our MREL ratio stands at 29.6% in the quarter, maintaining an ample buffer against the main requirements that you have on the right-hand side. Among them, I will highlight the MDA buffer that has grown above 750 basis points. Regarding liquidity, we continue to have a very strong position with a significant amount of liquid assets, a loan-to-deposit ratio of 70%, the NSFR at 159% and the LCR at 295%. All of them, as we used to say, are best-in-class in liquidity metrics. Finally, here we show the regular fixed income portfolio details that, as you all know, is a structural portfolio funding with excess of retail deposits. The duration of the portfolio has decreased a little bit to 2.5 years, owing to interest rate risk management. However, the yield has remained stable during last quarters at 2.6% despite the lower rates. To conclude, let me update you on our 2025 guidance in Slide 27. As you probably remember, in the second quarter, we increased our net interest income and fee guidance. This quarter, owing to the recent positive trends, we are improving a little bit further our net interest and cost of risk guidance. On the net interest income, as you saw during the presentation, the trends continue to be slightly better than initially expected, among others, owing to the fast decrease in the cost of liabilities that has compensated the negative impact of lending repricing. And So we increased our guidance for the year from above EUR 1.450 billion to above EUR 1.470 billion. On the other hand, as we have mentioned during the presentation, the cost of risk has been lower than initially expected, and we now believe it will be below 30 basis points for the full year. Because of these 2 upgrades, we now expect the adjusted return on tangible equity to be close to 12%, slightly better than the previous 11%. Finally, let me finish by reiterating that the first 9 months of the year have been very positive. We have been improving structural profitability while further reducing the problematic exposure and generating additional capital. All these, together with positive commercial trends that we expect to continue to improve further in the coming quarters. As a consequence of all these, our shareholders' remuneration has also improved, and it will continue to improve as we have reflected in our Strategic Plan. Thank you very much. I leave it here. And we can now move to the Q&A. Please, Jaime, whenever you want. Jaime Marcos: Thank you, Pablo. We will start now with the Q&A. Please remember to ask only 2 questions each one. Also remember to mute your line after your questions. Operator, please open the line for the first question. Operator: [Operator instructions]. And our first question comes from the line of Maksym Mishyn from JB Capital. Maksym Mishyn: Two questions from me. The first one is on the outlook for the NII. Your updated guidance implies a decline in the fourth quarter. Could you please give a little bit more color on what kind of magnitude should we expect? And why should it decline anyway? And the second question is on the excess capital. You keep on building it. When are we going to get an update on the potential deployment? Pablo Gonzalez Martin: Thank you, [ Maks ]. Let me get you through the outlook for NII. As you saw, we have updated our NII guidance for the year from above EUR 1.450 billion to EUR 1.470 billion. That's above that number. You have to think that we still have a couple more quarters of impact from the repricing of the floating rate loan book, mainly the mortgage book. because the reference has a lag of 12 to 14 months. So this will have an impact. In terms of the offset that has allowed us to offset the impact of the repricing due to the Euribor referenced in these last quarters have been the lower cost of deposits and the lower wholesale funding. Regarding the lower wholesale funding and deposits, the trend is going to be lower and won't be able to offset fully the impact from the repricing on loans. And the reasons, as you can imagine is both of them are referenced to short term, the 3 months and 6 months more than the 1-year Euribor. And so most of the deposits and the wholesale issuance has already been repriced last quarters. So taking all that into consideration, I think we have still a couple of quarters of slightly lower NII and then recovering from that. Regarding the second question on the excess capital and the update, we will update on our strategy on the uses of the excess capital. But what I can confirm is what we said in our Strategic Plan presentation at the beginning of the year is that this year the payout is going to be 60%. And for the whole period of the Strategic Plan, the 3-year was going to be around 85%. And regarding the difference between the 2, it could have different forms as additional dividend, share buybacks or different options. And So it gives you with the 2 years 2026 and 2027 with a close to around 100% payout to our shareholders. And to give -- to be more specific, I think we will do it in the whole year presentation. Jaime Marcos: Operator please, we can move to the following question. Operator: Next question from Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: So if I may, a follow-up on capital. Just on the quarter itself there was a relative impact from RWAs and others of 3 basis points, given that RWAs were slightly up in the quarter. I was wondering if you could give us some breakdown between the effects that are included in there. A question on the ALCO portfolio. You have a decline this quarter. I'm wondering whether there is a change in strategy? Was this a punctal effect of maturities? Just how should we think about this portfolio going forward? And then if I may, just a third question on the loan book. You have -- there's a sharp decline in the SME book. I was wondering when could we start to see this trend reverting and also whether this drop is still driven by ICO loans maturing? Pablo Gonzalez Martin: Thank you, Carlos. I think you have 3 questions. I'll try to go through the 3 ones. Within the capital bridge, as you can see, we have -- the mainly driver is obviously the retained earnings and the valuation of our EDP position. And in terms of the risk-weighted assets, why it goes up, if you consider that we have around EUR 100 million in EDP and also in market risk another EUR 100 million. So most of that increase is explained by that. The remaining is explained by the credit and mainly due to mix position. And regarding the second question on our strategy for the ALCO portfolio, something has changed. The difference in terms of the impact on the average position of the portfolio is very stable. We already said we found some opportunities. But this year, we didn't have much maturities. For the remaining of the quarter, it's only slightly above EUR 200 million. And we have -- and we use some tactical positioning and fine-tuning with the position. Next year, we have a much larger, above EUR 2 billion maturities on the portfolios. And this will help us also in the NII for next year. And you have to think it's around 80, 90 basis points on yield, the portfolio that mature next year. So we will take opportunity and reinvest most of the portfolio. Obviously, the size of the portfolio will depend on commercial dynamics and the banking books, how the loan book grows and the on-balance sheet deposits evolve in the year. But the most likely scenario is that it's going to be very similar to the level that we have around EUR 29 billion to EUR 30 billion more or less. And the third question on SMEs. I think on SMEs, which is the segment that comes down more on a year-on-year basis, it comes down around 8%, 9% on a year-on-year. But I think what matters is the trend. If you look at the year-to-date, it only comes down to 3%. And on the quarter, it's only 0.6% in a seasonal low quarter because of the summer. So we are quite confident. We are turning the commercial strategy. We have developing -- we are developing and implementing some tools for our people, some solutions for our customer, so the value proposition for our customers, SMEs, but also midsized corporates is improving a lot. And we are building the value proposition and confident that the turning in the evolution of that loan portfolio is going to keep improving in the coming quarters. Jaime Marcos: Please operator, let's move to the following question. Operator: Next question from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: I have 2 questions. One on cost growth. How should we think about cost growth going forward and the cost to income outlook for the next couple of years? Should we expect the cost to income to improve further? And on a 9-month basis, you see a small deterioration impacted by revenue. Should you expect a bit of a normalization on that cost growth? And then a follow-up question on capital. Could you update us on what should we expect in terms of operational RWA inflation into the full year? Pablo Gonzalez Martin: Thank you, Ignacio. On cost growth, as we explained when we announced our Strategic Plan, we are in a process of improving and developing capabilities and talent in different segments that we are underrepresented in the market. And this implies and also the technologies that we are implementing and the AI and everything of all the new developments. This require hiring new people. We are hiring new people in areas where we don't have internal people, and this requires some investment in terms of cost. Also developing some platforms and implementing some platform and integrating with third-party platforms as well to develop the business. So in terms of cost growth, I think the -- we haven't guided the market for next year, but I think we will keep investing in improving our value proposition for our customers and developing capabilities in different areas. Regarding the cost to income, our guidance was below 50%, and we are below that figure and with some buffer because the revenues keep growing. So the [ jaws ] are still positive, and we will maintain this position down the line. And regarding the impact of operational risk-weighted assets in the first quarter or at the end of the year, it will be around close to 10 basis points. So it's not significant, and we can absorb that with our internal capital generation. Jaime Marcos: Please operator let's move to next question, please. Operator: Next question from Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So one of your peers told us today that they have increased their rate sensitivity. Could you remind us what your rate sensitivity is and if you would consider increasing the rate sensitivity in your book? And then the second question is around kind of inorganic growth opportunities. We saw a failed deal in Spain. Does this create any kind of opportunities for you to think more about kind of M&A? And if you could just remind us how you think about M&A opportunities? Pablo Gonzalez Martin: Thank you, Sofie. Let me go through the 2 questions. I think in terms of rate sensitivity, as we explained, we started to hedge our interest rate sensitivity at the end of 2023 when we got the conclusion that rates were coming down, so we positioned the bank. That has allowed us to have a much lower NII reduction this year than originally expected. And this strategy has performed very well, obviously, within the bands that we can have within the regulatory framework that we have on our balance sheet. Regarding going forward, we are in a position more confident, and as we heard Lagarde yesterday, now it's more balanced. The ECB is in a good position. The interest rate, I think, is more stable and the optionality could be upside or downside depending on the economic evolution. Our base case is the economy performed well again in Europe, which is the same view that has the ECB, for instance. They consider and they mentioned the improvement considering the evolution of the economy in the major parts of Europe. So we still think we are very stable in terms of rates. In terms of our positioning, what does it mean? We still this year within that strategy that I mentioned, we have for next year, very flat NII sensitivity, so it's almost close to 0. Very low, very single-digit -- low single-digit interest rate sensitivity for the next 12 months. Going to the 12 to 24 months, still very low, but in the low to mid-single digit sensitivity. And then due to our -- we haven't renewed, but that's in the third year, obviously. And in the third year, due to our positioning because we have a lot of deposits that had a lot of duration due to their stickiness and the evolution throughout the years. So we, obviously, have more interest rate sensitivity, which we think at the moment is a good position. With a steeper curve and the evolution on rates that we think, we think we are well positioned for the coming years in interest rate positioning. Obviously, we will monitor that. We take decisions every month in the ALCO committee, and we keep trying to do our best to improve what is the original positioning of the bank and manage the interest rate sensitivity. Regarding inorganic growth and M&A, I think regarding sector consolidation, I can confirm you that we have the confidence and the support of our major shareholders and M&A is not in our road map. Mergers are not easy. They divert the focus of the business. And now we have -- after many years on M&A process, we have sufficient scale and scope to focus on our own business and develop into the full potential of our capabilities. And we still are working on that and focus on that, and we have the full support of the Board and the shareholders. And regarding other opportunities in M&A, what we are looking all the time it's something that we have to do is within our Strategic Plan, we explained that we want to grow in areas where we have less presence like private banking, like consumer lending. And in those areas, we are developing internal capabilities, looking at new platforms, new agreements and any other type of opportunities in the market. We look at everything if we can speed up that process. But even if we don't do any bolt-on type of transaction, in this we are obviously looking at anything that has the potential to improve and accelerate our development of those capabilities. And in that sense, we will keep looking at opportunities, always thinking on the shareholder value creation, which is our major objective. Jaime Marcos: Let's move, please, operator, to the following question. Operator: Next question from Borja Ramirez from Citi. Borja Ramirez Segura: I have 2. Firstly, on the NII trends, if I understood well, it may have been mentioned that NII may decline in coming quarters. I would like to confirm if this is correct or this is just the customer spread? And then my second question would be with regards to the strategic targets for market share in various loan segments, I would like to ask if you could kindly update -- provide an update on your market share targets. Pablo Gonzalez Martin: Okay. Borja, let's revisit a little bit the NII, as it's quite key for profitability down the line. I think we had a view on NII coming down more significantly in the year than finally it has happened. We have changed our guidance twice and again this quarter. And I think it's mainly due to the steeper reduction in cost and the better performance of the hedging and the strategic interest rate positioning of the bank that we have done in the last few quarters. Regarding the short term, the next quarter, obviously, even increasing our guidance for the year, we still think that we still have 2 -- at least 2 quarters of a significant impact on repricing in the mortgage -- floating mortgage book. And this will have been offset in the last few quarters by lower funding cost, either deposit cost or wholesale funding. And most of that impact is already behind us. If you look at the, as I said, the Euribor 3 months, in the second quarter was 2.10% in the third quarter, 2.01% and now it's 2.03%. And if you look at the 12 months, it's going up from the second quarter again in the third quarter and for this quarter it's also going up. So we don't think we have a lot of repricing from the liability that has a shorter duration and still some reposition. Obviously, we maintain a very large position in floating rates, on hedges in the asset side, so that will offset a little bit. But obviously, depending on the evolution on deposits and volumes, we will see. But the most likely is that we have lower NII for the next 2 quarters. And from that onward, we're still working, and it will depend, and we will give you more clarity. But obviously, the most likely is that we have some improvement from that level. And regarding the second question, it's -- if our strategic targets, I think in loans, we have a clear view that we have to improve. We have been improving in consumer for the whole year. And we, as I mentioned before, incorporates we changed the trend. I think it's important to give you some color. In the performing loans, the market grew around 3% in year-to-date, and we are growing close to 2%. So we are getting close already in this year, and the trends are changing. Obviously, in mortgages, we still have some reduction in the book. And the problem, as you can imagine, is the fierce competition in pricing, and we want to maintain. Our main target is to improve profitability and not volumes. And so we will maintain the discipline that we hope that is coming to the market, but still challenging to maintain the book in mortgages. Our target is to maintain and even improve the book. But obviously, this will depend on market conditions, not only on our commercial drive, because we have one of the best platform in mortgages. We are confident that our funnel is very streamlined and very well positioned to take the full benefit of the growth in the mortgage lending in Spain. But obviously, it will depend on market conditions. We hope that we'll get to more sense, but it depends, obviously, on how it evolves. Jaime Marcos: Please, let's move to the following question. Operator: Next question from Miruna Chirea from Jefferies. Miruna Chirea: I just had one on fees actually. So if we are looking at year-to-date fees, you are growing very well in non-banking fees. However, the payments and account fees are still very much under pressure. I was just wondering if you could give us an indication of what you expect for next years to look like in terms of growth in fees. And also when should we expect this rebound in banking fees to happen? And in the non-banking fees, is the level that you have now a sustainable level? Or should we think about a gradual deceleration there in coming years? Pablo Gonzalez Martin: Thank you, Miruna. Regarding fees, we updated last quarter our guidance because we are performing as you said, in non-banking fees, especially in mutual funds, but also in insurance. I think we in mutual funds growing at close to 10% market share and new inflows it's going to be tough, but we will try. And so our strategy in diversifying our income from different sources it's fully in line with this, and we are improving the value that we offer to our customers. So we think we can keep improving and growing the non-banking fees. And regarding the banking fees, we still think it's going to be challenged for 2026 and then improving from that onwards. But obviously, we have to fine-tune. We have done a lot in terms of loyalty programs and developing and having new value for our customer to increase our -- on the point-of-sale devices. So we are growing significantly on that and the SME value proposition will allow us to increase the transactional fees in the future, but probably next year is going to be challenging again. And we are confident maybe in 2027 is when we will see the increase in banking fees. But for the short term, still challenging in the banking fees, but offset by the non-banking fees that will keep growing. Jaime Marcos: Please operator, let's mover to the next question. Operator: Next question from the line of Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: I just wanted to ask you about the cost of risk. It keeps getting better. And I was just wondering if you could give us your latest view of your over the cycle level for cost of risk. So when could we start seeing? Would that be a higher level than what you have today? And when could we start seeing the pickup in the cost of risk? Pablo Gonzalez Martin: Thank you, Hugo. I think cost of risk has been another of the good news in the year. We were expecting to be around 30 basis points for the year, and we changed that to below 30 basis points, and obviously, being 24 basis points in this quarter. And the evolution on non-performing loans is quite positive as well, and we still have the view that we can maintain. We are quite confident with the credit quality of the portfolio. We already in the past did the full analysis of all the potential risk. Obviously, there's still uncertainty in the market. The geopolitical uncertainties is something that we will revisit in the fourth quarter. But going forward, probably the most likely is that we will be slightly lower than even the guidance that we have given. We're confident that our book is very sound and the analysis that we have done. So the fourth quarter is still -- we will review our -- the geopoliticals and the economic uncertainties. But from the actual portfolio, unless we have some economic shock or some geopolitical impact on the portfolio, we're confident that we have a very strong portfolio and cost of risk should be slightly lower in the coming quarters. Jaime Marcos: We have time for one more question, please, operator whenever you want. Operator: Next question from the line of Cecilia Romero from Barclays. Cecilia Romero Reyes: You were mentioning before that NII may fall in Q4 a little bit depending on loan and deposit volumes. Is there room in there to grow the ALCO to support the NII? And then I wanted to ask on fees. Q4 last year saw a strong pickup on fees of around 4.7% growth. Could we see something similar in Q4 this year? Pablo Gonzalez Martin: Thank you, Cecilia. Regarding the NII, you got the major lines. I didn't mention the other lines on the wholesale funding and the ALCO and liquidity position, I think more or less they will offset. We still -- our view at the moment, obviously, it will depend on the opportunities in the ALCO portfolio. As you know, we are sometimes opportunistic and if we see good levels to get into the ALCO portfolio, some good bonds for the long run, we might do so. But at the moment, with the numbers and the forecast that we have, it will have a slightly negative impact that will be offset by lower wholesale funding. So more or less, the remaining moving parts of the NII for the next quarter are quite flat. So it's mainly the impact of the repricing of the loans. And regarding your second question, the fees, if it's going to be better in the fourth quarter, obviously, we always have some seasonality on fees. And we don't have the actual review, but it might be some seasonality as it usually happens. Maybe slightly lower. Last year was a significant one, but we don't know how it's going to be this year. But the most likely is to have some seasonality impact in the fourth quarter. Jaime Marcos: Thank you very much, Pablo. Thank you all very much. We'll leave it there, and we are in touch. If you need further info, please do not hesitate to contact the IR team. Otherwise, we'll see you next quarter. Pablo Gonzalez Martin: Thank you.
Operator: Good morning, everyone, and welcome to the Lear Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. At this time, I'd like to turn the conference call over to Tim Brumbaugh, Vice President, Investor Relations. Please go ahead. Timothy Brumbaugh: Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's Third Quarter 2025 Earnings Call. Presenting today are Ray Scott, Lear's President and CEO; and Jason Cardew, Senior Vice President and CFO. Other members of Lear's senior management team have also joined us on the call. Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. Before Ray begins, I'd like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear's expectations for the future. As detailed in our safe harbor statement on Slide 2, our actual results could differ materially from these forward-looking statements due to many factors discussed in our latest 10-K and other periodic reports. I also want to remind you that during today's presentation, we will refer to non-GAAP financial metrics. You are directed to the slides in the appendix of our presentation for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. The agenda for today's call is on Slide 3. First, Ray will review highlights from the third quarter and provide a business update. Jason will then review our financial results and provide an update on our full year guidance. Finally, Ray will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions. Now I'd like to invite Ray to begin. Raymond Scott: Thanks, Tim. Now please turn to Slide 5, which highlights key financial metrics for the third quarter of 2025. Lear delivered $5.7 billion of revenue in the third quarter, an increase of 2% from the third quarter of 2024. Core operating earnings were $241 million, and our total company operating margin was 4.2%. Adjusted earnings per share was $2.79 and our operating cash flow was $444 million in the quarter, one of our strongest operating cash flows in our history. Our third quarter financial performance was at the higher end of our expectations despite the significant impact of a cybersecurity incident that disrupted production for one of our key customers, Jag Land Rover, for the entire month of September. Excluding the impact of Jag Land Rover disruption, total Lear third quarter core operating earnings and operating margins would have been higher than the prior year. Jason will provide the additional details on the impact of this disruption to our third quarter results and our full year outlook. Slide 6 summarizes key financial and business highlights from the quarter. As a reminder, our strategic priorities continue to be extending our global leadership position in Seating, expanding margins in E-Systems, growing our competitive advantage and operational excellence through IDEA by Lear and supporting sustainable value creation with disciplined capital allocation. The momentum of positive net performance we delivered in the first half of the year continued through the third quarter, contributing 50 basis points to Seating and 95 basis points to E-Systems margins. This performance was remarkable considering the third quarter of 2024 was also a very strong, making a very tough comparison for the year. It is a testament to our commitment to operational excellence and the benefits we are capturing from our investments in digital tools, automation and restructuring. Through the third quarter of the year, we delivered 70 basis points of net performance in Seating and 105 basis points in E-Systems. Our operating cash flow of $444 million was one of the highest third quarters in Lear's history, second only to the third quarter of 2020, which was skewed by working capital fluctuations resulting from the impact of COVID. Our strong cash flow generation allowed us to accelerate our share repurchases, which totaled $100 million for the quarter, while maintaining our dividend of $0.77 per share. The solid momentum we experienced in the quarter enabled us to raise the midpoint of our full year free cash flow outlook. Had it not been for the impact of the Jag Land Rover disruption, we would have further increased the midpoint of our revenue and free cash flow and increased our operating income outlook. We continue to extend our leadership in operational excellence through IDEA by Lear initiatives. To advance our employees' understanding and applications of digital and AI technologies, we have launched the Lear fellowship program with Palantir. This 12-week intensive training will engage 90 Lear team members from across functions, including IT, engineering, finance and purchasing, empowering them to harness AI capabilities to address real business challenges. This is the first such company-focused fellowship program for Palantir. They are excited to work with Lear because our company-wide commitment to use digital and AI tools to rapidly improve our business and manufacturing process and further improve our cost structure. I couldn't be more excited about the potential of this program, and I will be directly involved to gain the firsthand view into the transformative possibilities of these tools that they offer. We continue to win new business in both segments. In E-Systems, we have been awarded approximately $1.1 billion of business year-to-date. This is the fourth year of the last 5 years where Lear E-Systems has generated over $1 billion of business awards. In Seating, we won new business with several automakers, including awards with BMW, Ford Motor Company, Nissan, Hyundai and Jag Land Rover as well as awards with key Chinese domestic automakers. Our modularity strategy continues to drive new business. In the quarter, we won 4 ComfortFlex awards, including a conquest award with Hyundai and awards with BMW, Leapmotor and Seres. During the quarter, we took operational control of our second joint venture in China this year. The joint venture supplies key programs for Seres. Consolidating this joint venture is expected to add approximately $75 million to our reported revenue for 2025 and a significant growth in 2026. In E-Systems, key business wins include 8 wire awards, among which are conquest awards for Stellantis and 4 awards with Chinese automakers. We also received 2 new electronic awards for power distribution boxes on Ford Motor Company's F-Series trucks. For the third straight year, Lear led the J.D. Power U.S. Seat Quality and Satisfaction Study with 7 top 3 finishes. And our customers continue to recognize us for our dedication to quality and performance. Ferrari honored Lear with their highly coveted Fearless Organization award, recognizing us as a trusted supplier due to our commitment to transparency and reliability and dedication to quality. Nissan also recognized Lear for our industry-leading quality by granting us their 2025 Global Quality Award as well as their 2025 Global Quality Award in North America. During the quarter, we published our 2024 sustainability report, providing an update on our commitments to sustainability and governance. Slide 7 provides an update on the key metrics to track our progress on expanding margins and generating long-term revenue growth. In Seating, we won conquest awards for complete seats in Asia and South America as well as for seat components with several automakers across multiple regions. In E-Systems, we won 2 conquest wire awards with Stellantis in North America and the third conquest award with a key Chinese automaker. Awards for our innovative modular seat products continue to grow. We received 4 additional awards during the third quarter, including a conquest award combining lumbar and seat suspension for Hyundai. Our other solutions combine heat and our foam comfort layer for BMW and heat with seatbelt reminder functionality for both Seres and Leapmotor. These additional wins bring our total to 28 programs for ComfortFlex, ComfortMax Seat and FlexAir products. Our strong relationships with Chinese domestic automakers continue to deliver new business wins. In Seating, we won 5 complete seat awards with BAIC, Seres, Dongfeng, Leapmotor and SAIC. Four of our wiring awards in E-Systems were with Chinese domestic customers. IDEA by Lear and our investments in automation generated $20 million of savings in the third quarter, keeping us on track to deliver approximately $70 million of savings for the full year. Restructuring investments contributed approximately $25 million in savings in the third quarter, positioning us to achieve $85 million of savings in the full year. As a result of our strong operating performance, we are increasing our full year net performance outlook from $150 million to $170 million. This reflects the positive momentum in the benefits of both IDEA by Lear investments and restructuring actions. Our global hourly headcount reduction is 3,400 through the third quarter. Despite an increase in headcount due to the consolidation of our second joint venture in China, we anticipate the fourth quarter restructuring actions will allow us to approach our target by the end of the year. We continue to outperform our scorecard metrics. These strong results are key enablers to improve margins and drive long-term growth in both segments. On Slide 8, I'll highlight the strategic opportunities emerging as automakers accelerate their U.S. production plans. We are currently in advanced discussions with a North American automaker who is looking to increase volume on one of their signature platforms here in the United States. We believe the award is imminent, and we will provide an update when it's appropriate. We view this as the first of several incremental opportunities. While estimates vary, the total addressable market for increased U.S. production is significant. Automakers continue to announce commitments to increase their production footprints in the United States. We are currently in active discussions with multiple OEMs, including a luxury European automaker leveraging their existing U.S. facility, several Asia-based manufacturers expanding their footprint and North American automakers adjusting their portfolio to supply both Seating and E-Systems content. Lear is well positioned to maintain or increase our market share due to this shift. Our strong customer relationships, proven execution and extensive U.S. manufacturing footprint gives us a distinct competitive advantage. By investing in the automation and designing capital specifically optimized for our manufacturing processes rather than relying on the off-the-shelf solutions, we enhance operational efficiencies and we reduce our costs and we accelerate our speed to market. We remain the only supplier to have launched a full seat assembly plant in under 9 months in the U.S., a testament to our agility and operational excellence. We see the onshoring trend as a multiyear growth catalyst and a compelling opportunity to drive incremental revenue and margin expansion while supporting the administration's goal of increasing U.S. manufacturing. Slide 9 provides an update on 2 of our key pillars of our IDEA by Lear strategy. Our process innovation, leveraging digital tools and automation is transforming our operations, enhancing our competitiveness and delivering meaningful value creation. Lear's relentless focus on being the industry leader in technology-driven operational excellence is accelerated by our partnership with Palantir. The Lear fellowship program is a strong endorsement of our culture to embrace operational excellence. Today, we have over 14,000 users fully embedded on the foundry platform, driving performance across more than 10 global centers of excellence. We've deployed over 250 digital tools and AI use cases across product engineering, material purchasing, manufacturing, testing and inventory management, each contributing to smarter, faster and more efficient decision-making. Over the past 7 years, we've acquired 8 companies, each focused on advancing product and process innovation. Our global automation and digital team now includes more than 700 specialists. We've developed proprietary AI tools like Thagora, RoboSCAN and LearVUE. Thagora and RoboSCAN uses exclusive algorithms and automation to optimize the cutting patterns for our leather hides. LearVUE is a vision system that enhances our defect detection capabilities and ensures proper color and motion of our seats amongst other end-of-line function tests. And we built the industry's first automated assembly of our FlexAir, ComfortFlex and ComfortMax systems to demonstrate our innovative manufacturing capabilities to our customers and eventually to our investors in a production setting. By integrating approximately 80% of our capital, which is designed specifically for our manufacturing processes into our complete seat operations at a 20% to 30% cost advantage, we have a significant competitive advantage in both efficiency and scalability. These efforts are already delivering results. We expect approximately $70 million in cost savings this year with an additional $65 million to $75 million of savings annually in 2026 and '27. In addition to the cost benefits, these initiatives improve working capital and free cash flow. Our product and process innovations improve our underlying cost structure, resulting in stronger financial returns for new business quotes. These tools also enhance the safety, quality and ergonomics of our world-class operations and improve employee retention. Our digital and automation strategy is not just about operational excellence. It's a key driver of our long-term value creation. Now I'd like to turn the call over to Jason for a financial review. Jason Cardew: Thanks, Ray. Slide 11 shows vehicle production and key exchange rates for the third quarter. Global production increased 4% compared to the same period last year, driven primarily by higher year-over-year production in North America and China. Production volumes increased by 5% in North America, 1% in Europe and 10% in China. The U.S. dollar weakened against the euro and was flat against the RMB. Turning to Slide 12. I will highlight our financial results for the third quarter of 2025. Our sales increased 2% year-over-year to $5.7 billion. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions and divestitures, sales were down 1%, reflecting the impact of the JLR production disruption, lower volumes on other Lear platforms and the wind down of discontinued product lines in E-Systems, partially offset by the addition of new business in both of our business segments. The JLR disruption reduced our revenue by $111 million in the quarter. Core operating earnings were $241 million compared to $257 million last year, driven by the impact of the JLR production disruption and lower volumes on other Lear platforms, partially offset by positive net performance in our margin-accretive backlog. The JLR disruption, including the impact of trapped labor, reduced our core operating earnings by $31 million in the quarter. Adjusted earnings per share were $2.79 as compared to $2.89 a year ago, reflecting lower adjusted net income, partially offset by the benefit of our share repurchase program. Third quarter operating cash flow was $444 million, a significant increase to the $183 million generated last year due to improvement in working capital, partially offset by lower core operating earnings. Slide 13 explains the variance in sales and adjusted operating margins for the third quarter in the Seating segment. Sales for the third quarter were $4.2 billion, an increase of $138 million or 3% from 2024. Without the JLR disruption, sales would have increased 5% year-over-year. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions and divestitures, sales were up 2% due to higher volumes on Lear platforms, including the Ford Explorer and Aviator as well as the GM full-size trucks and SUVs in North America, the Hyundai Palisade and Xiaomi SU7 in Asia and the addition of new business such as the Tay 3 and the Seres M7 in China and the Citroen C3 Aircross in Europe, partially offset by the impact of the disruption to JLR's production. Adjusted earnings were $261 million, flat compared to 2024 with adjusted operating margins of 6.1%. Operating margins were lower compared to last year, primarily due to lower volumes and the mix of production by program, including the disruption of JLR, partially offset by strong net performance in our margin accretive backlog. Slide 14 explains the variance in sales and adjusted operating margins for the third quarter in the E-Systems segment. Sales for the third quarter were $1.4 billion, a decrease of $42 million or 3% from 2024. Without the JLR disruption, sales would have been down approximately 1% year-over-year. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions and divestitures, sales were down 7%. The decline in sales was driven by the JLR disruption and lower volumes on Lear platforms, including GM electric vehicle platforms in the Ford Escape and Corsair in North America and the Audi A6 and several Volvo GLE programs in Asia as well as the wind down of discontinued product lines, partially offset by the addition of new business such as the Renault 4 and 5, the Citroen C3 and C3 Aircross in Europe. Adjusted earnings were $60 million or 4.2% of sales compared to $74 million and 5% of sales in 2024. Lower operating margins were driven by the reduction of volumes on Lear platforms, including the disruption of JLR and the wind-down of discontinued product lines, partially offset by strong net performance and our margin-accretive backlog. Slide 15 provides global vehicle production volume and currency assumptions that form the basis of our full year outlook. We have updated our production assumptions, which are based on several sources, including internal estimates, customer production schedules and S&P forecast. At the midpoint of our guidance range, we assume that global industry production will be up 2% compared to 2024 or flat on a Lear sales weighted basis, driven primarily by lower volumes in our 2 largest markets, North America and Europe. From a currency perspective, our 2025 outlook assumes an average euro exchange rate of $1.13 per euro and an average Chinese RMB exchange rate of RMB 7.21 to the dollar. Slide 16 provides an update to our full year 2025 outlook. Our current outlook assumes no changes to current tariff policies or significant industry-wide disruptions due to Nexperia or other supply constraints. The primary adjustments to the midpoint of our guidance are as follows: Revenue is now expected to be approximately $23 billion or 1% higher than our previous guidance of $22.8 billion. This increase is driven by favorable volume on their platforms, foreign exchange and the impact of the consolidation of a seating joint venture in China, partially offset by the JLR production disruption. Core operating earnings are expected to be approximately $1.025 billion, unchanged from our prior guidance as higher volumes on our platforms and further improvements to net performance are offset by the impact of the JLR disruption. We are increasing our outlook for restructuring costs by $20 million to reduce excess capacity and lower our structural costs. At the same time, we are reducing our outlook for capital spending by $30 million. Operating cash flow is expected to be in the range of $1 billion to $1.1 billion, and our free cash flow is now expected to be approximately $500 million at the midpoint of our guidance, a $30 million increase, reflecting improved working capital, including better inventory management and lower capital spending, partially offset by higher restructuring costs. Slide 17 compares our October 2025 outlook to the midpoint of our prior 2025 outlook. Revenue is expected to increase by approximately $230 million, primarily due to higher production volumes on Lear programs, favorable foreign exchange and new business growth at a recently consolidated Seating joint venture, partially offset by lower JLR volumes. The midpoint of our core operating earnings outlook is expected to remain unchanged at $1.025 billion with operating margins of 4.5%. While higher volumes on existing Lear platforms and an increase of expected net performance from $150 million to $170 million are positive contributors, these benefits are offset by the impact of the JLR production disruption. Excluding the lower JLR production, the midpoint of our operating income outlook would be approximately $70 million higher and our full year margin would be above 4.7%. We have included detailed walks to the midpoints of our guidance for Seating and E-Systems in the appendix. Moving to Slide 18. We highlight our balanced capital allocation strategy. Our balance sheet and liquidity profile continues to be a significant competitive advantage for us. We do not have any near-term outstanding debt maturities. Our earliest debt maturity is in 2027, and our debt structure has a weighted average life of approximately 12 years. Our cost of debt is low, averaging less than 4%. In addition, we have $3 billion of available liquidity. Our capital allocation priorities remain consistent. We are focused on generating strong cash flow, investing in the core business to drive profitable growth and returning excess cash to shareholders. Given our current valuation and confidence in our ability to enhance the long-term value of the business, we believe the best use of excess cash is to prioritize share repurchases and our sustained dividend. At this time, we do not see a compelling strategic acquisition opportunity in either segment that would deliver superior returns. During the third quarter, our strong cash flow enabled us to accelerate our share repurchases to $100 million worth of stock, and we continue to repurchase additional shares throughout our quiet period. We increased the midpoint of our full year free cash flow outlook and are on track for conversion of approximately 80%, providing capacity to repurchase additional shares in the fourth quarter, exceeding our original $250 million target for the year. Now I'll turn it back to Ray for some closing thoughts. Raymond Scott: Thanks, Jason. Please turn to Slide 21. Our third quarter results demonstrate our relentless focus on areas of the business we can control and improving our structural profitability of the company. Unfortunately, the disruption of Jag Land Rover, one of our key customers in both segments obscured the underlying progress we are making to grow our revenue and strengthen our margins. We continue to win new business across our product lines in both segments, particularly in China. We still see significant opportunities in a robust pipeline. Our focused investments in restructuring and automation are resulting in strong operation -- operating performance and will drive margin expansion in both segments. Our strong focus on generating cash will allow us to achieve approximately 80% free cash flow conversion, and we remain committed to returning excess cash to shareholders. While it's still early to provide a specific outlook for 2026, we see several positive tailwinds over the next 2 years. These include the nonreoccurrence of the Jag Land Rover disruption, a strong and positive backlog and continued benefits from our automation and restructuring investments. In addition, the business solutions emerging from the Lear fellowship program with Palantir are expected to significantly enhance operating efficiency and reduce cost across the organization, including within our administrative and headquarter functions. Looking further ahead, our robust pipeline of opportunities, especially those driven by customers' onshoring efforts, position us for additional growth in '27 and meaningful growth beyond. I couldn't be more proud of the team's third quarter performance, and I'm excited about the opportunities ahead. And now we'd be happy to take your questions. Operator: [Operator Instructions] Our first question today comes from Dan Levy from Barclays. Dan Levy: I appreciate the disclosure for the fourth quarter on the JLR assumptions, and it seems like Nexperia, you're not really assuming anything. Maybe you could just talk about what the impact might be or what's embedded related to the Ford and Stellantis Novelis issue and just sort of any other broader supply chain issues we may be seeing? Does the guide fully reflect these points knowing that Nexperia is a bit of a wildcard? Jason Cardew: Yes, Dan, we were a bit cautious in our volume and production volume assumption for the fourth quarter, and it's really a combination of if there's additional risk related to the Novelis issue, if there's a slower ramp of JLR's production restart and if there's a modest disruption due to Nexperia, that's sort of captured in the range. So absent any meaningful change on those 3 issues, we would expect revenues to come in closer to the high end of the guidance range. And so you could say we sort of have $150 million of revenue protection from the high end to the midpoint for those 3 issues and then another $150 million from the midpoint to the low end. And I will say that there is about $55 million of impact for the Novelis-related production disruptions impacting both Ford and Stellantis. That's embedded in the guidance. So it would have to be something incremental to that. Anything that's been announced is captured in the guidance. And I will say that, generally speaking, JLR's restart and ramp-up of their facilities, there's really been a remarkable effort on the part of the customer and the supply chain just going from 0 back to approaching full production here in a relatively short period of time. So it's been pretty impactful for the company, but they've done a great job so far in getting their lines back up to rate. They're not all the way there yet, but we think by the end of November, they will be. Dan Levy: Great. As a follow-up, I wanted to ask about, Ray, you made a comment at the end of your prepared remarks about just some early considerations on '26 and specifically on backlog. And I know you'll give us a more defined set of backlog comments when you report 4Q. But maybe you could just give us a sense, given the moving pieces that we've seen here on how tariffs and reshoring may be shifting some of the production plans or how EV has shifted plans in North America. Is there still opportunity to have a healthy backlog in '26? Or is it possible that given some of these shifts, there's still a bit of an air pocket as automakers sort of figure out their product plans given the uncertainties here? Raymond Scott: Well, no, it's something, obviously, we've been dealing with it for over some time. It is starting, and we are seeing some stabilization in our customer plans for timing and volume on new programs, which is good. The industry, I think, is not yet back to a normal what we've seen historically source cadence, but we are heading in that direction. So I feel we're in a much better position to evaluate where we're at with '26, '27 and beyond. And in addition to the onshoring and the new program announcements by our key customers provides additional opportunities, like you mentioned, for incremental new business awards, GM with their additional volumes in Orion and Fairfax and Ford Motor Company is adding volume on their Super Duty in their F-150 pickup trucks and Stellantis with new derivatives now on the Grand Wagoneer and the new midsized trucks we do see catalysts for better sourcing environment and growth potential that will be meaningful for 2027, '28 and '29. But even before we consider those longer-term opportunities, and I think we have put ourselves in a very good position, like I said, to not just maintain our market share on those announcements, but even grow. We have increased confidence in our 2026 and 2027 backlog, which we expect will be approximately $1.2 billion. And that is after the net impact of canceled delayed ending programs such like the cancellation of what was the original Ram REV and the delay of the hybrid version, the build-out of the Escape and the Corsair are in our -- the backlog number I'm mentioning as far as a net number. And the later -- the late launch of the Audi A7 and Q9 are considered in that, and that's been almost a 12-month delay. So we still have a strong backlog in '26 and '27 despite all those significant changes or canceled programs. And so we're very optimistic on how we're looking at growth. And again, the new programs that we are currently quoting, particularly the onshore volumes, we expect will improve in the '27 time frame and beyond. And so I think perhaps more importantly, we continue to get very positive feedback from our customers on our automation and digital efforts. I think that's something that is very important. As our customers are considering onshoring, footprint is a key criteria, but they're looking at how they're going to change and the technology innovation that is going to go into these facilities. And so the timing couldn't have been better for us to have this complete automated facility that we have in Rochester Hills to really go through and experience our technology and the continuation of what we've done on the digital side is very impressive. And in some cases, we're getting incredible feedback from our customers. And so there's a lot of different things that are still going on. I was hopeful we'd have some announcements by now, but we're following the process and being respectful of our customers and where they're at. But I do feel very good about the feedback we're getting from our customers on those opportunities. And in E-Systems, I think we've done an excellent job. We have a lot more work to do. We're not by any stretch happy on where we're at. I think Nick and the team are doing an excellent job of expanding margins. And they've done a nice job this year, like I said earlier, the $1.1 billion of awarded business. And most recently, the new awards we're getting now with the domestic Chinese is critical. And most recently, we just got requests from several OEMs on potential conquest opportunities. And that was very surprising to get those requests. And so those are things I'm not going to get ahead of myself on those, but I see some very constructive good signs from our customers on continued growth in these systems. And so we will discuss a little more formal and update our backlog on the fourth quarter earnings call. But I feel really good. And again, I think we have a solid backlog right now, given all the canceled programs, delayed programs, what we've done. I feel better where the customers are at now. I think they've really sized up their portfolios. We have a good understanding of where they're at, and that's our net number, and we have a lot more opportunities. Like I said, hopefully, by the end of the year or early next year, we'll have some of these onshoring announcements. But I think from a technology innovation and automation, we put ourselves in a very, very competitive position to win some good business there. And so I'm very optimistic and positive on what we're doing with growth. Operator: Our next question comes from Joe Spak from UBS. Joseph Spak: I guess maybe one clarification here. On Slide 7, you're showing like you're ahead of the net performance targets year-to-date versus sort of the annual one. So I just want to understand, does that mean there's some bad guys in the fourth quarter because of some of the volume headwinds you're pointing to? Or are you trying to sort of imply that you're just running ahead and there might be a little bit better performance that you could eke out for the year? Jason Cardew: Yes. That's effectively what's implied in the full year guidance. And so we had a particularly strong third quarter, Joe, on that performance and some of what we had anticipated on commercial settlements, commercial negotiations, what were planned in the fourth quarter were pulled into the third quarter. And it's about $10 million that we were able to pull ahead. So Q3 is a little stronger than anticipated, and then that's offset in the fourth quarter. And then the other factor impacting sort of that sequential performance from the third quarter to the fourth quarter, we have some higher engineering spending, and that's a combination of spending and the timing of customer recoveries, particularly in E-Systems, where we had really strong new business wins this year, and we're ramping up the engineering resources to support those programs. That's a factor. And then on just salary compensation, this is the time of year where we have our annual compensation increases. So the fourth quarter reflects some additional costs relative to the third quarter. And then that's partially offset by some incremental performance through restructuring and IDEA by Lear. So those are sort of the net puts and takes. And again, I think I would characterize the guidance as appropriately conservative given the other factors I listed a moment ago in response to Dan's question with JLR, Nexperia and Novelis. And absent deterioration in those 3 areas, we would expect to outperform the midpoint. We do have an investor conference we're participating in, in early December, and we look to provide an update for investors at that point in time and how things are tracking. Joseph Spak: Okay. And then maybe just on some of the backlog commentary, right? I guess I just want to make sure I thought I heard the $1.2 billion number. Was that a '26, '27 combined number? I just want to -- maybe if you could clarify that. And then also related to some of the wins, and I know you even sort of talked about an F-Series win on distribution boxes this quarter. I think you already won some thermal. I know you've previously expressed some optimism that more can be done on the seat side, but I think that you had mentioned some of the sourcing decision for that program has been delayed. I'm just wondering if you have an update specifically there, whether that program has been awarded yet. Jason Cardew: Yes. So maybe I'll start and then Ray can answer the second part of the question. So to clarify, the $1.2 billion is, in fact, the 2026 and 2027 number. At this stage, it's roughly 50-50 between the years, so roughly $600 million in each of those 2 years. And so we had not previously provided a 2027 backlog at the start of the year when we updated 2025 and 2026. And a lot has happened. And we just felt like we had shared a lot of the headwinds impacting '26 and '27 with the program cancellations and programs that are ending production like the Escape and Corsair, but we hadn't talked about all the positives, which we've had significant new business awards in that '26 and '27 time frame in both business segments that helped offset it. We also have the benefit of this new business with Seres in China as a result of taking control of the joint venture there, excited about the growth potential of that as well. So I think on balance, all things considered, we're pretty happy with where we're at, and we feel like we have some additional upside for some of the sourcing and onshoring that is yet to take place, that may impact the sort of tail end of '27 and maybe more so '28 and '29. Raymond Scott: Yes. I think the process, albeit it's been longer than what we anticipated, I kind of look at 2 different buckets. One is the onshoring opportunities that we're engaged with our -- with different OEs throughout the U.S. and European customers and obviously, North American customers and looking at opportunities there. And those are taking, which I think is the right process, a lot of technical analysis, what we're going to do with automation, how we're going to lay plants out, how we're going to set up facilities near their facilities. Those are all very constructive, and I'm very confident that those are going in the right direction. The conquest wins or opportunities we've talked about are equally, I think, as balanced as far as opportunities and they're still available. They just through the processes take a little bit longer than what we would originally target it, but nonetheless, hasn't changed our optimism around our ability to win some really good conquest opportunities and then also the onshoring relative to some of the different OEMs I've mentioned. And so it's just taking a little bit longer. I was hoping that Jason mentioned an investor conference we're going to go at. Hopefully, we can let a little bit out there. But if not, as it's coming out and it's appropriate and we get approval from our customers to announce it, we'll make sure that you know. Joseph Spak: Okay. One really quick follow-up, just to make sure we're properly covered. That's the consolidated backlog numbers you're talking about, correct? Or does that include some... Raymond Scott: That's correct. Yes, that's just the consolidated. Operator: Our next question comes from Mark Delaney from Goldman Sachs. Mark Delaney: I guess, one topic I wanted to start with was around the increased ability to do automated manufacturing in the U.S. And you spoke about just how automated this new facility is. And so as you think about doing more work in the U.S. and hopefully supporting some of these programs that you referred to, could you just talk about the margin implications? I mean, I think clearly, labor costs tend to be higher in the U.S., but there's so much automation. So as you do that kind of a business locally, is that supportive of the near- and medium-term margin targets of the company? Jason Cardew: Yes. I think that looking at the onshoring opportunity specifically, we're seeing operating margins that are very similar to our North America seat business. And so the automation is helpful in terms of being able to offset maybe the higher cost of labor between Mexico and the U.S. and the net effect of that may be a little higher CapEx, but with the resulting benefit being strong operating margins in those facilities. And so -- and then on the conquest awards, sort of the same story. We see leveraging automation and our unique position with automation and our digital strategy as a way to earn higher returns on our seat business that we're conquesting and use that as a catalyst to expand returns or protect returns. And our overall returns in Seating are industry-leading now. So part of it is maintaining that level of ROIC that we have achieved pretty consistently over the last 10 years in the seat business. And so we don't see a real shift in terms of ROIC. You may have a little bit higher operating margin to fund the added investment, though. Raymond Scott: I think it's important, too. I mean, we emphasize this, how we're differentiating ourselves in the focus on not just product. We've really focused on the disruption of the purchasing model, and that's taking some time, but '28 significant awards with ComfortFlex, ComfortMax and FlexAir. That's a significant change in the purchasing model or what they've typically done. And so that is something that we're going through, and there's a significant savings and opportunity there in the way we're automating it. So it's tied to the manufacturing facility. And the acquisitions we've made, I think we got to look at -- we've been at this for over 10 years. And the timing is very good for the technology and innovation that we brought in. You cannot gap this out and catch up in any reasonable time. This is something we've been working on for a long period of time, and we're being recognized from our customers. There's feedback that we got that they're looking now at technology innovation within the supplier base, and we had a significant advantage over our closest competitor. And we're going to just keep pushing the gas on that. I mentioned that by having these in-house capabilities and building very purpose-built capital allows us to significantly take the cost down. That's very important. We're manufacturing our own capital now. Historically, we would buy 80%, 90% of our capital and very generic, very standard, very across the board use of capital. We're very purpose-built. And just like you think about VA/VE or cost savings through engineering designs on the product side, that whole opportunity exists, and we're seeing it. And I say 20%, 30%, we're going to push that even harder. And so we're seeing our capital numbers come down significantly. And I think the important ingredient here with our domestic Chinese that are pushing timing and now what we're seeing here with onshoring, the speed to delivery. We can get at that. It's very important to keep bringing up the most recent launch that we had here in the U.S. and be able to launch that in 8 months. That's because we have full control. So I think about a full-service manufacturing integrator, and there's not a lot of companies out there. We're benchmarking different companies and there's some great companies that we look at and say, okay, we got to gap that out. We have to prove that. But from product design to manufacturability, we have the elements. And so as we're having these -- why I'm so confident is the feedback we're getting from the customers. And again, a lot of this is about retention. The employees love the technology on the platform. We get great feedback on job satisfaction, the ergonomics, the ability to see better around inventory levels and how we can really focus on working capital. This is an accident when we look at our cash flow and what we're doing. These all benefit everything you want to check off. And so having a leadership position in that, the timing couldn't be better. And like I said, I'm optimistic. We were going to wait until we get the appropriate feedback from our customers on these awards. But I think that will just lead to more evidence on everything we're doing is in a constructive good way, disrupting how you think about just-in-time seating. And you can have others that talk about what they have and don't have, but having that ability to have it in-house is a differentiator. Mark Delaney: Well, I'll stay tuned for December 4. Hopefully, I get some news there at the conference. My second question was on net performance. I think, Jason, last quarter, you described an expectation that net performance in 2026 could be replicated relative to what you were seeing in '25. And at the time, that was $150 million. So as you look into '26 and think about net performance, is the $150 million level you've been expecting 90 days ago still reasonable framework at this point? Or any updates that you can share on your net performance thoughts for next year? Jason Cardew: Sure. I think just to clarify, what we've said is that we believe that what we can -- we had established a target for net performance in the business for this year, 40 basis points in Seating and 80 basis points in E-Systems and that we could replicate that in '26 and again in 2027. We've done better than that this year. As we're building our plan for next year, we'll provide more details on that. But I think it's north of $100 million of net performance in that range. If you, again, achieve 40 and 80 basis points in Seating and E-Systems, respectively, as we look out to next year. It's a key margin expansion catalyst for the business, and we're confident that we can continue to repeat the performance that we saw this year, maybe not to the $150 million or $170 million level now that we've had embedded in this year's outlook. We're certainly going to work towards achieving that. But I can say with confidence that we're -- we can generate 40 to 80 basis points, 40 in Seating, 80 in E-Systems of net performance in 2026. Raymond Scott: And I think it's important, we put those metrics out there because they really are driving us. And we are going to expand our margins in both business segments. That is the focus. That is the focus. And we're trying to illustrate with the ability to execute how we're getting at that. And having that confidence, why we're talking about is I think introducing IDEA by Lear and what we're doing prior to that really illustrated what the company can do. Our culture is built around getting at this. And so I think it's a baseline for how we see this year, but we're very confident in what we're going to be able to deliver next year. And it is going to be about expanding margins in both business segments. Operator: Our next question comes from Emmanuel Rosner from Wolfe Research. Emmanuel Rosner: I appreciate all the color on the onshoring opportunities. Any way to dimension this for us in terms of addressable market, it's either in terms of volume or revenue? Like how many units are you sort of like seeing customers looking to potentially bring to the U.S. and in what sort of time frame? Jason Cardew: I think the way that we can dimension it is, we've established and communicated a market share target in Seating, for example, growing from 26% to 29%. And we've said that we believe the onshoring on balance will support our market share or expand our market share. So I think it's premature to get into specifics around revenue dollars or units of production in terms of what will be done in the U.S. given the state of the discussion with customers, I think that, that kind of level of granularity would be misplaced at this point, Emmanuel. Emmanuel Rosner: Understood. And then I appreciate also the color on the backlog, certainly encouraging to see some wins for 2027. Can you also give us a sense of potentially the breakdown between your 2 product lines, Seating versus E-Systems within that? And how this -- how should we think about growth over market for E-Systems progressing from here between maybe the end of the wind down at some point and then some of these big wins that you have mentioned? Jason Cardew: Yes. So if we look at next year, Seating backlog is expected to be north of $700 million and E-Systems is right around negative $100 million. And so the biggest factor driving that next year is the balance out of the Escape, Corsair and again, wind down of the Focus and C-MAX in Europe, $230 million, $240 million of revenue that goes away on those kind of key platforms. We do have -- just to talk a little bit about backlog composition in both business segments next year, we have the Audi Q7 and Q9, which is that -- the Seres M7 and the Jeep Cherokee here in North America. Those are the big 3 programs that drive the bulk of the Seating backlog next year, but we also have some growth with BMW on their Neue Klass or NCAR program. And we have some growth with the global EV OEM with BAIC and with BMW. On E-Systems, we also have growth with a global EV OEM that rolls on next year. That was a conquest win for us. We have the continued ramp-up of the Volvo EX30 in Europe, which is a great program for us. And then we have electronics business with JLR, which we -- I'm sorry, with BMW, which we talked about when we announced our PACE award, a zonal control module with BMW that ramps up next year, and you see it's kind of the full impact of that production starting more in 2027 and 2028. That's the single biggest program over the next 2 years rolling on in E-Systems. As you highlighted, we are still digesting the wind down of product lines that we're exiting in E-Systems. Those numbers are consistent with what I shared on the prior earnings call. And so it's about $350 million over 2026 and 2027. So that's certainly going to weigh on growth over market over that time period. And then in 2028, you start to see, and in '29, the benefit of the conquest awards and new business growth opportunities that we've won this year and are pursuing throughout the balance of this year and into next year, like the F-250, where a portion of that was replacement business, but there's a significant portion of that, that was conquest. And we have several other opportunities that we're quoting right now in wire that would be conquest opportunities and lead to further growth in that window. And so the near-term growth of the market is going to be weighed down by the wind down of the programs and the roll-off of that Escape, Corsair program. Emmanuel Rosner: Just very quickly a clarification. So this wind down in E-Systems, that would already be included in the small negative backlog in 2026? And then -- would you talk about the breakdown of the backlog between businesses in '27, please? Jason Cardew: Yes. I think I'll save the '27 detail for the fourth quarter earnings call. It's more balanced in '27 than in '26. Again, in '26, the E-Systems backlog is negative, and that's independent of the wind down of the electronics business that we've spoken about in the past. Operator: Our next question comes from Colin Langan from Wells Fargo. Colin Langan: Just as we think about '26 margins, you mentioned this year, the starting point, excluding JLR would be 4.7% and then there's $65 million to $75 million of automation savings. Is that the right way to think about as we step into next year that the baseline is 4.7% and then you have the $70 million-ish of additional help. Any other factors that I should be considering? Or is that the right starting point? Jason Cardew: Yes. I think it's early, obviously, to provide pinpoint numbers for next year, and we're still deep in our planning process. But you've hit on some of the key puts and takes as we look out to next year. And I think the right way to model 2026 for Lear, the right exit rate to use for that is kind of the JLR adjusted operating margin of 4.7%, and that's why we thought it was important to share that with investors today. Looking at the S&P forecast, they're calling for lower production, particularly in North America, I think, down 2.5%. We haven't concluded our view at this point, but we're trying to use conservative volumes for our planning process in order to get the cost structure aligned and our margin improvement plans set based on that relatively conservative set of assumptions. And from there, you can overlay the benefit of our backlog, offset a little bit by the E-Systems wind down and the benefit of our net performance improvements, which will be higher in E-Systems than Seating. So kind of summarizing all of that, at a very early stage here, we do see revenues higher next year and earnings higher next year. We see margins higher in both segments, probably a little bit more in E-Systems. Raymond Scott: Yes. Just -- I mean, to summarize it, we're -- it's everything we're doing, I feel really good about the work we're doing around this net performance and what we're doing with IDEA by Lear. I think the topic that I brought up with this continued partnership with Palantir and what they brought to us with the fellowship program, I think, is really going to get us -- I think we've done a great job operationally in manufacturing, but now really getting at our administrative offices and our headquarters, those type of things are going to only continue to allow us to get at our cost structure. So we're going to expand margins in both business segments. I see that the results, what we're doing in our plants, what we're doing operationally, what we're doing with cash flow, very confident. And I think we have some great tailwinds despite some of this unfortunate customer downtime that's going to really push us into '26. And so we're going through it. The team, Nick and Frank are here. We all know it. We're going to expand margins and get more efficient, and we got the tools to do it. So I'm confident, and I think we have some good tailwinds heading into '26 despite everything else going on. Colin Langan: Got it. And then just lastly on buybacks. I think you commented that there's sort of no big M&A on the table. And the pace in the quarter, just $100 million, I think your commentary implies another $100 million. Is that maybe the pace we should consider that most of the cash flow starts getting allocated to buybacks? Or is that reading too much into the outlook? Jason Cardew: No, that is clearly what we are signaling here in the -- for the balance of this year and into next year. We think that's the best use of our excess cash. And we're targeting about $300 million in the fourth quarter. We had a program in place to buy throughout the quiet period. I think we've bought almost $50 million through the month of October, and we're going to continue through the balance of the fourth quarter. If we have a line of sight on a free cash flow number beyond the midpoint, we may buy back a little bit more even. We're going to be very opportunistic with our buyback program, and we see that continuing into next year. Now we do have our Board meeting in November where we discuss capital allocation. And so ultimately, that's a Board decision, but that is our current thinking. Raymond Scott: Yes. But we're focused on that cash. I like this quarter, the $444 million, and I love some of the things that we're putting in place around working capital and inventory levels. It's continuing to improve and we're going to continue to push the team because that cash is important, and we're going to continue to drive good results there. Colin Langan: Did you just say $300 million in Q4 in buybacks or $100 million, maybe I'm not sure if I misheard. Jason Cardew: $300 million for the year. Operator: And ladies and gentlemen, with that, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Ray Scott for any closing remarks. Raymond Scott: Yes. Thank you. And I'm sure the Lear team is on the phone. I just want to again extend my appreciation and thank you for a great quarter. I know we got a lot to do to finish up the full year, but I know -- like I say, we're built differently. I know we're all going to get at it, and we're going to knock this thing out of the park. So I appreciate everything you did in the third and looking forward to what we're going to achieve in the fourth. Thank you. Operator: And with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good morning, everyone. Thank you for standing by, and welcome to the Cenovus Energy's Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder this call is being recorded. I would now like to turn the meeting over to Mr. Patrick Read, Vice President, Investor Relations and Internal Audit. Please go ahead, Mr. Read. Patrick Read: Thank you, operator. Good morning, everyone, and welcome to Cenovus' 2025 Third Quarter Results Conference Call. On the call this morning are CEO, Jon McKenzie; and CFO, Kam Sandhar, will take you through our results. Then we'll open the line for John, Kam and other members of Cenovus' management team to take your questions. Before getting started, I'll refer you to our advisories located at the end of today's news release. These describe the forward-looking information, non-GAAP measures and oil and gas terms referred to today. They also outline the risk factors and assumptions relevant to this discussion. Additional information is available on Cenovus' annual MD&A and our most recent AIF and Form 40-F. And as a reminder, all figures we referenced on the call today will be in Canadian dollars, unless otherwise indicated. You can view our results at cenovus.com. For the question-and-answer portion of the call, please keep the one question with a maximum of one follow-up. You're welcome to rejoin the queue for any other follow-up questions you may have. We also ask that you hold off on any detailed modeling questions, you can follow up on these directly with our Investor Relations team after the call. I will now turn the call over to Jon. Jon, please go ahead. Jonathan McKenzie: Great. And thank you, Patrick, and good morning to everybody. To begin the call, I'd like to recognize some of our employees for safely achieving a number of critical accomplishments and milestones over the quarter. Coming into this year, we set some very ambitious goals for the company in 2025 and our execution has been near flawless. What make these achievements even more satisfying is that we have remained focused on the safety of our people, the communities in which we operate in the environment. Now for example, at the West White Rose project, we completed some intricate and critical work in the third quarter that included installing the top sides on the gravity-based structure, making subsea connections at 120 meters below the ocean surface and completing a turnaround of the SeaRose FPSO. These operations require thousands of offshore hours and were completed in one of the most hostile operating environments, the North Atlantic and I'm incredibly proud of our people and their continued commitment to our core values as we meet our goals and milestones. Now before I get to the results, I'd also like to take a moment to speak about the MEG acquisition. As many of you are aware, MEG shareholder vote, which was scheduled to take place yesterday has been postponed to next Thursday, November 6. The delay is to give time for MEG to respond to a regulatory inquiry related to MEG's consideration of the amended terms of the transaction-related matters. The inquiries associated with a complaint raised by a former employee of MEG, who holds approximately 4,000 shares. We do not expect this inquiry to have any impact on the transaction. There continues to be very strong support for the transaction for MEG shareholders with 86% of the shares voted in favor of the transaction. We expect the vote to proceed as planned next week. Cenovus remains resolute in our commitment to this transaction. When completed, this acquisition combined with the organic growth we are already delivering across our business is transformational to this company. Subject to shareholder and court approval, we anticipate closing this transaction in November and welcoming the MEG team and moving quickly to capture the identified synergies and beyond. Now turning to the quarter. We've spoken about 2025 as being an inflection point for our company, where the investments we've made in our people, our assets and in the growth of our business start to come through. The third quarter results are a proof point of more to come. We achieved the highest ever upstream production of 833,000 BOE per day, highlighted by the best ever performance of our oil sands assets which contributed 643,000 barrels per day. At Christina Lake, production was 252,000 barrels a day in the third quarter, supported by the ramp-up of volumes from Narrows Lake. In the quarter, we brought on 3 well pads at Narrows Lake, which are continuing to ramp up as expected. We expect Christina Lake to sustain or exceed its current production rates in the coming quarters. At Foster Creek, we achieved a production record of 215,000 barrels per day in the quarter. As part of the Foster Creek optimization project, we brought on 4 new steam generators online in July and they've already supporting consistently higher production from the asset, well ahead of schedule. Commissioning of the water treatment and deoiling facilities is underway and approaching completion. New pads will be brought online in the first quarter of 2026. We have effectively brought forward a portion of the growth from this optimization project that was really not expected until 2026. We expect to build on the high level of production in the coming quarters as we fully utilize the steam capacity and complete the project. At Sunrise, we executed a turnaround in September and production was 52,000 barrels a day in the quarter, with turnarounds at both sides of the plant completed in the year and followed by an efficient ramp-up, we expect Sunrise to exit the year around 60,000 barrels a day. The first of the new well pads from the East development area at Sunrise is planned for start-up in early 2026. Development of the high-quality reservoir in this region will deliver the next phase of growth from the asset over the next 2 years. The Lloydminster Thermals produced 96,000 barrels per day in the quarter, the assets have performed very well despite 18,000 barrels of production from Rush Lake facilities remaining shut in as strong performance from the other assets in the region offset some of the lost volumes. At Rush Lake, we have confirmed the integrity of the asset and are working towards a phased restart of production prior to the end of the year, subject to approval by the regulator. We expect to safely ramp up production through 2026. At West White Rose, I'm pleased to say the commissioning is nearly complete and there has been an extraordinary achievement by everybody involved, and we will be drilling from the platform prior to year-end and seeing first oil in the second quarter of next year. Now moving to the Downstream. We had an excellent third quarter. The Canadian refining business continues to run well with crude throughput of 105,000 barrels a day and utilization rate of about 98%. In U.S. refining, we delivered record production with crude throughput of 605,000 barrels per day and utilization rate of 99%. Our assets ran as expected during the quarter with high rates of utilization and availability. And this in conjunction with seasonally higher -- or seasonally stronger crack spreads generated positive refunds flow for the business. Cost control in the downstream has been a focus area for the business, and we continue to see unit cost trend downward towards competitive benchmarks and with the sale of WRB, which closed at the end of the quarter, our downstream business is now fully owned, operated and within our control. Now I'll turn it over to Kam to walk through some of the financial results. Kam Sandhar: Thanks, Jon, and good morning, everyone. In the third quarter, we generated $3 billion of operating margin and approximately $2.5 billion of adjusted funds flow. Operating margin in the Upstream was approximately $2.6 billion, an increase of around $450 million from the second quarter, driven by our strong operating performance and higher realized pricing in the oil sands. Oil sands non-fuel operating costs of $9.65 per barrel decreased quarter-over-quarter due to lower turnaround activities and higher production volumes. We continue to make progress on reducing operating costs across the upstream business and expect to see further reductions as we bring on the West White Rose project, realize a full benefit the Foster Creek optimization project and continue to see steady ramp-up at Sunrise. Our downstream business demonstrated strong performance in the quarter with operating margin of $364 million. This included $88 million of inventory holding losses and $38 million of turnaround expenses partially offset by a $67 million benefit related to the receipt of the small refinery exemption at Superior. In the U.S. refining per unit operating costs, excluding turnaround expenses were $9.67 a barrel, a decrease of $0.85 a barrel from the second quarter and over $3 a barrel relative to the same quarter last year. The reduction in OpEx was largely driven by performance from our operated assets which delivered operating cost of approximately $9.90 per barrel in the third quarter. Adjusted market capture for the U.S. refining business was 65% in the quarter, this was supported by a capture rate of 69% from our operated assets, which benefited from the small refinery exemption at Superior and increased refined product exports from the dock at Toledo. The sale of our 50% interest in WRB refining closed at the end of the third quarter. In addition to the cash proceeds of $1.8 billion received on October 1, the transaction eliminated Cenovus' share of drawn credit facilities associated with the joint venture of $313 million, resulting in a total value received at $2.1 billion based on preliminary closing adjustments. Results from our U.S. refining business will only include our operating assets beginning in the fourth quarter, and we have updated our 2025 guidance to reflect the sale of Wood River and Borger. Capital investment of $1.2 billion was driven by a consistent level of sustaining activity across the business in addition to the continued advancement of our key growth projects. With the West White Rose project now substantially complete, we continue to expect our growth capital to come down significantly in 2026. At the end of the third quarter, our net debt was approximately $5.3 billion prior to the receipt of the $1.8 billion of cash proceeds from the sale of WRB. We returned $1.3 billion to shareholders in the quarter through dividends and share buybacks. We took the opportunity to allocate more capital to share repurchases in the third quarter following the announced sale of WRB. This included the purchase of about 40 million shares at an average price of $22.75 per share. The total value of the share repurchase in the quarter was $918 million which is approximately $175 million higher than our excess free funds flow in the quarter. Subsequent to the quarter and through October 27, the company purchased another $409 million worth of shares or about 17 million shares. And as Jon noted, following the approval by MEG shareholders, we expect the acquisition of MEG Energy to close in November. Total consideration for the transaction is expected to be a split of 50% cash and 50% Cenovus shares. This equates to a maximum of approximately $3.8 billion in cash and the issuance of $160 million Cenovus shares on a fully pro rata basis. Pro forma, our balance sheet remains strong with less than 1x net debt to cash flow. And going forward, we'll continue to be opportunistic with our share buybacks while living within the guidelines of our financial framework. As we head into 2026, our major projects are nearing completion and our growth capital is coming down. Combined with the strength in our balance sheet, the business is positioned well to support our near-term growth plans and remain resilient even at the bottom of the cycle commodity price. I'll now turn the call back to Jon for some closing remarks. Jonathan McKenzie: Great. Thank you, Kam. As I mentioned earlier, we set some ambitious goals for ourselves and the company for this year, and I couldn't be more proud of the way our people have taken up the challenge. We've largely completed our growth projects and are seeing the benefits of higher production with more to come over the future quarters. Our downstream business has been relentless in driving performance across the portfolio of assets and the sale of WRB gives us full operational, commercial and strategic control of our downstream business while monetizing our non-operated business at an attractive price. Our business is blessed with a deep inventory of development opportunities at low supply costs below $45 WTI and underpinned by a fortress balance sheet. We are focused on aligning our strategy, business plans and priorities and look forward to building on a quarter-over-quarter growth and value for the foreseeable future. And with that, I'm happy to answer your questions. Operator: [Operator Instructions] Our first question comes from the line of Menno Hulshof from TD Cowen. Menno Hulshof: Just a question on portfolio streamlining. If we assume that the MEG deal closes towards the middle of November, like you've talked about, how should we be thinking about asset sales potential in the context of what would be a more levered balance sheet? I know you get this question a lot, but any updated thoughts there would be helpful. Jonathan McKenzie: One of the things that we are always very cognizant of Menno is the amount of leverage we keep on our balance sheet, and we've always run with an underlevered balance sheet, which allows us to do transactions like this very comfortably. So there is no burning platform to need to delever after doing this transaction. We're very comfortable with the level of debt that we're going to be taking on to get this deal done and through time, we'll get back to the $4 billion of net debt, but there is no urgency to do asset sales or something like that in an effort to get there. And that being said, we always look at the portfolio. We always should think about how we want to position ourselves and if opportunities arise. We're always live to those, but certainly, there's nothing that would say that we need to do something tomorrow. We would never do a transaction like this if we felt it was going to corrupt the balance sheet and put our equity holders in harm's way. Menno Hulshof: Great. And then maybe moving on to the downstream, we're sort of moving into November now, sort of 1/3 of the way through the quarter. How would you frame the setup for U.S. Downstream for Q4. And then maybe on a related note, how much should we expect market capture to be impacted with the Wood River border assets no longer in the mix? I'm guessing it's no more than, call it, 1 to 2 percentage points, but any thoughts there would help. Jonathan McKenzie: Well, in Q3, our market capture was actually higher in our operated assets than they were in the non-operated assets. But I've got Eric Zimpfer with us this morning. So maybe I'll turn that question over to him to see how he's thinking about Q4 and market capture. Eric Zimpfer: Yes. Thanks, Jon, and thanks for the question, Menno. Yes, I'd say I certainly think the third quarter is a testament to the work that the team has done, and I think has been something that has really been a focus area for the year. And really proud of the results of what we're seeing in the third quarter. As we look at the fourth quarter, I think there's a couple of things I think about in terms of the underlying performance, continue to be encouraged by the trajectory. So reliability improvements that we've made have really give us a foundation. I think the cost focus that we've had throughout the year and the results that we're seeing with the lower cost base is something that, again, we continue to focus on and will continue to be something that we emphasize going forward. Yes, any time you get into the fourth quarter, you expect margins to start to come off, cracks start to weaken. We're already seeing some of that. There's some strength right now. But I think having a strong business and strong underlying performance gives us the ability to kind of weather through some of the market challenges that you inevitably expect in fourth quarter and then also in the first quarter as well with the PADD II region specifically. In terms of the market capture, I'd just maybe emphasize. Reemphasize what Jon shared, that has been a continued area of focus for us. A number of things that we've worked to really help strengthen our market capture. The U.S. operated portfolio really outperformed the collective portfolio in terms of what we saw in market capture. So continue to be encouraged, but it's something we are continuing to focus on and try to figure and look for opportunities to grow that market capture even more through our synergy opportunities as well as accessing some markets where we can have some higher netbacks and better product placement. Operator: One moment for our next question. Our next question comes from the line of Patrick O'Rourke from ATB Capital Markets. Patrick O'Rourke: Maybe just to sort of continue on the downstream theme there from Menno. Just wondering, now with the fully operated portfolio with the integration in the kits, sort of what the flexibility is going forward in terms of the product slate. It's a little bit lower on, call it, diesel distillate yield and maybe some of your Canadian peers, is there an ability to raise those things, capture premium products? And then you've spoken to pushing product in the more premium markets, Eastern Canada, et cetera. What progress you've made on that so far. Eric Zimpfer: Yes. Thanks, Patrick. It's a great question. In terms of the portfolio, I think one of the things I'm really excited about is with the opportunities of the U.S. portfolio, I think, particularly around the synergies each refinery has its unique configuration that allows us to maximize the value. But one of the things we've really started to lean into is how do we optimize across the entire portfolio? And how do we get the best product yield across portfolio and not just asset by asset, but really thinking about it at a portfolio level. I think that gives us a tremendous opportunity. And I can think particularly in the Ohio Valley area, where we're able to optimize, whether it's our premium production, premium gasoline production whether it's balancing our distillate feedstocks and maximize their distillate production truly an area where we're continuing to explore and we see -- we certainly see some potential benefits and also the opportunities to do some investments in the future to look at how do we continue to make the best products from our kit. In terms of kind of the second part of your question on accessing the markets, continues to be an area of focus. PADD II is, we think, a really good region for us, but the opportunity to place products outside of PADD II and find more advantaged markets is really important to our strategy. I would point to -- we've made significant progress in how we're managing the Toledo marine facility. And that has given us the ability to put products into a number of different regions outside of PADD II whether it's in the Canadian markets, whether it's into Upstate New York or whether it's into other regions on the Great Lakes. But tons of opportunities there. We're really excited about the opportunity to further explore that. And see great upside there. Patrick O'Rourke: Okay. Great. And then just in terms of free cash flow allocation priorities, I know with the initial MEG transaction, you came out with sort of a formula in terms of allocation of balance sheet versus shareholder returns, 50% than 75% finally 100%. Today's updated deck just really speaks to the 100. And I know you said it wouldn't necessarily be formulaic on a month-by-month, quarter-by-quarter basis. But maybe if you could comment sort of on the game plan in terms of allocation today between delevering and share buybacks. Jonathan McKenzie: Sure. Kam, you've done a lot of work on this. Why don't you take this one? Kam Sandhar: Yes. So Patrick, I would kind of separate sort of from the MEG transaction what we're doing today. Obviously, we spent the last year to -- even longer than that, getting the balance sheet to where we are today, which is at that $4 billion target. So putting MEG aside for a second, I would say the plan would be to return 100% of our excess free cash flow because we are at our long-term debt level. And we'll be -- we continue to see that as a really good opportunity today, and we'll continue to utilize our free cash flow to return that cash back to shareholders. And I'd say for now, given where the share price is, and we continue to see it as an attractive place to deploy capital, you should expect that excess free cash flow to go towards share repurchases. Obviously, as we get to the point where MEG does close, which we still expect here in November, we will adjust that framework to be a bit more balanced with deleveraging and shareholder returns. So the plan would be as we bring the debt back down to around that $6 billion, we'll be kind of around 50-50. But as you pointed out, it's not going to be so prescriptive in formulaic. We'll be thoughtful about how much we put on the balance sheet and how much we repurchase shares. And some of that will depend on commodity prices and free cash flow. But think of those as guidelines versus formulas going forward. But I think overall, the goal would be to get back down to the $4 billion, that is still our ultimate target. We have an approach where we want to make sure we get the balance sheet back to that $4 billion. Obviously, our cash flow base, our growth we've got plus the plan with the MEG assets, we'll put the company in a really good position from a leverage point of view. But we view our balance sheet as being something that's going to stay pristine, and it allows us flexibility and opportunity like we've been able to pursue on the MEG transaction. Operator: Our next question comes from the line of Alexa Petrick from Goldman Sachs. Alexa Petrick: I wanted to ask maybe switching gears. As we think about West White Rose, you've made a lot of progress there. What are some of the gating items and then any early thoughts on what that production path could look like for 1H 2026 versus 2H? Jonathan McKenzie: Yes. We haven't given guidance for 2026, '27 and '28 yet. But what we have said publicly about West White Rose is that we are largely through commissioning that project now and we'll be drilling well prior to year-end with first production expected in early second quarter 2026. That still remains the direction of travel. But Andrew, maybe you could just provide a little bit more detail on where we are and what that path may look like. Andrew Dahlin: Yes. No. Thank you, Alexa. Yes, maybe to go a little bit back in time and just catch up too. So obviously, in July, we placed the top sides on top of the CGS. We deep -- as Jon said, we're deep into the commissioning and start-up activities, and that actually included the -- all the subsea so we connected the West White Rose platform to the Sea Rose in terms of all the pipeline work, et cetera. We'll be drilling by year-end and then indeed, first production in Q2 of 2026. In terms of production ramp-up, it's not -- we're going to drill roughly 5 wells per year. It's roughly a straight line from 2026 through to 2028. And what we've said is in 2028, gross volume should be around 80,000 barrels a day, which net Cenovus share is roughly 45,000 barrels a day, Alexa. Alexa Petrick: Okay. That's helpful. And then I recognize it's still a bit early, but you've talked about significant amount of growth CapEx coming off next year. Any early thoughts on what that magnitude could look like? And what are some maybe other offsetting considerations we should be keeping in mind? Jonathan McKenzie: Yes. So where we've really guided the market, and we'll formalize this when we come out with our budget in December. But if you look at spending the last couple of years, we've been around CAD 5 billion, which would include somewhere around [ 1.5, 1.7 ] worth of growth capital. And what we've been guiding to is 2026 will look different with all of these growth projects kind of rolling off the agenda. So what you should be thinking about is on an unaffected basis, not including MEG, we would be around $4.2 billion. Take out WRB from that kind of brings you to around $4 billion And that's kind of where we think the budget pre-MEG is going to sit. And then we've also suggested that in 2026 when you add in MEG assets, we would probably be adding about another $800 million for sustaining and growth capital on the MEG assets in 2026. So maybe I've really just already given you the budget for 2026 capital. But that's kind of what we've been saying, and I think it's very consistent with where we've been taking the market over the last few months and years. Operator: [Operator Instructions] Our next question comes from the line of Manav Gupta from UBS. Manav Gupta: I am so sorry about this for UBS IT issues. I wanted to ask you, there are a number of organic growth projects, which you are pursuing, which could deliver over 100,000 barrels of organic volume growth on top of MEG and so can you update us what's the progress over there? How are those projects progressing? Jonathan McKenzie: Yes. I'm not sure where the 400,000 barrels came from Manav. Manav Gupta: No. 100,000. 100,000. Jonathan McKenzie: Sorry, I think you said 4, you kind of worried me I thought maybe our messaging had been confused. Manav Gupta: No. 100,000, sir. Jonathan McKenzie: Yes. What we've been guiding the market to is about 150,000 barrels of growth. And it really comes from heavy oil, conventional and offshore so right across our portfolio. So on the East Coast, as Andrew mentioned, we look to ramp up the West White Rose project, about 45,000 to 50,000 barrels a day by 2028. That growth starts in '26 and progresses linearly through '26, '27 and into '28. And that's kind of the biggest piece of the growth profile. What we're seeing in Narrows Lake with the tieback to Christina Lake, is the 20,000 to 30,000 barrels a day starting to materialize there, and you'll see Christina Lake in that 250 to 260 range. We talked about adding 80,000 barrels a day of steam capacity at Foster Creek, which would add about 30,000 barrels a day to that asset. Today, we're already seeing about [ 20 ] of that with the early steam that we brought on. in Q3. But you should see that continue to ramp up in 2026 as we bring on well pads as well finished, the water handling and deoiling sections of that growth. In Sunrise we're just getting into what we call the V PADD, and these are in the Eastern region of Sunrise. These are some of the most prolific PADDS that we've got in our inventory, and we expect to see production grow from 55,000 barrels a day to close to 75% over the next couple of years at Sunrise. And then the other growth comes from our conventional and cold heavy businesses. But what you'll see from us as we progress through time and get through '26, '27 and in '28 is production will increase into that kind of 950,000 barrel a day range. Manav Gupta: Very helpful. My quick follow-up here is, during the quarter, the buyback was very strong. The buyback went up materially did the net debt? I'm just trying to understand, was this just a timing issue where the PSX deal had been announced and those cash proceeds are probably coming in somewhere in the fourth quarter. That's why the buyback and the net debt went up at the same time, if you could clarify on that. Kam Sandhar: Sure, Manav, it's Kam. So I think one thing just to keep in mind is our reported net debt at the end of September was $5.25 billion. That did not give consideration to the $1.8 billion that we brought in for the sale of Wood River and Borger. So after -- shortly after quarter end, we dropped back down to $4 billion but what I would say is we announced the sale back in early September. We very intentionally obviously knew the timing of closing and when we get the cash. So we actually accelerated some of our buyback program through September and in October. So I think what I would tell you is I think we're going to continue to steward towards that $4 billion going forward. Obviously, MEG transaction when that closes, we'll change that. But I think to the extent that we can, we'll continue to use 100% of excess free cash flow to buy back shares. But the debt -- the goal is to kind of hold the debt in and around that $4 billion. But obviously, the reported debt number at the end of September did not have or did not reflect the proceeds we received from the sale. Manav Gupta: That's exactly what I thought. So it was just a timing issue. The buybacks are in 3Q and the proceeds coming in a little later. Operator: Our next question comes from the line of Patrick O'Rourke from ATB Capital Markets. Jonathan McKenzie: Welcome back, Patrick. Patrick O'Rourke: Just wanted to kind of build on the comments there with respect to narrows. In the public data, we're seeing that sort of in the 15,000 to 16,000 in September, so getting close to the low end of that range. a bit of differentiation on well performance. We're only working with September here. You guys have the hindsight of more recent data. I would assume, through -- close to through the month of October. Just wondering how well performance is trending relative to type curve and any time frame around when you get to the bottom of that 20,000 range. Jonathan McKenzie: Yes. So I'm going to turn this over to Andrew to give some detail, but we started steaming 2 well PADDS back in July and brought on about 18 wells on the X5 and 6 PADDS. We're currently steaming the third PADD, and we brought on, I think, 6 of 8 of those well pairs. And these are ramping up as expected. But Andrew, you're all over this every day. So why don't you add some good color. Andrew Dahlin: Patrick, we were totally on top of this, and we're seeing exactly what we expected from those wells and that they are strong without giving too many numbers. I can tell you here that production in October is now up into the 20-something thousand barrels a day, 22,000, 23,000 barrels a day. Indeed, we're producing from 3 PADDS pads, we're ensuring that we've got great conforms across all of those PADDS. And then here in early Q1 of next year, we'll bring the fourth pad on. So no, we're very comfortable and very confident in the performance we're seeing at Narrows Lake and ultimately in the delivery of that growth of the Christina Lake asset. Operator: There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Jon McKenzie. Jonathan McKenzie: Great. And thank you, operator. And I think we're grateful and surprised. There were no questions about MEG but be that as it may, this concludes our conference call, and thank you for joining us. As always, we really appreciate the interest in the company. And thank you to all, and have a great day. Operator: This concludes today's program. You may all disconnect. Thank you for participating in today's conference, and have a great day.
Operator: Greetings, and welcome to the W.W. Grainger Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Kyle Bland, Vice President, Investor Relations. Please go ahead. Kyle Bland: Good morning. Welcome to Grainger's Third Quarter 2025 Earnings Call. With me are D.G. Macpherson, Chairman and CEO; and Dee Merriwether, Senior Vice President and CFO. As a reminder, some of our comments today may include forward-looking statements that are subject to various risks and uncertainties. Additional information regarding factors that could cause actual results to differ materially is included in the company's most recent Form 8-K and other periodic reports filed with the SEC. This morning's call will focus on our non-GAAP adjusted results for the third quarter of 2025, which exclude the $196 million loss recognized from the pending sale of our U.K.-based Cromwell business and the proposed closure of our Zoro U.K. business. Definitions and full reconciliations of our non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. We will also share results related to MonotaRO. Please remember that MonotaRO was a public company and files Japanese GAAP, which differs from U.S. GAAP and is reported in our results 1 month in arrears. As a result, the number discussed will differ from MonotaRO's public statements. With that, I'll turn it over to D.G. Donald Macpherson: Thanks, Kyle. Good morning, everyone, and thank you for joining today's call. As headlined in the release, our third quarter results were fueled by consistently strong execution from our team. Despite the continued external uncertainty, our customers remained focused on improving their operations through increased efficiency and productivity. The value of the fundamentals of having inventory where and when they need it and a partner who understands their business and can bring the right solutions. As I spent time in the market with large customers this past month, these themes ran true. I was proud to see Grainger deliver the critical fundamentals that help our customers every day. I recently had great discussions with an aerospace customer and municipality about how Grainger's deep-rooted inventory management expertise can save them time and reduce costs. I saw that when we deliver great service experience, customers take notice and it leads to more opportunities and deeper relationships. I also had the opportunity to speak with several experts focused on technology. Tech and AI will continue to be an ongoing focus for Grainger, enabling us to provide great solutions for customers and drive productivity in our operations. The promise of these new transformation technologies has never been greater, but the key will be leveraging our proprietary data and know how to build solutions that connect to business processes and create a more seamless user experience. I'm excited about the work we're doing to bring more digital capabilities to both our customers and team members to make things better with every interaction. Making these better and staying focused on what matters is core to how Grainger operates, and we take that responsibility to heart in our communities as well. Last month, at our annual Bucket Build in Lake Forest, more than 500 Grainger team members came out to pack over 4,000 disaster relief kits. This included filling 5-gallon buckets with essential cleaning supplies and hand tools that will help families and individuals begin the process of recovery after a natural disaster. Grainger has a long-standing commitment to emergency preparedness and response efforts. And this is another reason I'm proud of how the Grainger team lives our principles every day. Now moving to our third quarter results. We delivered a solid performance that in total outpaced our August formal guide, particularly on the gross margin line. Total company reported sales for the quarter were nearly $4.7 billion, up 6.1% on a reported basis or 5.4% on a daily constant currency basis. Gross margins for the company were 38.6%. Operating margins were 15.2%, and diluted EPS finished the quarter up $0.34 to $10.21. Operating cash flow came in at $597 million which allowed us to return a total of $399 million to Grainger shareholders through dividends and share repurchases. Our results continue to reflect tariff-related LIFO inventory valuation headwinds, consistent with what we discussed last quarter, which came in lighter than expected in the period. As Dee will discuss, without this LIFO impact, our operating margin would have increased year-over-year in the period. Looking ahead, while we're continuing to see more costs in the market, these LIFO headwinds will eventually dissipate as inflation cools and our gross margin will recover to our run rate expectation. As you likely saw, we recently announced that we've entered into an agreement to sell our U.K.-based Cromwell business and plan to fully exit the U.K. market. Given the economic dynamics post-Brexit, we had to alter our assumptions around the go-forward potential in the region. With this planned divestiture, we are now focused entirely on growing our North America and Japanese businesses where we can deliver the greatest long-term impact. Overall, while it has been an eventful few months, the business continues to perform well and in line with expectations. With this, we are narrowing our earnings outlook, which Dee will outline in a few minutes. It's important to note, we factored in the October headwind from last year's active hurricane season and an estimated impact from the government shutdown. As we wrap up 2025, I'm confident that we'll continue to serve our customers well, deliver on our financial commitments and drive solid results for all stakeholders. I will now turn it over to Dee to go through the details. Deidra Merriwether: Thank you, D.G. Turning to Slide 7. You see the high-level third quarter results for the total company, including $4.7 billion in sales, up 5.4% on a daily constant currency basis. While gross margin finished ahead of our previously communicated expectations on a less-than-expected LIFO impact, we were still down 60 basis points year-over-year as segment mix headwinds and tariff-related cost impacts within the High-Touch business weighed on results. This led to total company operating margins of 15.2% for the quarter, down 40 basis points compared to 2024, but 70 basis points ahead of our communicated expectations. Diluted EPS for the quarter was $10.21, up $0.34 or 3.4% higher than the prior year period. Moving to segment level results. The High-Touch Solutions segment delivered solid growth quarter. In total, sales were up 3.4% on both a reported and daily constant currency basis. Results were driven by volume growth and price inflation for the segment, with the latter improving as tariff costs continue to be passed. From an end market perspective, our indicators suggest that the MRO market remained muted as the heightened inflationary environment continued to weigh on demand. For Grainger specifically, we saw strong performance with contractor and health care customers and improving results with manufacturing customers which helped to offset slower growth in other areas of the business. For the segment, gross profit margin finished the quarter at 41.1% and down 50 basis points versus prior year, driven by similar things to what we discussed last quarter. We saw negative but improving price/cost spread as we progress negotiations with suppliers through the quarter and pass incremental price in September. Further, we pulled through LIFO to reflect the impact of supplier cost increases, albeit less than expected as certain increases were pushed into latter periods. These 2 tariff-related headwinds were only partially offset by mix and freight. I would note that if we excluded our LIFO headwind and wanted to compare across our peer set, which report on FIFO, our implied FIFO gross margin rate would have increased year-over-year. On SG&A, margin improved in the period as continued investments in our seller initiatives and marketing were more than offset by productivity and sales leverage. Taking all this together, operating margin for the segment finished at 17.2%, down 40 basis points versus the prior year quarter. Now focusing on the Endless Assortment segment. Sales increased 18.2% on a reported basis or 14.6% on a daily constant currency basis, which normalizes for the FX tailwinds realized in the period. Zoro U.S. was up 17.8%, while MonotaRO achieved 12.6% growth in local days, local constant currency. At the business level, Zoro continues its momentum driving efficiencies with marketing spend and working to further enhance the customer experience, including improved search, better fulfillment and continued optimization of their assortment. Taken together, these actions are driving strong growth from its core B2B customers, along with improving customer retention rates. At MonotaRO, sales growth remained strong with continued growth from enterprise customers, coupled with acquisition and repeat purchase rates with small and midsized businesses. On profitability, operating margins increased by 100 basis points to 9.8%, with favorability across the segment. MonotaRO margins remained strong at 13.2%, up 80 basis points and Zoro margin improved to 5.8%, up 150 basis points, with both businesses benefiting from gross margin flow-through and healthy top line leverage. Overall, we had another strong quarter across Endless Assortment, and we expect the team will carry this momentum forward as we wrap up the year. Before moving into guidance, I wanted to share a brief update on where we're at with tariffs. In the third quarter, we remain engaged in active dialogue with our supplier partners and use our September price increases to help offset continued cost pressure. While our initial pricing actions back in May only apply to a small portion of our products, largely those where Grainger imports the product directly, the September increase was much broader and included initial pricing actions on supplier imported products, where we had finalized negotiations. As we move into the fourth quarter, we're seeing inflationary pressure continuing to build, including impacts from the recent Section 232 expansion. As a result, we are taking some incremental pricing actions to better align price/cost timing as the tariff landscape unfolds. These actions are only modest in nature, but are in addition to the price passed earlier in the year. On profitability expectations for the fourth quarter, we anticipate gross margins will improve sequentially with our normal seasonal recovery and improving price costs. The LIFO impact is expected to be roughly consistent quarter-over-quarter. Looking ahead, based upon what we're hearing from suppliers as part of our annual cost cycle, we expect further inflationary pressure into 2026. With this, assuming no further material changes to the current tariff landscape, we are -- we now anticipate the inventory accounting dynamics from LIFO will persist over the next couple of quarters until inflation cools. That being said, consistent with our long-term earnings framework, we anticipate gross margin will stabilize around 39% for the total company, subject to normal quarterly seasonality. While we will experience continued segment mix headwinds and some pressure within a subset of our private label assortment, these will be offset as price/cost normalizes back to neutral and the LIFO impact subsides. On LIFO specifically, we thought it would be helpful to provide a view of how inventory accounting dynamics impact our gross margin over time, especially because of how the cycle is playing out relative to 2022. While LIFO expense is always a drag relative to implied FIFO margins, it's not typically a material impact in every period depending on what else is impacting our gross margin results. As you can see on Slide 12, during periods of normal cost inflation, the LIFO headwind, the difference between LIFO margin and the implied FIFO margin is roughly 20 to 30 basis points, reflecting the real-time impact of higher costs flowing through our P&L. As we enter into a heightened inflationary cycle, like what we see in 2022, and like what we're seeing again today, this LIFO impact becomes more pronounced as the difference in COGS diverges between the 2 inventory methodologies. However, as inflation cools, the LIFO expense will normalize, LIFO and FIFO margins will converge. And as this happens and we pass further price, our reported margin will recover. With this, we expect our total company gross margins will stabilize around 39%, consistent with our long-term earnings framework. Now moving to the updated outlook for the remainder of 2025. As D.G. mentioned at the beginning of the call, we're narrowing our full year 2025 adjusted EPS outlook, which reflects slightly lower sales to account for the Cromwell divestiture updates and the impact of the government shutdown, which we're assuming reaches a resolution by mid-November. These top line headwinds are offset by higher margins, resulting in an EPS midpoint consistent with the prior guide. In total, the updated guide includes daily organic constant currency sales growth of between 4.4% and 5.1% and a diluted adjusted EPS range of $39 to $39.75. If you squeeze to the annual guide to get an implied fourth quarter, the revised revenue outlook implies a Q4 daily organic constant currency growth rate of 4% at the midpoint, which assumes more than 3 points of price contribution to revenue within the High-Touch segment. October growth is off to a slow start of approximately 1% on a preliminary daily constant currency basis as we lapped a fairly significant hurricane-related benefit in the first 2 weeks of the month and as we face current year headwinds from the government shutdown. However, if we just looked at the last 2 weeks of the month, which excludes the prior year hurricane impact, October total company sales are up in the 4% to 5% range on a daily constant currency basis, more in line with what we saw in the third quarter, but still reflecting the impact of the government shutdown, which is weighing on public sector sales. Annual margin expectations have increased from our previous guide due to improved price/cost and LIFO timing. If you were to squeeze the implied operating margins from the updated annual guide and focus on the fourth quarter, it shows a sequential step down in the fourth quarter to around 14.5% at the midpoint. While the puts and takes are different, this sequential movement is roughly in line with normal seasonality. Overall, despite the tariff-related noise over the last couple of quarters, we remain poised to deliver a solid year. Before I hand it back to D.G., I thought it would be important to reiterate our long-term earnings framework in light of the recent tariff uncertainty and as we look ahead. While we have made some minor edits to CapEx to reflect the latest estimates around our global DC expansion, the core tenets of our framework remains solidly intact. We remain confident we can drive share gain in the U.S., while the EA business in the teens, stabilize total company gross margins around 39% and grow SG&A slower than sales through process improvements and technology. Taken together, these actions will drive attractive returns, and we remain well positioned to deliver great results for our shareholders for the years to come. With that, I'll turn it back to D.G for some closing remarks. Donald Macpherson: Thanks, Dee. As we head into the final months the year, our team will continue to navigate the complex environment and deliver value for our customers, our communities and our shareholders. And as Dee mentioned, we continue to work through this inflationary environment and the challenges from the government shutdown. And while there is some short-term noise, we remain confident in our ability to pass through cost increases and achieve the core tenets of our long-term earnings framework. We'll continue to stay focused on driving strong execution, providing industry-leading service and building innovative capabilities to deliver on what matters most to our stakeholders. And with that, we will open it up to Q&A. Operator: [Operator Instructions] Our first question is from David Manthey with Baird. David Manthey: All right. That was a very clear presentation of the business. Thanks for outlining all of that data. Question on the 2025 guidance and the Cromwell. So Cromwell is held for sale as of September 30, so I assume you're taking any assumption out for that. And just ballpark-ish, we talking about $75 million, $80 million, I'm guessing. And then from an operating income standpoint, those Cromwell operating losses are pretty immaterial. Is that all correct? Deidra Merriwether: Yes. So two things I'd point you at. We kind of adjusted for the Cromwell impact. And if you go back to the press release that we issued around our proposal to exit the U.K. in total and incorporated both that impact as well as the impact that's being proposed for Zoro U.K. So in total, it's about $40 million. David Manthey: That's $40 million in revenues for Cromwell and Zoro U.K. as held for sale in the fourth quarter? Deidra Merriwether: Correct. David Manthey: Okay. All right. And then on the pricing actions that you've taken thus far in the fourth quarter 2025, should we assume that those are in Endless Assortment? I think you said your next opportunity to adjust contract pricing on High-Touch customers would be Jan 1. So is that another bite at the apple when we turn the page to 2026? Donald Macpherson: No. We -- obviously, the actions we've taken were September 1. Those have flowed into the fourth quarter, and that was a normal price cycle increase. And November 1, now we're taking another one, and that will flow into contracts as well as noncontract business, and that's all High-Touch related. Zoro has had good price inflation this year based on some strategic changes they've made. Operator: Our next question is from Christopher Snyder with Morgan Stanley. Christopher Snyder: Sorry, I was on mute. So you guys said that, I guess, ex LIFO, the gross margin would have been up year-on-year, which I guess implies a LIFO headwind of something at least 70 basis points. I guess my question is, you guys are kind of saying you'll maintain a roughly 39% gross margin through these LIFO headwinds. So I guess as the LIFO headwinds go away, does that 39% go to something closer to 40%, just assuming that we're in a 70 bps LIFO headwind backdrop? Deidra Merriwether: Thanks for the question, Chris. So as we've noted during this period of time when we are comparing our results versus those who may be reporting on FIFO, we do have more of a negative impact directly related to the LIFO impact on gross margins. And so what we attempted to do here with our information is to recast and imply FIFO gross margin number for Grainger for more easily -- easy comparability. But as you know, as we go through the cycle and others eat through the less expensive FIFO layers, and we're already there with LIFO, we believe gross margins will become a little bit tougher for them. And we -- as we pass -- continue to pass price, our gross margins will continue to elevate, as you noted. However, there are more things besides LIFO that impacts gross margin. Product mix, freight and other areas where we receive -- where we're gaining some favorability, we deem that -- some of those things may not be as favorable in the future as price becomes more favorable. And so that's why we stick to a longer range outlook of around 39% or around the area of 39%. That doesn't mean it can't be a couple of basis points better than that in the future. We just don't want to project out too much because all the information we have today around tariffs and other cost inflation is what we have to use to project from this point. Christopher Snyder: I appreciate that. That was helpful. I guess, if we look at the Q4 guide, overall company up 4%. So High-Touch, I guess, would be below that, maybe something more like 3%, which is effectively all priced. So it seems like the guide is calling for no volume growth within High-Touch. I mean I know the backdrop has been challenged for a while, but that business has continued to grow volumes even if modestly through the first 3 quarters of the year. So is that step down in Q4 to maybe zero just all because of these government contracts and the risk associated with that? Or is there also maybe macro softening alongside that? Any color there would be helpful. Deidra Merriwether: Yes. In Q4, we have 2 challenges, one of which you called out, which is the impact to our business related to the government shutdown. And the other one related to the benefit received in the prior year in October related to the hurricane. We range bound that last year of about $30 million, $40 million in the month of October. So that's also a challenge that we're cycling in Q4. Donald Macpherson: The one thing I'd also point out is if you look at October by segment, which we don't typically talk about, but government has obviously impacted substantially. Everything else looks normal effectively. So it is mostly -- it is entirely just the government impact that we're seeing from both the hurricane, which affects state governments, 3 states that obviously in the Southeast that were hit hardest last year and then the federal government given the shutdown. Operator: Our next question is from Jacob Levinson with Melius Research. Jacob Levinson: I realize there are some advantages on the tax front using LIFO inventories, but I wanted to ask if there's been any discussion in terms of shifting the FIFO. It just seems like the last couple of years, we've seen a lot of companies that had LIFO accounting actually moving to FIFO just given maybe a stickier inflation backdrop. Donald Macpherson: Yes, yes. So we obviously have talked about and evaluated. I mean the thing you need to probably realize is if you make that change, you end up having a cash payment, not an earnings payment, but a cash payment effectively for the accumulated taxes you saved at whatever tax rate is today. So it's not an inconsequential number. So we need to weigh that versus the benefit of being on FIFO and having easy compares. Right now, we're not going to make that change. We might in the future. Jacob Levinson: Okay. That makes sense. And then just on the government shutdown, I realize these are unfortunately becoming more regular occurrences. But in your experience, is there normally some catch-up in demand once the shutdown is over? Because I'd imagine a lot of these facilities are just mothballed right now. So once you ramp back up, maybe there's some pent-up demand there. Donald Macpherson: Yes. So what I would say is the nature of the shutdown and this one in particular, obviously, some of the nonmilitary entities that we would serve are completely shut down. Typically, you wouldn't see much of a catch-up from those. But we also are seeing this impact given the lack of the number of people who are furloughed and purchasing people who are furloughed. We're seeing a little bit of slowdown in military and other areas as well. And so some of that may come back, but typically, it wouldn't all come back. You see a little bit of it maybe come back if there's catch-up projects they stop doing. But we would expect something between zero and something not huge to come back on that. Operator: Our next question is from Ryan Merkel with William Blair. Ryan Merkel: Just sticking with the government. Did you guys size what the impact you expect in 4Q is from the government shutdown? Donald Macpherson: Yes. I mean, basically, the way to think about that is every day, 1 point or more impact on our total business. And so if it goes 6 weeks, it will be 0.5 point. If it goes all the time, it will be 1 point or more impact. That's what we've seen so far. I would say that if it doesn't get resolved, it could become even bigger if it goes on a long time. But that's what we typically would see and expect to see now. Ryan Merkel: Okay. Got it. And then it sounds like put through another price increase in 4Q, and that would be off cycle for you, which I think I thought you were trying to stick to the national account timing there. So is that sort of a change in how you're doing things? Or why the off-cycle price increase? Donald Macpherson: I think a lot of this is just probabilistic. So when tariffs first hit, we actually didn't know how they would play out and we didn't want to get out in front of it. So we've been actually taking price increases when we have cost increases as opposed to speculatively. And there's been over 1,000 negotiations with our suppliers at this point often. That's not normal for the record. And so what we saw was a number of cost increases come in after -- between the time we set the 9/1 prices and the time we would now. And so what we've done is we've raised price to compensate for that, and we think it's the right thing to do, and our customers understand that. Deidra Merriwether: And I would just add, a lot of that is price changes and corrections based upon what we're seeing in the marketplace. So I wouldn't assume that, that change was as big as like the 5/1 change as an example. Operator: Our next question is from Stephen Volkmann with Jefferies. Stephen Volkmann: Great. And apologies for beating this dead horse, D.G. But the price increase in November, was there any aspect of that, that would be -- I think your word was speculative? Did you try to get ahead of any of this? Donald Macpherson: No, it's not speculative. It's just matching what we're seeing and what we're seeing in the market. we're sticking to our pricing tenants, which are basically priced to market at this point. Stephen Volkmann: Okay. Great. And then I think you also talked about in your private label business, some headwinds, competitive kind of headwinds. How does that play out? Or what can you do to sort of address that going forward? Donald Macpherson: Well, we don't think we're uniquely exposed or at competitive disadvantage in private brand. But what has happened with some of the larger tariffs is the difference between a private brand product, in some cases, and the national brand product can become very tight. And so then we have decisions to make as to how much price we take in those situations. And so we're still working through all of that. It's a subset of our private brand. It's not -- all of them, it's not a huge portion of them, but for some of those cases, we have to decide how we treat those strategically. Operator: Our next question is from Christopher Glynn with Oppenheimer & Company. Christopher Glynn: So I appreciate the comments at the beginning on how you're looking at AI and adopting new technology. You've always been very tech forward and investing at scale. And so I'm curious what you're envisioning with that from both sides, commercially layering into the outgrowth algorithm versus the cost of serve side and margin potential. Donald Macpherson: Yes. I think -- so what I would say is it's going to require all of the above to be successful long term, we think. And we have been out in front in certain areas with AI, thinking about back-end processing and customer service in those areas that are kind of obvious to attack. I don't -- everybody is going to be doing those things is my expectation. And so creating advantage is probably going to be more on the commercial side and leveraging our data, our product, our customer data to create solutions that provide better experiences for customers. And so we are investing heavily there as well. We think both areas are going to be critical to our success. Christopher Glynn: Great. And then last quarter, you mentioned elevated bidding activity for your new large business. Curious how that pipeline is playing out? And should we think of that as incrementally constructive to the outgrowth algorithm perhaps for interim period? Donald Macpherson: Yes, we think we're doing well. I don't know that I'd say it's constructive for the outgrowth at this point, but we think things are going well on that front. And you probably know in our business, having big contracts and getting all the volume are 2 different things sometimes. And so you have to have the contracts and then you have to win at the local level, and we know that. And so that's really how we construct our business and our focus. Operator: Our next question is from Ken Newman with KeyBanc Capital Markets. Kenneth Newman: Maybe first, just to clarify, sorry if I missed this in response to Dave's first question, but any help on just how to think about the operating profit or loss in the other segment now that Cromwell is divested. Is that segment going to be profitable in 4Q? Or just how do you think about that normalize into next year? Deidra Merriwether: Okay. So the exiting the U.K., it shows up in 2 areas. It shows up in other kind of where Cromwell was, and that's the vast majority of it and a little bit in EA because that was the Zoro U.K. business. So that will positively contribute once we close the deal from a profitability perspective. And it's like in the teens from an operating -- not in the teens, 20-or-so basis point improvement in operating margin. Kenneth Newman: Okay. That's helpful. I appreciate that. And then for the follow-up here, it looks like there was a pretty sizable increase in midsize customer growth in High-Touch U.S. this quarter. Is that primarily a price versus volumes mix? And then maybe just any color on how you think about how sustainable midsized customer growth can be going forward and its impact on mix? Deidra Merriwether: Yes. So we believe we're doing really well with midsized customers, but the majority of the difference in the increase, I believe, is 7% in the noted slides is really due to some softer comps in the prior year. Donald Macpherson: And I would just add that I think we have a lot of opportunities with midsized customers, and we're learning, and I think we'll continue to do better, but it's not immediate to Dee's point. Operator: Our next question is from Sabrina Abrams with Bank of America. Sabrina Abrams: So the gross margins in the quarter were, I guess, a lot better than expected. And I know you've spoken to some stuff around LIFO expense timing, but it wasn't a pretty big delta. Just want to understand if there were any benefits from bringing down inventories quarter-over-quarter or anything about LIFO layers. And maybe if you give more color on exactly what happened with the LIFO timing? Did suppliers choose to eat increases? Deidra Merriwether: Yes. Thanks for the question, Sabrina. So it's really around the fact that LIFO is really difficult to estimate because based upon your inventory purchase and the specific changes on cost, you have to be able to estimate that by SKU. And then whatever you sell, you have to go back in prior periods and pull those adjustments and make a very good estimate for your prior year inventory at the same time. So we do the best we can at trying to estimate a pretty complicated quantification of LIFO impact. And so our team here was -- always continue to negotiate with suppliers. And based upon where those negotiations landed, some of those cost increases are being pushed into prior periods. And so based upon that, that is some of the LIFO charge improvement. In addition to that, we have some benefit from price/costs as well. That impacts gross margin. And then also -- we also had benefits from favorable mix and freight. Sabrina Abrams: Okay. Got it. And maybe if you could talk a little bit about market growth has been -- your daily sales growth has been very stable this year with the exception of, I guess, what's handing in Q4, and you've already explained that. But barring that, just any early thoughts on how you're thinking about the growth in 2026? Are you thinking it will be similar to this year? Donald Macpherson: So we'll provide that information at the end of the year in January. We typically don't provide that. We do expect to have a significant price rollover, as you might guess. And so -- and we still expect to gain share at our target rate. So -- but we will have more news on what we think the market will do as we get to that point. Operator: Our next question is from Neal Burk with UBS. Neal Burk: I wanted to ask about asking the price question another way. We hear about some price fatigue with respect to customers in the industrial channel. Can you talk about your conversations with your suppliers? I think you mentioned over 1,000 negotiations. So is there a sense that they're not fully passing on costs and so the inflation you see is a bit below market? Donald Macpherson: Yes. I don't know if it's a bit below market. What I would say is that for a manufacturer, they have decisions to make about whether they pass percent or dollars. And I would say that a lot of them have passed somewhere in between that 2 in many cases. So just because the headline is 20% tariff increase, they may not pass 20% in all cases. And so we've seen really a mix of things and a wide range of things from our suppliers on that front. Neal Burk: Okay. And I know we'll get more on this one in January, but like any kind of initial thoughts on 2026, not so much on the top line, but you mentioned gross margins around 39%. So any kind of like puts and takes when we think about how that drops through to operating profit? Donald Macpherson: I mean I would just point to 2 things that probably set us up well, one is the LIFO thing we've been talking about that should improve as the year going on and the other is exiting the U.K. market. If we can exit the U.K. market, that will help, too. So I would only point to those 2 things at this point. We'll talk about others as we get to the end of the year. Operator: Our next question is from Deane Dray with RBC Capital Markets. Deane Dray: I was hoping as we close the books on Cromwell, D.G., you can share some of the lessons. This was not the first time Grainger had tried to expand in Europe. There was also Fabory. So what doesn't work with the MRO model in Europe that's kind of moot now, I think. But then more importantly, don't you still have all kinds of opportunity to outgrow North America and it's still highly fragmented. So isn't that still the growth opportunity? So two questions here. Donald Macpherson: And the second one is really easy. So yes, we do think the opportunity is to grow in North America. And in Japan with MonotaRO, we've got great growth opportunities there. I'd say Fabory and Cromwell are very different experiences. I think Cromwell is a very good business. We bought it right before Brexit happened. We thought we had an opportunity to learn and build off that platform for Zoro U.K. and then potentially think about expansion and learn about the European market. That turned out to not be true, obviously, when Brexit happened. And at some point, it becomes clear that you've got a midsized business that isn't really material to our portfolio. And we want to make sure that our attention goes to things that really matter from a -- that can move the needle for us. And so that's why we made the decision. We do think Cromwell is a good business and will continue to be a good business going forward. Deane Dray: Good to hear. And then just to clarify on the government shutdown, and I appreciate how you sized it. Is there been any difference in behavior, demand, I mean, between federal, state, local? I mean, this is -- the focus is on the federal shutdown, but what's been the ripple effect across the rest of your government business? Donald Macpherson: Very little. Actually, I think the state business is down in October only because of the hurricane, basically. So if you look -- remove the hurricane from the 3 states that had big hurricane events last year, state would be on a good path. Local hasn't really been impacted that much. So from a government shutdown perspective, it's really the military so far that's been hit and things like VA hospitals that are linked to federal that have had slowed down as well. Operator: Our next question is from Nigel Coe with Wolfe Research. Nigel Coe: I appreciate the attempt to teach in on LIFO accounting. I'm accountant by training, and it fries my brain. So -- but it's a good effort. It's a really good effort. Donald Macpherson: We've had so many whiteboard sessions in the last few months. It's ridiculous. Nigel Coe: I know. But the more we dig into it, the more confusing it comes. But just on -- I don't know if you quantified it, Dee, but we calculated about $52 million impact this quarter, just the change in the LIFO reserve. I'm assuming that's the charge. And then I think the PR talks about still some impact in the first half of -- or by mid-2026, I think, is the wording. Would you expect more moderate impacts in the first half of next year? Deidra Merriwether: So yes, your math is right. And what I will say about next year is that we're right in the middle of the cost cycle for 2026, which is why it's so difficult for us to talk about 2026 outlook because we're not done with that. So -- but what we do know is more cost is coming into the year. And so therefore, we're going to have additional LIFO impacts into the year. And so without having crisp numbers to lay out at this point, we know we're going to have a LIFO impact. We know we're going to have additional cycles of price to pass as a result into 2026. But as it relates to actually sizing those incremental things that haven't been locked down right now, it's really hard to do. But we do think as we get through the back half of next year, we'll be in a good position because we would have had multiple pricing cycles to catch up on any impacts and new costs that come through. Nigel Coe: Right. Okay. And then obviously, good news on -- that the price is starting to come through here. How do we think about price elasticity? And the spirit of the question is there is a sort of a vague kind of aura of price fatigue out there with some companies. And I'm just curious how the customers are sort of responding to these price increases. And how do you think about elasticity of demand, especially for the white label goods? Donald Macpherson: Yes. So we are having very good conversations with our customers. They are seeing everybody come to them with what we're talking to them about generally. So we haven't really seen price fatigue, and we've been very measured in how we've done this. I guess there could be a point where that might be a challenge. But certainly, for most of what we sell, it's a very small portion of our customers expense. And so we find that as long as our prices are competitive, we are usually in a good shape. Operator: Next question is from Tommy Moll with Stephens Inc. Thomas Moll: I want to tighten up my understanding here on the U.K. exit. Two-part question. The $40 million sales impact that was over what time frame? And then the 20 basis points operating margin impact, just want to clarify, you meant to say or what you meant was assuming the exits go as planned, that would be the uplift to consolidated company margin? Deidra Merriwether: Yes. So yes, the $40 million is just tied to Q4. And the 20 basis points impact is for total company on an annualized basis. Thomas Moll: Okay. And the $40 million, Dee, is for the entirety of Q4, correct? Deidra Merriwether: So we're estimating that we will be able to close on the Cromwell deal by the end of November, early December. Donald Macpherson: And that's the $40 million from that point, effectively. Thomas Moll: After that point in time? Donald Macpherson: Yes. Deidra Merriwether: Correct. Donald Macpherson: And that's both Cromwell and what we expect to happen at Zoro U.K. as well combined. Thomas Moll: Perfect. Okay. We're clear now. And then just on High-Touch and the exit rate on pricing. For the fourth quarter, I think you said somewhere north of 3 points and then also that there are continuing supplier conversations suggesting there's probably going to need to be more pushed, let's call it, first half '25. So as we just think about the wrap here -- excuse me, first half '26. As we think about the wrap, I mean, could we end up in a world where 2026 pricing on High-Touch is, I don't know, 4 points or better if we just put all these data points one after the other? Deidra Merriwether: Yes. I mean, we're estimating that the wrap will be close to 3. So since we don't know the other numbers, it's highly likely that it's going to be north of 3 for next year. Operator: Our next question is from Guy Hardwick with Barclays Capital. Guy Drummond Hardwick: Most of my questions have been answered, but just a quick one for me. Looking at the sales growth by customer end market for High-Touch Solutions U.S., warehousing is down mid-teens, which is sharply against the kind of trend or slightly up, slightly down each of the last few quarters. Can you explain that? Donald Macpherson: Yes, sure. That's entirely around one customer where there was a shift is what I would say. Guy Drummond Hardwick: Was that a lost contract or closure of facility, that sort of change? Donald Macpherson: Yes, just a contract adjustment. Operator: Our next question is from Patrick Baumann with JPMorgan. Patrick Baumann: I had a couple of quick ones here. Touch on the volume trends at High-Touch again. What do you estimate the MRO market volume did in the third quarter? And in context of that, can you touch on if you're still happy with the returns you're getting on your investments, your share gain investments? Donald Macpherson: Yes. Yes, roughly 2% on volume for the -- that's still below 2% in volume for the quarter, 2%. Deidra Merriwether: Market. Donald Macpherson: No, you're talking about market or volume? Patrick Baumann: Market. Deidra Merriwether: Market. Donald Macpherson: So market would have been down 2%. Deidra Merriwether: That's correct. Donald Macpherson: I'm sorry, I thought you're asking what our volume was. Our volume would have been 1% to 2% in the quarter. And yes, the short answer is yes. We are seeing significant returns on our investments, getting more effective and more efficient in some of those investments. So yes, we're pretty bullish on what we're seeing from what we're investing right now. Deidra Merriwether: Yes. And I would just point you to our return on invested capital is still north of 40%. It was lower than prior year. However, the main impact from that is just us continuing to build assets and in this case, build networking assets related to a lot of investments that we're making in DC capacity to ensure that we have great service and availability. Patrick Baumann: Okay. And then my follow-up is on the margin side again. So the LIFO charge I get is hard to size for '26, so we can make our assumptions around how much of that 80 to 90 basis point drag to add back as a starting point. But the slide mentions price/cost as being negative as well. Can you size that? I assume that's incremental to that 80 to 90 basis points. And then as you sit in front of the whiteboard and game theory if the IEEPA tariffs are ruled illegal, mechanically, how do you guys think about that in terms of the flow-through to results? Deidra Merriwether: So I'll start and then D.G. can kind of focus -- follow. So as we look at -- when we look at next year, we're still going to have LIFO impact, right? They're still going to exist. The difference will be our price will continue to build and so we will see gross margin from a Grainger perspective improve into next year as it relates to that. Now the piece that we don't -- and that's based upon all we know today, right? We're working on additional cost increases. When we start the year, generally, we -- based upon the cost negotiations, we push through cost increases in line with the negotiations that we have completed. And so the cycle kind of will start again. And those details we don't have to share. But usually, LIFO weighs heavily on our business at the beginning of the year. And then again, we catch up from a price perspective through our cycle of increases. So LIFO will not be going away. Some -- it will normalize. What we're experiencing this year would normalize. But then we will be on a path where price will continue to build. And that's why we feel pretty confident that as we get to the second half of next year, just like we're ending this year, if you look at the midpoint of the guide that we're going to be at about of 39%. Donald Macpherson: Your second question is probably more theoretical at this point, which is if tariffs are illegal what would happen. First of all, we have followed the guide -- our own guidelines here that we only do things that actually are happening. And so we would have to actually see what the law change would look like and figure out what would happen. I'd say 2 things. One is we have worked closely with suppliers to tag what the tariff cost increases are. So we could and we would know how to unwind those if that was, in fact, required. We could do that. And certainly, as that happened, we would then, of course, get a benefit because when we took the lower cost product in, then we have the reverse of what's happened in some way. But I don't know how big a benefit that would be. So we'd have to come back to you and model all that if that, in fact, happened. Operator: Our next question is from Chris Dankert with Loop Capital Markets. Christopher Dankert: I guess focusing on Endless Assortment here. Nice results. Maybe can you comment on how much of that's being driven by the more targeted selection continue to provide some benefits? How much of that is kind of the customer acquisition flywheel, just larger invoice size? Maybe just any commentary on kind of what we're seeing in terms of trends inside EA. Donald Macpherson: Yes. So what I would say is that most of the improvement we've seen in -- I'll start -- I'll focus on Zoro because Zoro has been a pretty big shift in terms of performance, has been improved fundamentals on getting more attractive customers and then getting them to buy frequently. Average order size hasn't really changed at all. It's all been frequency of orders when you look at it. That's been the driver. And that's been better customer acquisition, so acquiring customers with the right products that gives us higher probability of actually getting a repeat. And it's also just doing better at marketing to those customers and creating a relationship on a digital -- through digital means. So really, the fundamentals have improved a lot, and we've seen repeat rates go way up. We've seen them do things as a business with pricing that has helped, and we've seen service improve on. So all those things have contributed to improved performance. Christopher Dankert: Got it. And I guess as a follow-up, I mean we're seeing better drop-through now on the SG&A leverage. Are there any additional investments similar to the Tokyo DC or anything else we should keep in mind into 2026, 2027 that would impact kind of that drop-through rate? Or should we expect pretty good incremental margins in EA going forward from here? Donald Macpherson: Other than Meadows, I don't know of any other investment that is on the horizon. They would have a lot of capacity in both Osaka and Tokyo after Meadows, and that be the expectations they would fit for a while. Operator: There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments. Donald Macpherson: Great. So thanks for joining the call today. One thing I'd highlight is that I think the underlying business trends are really good and we're doing a lot of great things to improve the customer experience to prepare to improve our cost structure, to continue work on building technology and building service capabilities through the right network changes on the distribution center network. So while we spent a lot of time talking about LIFO, I hope you get the sense that, that's not really what we're focused on. As a business, we're focused on actually underlying performance, and we feel like the underlying performance is pretty good. With that, I wish you all a safe and happy Halloween. And thanks for joining the call today. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to Healthcare Realty's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Ron Hubbard, Vice President of Investor Relations. Thank you. Please go ahead, sir. Ronald M. Hubbard: Thank you for joining us today for Healthcare Realty's Third Quarter 2025 Earnings Conference Call. A reminder that except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. These forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors are included in our press release and detailed in our filings with the SEC. Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the quarter ended September 30, 2025. The earnings press release and earnings supplemental information are available on the company's website. I'd now like to turn the call over to our President and CEO, Pete Scott. Peter Scott: Thanks, Ron. Joining me on the call today are Rob Hull, our COO; and Austen Helfrich, our CFO. Also available for the Q&A portion of the call is Ryan Crowley, our CIO. I wanted to open with some important feedback on the strategic plan. During the course of the third quarter, we met with over 100 investors across trips to Chicago, New York City, Boston and the Mid-Atlantic. With dividend decision behind us, the tone of the meetings differ dramatically from earlier in the year. The excitement around our strategic plan is palpable, and the value creation opportunity is significant. The challenge ahead of us is simple to exceed our 3-year growth framework. To that end, we are assessing every possible opportunity to improve earnings and the hard work is already manifesting into better results. Over the last 2 quarters, same-store NOI growth has averaged 5.25%. Same-store occupancy has increased 180 basis points, and net debt to EBITDA has been reduced by 0.5 a turn. We are also becoming increasingly more positive on the tailwinds for Healthcare Realty. First, the secular trends in outpatient medical continue to improve with demand far exceeding supply. For the 17th straight quarter, occupancy increased across the top 100 metros and is approaching 93%, an all-time record. Second, our new leasing pipeline continues to grow and stands at 1.1 million square feet. 2/3 of our pipeline is in the LOI or lease documentation phase indicating a high probability of completion. Third, with our improved occupancy levels, we can push harder on lease economics. Our primary focus is no longer on volume, but on economic returns as we seek to maximize retention, escalators and cash leasing spreads. Fourth, with our rapidly improving leverage profile, for the first time in years, we have capital to invest accretively into our portfolio, and we are quickly building up dry powder to go back on offense. Fifth, with the progress we've made on our strategic dispositions, our portfolio is uniquely concentrated within the largest and fastest-growing MSAs. When combined with our exceptional health system alignment, these key portfolio attributes should lead to superior operating performance in the quarters and years ahead. Turning to the third quarter. We delivered excellent results with contributions across the platform. With the financial rigor we are instilling in the organization, we are quickly shifting from a company that fell short of expectations to a company that is exceeding them. Normalized FFO was $0.41 per share. We raised both our FFO and same-store guidance and for the first time since early 2022, Net debt to adjusted EBITDA is below 6x. A special thanks to the entire Healthcare Realty team for their extraordinary efforts this quarter. We followed up a win in the second quarter with a win in the third quarter. That is not an easy thing to do, and the team rose to the challenge. Turning to the transaction market. As evidenced by recent activity, the transaction market for outpatient medical is heating up. A variety of factors are contributing to this, including improving sector fundamentals, a favorable lending market and strong health system appetite to own strategic real estate. The combination of these favorable dynamics are driving cap rate compression. We are benefiting from these improving trends and we have reduced the midpoint of the expected cap rate on our dispositions by 25 basis points. We are nearing completion of our lofty disposition initiatives. Year-to-date, we have sold $500 million of assets at a blended cap rate of 6.5%. Our remaining disposition pipeline totaling approximately $700 million is almost entirely under binding contract or LOI. By our next earnings call, we expect to have closed on the vast majority of our remaining dispositions. With every completed transaction, our go-forward NOI growth profile improved, as demonstrated by our strong same-store growth results this quarter. In addition, with the potential for excess balance sheet capacity by year-end, we are monitoring the transaction market for select external investment opportunities that are both strategic to our portfolio and accretive to earnings. We wanted to elaborate more on the cap rates achieved on dispositions. 2/3 of our dispositions were approximately $800 million are what we would characterize as non-core assets. We define non-core assets as those located in non-priority markets with suboptimal operating performance and significant capital needs. Non-core assets also include a few legacy office properties. The blended cap rate for these assets is 7.25%. The other 1/3 of our dispositions or $400 million are what we would characterize as core disposition assets. We define core disposition assets as those with good operating performance and high occupancy, but are located in markets where we have limited scale and/or an inability to achieve meaningful scale. The blended cap rate for this subset of assets is 5.75%. A good example of a core disposition is our sixth asset Richmond, Virginia portfolio, which we are under binding contract to sell with an expected mid-November closing. We received unsolicited interest in this portfolio and opted to run a full sales process to maximize value. Final pricing was $171 million or roughly $425 per square foot, achieving a high 5% cap rate. Richmond is one of our few remaining markets where we utilize third-party property management, and we did not see an opportunity to grow our market share. With an occupancy rate above 93%, average building age of nearly 30 years and strong tenancy, we believe the cap rate on this portfolio is a good representation of the value embedded within our remaining stabilized portfolio. Turning now to our development and redevelopment platform. We have 2 projects in our active development pipeline. The -- All Saints 2 project in Fort Worth, Texas, that is anchored by Baylor Scott & White and our Macon Pond project in Raleigh, North Carolina, that is anchored by UNC Rex Health. The All Saints 2 project is now 72% leased, up from 54% last quarter and we recently placed the project into service. The Macon Pond project is 51% pre-leased, and we expect to place the project into service in mid-2026. Stabilized NOI from these 2 projects is expected to be approximately $8 million, providing a source of near-term upside. We see significant opportunity to harvest meaningful upside in our portfolio through targeted ROI-driven investments. During the third quarter, we added 5 assets into our redevelopment portfolio, with a total budget of approximately $60 million. These assets are in strong submarkets and include Nashville, Seattle, Denver, Charlotte and Dallas. The incremental NOI from these 5 projects is also expected to be nearly $8 million. In the coming quarters, we expect to have more assets enter the redevelopment pool as we seek to accelerate our capital spend and potential earnings upside. You will note that we enhanced our development and redevelopment disclosures in the supplemental. We have also included a table of our current non-income-producing land parcels. We own strategic land parcels in key markets such as Denver, White Plains, Atlanta, Nashville and Austin with annual carry costs of approximately $1.5 million. We are in the process of assessing each parcel to determine if it makes sense to continue to hold or monetize. In finishing, we are incredibly excited about the future at Healthcare Realty 2.0. Our operating performance is steadily improving, our transition to an operations oriented culture is happening faster than anticipated. Our balance sheet initiatives are nearly complete. We are accelerating capital spend into our existing portfolio, and we are rebuilding much-needed credibility with the investor community. On my first earnings call, I said we have one overarching objective, to be the first choice for equity investors when they are seeking exposure to outpatient medical. As the only pure-play outpatient medical REIT, our undivided attention allows us to singularly focus on this objective every day. Let me turn the call over to Rob, who will expand more on operations and leasing. Robert Hull: Thanks, Pete. We had an exceptional quarter on the operations front. Leasing activity was strong with 1.6 million square feet of executed leases, including over 441,000 square feet of new leases. Tenant retention increased to nearly 89%, the highest in 6 years and our sixth consecutive quarter over 80% and annual escalators of 3.1% improved the average across our total portfolio. Our activity this quarter contained several notable deals with some of our top health system partners. As examples, a 21,000 square foot lease was signed with Baptist Memorial in Memphis, an 18,000 square foot lease was executed with Baylor Scott & White at our on-campus development in Fort Worth, and a 25,000 square foot renewal was completed with MultiCare at our building on the Overlake Hospital campus in Seattle. The backdrop for industry fundamentals remain strong, supporting further growth in our 1.1 million square foot lease pipeline. This quarter, demand in the top 100 MSAs outstripped supply by over 740,000 square feet and completions as a percentage of inventory remain near all-time lows. Health systems remain on solid footing and continue to rely on outpatient facilities as a key component to reduce operating costs and expand market share. Throughout this year, health system activity as a percentage of our total leasing has continued to climb. This quarter, we saw health system leasing comprise nearly 50% of our total activity, up almost 20% from the low point in 2023. Turning to our same-store portfolio. Occupancy improved by 44 basis points sequentially, ending the quarter at 91.1%. For the year, we have gained 77 basis points of occupancy, placing us inside the range of our full year expectations of 75 to 125 basis points. We expect our absorption momentum to continue in the fourth quarter. Shifting to the operating platform. We have made considerable progress migrating to an asset management model. Recently, we hired 2 additional asset managers, and we expect to fill the last couple of positions within this new platform in the coming months. Full conversion is targeted for the end of the year, providing greater accountability closer to the real estate. A key area of focus for the new asset management team will be the portion of our portfolio deemed lease-up and our strategic plan. This quarter, we saw notable leasing activity from this segment of our portfolio. Out of the 441,000 square feet of new leases that I mentioned earlier, 217,000 square feet or nearly 50% came from these properties. I want to congratulate our team on the leasing and absorption gains we made this quarter with a robust leasing pipeline, strong tenant retention and tightening supply, our portfolio is poised to see further leasing momentum and NOI growth throughout the remainder of the year and into 2026. I will now turn it over to Austin to discuss financial results. Austen Helfrich: Thanks, Rob. This morning, I'll provide an overview of our third quarter 2025 results, our capital allocation activity and our updated 2025 guidance. Our strong year-to-date momentum carried into the third quarter with normalized FFO per share, up 5% year-over-year to $0.41 and same-store cash NOI growth of 5.4%. Additionally, second quarter FAD per share was $0.33, resulting in a quarterly payout ratio of 73%. Our outperformance this quarter was broad-based, including 90 basis points of year-over-year occupancy gains, 3.9% cash leasing spreads and strong expense controls. We are at or above the high end of all of our core operational expectations for the year, driven by our focus on pushing accountability and decision-making closer to the real estate as well as a natural uplift from the sale of the disposition assets. We moved rapidly in the second quarter to reduce expenses across the organization. This progress showed in the third quarter with normalized G&A of $9.7 million. While we are still building out key teams, we have a clear line of sight on our target of $45 million of G&A in 2026 and are well on our way to completing the build-out of our best-in-class platform. Proceeds from disposition activity during the third quarter and through October funded the repayment of approximately $225 million of our 2027 term loans, decreasing our leverage to 5.8x. Inclusive of our bond repayment earlier this year, we have paid down approximately $500 million of notes and term loans in 2025. The revolver in 2027 term loans will continue to be the use of proceeds for near-term dispositions as our leverage continues to move into the mid-5s. Now turning to our updated 2025 guidance. We are increasing the midpoint of our FFO per share guidance by $0.01 to a new range of $1.59 to $1.61. Additionally, we now see same-store cash NOI growth of 4% to 4.75% and G&A of $46 million to $49 million. Before we turn to Q&A, I want to note that this quarter, we received board authorization for a $1 billion ATM equity program and up to $500 million in share buybacks. The prospectus for the equity program will be filed in the fourth quarter. Our existing share repurchase authorization expired this quarter, and this new authorization is part of our normal course business. It's good practice to have both programs approved and available should we need them. Operator, we're now ready to move to the Q&A portion of the call. Operator: [Operator Instructions] Our first question comes from Nick Yulico from Scotiabank. Nicholas Yulico: I guess first question is just in terms of -- as we think about like the NOI impact on the whole portfolio over the next several quarters. It's a little bit easier to model the asset sales, but can you talk some more about the redevelopment? You talked about more assets entering that pool. Presumably, there's some earnings drag from that, but then you also have occupancy sort of picking up and in the rest of your pool. So just any sort of high-level thoughts about how to think about that impact over the next couple of quarters. Peter Scott: Yes Nick, it's Pete here. So I think from the stabilized portfolio, perspective, as we've talked about and as we laid out in our strategic deck, we think a good, stabilized year-over-year growth rate is probably more like 3% to 4%. And if fundamentals continue to improve, we'll continue to assess if you can even do better than that. But I think we've laid out 3% to 4% and I think on the incremental $50 million of upside to NOI over the next 3-plus years, we did forecast probably $20 million to $40 million was the range over the next 3 years since the capital spend does take time to go out the door and ultimately the NOI you achieve from those redevelopments, takes a couple of years to earn in. So we have laid out a revamped table in our supplemental and we're open to any feedback from people on any additional information to include in there to help from a modeling perspective. And I think as you think about the $50 million of NOI, probably half of that is coming from redevelopments, and we added 5 assets in this quarter. I would expect to add probably another 5 to 10 over the next couple of quarters. One of the things, I've challenged the team here to do is to identify those assets sooner rather than later, so we can start to work towards the higher end of that incremental NOI upside, and that's why you saw a lot more come into the pool this quarter, and you'll see more come in, in the next couple of quarters as well. And we'll continue to provide information for everybody to track. The other kind of $25 million of the $50 million of upside is going to come from the lease-up portfolio that is not redevelopment. A lot of those are in same store. And I think that's one of the reasons why you're able to see some better than 3% to 4% NOI growth numbers that are coming out today as we're beginning the lease-up and the absorption in those assets. I could see that continuing for another year or 2 as well as we selectively invest capital into suites and not do redevelopments there, but targeted specific suite by suite capital investment. So that's the way we're thinking about it. I know there was a lot to unpack within that, but I wanted to give the 2 big buckets within the $50 million of incremental NOI over the next couple of years. Nicholas Yulico: Okay. Great. And then the second question is just in terms of the health system share of leasing picking up this quarter. Is that -- was that also just like skewed by renewals for those health systems in the quarter versus prior quarters? Or are you having -- can you think more success in terms of actually capturing a higher health system here in your new leasing, which I know has been a focus for you guys. . Peter Scott: Yes. Maybe I'll let Rob handle that one. Robert Hull: Yes. Nick, yes, I think that the volume that I talked about was total leasing. And certainly, we've seen a pickup this year, it's sort of been a gradual trend upwards this year and really going all the way back to '23, as I mentioned, that low point in '23 and so it's what we've continued to experience in terms of the continuing trend from moving services out of the hospital into the outpatient setting, which is certainly a tailwind for us. But then I think it also is continuing to improve tenant relations with our health systems and the effort that we've been doing over the past couple of years, you're really seeing that pay off for us. So it's a combination of health systems are continuing to grow and to grow their market share, but then I think also just better tenant relations and continuing to work the relationships we have. Peter Scott: Yes. And Nick, on the revamped asset management platform, I think this is one of the really big benefits of it. Is the asset managers are really going to be point on the health system relationships and with the local teams out in their various markets and dialogue from our company to then has picked up pretty significantly over the last couple of quarters, and I expect that to continue to pick up going forward. Operator: Our next question comes from Rich Anderson from Cantor Fitzgerald. Richard Anderson: You lowered your cap rate assumption for dispositions by 25 basis points to 6.75%. You've been able to achieve 6.5% year-to-date. I'm wondering if that's conservatism or if you think more Well, I guess you did say more of the remaining is coming out of the non-core bucket. Is that right, we would expect that the cap rate number for the remaining dispositions to be higher for that reason. Do I have that logically correct? Peter Scott: Yes. obviously, we've been pleased with the execution so far. And year-to-date, we're at 6.5%, Our expectation is some of the assets that are taking longer to get done, and it shouldn't be a surprise or those with value-add components associated with them. Good assets, just maybe in different markets or markets we're not going to be concentrated in going forward. So I'd say that the balance of what is remaining to close is probably skewed more to the value add component. And like I said, there's also some legacy office assets as well that we're looking to shed -- so I would not look into anything other than it's just the mix of the assets remaining is probably a little bit higher from an unlevered IRR perspective as the way the buyers are looking at it. Richard Anderson: Okay. And then there's a lot going on in medical office these days, largely in terms of dispositions. You, Welltower, [ DOC ] are all in the market to sell total about $9 billion or $10 billion, at least just from those 3 companies. Does -- what does that tell you in terms of the appetite, I mean, does it give you any pause to see that level of selling when this is your business? And if not, I assume you're going to say no. And if not, tell me why? Peter Scott: I think what it's showing is that there's a very, very strong bid for outpatient medical in the private markets right now. It's probably the best way to characterize it. Our focus on dispositions is really to create the best portfolio going forward from an NOI growth perspective. And our balance sheet was overlevered and that dates back multiple years. And we need to get our balance sheet leverage metrics to a more appropriate level. And they're almost there at this point in time. So our intent is to complete the dispositions that we are working on right now. We're pretty darn close to that. It's a pretty lofty goal to get all that done this year or really before our next earnings call. But we're really happy with the strong bid for the asset class. I think it shows that investors see a lot of value in it and we look forward to continuing to generate pretty strong returns on the portfolio that we're keeping and going forward. And we'd like to be switching to going more on offense as opposed to going on or really playing more of a defensive game at the moment. And I think that's going to come pretty soon. We're going to have balance sheet capacity to be able to shift to go on offense as well. So I look at it and say, great, there's a lot of product on the market. Maybe there's opportunities for us in joint ventures or even on balance sheet to start to take advantage of that. Richard Anderson: I guess the thing that I concern myself with is like the one thing that we've been waiting to happen is to extract some of the medical office ownership by the systems and get a stuff that's sort of tied up there. Is a lot of this sale activity going back to the health systems and hence, so you kind of going backwards in time in terms of the ownership structure of medical office. I'm just wondering, I guess, the buyer pool and what the long-term ramifications are of it. Peter Scott: Health systems have certainly picked up their purchasing. And we've noted that we've actually generated some pretty strong cap rates. I'd say the health system deals tend to be on the lower end of the cap rate range of what we've been quoting. So I think that's great. We can take advantage of that to the extent that we need to, but the majority of what you just quoted, the $8 billion to $10 billion is not going to health systems. I mean health systems have ROFRs and some of it will end up in their hands because they want to control the strategic real estate on their campuses. But most of that $8 billion to $10 billion that you just mentioned is going to non-health system buyers. Operator: Our next question comes from Austin Wurschmidt from KeyBanc Capital Markets. Austin Wurschmidt: Pete, just going back to the plans to add additional assets to the redevelopment pool in the coming quarters, I'm just wondering, are these currently occupied assets that there could be an initial move out before you add that into the pool. It looked like there was a move out in that bucket this quarter or are these just normal course assets that are in that lease-up bucket that needs a little bit of capital, in order to achieve the returns that you're focused on? Peter Scott: Yes. I would say that most of it is current vacancy and we see an opportunity to invest capital or it's -- perhaps there's near-term role coming up, and we see an opportunity with some investment to get the anchor health system to extend on a long-term lease and at a pretty healthy mark-to-market. That's the majority of it. Every now and again, you will have a vacate, although if you look, our retention numbers are pretty darn high. So I'd say this is in the minority where you have a tenant vacate and you say, what do we want to do with the asset? It may require some pretty significant capital investment to reposition it to get the appropriate increase in rates within that market. But I'd say that happens probably less frequently than it is for us today, current vacancy or an opportunity to invest some capital and also get a pretty nice markup on the existing rent roll roster. Austin Wurschmidt: And then Peter or Austin, I mean, Pete, you had referenced kind of looking forward to pivoting and potentially moving on offense and then Austin kind of flagged that you put in place the ATM as a capital allocation tool and a source. I mean is that something that we should expect in the near term from you guys to start to lean into that a little bit. And given the fact that the transaction market is heating up and there are opportunities out there that maybe you could mine through it and find something that kind of fits with the profile that you're looking for today and sort of the Healthcare Realty 2.0? Peter Scott: Yes. I would say I think -- as a matter of course, it makes sense to just always have an active ATM in place. We're not intending to use it based upon where our stock is trading today. We do have some balance sheet capacity that we are building though through delevering below our target leverage levels. And as we think about going on offense, it's not huge numbers as a result of the fact that we are constrained. We're not going to issue equity at today's levels, but we certainly could look to grow some of our joint ventures, and we are talking to our joint venture partners actively on that. And then we could look to do some selective smaller deals, tuck-in acquisitions in core markets or on core campuses, but that's the way we're thinking about it right now. And I don't want anyone to come off this call and think, oh, they're putting an ATM in place, they're going to start issuing equity again. I just think it's important to have it up and running. It hasn't been up and running for years, so that's really why I had Austin say what he said in the prepared remarks was to just tell people it's coming, but I wouldn't read anything into it. Operator: Next question comes from Juan Sanabria from BMO Capital Markets. Robin Haneland: This is Robin sitting in for Juan. On the $700 million of dispositions under contract, just curious if any of them are in the same-store pool, if anything, any of them are targeted for a JV and what pricing you're expecting? Peter Scott: Yes. No, none of them are targeted for joint ventures. So they're all going to get sold 100%. And then are any in the same-store pool, I would say, at this point in time, no, given how far along we are and the probability of those closing, not the high degree of probability of them closing, they're all in held for sale at this point in time, and that was the big move where you saw I don't know, 40-plus assets go from the operating portfolio into held for sale this quarter. Robin Haneland: And so on the recent dispositions, there wasn't any impact to the same-store NOI increase as they were -- they were not part of the same store pool and on the recent dispositions either. Austen Helfrich: Yes. It's Austin. If you look at the increase in same-store NOI guidance for the year, I'd say the vast majority of that is being driven by especially looking at the third quarter, 4% same-store revenue growth, 90 basis points of year-over-year occupancy gains and sub-2% property operating expenses. I would say the core portfolio, the stabilized portfolio continues to perform extremely well. And even including the assets moving into held for sale, we still would have been at the top end of our revised guidance range for same-store growth. That being said, there is, as I mentioned in my prepared remarks, a little bit of an uplift just given the disposition portfolio as we showed in the strategic deck does grow slower than the core stabilized portfolio. Robin Haneland: And shifting to the external growth opportunity. Could you maybe level set the expectations with us when you earlier see a possibility to go on offense? Peter Scott: Well, I think just from a balance sheet capacity perspective, we said we wanted to be kind of in the mid- to high 5s net debt to EBITDA. We're at 5.8x. We'd like it to come down a little bit from here. But when you factor in $700 million more of sales still yet to go and some debt repayment there. We will go likely less than 5.5x net debt to EBITDA. So it's probably anywhere from $150 million to $300 million of capital we can put out without taking our leverage levels beyond what our targets are. So we're building up a little bit of dry powder, and that doesn't give us any benefit for EBITDA growth in future years and so on and so forth. It's just the immediate amount of capital. So there's some tuck-in acquisitions we could do, and they would be accretive since we'd be financing that with 100% leverage. Robin Haneland: And then lastly for me, if I may. On the margin improvement time line, you outlined in the recent deck with the 65%, 66%. Can you maybe just elaborate a little bit on that on timing? Peter Scott: Yes. I think I'll talk both about occupancy, and I'll talk about margins. We did lay out a 3-year growth framework and we did lay out the pieces to that. I think selling some of these, we call higher IRR value-add assets, you get an immediate benefit from that, and you're seeing that right now with our same-store occupancy at a little bit better than 91% in our total occupancy and the very high 80s, I think it's 88%, 89%, it's probably 89% plus at this point in time. And our margins are in that 64% to 65% area last quarter and this quarter. So it's probably over multiple years that we would see that stabilized occupancy and margin levels, but we're working our way towards that. pretty darn fast. And the more and more absorption we get, the better the leasing environment, the quicker we can get there. But I think this quarter was a very good example as to how fast we could get there through sales. And then going forward, it's really going to come through organic leasing as well as expense controls. Operator: Our next question comes from Seth Bergey from Citi. Seth Bergey: I just wondered if you could start off by maybe commenting this has been talked about a little bit, but just overall changes to the buyer pool depth, the buyer pool since you kind of started the dispositions? Peter Scott: Yes. Maybe I'll have Ryan Crowley jump in on that. Ryan Crowley: Seth, I would say buyers have always been there. We've been selling -- we sold material assets in '24 and more so this year. The buyer demand and the buyer appetites remain strong all along. The biggest change has been the steady end market improvement in the lending environment. Bank liquidity is way up in our space. Today, bank originated loan rates are dipping into the high 4s. And so that's really fueling that buyer appetite. The buyer appetite is being led by primarily private institutional capital, and as Pete referenced earlier, the health systems. Health system percentage of MOB acquisitions this year is about as high as it's been in recent memory. But for the full year for us on the $1 billion or so of dispositions our mix, our buyer mix will be roughly half and half private buyers and health systems. Seth Bergey: And then, I guess, just a second one, with the $700 million kind of under contract, do you think -- is that just kind of like a timing issue of some of those closing kind of into next year in terms of why the disposition guide remain unchanged? Peter Scott: Some of them may close in early January, but there's not much more to read into it than that. Ryan Crowley: I'll just add, it's a high number of transactions. Year-to-date, the 35 properties we've sold have been 24 different discrete transactions. We have over a dozen remaining, so it's just -- it's not 1 or 2 large transactions that dictate the timing. It's the number. Operator: Our next question comes from Michael Carroll from RBC Capital Markets. Michael Carroll: Pete, I wanted to circle back on your comments on HR can be more offensive or a little bit more offensive in this market. I mean, how difficult is it to find these strategic investments just given the strong private bid? I mean, is there options or opportunities where HR has specific relationships that they can lever to get these deals? I guess can you talk a little bit about that? Peter Scott: Sure. Why don't you jump in on this, Ryan, and then I'll touch on it on the end. Ryan Crowley: Sure, Michael. I mean our reputation in the acquisitions market has historically been that of a sharpshooter. During our growth in years past, we bought assets typically 1 at a time and primarily, frankly, in relationship-driven off-market transactions that would be a majority of the deals we had historically done. Today, we have an active inventory of what we call Tier 1 acquisition targets that we've already identified in our top 20 priority markets, with the systems we want to align with and specifically on the top-performing hospital campuses where we've already done the analysis, we've cataloged over 400 Tier 1 acquisitions, that our team tries to sharp-shoot via these direct relationships that we have with owners, brokers and key relationships and health systems in these markets. What does that represent? Probably 20 million square feet, over $8 billion of volume of value. And our team actively pursues that. The only other thing I'll add is as cap rates have steadily declined from the beginning of the year. We have definitely noticed over the recent months, an uptick in the number of assets and the quality of assets coming to market. So there is more opportunity out there today. Peter Scott: Yes. Mike, I just want to jump in for a second on this. I'm glad we're obviously talking about going on offense just a little bit. But our focus is, first and foremost, on our 3-year growth framework and generating organic growth and reinvesting capital into our real estate. When we talk about going on offense. This is some modest balance sheet capacity that we have. And if we can find ways to put that capital to work to generate some nice accretion primarily in joint ventures where we get an enhanced yield, that stuff that we will look at. But to the extent that it's not additive to what we've laid out in our strategic plan we certainly can remain underlevered. So I just want to be a little bit careful when everyone hears the term offense that all of a sudden, we're disregarding our strategic plan and just looking at a bunch of acquisitions. I mean there's just some tuck-in things that we would like to do if the math pencils, but we do not need to do those. And our focus is primarily first and foremost, on the strategic plan and the 3-year growth framework that we laid out. Michael Carroll: And now I guess, Pete, you also made a comment earlier in the call in the prepared remarks that given where occupancy is that you can be a little bit more aggressive pushing price? I mean can you provide some color on what that means? Are you going to try to push it on spreads, annual bumps? And is this kind of something newer that you can do just given that in the market is getting tighter over the past few quarters? Peter Scott: Yes, as we think about maximizing lease economics, we have implemented a payback period model as well as an IRR model over the last couple of quarters. So it's just trying to get the absolute best possible economic returns with all the leases that we end up signing. I think where we're seeing success today is certainly on the escalator front, we're also seeing higher retention since there's just a lot less supply out there. And I think the last piece is you think about the rent mark-to-market opportunity, which I think is helpful to get, and we've been able to achieve kind of the low single digits if occupancy continues to increase, then there's an opportunity to continue to move more and more push harder and harder on that. But I think most importantly, it's the high retention as well as getting the strong escalators because high retention, you have no downtime and you have no capital really that you have to invest. There's limited capital you have to invest on renewals relative to new leasing. So that's the way we're thinking about it. Operator: Next question comes from Michael Gorman from BTIG. Michael Gorman: Austin, maybe you could just spend a minute, you talked a lot about balance sheet strategy and productivity. The unsecured market has been pretty strong in the REIT space of late. Can you just talk about how you're thinking about access to that market into the end of the year and strategy around kind of the '26 maturities? Austen Helfrich: Michael, it's a great question. We have $600 million of a bond maturing in August of next year. So I would say, first and foremost, we do have a lot of time, but to add to that, your point is not lost on us that, especially since we put out the strategic plan, rates up until maybe 2 days ago had moved slightly in our favor and you are seeing spreads at or near all-time lows. So it's certainly something that we're paying close attention to. We'll be opportunistic, I think, given the amount of time that we have until the bond refinancing, but certainly could look at doing something if the opportunity and attractive opportunity presented itself. Michael Gorman: And then maybe just switching to the portfolio side. For the 2026 lease maturities, can you just talk a little bit about how those back up compared to some of the escalators that you've been able to achieve in the third quarter? And maybe how the '26 expirations look relative to that, just to give us a sense for the potential opportunity there. Robert Hull: Yes. I think if you look out at '26, I mean we've got a good number of renewals coming up and the escalators on the total portfolio right now I think are in the averaging in the high 2s. I mentioned in my remarks that we've been achieving 3.1% on average across all of the renewals and new leases. And our new leases, we'd be even achieved a little bit higher than that. So I think as we look out at '26, we see an opportunity to kind of move that up over 3%. We've been consistently getting greater than 3% escalators. And as supply tightens and the portfolio improves through asset sales, we see an opportunity to move that even potentially higher. So certainly looking at improving on the average that we have and achieved this quarter as we look to next year, trying to move that up into the mid-3s. Operator: Our next question comes from Mike Mueller from JPMorgan. Michael Mueller: Just how are you thinking about what's the right level of development, redevelopment to have underway at any given time? I know pre-leasing levels come into it, but just -- just a little more color on how you're thinking about that would be great. Peter Scott: Yes. Obviously, on the development side, those developments are legacy developments that have been ongoing for a while. I would not expect us to commence a new development unless we do have that land bank unless it was a very, very heavily pre-leased, attractive yield to us. And I would say there's nothing imminent on the horizon on that. From a redevelopment perspective, it's going to be a little bit higher initially just because we're going to be reinvesting capital, first and foremost, into our portfolio. And by the way, we see a pretty darn good yield from that as well. You would calculate something in the 9% to 12% cash on cash yield with the IRRs being even higher than that. So it's a really good way to invest capital I think that bucket will have some assets cycle out, some assets cycle in. There have been some assets in redevelopment for a while that are near completion at this point in time. But I could see having 25-ish or so assets in that bucket, and I would say, on average, it's $10 million to $15 million of redevelopment spend across each project. So you can do the math on that, but I think that's probably a comfortable level for us going forward. And we obviously have the free cash flow opportunity to do that as well with our payout ratio being in the low 70s right now. Michael Mueller: And one other question. Once you're through the $700 million of asset sales that are under contract letter of intent. Should we be thinking of any additional dispositions on a go-forward basis or just something nominal and opportunistic as well? Peter Scott: I think it would just be nominal and opportunistic, Mike. There would not be like a large program, but perhaps there could be some pruning on an annual basis every year, but that would be just a very nominal stuff and done opportunistically. Operator: Our last question comes from John Pawlowski from Green Street. John Pawlowski: Just 2 questions for me on the restructuring. I believe there's $12 million of restructuring cost this quarter, $22 million-ish in the last 2 quarters. Can you just give us a sense of the total restructuring costs expected? And just in general, Pete, like I know you guys are moving fast, but what kind of inning are we in, in terms of your organizational restructuring of HR? Peter Scott: Yes. I think we're in the later innings on that. But if you think about the organizational restructuring charges, but you also factor in that we had $2 million to $3 million less of G&A this quarter, right? It's working its way into less G&A, a smaller cost structure. So I would say we've made really good progress. Are we done? We're getting closer to that level, but we're certainly in the later innings. John Pawlowski: And then last one for me. I know you guys highlighted in your strategic review document, a little bit of a drag from 100,000 square foot single-tenant lease expiration in '27. Has there been any other additional single tenant vacates that we should expect in '26 and then you have a lot of lease rolling in the single-tenant portfolio in '27. So any other vacates that popped up in recent months that we should be aware of? Peter Scott: Yes. No, I'd say nothing material. Obviously, we highlighted the '27 on in the strategic deck. And that really is the large lease roll in 2027, that tenant occupies 2 buildings. We are having conversations with them on extending in the entire other building that they are in. So I'd say we're making good progress on that. But no, to your question, is there anything additional that's popped up? No, there is not. Operator: We have no further questions. I'd like to turn the call back over to Mr. Pete Scott for any closing remarks. Peter Scott: Great. Thanks, everyone, for joining us here. Like I said, we're very excited about the direction that we're headed in HR 2.0 and proud of the quarter we put up and look forward to continuing to talk to you over the coming months as we finish out the year. Thanks very much. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Christopher David O'Reilly: [Interpreted] Thank you very much for taking time out of your very busy schedule to join Takeda's FY '25 Q2 earnings announcement. I'm the MC today, Head of IR. My name is O'Reilly. Thank you for this opportunity. [Operator Instructions] Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in our most recent Form 20-F and in our other SEC filings. Please also refer to the important notice on Page 2 of the presentation regarding forward-looking statements on our non-IFRS financial measures, which will also be discussed during this call. Definitions of our non-IFRS measures and reconciliations with the comparable IFRS financial measures are included in the appendix to the presentation. Now we would like to start with the presentation of the day. We have Christophe Weber, President and CEO; Milano Furuta, Chief Financial Officer; Andy Plump, President, R&D; Teresa Bitetti, President, Global Oncology Business Unit; P.K. Morrow, Head of Oncology Therapeutic Area Unit, will provide you with presentation, which will be followed by a Q&A session. We will get started now. Christophe Weber: Thank you, Chris, and thank you, everyone, for joining us today. Our fiscal year 2025 first half results confirm our expected business dynamic for fiscal year 2025 with business fundamentals tracking as planned. This is the last year of very significant VYVANSE generic impact, which peaked in H1 and which will be much less of a headwind to our growth from now on. Growth on launch product grew 5.3% at constant exchange rate, and we expect this growth to accelerate in H2. ENTYVIO is growing, albeit at a slower pace as the pen is growing 20% quarter-to-quarter in the U.S., but still represent only 9% of ENTYVIO volume in the U.S. Our PDT business is expected to grow at mid-single digit this year with immunoglobulin and albumin growing high single digit. We will continue to maintain very tight OpEx control through efficiency improvement supporting profit. Our decision to update full year management guidance for core operating profit and core EPS was driven by a headwind from transactional foreign exchange, mostly generated by the euro appreciation, which has most notably affected QDENGA. Our updated reported forecast, including our EPS forecast reflect a nontax deductible impairment loss booked in the first half. From fiscal year 2026 onwards, Takeda will be in a new business cycle with VYVANSE generic impact mainly behind us, potentially three new product launch for rusfertide, oveporexton and zasocitinib and an evolving late-stage pipeline now enriched by our strategic partnership with Innovent Biologics. Our leadership in leveraging technology and AI will further transform the company, which will be led by Julie. Milano will discuss our financial results and expected results in more detail in a moment, and then Andy will present our pipeline advancement with exciting data on zasocitinib. Later on this call, Teresa Bitetti and P.K. Morrow will discuss our partnership with Innovent Biologics and we'll focus on two new late-stage molecules. With that, I'll hand it over to Milano to walk us through the financials. Milano? Milano Furuta: Thank you, Christophe, and hello, everyone. This is Milano Furuta speaking. Slide 7 summarizes our first half financial results. Overall, our business performance is tracking as we planned. As anticipated, this period was significantly impacted by LOE, as we lost approximately JPY 100 billion of VYVANSE revenue. Meanwhile, we have been focused on driving OpEx savings, which has partially offset the impact to corporate profit. We expect H1 to be the peak of VYVANSE generic impact, and we expect a better growth outlook for the full year. Revenue in H1 was just over JPY 2.2 trillion, a decrease of 6.9% or minus 3.9% at constant exchange rates or CER. Core operating profit, core OP, was JPY 639.2 billion, a year-on-year decrease of 11.2% at actual FX or 8.8% at CER. Reported operating profit was JPY 253.6 billion, a decline of 27.7% due to larger impairment losses this fiscal year. Core EPS was JPY 279 and reported EPS was JPY 72. The 40% decline in the reported net profit and EPS reflects the impairment of cell therapy, which is nondeductible from taxable income. Cash flow was very strong this period with adjusted free cash flow of JPY 525.4 billion, including improvements in working capital. Slide 8 shows our growth and launch products, which represent over 50% of revenue. In H1, this portfolio grew 5.3% at CER. This modest growth includes the impact of phasing of certain products, and we anticipate a higher growth rate in the second half. In GI, ENTYVIO growth was 5.1% at CER. We are encouraged to see increasing numbers of active ENTYVIO Pen patients in the U.S., and we are also making progress with expanding formulary access. That said, revenue growth has been slightly below our expectation, and we are revising our full year forecast for ENTYVIO to 6% at CER. In rare disease, TAKHZYRO continues to grow steadily as a market leader in HAE prophylaxis with 5.9% growth at CER. Our PDT portfolio growth reflects several factors, which were built into our guidance and fully in line with expectation. IG growth was 3.1%. While Medicare Part D redesign is impacting several products in the U.S. this year, one of the most impacted product is GAMMAGARD LIQUID, and we expect this to normalize in Q4. Our SCIG portfolio is growing at double digits, and we expect this to continue. Albumin declined slightly in H1 due to timing of shipments to China and the foreseen cost containment measures. Meanwhile, we have also secured additional sustainable tender markets outside of China, and we expect albumin performance to accelerate in H2. Therefore, we confirm the growth outlook of high single digit for both IG and albumin. In oncology, FRUZAQLA continues to expand as we roll out global launches. Finally, in vaccines, we have reallocated supply of QDENGA based on market needs, which has pushed some shipments timing into later this fiscal year. However, we expect annual demand to remain in line with our original estimate. Another factor impacting the growth rate of QDENGA is transactional FX, mainly due to the strength of the euro versus the Brazilian real. On Slide 9, you can see how the growth on launch products and the VYVANSE loss of exclusivity contributed to total revenue performance. FX was also a headwind this quarter due to appreciation of the Japanese yen against major currencies. As we expect growth and launch products to deliver higher growth in H2 and VYVANSE year-on-year decline to moderate, we project more favorable year-on-year growth dynamics in H2. Next, an update on efficiency program that we initiated in April 2024. We continue to make progress with initiatives in H1 this year, including additional organizational changes impacting 600 positions, further optimization of real estate and the growth initiatives to capture efficiencies across the R&D value chain. Restructuring costs in H1 were JPY 27.4 billion, and we are focused on further driving additional OpEx savings. As we show on Slide 11, these operational efficiencies are contributing to a reduction in R&D and SG&A expenses. In this bridge for core operating profit, you can see that LOE of high-margin VYVANSE was the main reason for the year-on-year decline of 8.8% at CER. Within this decline at CER, we had a negative impact from transactional FX, which accounts for about 1/3 of the decline. Let me take a moment to explain how this is impacting our P&L. Revenue can be impacted when there is an FX fluctuation between the currency paid for product and the currency of the entity where revenue is booked. This is exactly what is impacting QDENGA sales today, for example, because our European entity books revenue in Europe for its sales to Brazil in Brazilian real. Cost of goods can be impacted, too, when products are imported from other countries. For example, when the euro appreciates, commercial entities outside Europe have to recognize higher COGS when importing products to sell locally. As you know, Takeda has a large manufacturing footprint in Europe, so we are particularly sensitive to euro currency volatility. Next, reported operating profit on Slide 12. This decreased by 27.7% versus prior year, mainly due to the decline in core operating profit and higher impairment of intangible assets. The main item was a JPY 58.2 billion expense related to our recent decision to discontinue cell therapy efforts. Next, our updated full year outlook on Slide 13. Starting with management guidance, although we have reduced our forecast for ENTYVIO and VYVANSE, we expect total revenue to stay in the range of the broadly flat versus prior year. For profit guidance, we expect higher OpEx savings to fully mitigate the impact from unfavorable change in product mix. However, the transactional FX dynamic that I just described is having a larger impact on profits. Therefore, we are slightly lowering our guidance for core operating profit and core EPS from broadly flat to low single-digit percentage decline. The bottom part of the slide shows our reported and core forecast. This reflects our latest FX assumptions, including transactional FX and items booked in H1 that will impact the full year results. We have also revised our adjusted free cash flow forecast to include a USD 1.2 billion payment to Innovent Biologics for our recently announced in-licensing deal. This payment will be funded by cash on hand. Our dividend outlook remains JPY 200 per share for the full year. On Slide 14, we show more details about the updated operating profit forecast. You can see the relative magnitude of transactional FX impact, while OpEx savings compensate for unfavorable product mix. The net impact of all these moving parts, including transactional FX, is a JPY 10 billion reduction in our operating profit forecast to JPY 1.13 trillion. In summary, our business fundamentals are tracking as planned. While H1 growth was largely impacted by LOE, we expect better growth rates for the full year fiscal year. Meanwhile, we remain focused on cost discipline to deliver our guidance, while investing for future growth. Thank you for your attention. I will now hand over to Andy for more details on the pipeline updates. Andrew Plump: Thank you very much, Milano, and hello to everyone on today's call. Next slide, please. Fiscal year 2025, as you just heard from Christophe, is a pivotal year as we advance and accelerate our exciting high-value late-stage pipeline to launch. Today, I am pleased to provide pipeline updates reflecting our growing late-stage portfolio of promising programs powered by our increasingly productive and efficient development engine. We are 2 for 2 with positive Phase III studies for both rusfertide and oveporexton with zasocitinib Phase III data in psoriasis expected by the end of this calendar year. In a few minutes, Teresa Bitetti and P.K. Morrow will walk you through the details of our recently announced partnership with Innovent Biologics, which upon closing, will expand our oncology pipeline. With 2 highly differentiated late-stage oncology assets in development for multiple solid tumors, this deal has the potential to transform our oncology pipeline. But first, I'm going to highlight some recently presented Phase III data for oveporexton and long-term IgA nephropathy data for mezagitamab that we are particularly excited about. The results of these studies truly represent Takeda's high bar for innovation and the breakthrough benefits we seek to provide patients. Let's start with oveporexton on the next slide. Oveporexton is on track to be the first-in-class and potentially best-in-class orexin 2 receptor agonist that treats the underlying orexin deficiency in patients with narcolepsy type 1. We believe that the data presented at the World Sleep Congress last month establishes a new standard of care for NT1. In one of the largest, most comprehensive Phase III development programs for NT1 to date, we demonstrated statistically significant and clinically meaningful improvement across all 14 primary and secondary endpoints with most participants within normative ranges. It is clear that oveporexton has a profound effect on daytime symptoms like excessive daytime sleepiness and cataplexy, nighttime symptoms and cognitive symptoms. In addition, it significantly impacts how patients with NT1 feel and function. We believe we have created a new standard of care to treat NT1 by treating the entire range of symptoms with a safe, well-tolerated pill. Oveporexton sets a high bar with the new standard of care, which will be hard to beat. Feel and function were assessed using multiple objective and subjective measures. Based on these strong Phase III data, we plan to file for U.S. approval in NT1 as quickly as possible later this year with regional filings to occur simultaneously or shortly thereafter. Our orexin franchise is making rapid progress beyond oveporexton. The next-generation orexin 2 receptor agonist, TAK-360, is rapidly enrolling Phase II studies for narcolepsy type 2 and idiopathic hypersomnia. Results for these trials are expected to be read out by early fiscal year 2026. Next slide, please. We previously presented compelling 48-week proof-of-concept data for our anti-CD38 antibody, mezagitamab, in IgA nephropathy. This includes consistent and supportive trends in decreased IgA, IgG and galactose-deficient IgA1 levels, reflecting the selective targeting of CD38 on plasma cells, which produce pathological antibodies. I'll now preview the exceptional 96-week results from the proof-of-concept trial that continue to support this promising approach to modifying this disease. Mezagitamab-treated patients show persistent reductions in proteinuria or UPCR, nearly 18 months after the last dose, suggesting sustained efficacy beyond the treatment period. Importantly, the estimated glomerular filtration rate, or eGFR, that is the regulatory gold standard for measuring renal function remains stable at 96 weeks. Mezagitamab is the first IgA nephropathy therapy to demonstrate stable renal function 18 months after dosing. We look forward to presenting the full data at ASN Kidney Week next month. Our Phase III IgA nephropathy study is open and has been enrolling well. Next slide, please. The Phase III VERIFY study of rusfertide, a potential first-in-class synthetic hepcidin mimetic in development to treat polycythemia vera was presented at the American Society of Clinical Oncology in a plenary session in June. Updated 52-week data will be available at an upcoming medical congress. This quarter, we received breakthrough therapy designation, which speaks to the exceptional practice-changing data presented at ASCO 2025 and increases the probability of priority review for rusfertide, which we intend to file this fiscal year. Looking ahead to our next major pipeline milestone, we expect zasocitinib Phase III psoriasis data later this calendar year. Based on the data seen in Phase II, we believe zasocitinib will provide an important and very attractive oral option for patients. I'm also excited to report that the head-to-head study of zasocitinib versus deucravacitinib in psoriasis is expected to complete enrollment in the next few weeks. As you can see here, psoriasis is the first of many diseases where zasocitinib can benefit patients. With that, I will now turn it over to Teresa and P.K. to provide more details on the Innovent partnership, which has the potential to catapult Takeda into an industry-leading oncology company. Thank you. Teresa Bitetti: Thank you, Andy. Good morning, good afternoon, and good evening. We are pleased to be here today to share more detail about our recently announced partnership with Innovent Biologics and why it's critically important for patients and for Takeda. Next slide. Our collaboration with Innovent involves 3 differentiated assets, each with unique mechanisms. 363 is a potentially first-in-class PD-1/IL-2 alpha bias bispecific. 343 is a next-generation Claudin 18.2 ADC, and we're also receiving the exclusive option to license 3001, which is another ADC targeting EGFR and B7H3. This deal is strategically important because it adds cutting-edge anchor assets to our pipeline. First, a bispecific with the potential to be an IO backbone therapy across a broad range of indications, lung included. Second, a next-generation ADC with potential to address difficult-to-treat cancers, including gastric and pancreatic. And finally, an option to license a potential best-in-class bispecific ADC. These unique programs, each with differentiated mechanisms further demonstrate our commitment to science, our commitment to patients and have the potential to be significant growth drivers for the Takeda enterprise post 2030. So next slide. Let me spend a little time sharing how we've structured this deal and what it brings to the Takeda portfolio. So for 363, which is the PD-1/IL-2 alpha bias bispecific, Takeda will lead the co-development of this asset globally using a 60-40 Takeda-Innovent cost split. Takeda will also lead U.S. co-commercialization of 363 with a 60-40 Takeda-Innovent profit or loss split. And Takeda will have the exclusive right to commercialize and manufacture outside of Greater China. For 343, the Claudin 18.2 ADC, Takeda will have the right to develop, manufacture and commercialize worldwide outside of Greater China. And finally, we will have the option for 3001, which is the EGFR/B7H3 ADC currently in Phase I. If we choose to exercise the option, we will have global rights to develop, manufacture and commercialize outside of Greater China. Next slide. This collaboration further enhances and augments our oncology portfolio and is consistent with our clearly articulated oncology strategy. As a reminder, you can see here on this slide, our strategy is focused on 3 disease areas and 3 modalities. And as we have highlighted here in the red box, the programs included in this partnership fits squarely within our strategy. So now I'm going to turn it over to P.K. to explain more about the science behind these programs. Phuong Morrow: Thank you, Teresa. I'm now going to share more about the 3 programs in this collaboration and why we are so excited to bring them into our pipeline at Takeda. I will start with IBI363. IBI363, as you can see here, is a bispecific with a unique mechanism that has the potential to become an immuno-oncology or IO backbone. Specifically, IBI363 is what I would call an IO-IO molecule, meaning that it is designed to block the PD-1/PD-L1 pathway and selectively activate IL-2 alpha signaling while attenuating IL-2 beta gamma signaling. As you can see on the left-hand side of this slide, this differentiated IL-2 alpha biased approach has been shown to activate tumor-specific T cells that express both PD-1 and IL-2 alpha receptor within the tumor microenvironment, thereby unleashing a more effective antitumor immune response. IBI363, thereby supercharges tumor-specific T cells, resulting in apoptosis of the cancer cell. And by blocking the PD-1 pathway, IBI363 ensures that these T cells continue to stay activated and it reduces the risk of T cell exhaustion. IBI363 has now dosed more than 1,200 patients and has demonstrated very encouraging results. Next slide. We have seen clinically impactful results in trials involving patients with IO refractory squamous and non-squamous non-small cell lung cancer as well as in third-line microsatellite-stable colorectal cancer. And while median overall survival is immature at the higher doses, it already shows a positive trend even at these lower doses. The results you see on the screen were just shared as oral presentations at this year's ASCO. They are encouraging data, especially when indirectly compared to results from standard of care chemotherapy on the right. The safety profile of IBI363 is considered tolerable with the most common adverse events related to IBI363 being rash and arthralgia. Discontinuations due to these events have occurred in a small percentage of patients and a priming dose has been added to the dosing schedule to reduce the risk of immune-related events that may occur with bispecific dosing. The high caliber of these data is reinforced by the FDA's granting of a Fast Track designation in non-small cell lung cancer. Thus, while this is a competitive environment, we are very encouraged by the data we have seen to date and the potential of this differentiated mechanism. Next slide. To maximize the potential of IBI363, we have 3 very clear objectives, which are built on the efficacy that we've seen thus far. First is to establish foundational efficacy in tumors that have progressed as IO therapies. Second is to penetrate into earlier lines as either monotherapy or in combination. And third is to build on our known data to establish efficacy in immune desert tumors such as microsatellite-stable colorectal cancer in which other IO therapies have not worked. So that's why, as shown on this slide, we're initially establishing the 5 Phase III trials, including 2 trials in IO refractory squamous and non-squamous non-small cell lung cancer, 2 in frontline non-small cell lung cancer and 1 in microsatellite-stable colorectal cancer. We also have a series of life cycle management trials that we're discussing with Innovent, which will help to build upon proof-of-concept data as it evolves. Next slide. Now I'll walk you through IBI343. This Claudin 18.2 targeted ADC is seamlessly harmonized with our oncology strategy due to, first, its novel ADC platform; and second, its demonstrated efficacy in GI cancers. When examining the image on the left, I will walk you through the platform from left to right. First, on the very left, IBI343 has a humanized IgG1 with Fc silencing. This Fc silencing is important because it reduces the risk of off-target toxicity and increases the tolerability of this Claudin targeting molecule. This differentiates 343 from other Claudin-targeting agents, which are known to have increased gastrointestinal adverse events. In addition to that, in the middle, the glycan-specific conjugation and sulfamide spacer increases the stability, solubility and potential bystander effect, allowing the ADC to result in a more efficient apoptosis of the cancer cell. And it also supports a homogeneous drug-to-antibody ratio of approximately 4, which many of us believe is a favorable ratio for ADCs. And finally, this potent exatecan payload inhibits topoisomerase 1, so it fits seamlessly into many standard of care regimens. Next slide. 343 has been dosed in more than 340 patients. And as shown during oral presentations at this year's ASCO, IBI343 has demonstrated encouraging activity in pancreatic and gastric cancers. Compared to the standard of care, 343 has more than doubled the response rate and more than doubled the overall survival as compared to standard of care chemotherapy thus far. This, coupled with a favorable and consistent safety profile with manageable GI and hematologic adverse events supports its ability to fit seamlessly into the standard of care. All of this makes us very excited to continue advancing this asset in GI cancers with critical unmet need. And as with 363, these results were also reinforced by a Fast Track designation by the FDA for pancreatic ductal adenocarcinoma. Next slide. We also have an ambitious development plan for 343 in Claudin 18.2 expressing GI cancers as its topoisomerase inhibition enables us to fit seamlessly into the frontline treatment of pancreatic cancer. In the second line of the chart, you can see that Innovent has an ongoing study, which is well underway in China and Japan in the third-line setting in gastric cancer. We will leverage this data from this study and add a single-arm study in the U.S. and the EU to move forward towards global registration in the third-line setting. And in the bottom row, you can see that the plans are underway for a frontline study in gastric cancer to address the needs of more gastric cancer patients across lines of therapy. Next slide. And finally, I will review with you IBI3001, for which we have the exclusive option to license at a potential future date. IBI3001 is truly a novel molecule, which is both a bispecific and an ADC. It targets EGFR and B7H3, 2 targets that are highly expressed in many solid tumors, including lung cancer, colorectal cancer and head and neck cancer, and it is linked to the same potent exatecan payload as 343. Innovent has rapidly progressed this asset into the clinic, already producing data, as you can see on the right-hand side, that shows encouraging efficacy even in highly refractory solid tumors. We look forward to following the progress of this trial, which is moving at speed. And with that, I'm delighted to turn it back to Teresa to talk about the immense promise of this collaboration for patients. Teresa Bitetti: Thank you, P.K. So looking at this from a patient perspective against the backdrop of the top tumor types by overall prevalence worldwide, we have the opportunity to make a difference in areas of extremely high unmet need. So as you can see highlighted in red, the tumors in our initial development plan are not only prevalent but difficult to treat. In our initial plans, we can address 4 of these cancers and make a meaningful difference for patients. Next slide. As I mentioned at the start, this partnership will serve as a significant potential growth driver for Takeda. When we look at the market opportunity for our initial development plans for 363, we're looking at lung and CRC. In lung, we will be focusing on the IO refractory second-line setting, where the majority of patients will have already been treated with a PD-1 or PD-L1 and then move rapidly into the frontline setting as a monotherapy or part of a combination regimen. And in colorectal cancer, we'll focus on the frontline patients with MSS CRC. So in aggregate, the initial plan focuses on a potential combined addressable market of over $40 billion. Next slide. Now let's look at the market potential for 343. Globally, gastric cancer affects around 1 million people with 35% to 55% expressing the Claudin 18 biomarker. In pancreatic, the global incidence is approximately 500,000 with 30% to 60% of patients expressing Claudin 18. The current standard of care in these tumor types centers on chemotherapy and the 5-year survival rates are very low, highlighting the urgent need for innovative treatments. Altogether, 343 offers a potential combined addressable market of approximately $8 billion, although we expect this market to grow as we and other novel agents enter. So as you can see, across both assets, there's an enormous potential to make a significant impact for patients. So next slide. So in closing, we are incredibly energized by this extraordinary strategic partnership that brings great value for both patients and for Takeda. This agreement with Innovent will enable us to address critical treatment gaps in some of the most prevalent and difficult-to-treat cancers. It brings forward unique and truly differentiated programs that will overcome many of the challenges of currently available therapies, and it adds anchor assets to our solid tumor pipeline with the potential to be future growth drivers for Takeda. So in short, this collaboration is incredibly meaningful, both for us and for patients. So thank you for your attention. I'm going to hand back to Chris to open the Q&A. Christopher David O'Reilly: [Interpreted] Now I would like to take questions from participants. We have Christophe, Milano, Andy, Teresa, P.K. and Julie Kim, CEO Elect Interim Head, Global Portfolio Division and Giles Platford President, Plasma-Derived Therapies Business Unit are joining in the Q&A. [Operator Instructions] The first question is from Yamaguchi-san. Hidemaru Yamaguchi: This is Yamaguchi from Citi. The first question regarding to Innovent deal. I understand the potential of this product is pretty big. But at the same time, Takeda sales has not really involved in the solid tumor for a while after [indiscernible]. And investors have a lot of question on this one, how much you need to spend on R&D for the next few years where you have to balance the operating margin. So R&D investment, even though you're going to split, but solid tumor first line seems to be very costly. So can you give me some elaboration on how you're going to run this clinical trial to compete with the global guys on the R&D and trying to, I would say, finance your R&D and the impact -- potential impact to the margins? That's the first question. The second question regarding to the earnings change. Even though there's only a slight change on a CL basis on the ENTYVIO and VYVANSE, seem to have a big change on the currency things. And this year might be a unique year, but is there any way in the future trying to avoid those changes or through some other transactions trying to prevent or this year, it's hard to escape from this currency related to earnings divisions. That's the second question. Christopher David O'Reilly: Thank you, Yamaguchi-san. So the first question was around how we're going to run the trials for the Innovent assets and what that means for R&D expenses. So perhaps P.K. can just comment briefly on -- again, on the development plans we have in place for these programs. And then Milano can add a comment on how that will fit within our R&D budget. And then for the second question on this transactional FX impact, I'd also like to ask Milano to comment on that, please. Phuong Morrow: Yes. Thank you. So we are very committed to investment both within our oncology portfolio as well as overall in order to support our long-term growth, while continuing to support profitability. In terms of the financial implications of this deal, these have actually been reflected in our revised forecast and guidance. It's a little premature for us right now to comment on outlook for R&D spend and margins for fiscal year 2026. But I can assure you, we are very committed to achieving the margins in the mid- to long-term, which are driven by top line growth and optimizing our cost structure. Milano Furuta: Thank you, P.K. Yamaguchi-san, not much things to add to what P.K. said already. But I think you can see that we have been managing quite effectively or in some areas, we are even reducing R&D expenses beyond our initial expectations by the efficiency program, also the continuous -- with continuous cost discipline. That's one. And then the second one is we are very mindful about this -- the incremental R&D investment as well. So that's why you see this cost split of the 60-40 for this 363 compound. At the same time, as you might be aware that we have been arranging some cost sharing program, the partnership with Blackstone for mezagitamab. So that's kind of through those kind of arrangements. We are very consciously managing incremental investment. But in the end, we want to invest for growth, while optimizing OpEx. Eventually, that's going to be top line growth, should be the main driver to the long-term corporate margin improvement. Second question about transactional FX. This is very hard to answer, as it is very difficult to predict the currency fluctuation. But this transactional FX in Takeda's case, as I commented during the presentation, the euro volatility is quite -- have a big impact in this year. This is because of -- relatively, we have a large footprint in the manufacturing operation in Europe. So we have to see how currencies goes. But in the long -- if we want to mitigate, then we have to -- maybe in the long run, somehow we have to rebalance the manufacturing footprint, but that's kind of, of course, a long-term strategic plan. It's not -- we've taken actions depending on a 1-year currency volatility. We have to take a bit to long-term stance on that. Christopher David O'Reilly: [Interpreted] Next question from Mr. Matsubara from Nomura. Matsubara: [Interpreted] Matsubara from Nomura. I have 2 questions. First is about ENTYVIO. As you explained, ENTYVIO Pen penetration is advancing, but the insurance coverage as of now and to enhance penetration of pen furthermore, what actions are you taking now? The second question is Nabla Bio that you have partnership with now, and this is nonclinical as of now, and it's not fully disclosed, but by utilizing this R&D acceleration, how does it go? And for mid- to long-term pipeline enhancement and acceleration, how do you see that? Christopher David O'Reilly: Okay. So thank you for your questions, Matsubara-san. So the first on ENTYVIO, what is the state of insurance coverage? What are we doing to expand access to pen? I'd like to ask Julie to comment on that. And then the second question was on our recently announced collaboration with Nabla Bio. Perhaps Andy can add some comments on what we're doing in terms of utilizing AI in drug discovery. Julie? Julie Kim: Yes. Thank you for the question. And in regards to ENTYVIO Pen access, as you heard from Christophe in his opening comments, we are continuing to improve our overall position along the access continuum, and we're encouraged by the 20% growth that we're seeing quarter-over-quarter in terms of ENTYVIO Pen. Now that being said, we continue to work on access at various different levels. One, in terms of the -- I would say, the highest level of coverage. I think you are all aware that we have 2 out of the 3 big contracts signed for quite some time now, and we continue to work on the CVS piece. For the other levels of access, when you look at the way that the U.S. market is structured, it's actually -- there's a lot of localization even with the way that we have the big 3 PBMs. So while we continue to improve at the local level as well, we are putting in place very specific tactical actions to address the localized challenges in addition to what we're doing at the overall coverage level. So hopefully, that gives you a sense that we're working across multiple different levels on the access continuum in the U.S. Andrew Plump: And thank you, Julie, Matsubara-san, and thanks for the question. We're quite excited by the partnership with Nabla Biosciences. But maybe I can just dial up for a second and give you some sense of the work that we've been managing in our research laboratories for the last couple of years. We see discovery in the biopharmaceutical industry changing quite rapidly, and we're positioning Takeda to be at the leading edge of application of advanced technologies in research. And in fact, we're in the process of completing a new laboratory in Cambridge, Massachusetts in Kendall Square that we call the lab of the future. And the intent of this lab is to enable a workflow in discovery that can both improve our probabilities of success and also greatly accelerate the time that it takes to move molecules through discovery. Today, 1 in 5 -- 1 in 4 of our research programs are enabled by in silico technology. By next year, we expect that over 90% of our programs will be enabled by in silico technology. The partnership with Nabla Biosciences is one example of how we're embracing AI in drug discovery. This is a company that was started by George Church that uses algorithms to optimize sequences of large molecules. We've worked with them for over 2 years now, and we have 3 pilot experiments that each were successful, 2 accelerated programs and a third one actually took us to a novel space that we wouldn't have gotten to with traditional approaches. So we were quite excited about that, and that's what led to then the collaboration that you see at hand. Christopher David O'Reilly: [Interpreted] JPMorgan, Wakao-san. Seiji Wakao: This is Wakao from JPMorgan. I have 2 questions. Firstly, regarding gross margin trend and revised guidance. When comparing the initial guidance with the revised full year guidance, the gross margin has deteriorated 66% to 64.7%. Should we understand this is -- this primarily as an FX impact from the euro? If there are other contributing factors, could you elaborate on this point? And also, if FX is indeed affecting the gross margin, the second quarter gross margin looks relatively solid compared to the FX levels. I'd like to know this point? And why do you expect it to deteriorate in the second half? And second question about IV -- Innovent partnerships. When is the next data update for IBI363 expected, so Page 27. Regarding ongoing first-line and second-line NSCLC studies, we will be able to see data in 2026. In addition, when is the global Phase III trial expected to start? That's it. Christopher David O'Reilly: Thank you, Wakao-san. So the first question on gross margin trend and the revised gross margin outlook for the full fiscal year. I'd like to ask Milano to comment on that. And the second question on the next data point to come for IBI363 and whether we can give an indication of starting Phase III studies. I'd like to ask P.K. to comment on that, please. Milano Furuta: Wakao-san, thank you for the question. You asked about the bridge from initial forecast updated forecast. At the same time, how the H2 second half gross margin will be lower. Actually, the answer would be basically same. If you compare -- if we compare the May forecast and revised the forecast, as you said, gross margin is expected to be lower by about 1.4 percentage points. About half is coming from the transactional FX. And the other half is also coming from kind of product mix change. So we are reducing the VYVANSE, the revenue and the ENTYVIO revenue. And then these 2 revision has a negative impact on the gross margin. So that's the contributing this gross margin update in the forecast. And actually, this explains -- these dynamics explains in the second half because this is more about the second half sales. Also, we are updating the currency forecast for H2. So those 2 impacts were contributing lower gross margin in H2. Phuong Morrow: Thank you, Milano. And perhaps to address the other 2 questions that were asked related to the Innovent collaboration. The first is to say that we, like you, are very enthusiastically monitoring the data with both 363 and 343. We are not yet releasing when we will disclose further data in the coming year, but we will be following this closely, as we determine when the appropriate data inflection will be in order to release more data in a public forum. The second question you had was related to the start of the Phase III studies. And we have noted that the Phase III study in second-line squamous non-small cell lung cancer, we expect to begin in the coming months. And as you saw from the slides, we will also be looking towards moving and initiating additional studies at speed. Christopher David O'Reilly: [Interpreted] Next question is Stephen Barker, Jefferies. Stephen Barker: Steve Barker from Jefferies. The first question is about ENTYVIO and the second question is about your collaboration with Innovent. Starting with ENTYVIO. So you've cut your estimated current growth rate at constant exchange rates from 9% to 6% due to competitive pressures. I was wondering if you could give us more details of those competitive pressures and the implications for growth going forward as in next year and beyond? And secondly, regarding your deal with Innovent, certainly, the China data published to date on 363 is impressive. But there have been several cases where impressive data in China has not been replicated in international studies. So I was wondering if you could share your view on if that apparent trend or phenomenon is real or not? And more specifically, how confident are you that you can replicate the impressive China data in international trials? Christopher David O'Reilly: Thank you, Steve. So I think the first question on ENTYVIO and the reasons for the reduction in the full year forecast. I'd like to call on Julie to answer that. And the second question on data replicability of the China studies in a more global population. I'd like to ask P.K. to comment on that, please. Julie Kim: Thanks for the question, Stephen, on ENTYVIO. So let me start by saying that ENTYVIO has been on the market for 12 years now, and it is still the overall market share leader in IBD when you look at it from a patient demand perspective, and we are holding market share. But as you've noted, there are a few things that are impacting our top line. One is in terms of the intensified competitive activity, and we're seeing that particularly on the CD side, but it is also starting to impact UC. But as I said, overall, because ENTYVIO is still the only gut-selective medicine out there for IBD, we've been able to hold share. The other things that are impacting the top line, there are a few things. One, as Milano mentioned in his talks, it is about the channel mix. We've particularly had an increase in 340B population as well as an increase in Medicare Part D redesign impact. Beyond that, the pen conversion, as we've mentioned, is moving a bit slower than we anticipated. And while we are resolving those access hurdles, it has impacted the top line thus far. But we do expect as those hurdles are resolved, we will see an acceleration of growth, which is why we do expect to end the year higher than where we are year-to-date. Phuong Morrow: Thank you, Julie. And to answer the second question, I'll say 2 points. One is, as you alluded to, initially, Innovent has accrued more patients in China, but over the past few months has now begun to increase the enrollment ex-China, including in U.S. and Australia, and we are continuing to monitor that data as well as its applicability. The second element is the fact that we actually endeavored on very significant due diligence during the evaluation for this collaboration. And that included bringing our own Takeda radiologists in order to evaluate the -- many of the images that we were seeing of the patients as well as determining the correlation with our response criteria, i.e., RECIST. And we saw a very strong correlation there. Christopher David O'Reilly: [Interpreted] Next question, SMBC Nikko Securities, Wada-san. Hiroshi Wada: Wada from SMBC Nikko Securities. About Innovent pipeline, I have a question. 363, regarding mechanism of action, I want to know IL-2 alpha bias, what's the significance of this? Roche has -- well, IL-2 itself is approved for the melanoma and other cancers, but not expanded very much to other cancers. If you activate alpha, Treg may be activated as well. And because of that immune response is suppressed, I think that's what was the rationale. So alpha activated mechanism for 363, what's the meaning of that, including the clinical data you have obtained so far. Can you explain that, please? Christopher David O'Reilly: Yes, P.K., would you like to take that question? Phuong Morrow: Yes, absolutely. So it's a great question. And we also asked the same question and interrogated that data with Innovent and discussed this in depth. And I can tell you that what is actually unique about this particular pathway is the fact that, first, we did learn from the experiences of others within the industry as it relates to IL-2. And that's why our focus has been on this IL-2 alpha bias with attenuation of the beta-gamma pathway. And with that in mind, we have seen that the IL-2 alpha biased approach has been able to target specifically tumor-specific T cells that are addressing both -- or express both PD-1 and IL-2 alpha. So it's been a very precise and effective activation within the tumor microenvironment. The other question that you had was related to whether this would actually cause and trigger activation of Tregs, which we also had that question related to. And we have not actually seen activation of Treg cells, which would have resulted, of course, in a decrease in the immune response. Thirdly, I would say that because of this, we think that the clinical data are very consistent with the mechanism of action with findings of very encouraging data in both IO refractory as well as in earlier lines. Thank you. Hiroshi Wada: [Interpreted] May I continue? Christopher David O'Reilly: [Interpreted] Yes, go ahead. Hiroshi Wada: [Interpreted] And for development policy, so refractory cold tumor is the strategy that you want to take. I understand that additional IL-2 NSCLC first line and head-to-head with PD-1 for Phase III. Is that the plan going forward? Phuong Morrow: Yes. Chris, would you like to be to take this? Christopher David O'Reilly: Yes, please P.K. Phuong Morrow: Yes, of course. So I think your question was around the development plan related to IBI363 and where we see the experience with this and the promise of this and agree with you that we actually want to leverage the strong clinical data. So beyond the 2 second-line studies in IO refractory squamous and non-squamous non-small cell lung cancer, we will plan to go head-to-head against IO therapy, both likely in an all-comers population as well as in a TPS-high population. Christopher David O'Reilly: Next question, I'd like to call upon Tony Ren from Macquarie. Tony Ren: Tony Ren from Macquarie. A couple of questions again on the Innovent transaction. For the IL-2 PD-1 bispecific IBI363, I understand -- I actually cover Innovent myself. I understand they have a global Phase II study. The primary completion -- estimated primary completion of this study is March 2026. So really only 4 months away. Did you guys get a chance to look at the data from that Phase II study, which I believe primarily is conducted in the U.S. and looking to recruit about 178 patients? And if so, were the data better or worse than what you've seen in China? So that's my first question. Christopher David O'Reilly: P.K., would you like to answer that one as well, please? Phuong Morrow: Yes, absolutely. So yes, first, I would like to say that, yes, we have been in constant communication with Innovent related to the evolving data. And as you allude to, that data in the global Phase II is progressing or the trial itself is progressing very nicely and at speed. I can't disclose what obviously, the data shows thus far, but we can see that I would like to just say that the data thus far is fairly encouraging, but I think too early to comment further. Tony Ren: Okay. Thank you for addressing that. Also, Innovent is starting the Phase III global study. I think it's called MarsLight-11 trial in immunotherapy-resistant non-squamous non-small cell lung cancer, right? So that trial according to clinicaltrial.gov is literally starting today. But also -- Dr. Morrow, you said that you're looking to start in the next few months. So are you -- as Takeda is leading the clinical development, right, are you looking to change the trial design and the conduct of this MarsLight-11 study? Phuong Morrow: What I will say is that we -- as I noted, we have had great conversations and discussions with Innovent weekly, if not every few days. And related to the MarsLight study as well as these beginning studies, we've also had discussions about whether we would need -- we would desire to change or tweak any of the elements of the protocol itself. I would say right now, we have not required any or asked for any significant changes as of today, but we are continuing to have those discussions. Tony Ren: If you do decide to change the trial design or protocol or conduct, would that require a new FDA clearance? Phuong Morrow: I don't think so. Christopher David O'Reilly: [Interpreted] Next question is Ms. Ueda, Goldman Sachs. Akinori Ueda: I am Ueda, Goldman Sachs. My first question is regarding [indiscernible] therapy business. I think in the United States, now CSL has been closing some of its plasma centers recently. So it also appears that Takeda is currently focusing on moving -- improving efficiency such as optimizing utilization rates and implementing the digital transformation initiatives rather than expanding the number of centers. So are there any changes in the business environment in the U.S. such as like the demand outlook or the cost structure that are driving the shift? And furthermore, I think some other companies seems to be actively investing in the collection centers outside in the U.S. So could you also let us know whether you are also considering similar types of investments? [Interpreted] I'd like to ask a second question to Milano regarding your dividend increase. Given this -- the downward revision of the guidance, I believe that EPS is going to be also lowered. And you also are able to transfer from the accumulated fund to your hand. However, what is about the potential risk of the impairment loss and how you are confident to continue increasing the dividend payment? I'd like to ask the second question to Milano-san. Christopher David O'Reilly: So the first on the PDT business and specifically on our collection initiatives in the U.S., I think I'd like to ask Giles to comment on that. And then the second question on the sustainability of the dividend. Milano, if you could kindly answer on that one, please. Giles Platford: Yes. Thank you, Chris, and thank you, Ueda-san, for the question. We have been investing extensively to improve efficiency and productivity across our BioLife collections network, and that has positioned us very strongly to be able to meet the growing demand for plasma-derived therapies and to continue to grow our collection volumes without opening to the same extent, new centers. In particular, we have benefited this year from the accelerated rollout of the personalized nomogram for both our FK and Haemonetics devices, and that has enabled us to improve volume collection by approximately 10% to 11% on a per donation basis. And as a result, we won't be opening as many new centers, and we are also benefiting from the ramp-up of the centers that we have opened in the past years. To the second part of your question, we do continuously evaluate opportunities to open up new countries to contribute to global supply of plasma. We don't have anything to communicate at this point in time, but it is a big part of our advocacy work worldwide to ensure that we are having more countries contributing to sustainable supply of plasma. Thank you. Milano Furuta: [Interpreted] Thank you very much for your question. Basically, regarding our dividend policy, as we explained in the past, it is a progressive policy, meaning we will sustain or increase the dividend. And in order for us to make a decision, we will look at core EPS and reported EPS and mid- and long-term reduction of interest-bearing liabilities or borrowings. And looking at these 3 parameters, we make a proposal what to do with the dividend in the next year and going forward. Therefore, at this point in time, I cannot say anything definitely, but these are the 3 points, we will base our decisions. And for the next fiscal year, around May time frame, we would like to announce what is the policy of dividend. Christopher David O'Reilly: [Interpreted] Next question from UBS Sakai-san. Fumiyoshi Sakai: Fumiyoshi Sakai from UBS, two questions. One is the same plasma business. CSL issued profit warning. There are reasons very vague, but one of the factors that you mentioned is weakening demand of China albumin sales or revenues. And your page -- Slide 40, you have slight decline in China. However, you haven't really changed the guidance for FY '25. Do you think -- do you still think that this guidance is achievable? If it's so, can you just give us the -- what's really going on in China market right now? So that's the first question. The second question is U.S. Biosecure Act when you make a deal with Innovent, anything going on in the U.S. these days is a mystery, but this act is still pending? And have you considered what are the political consequences having China Biotech as a partner? Probably not? But if you could update with this Biosecure Act and your business tie-up, I would really appreciate that. That's the second question. Christopher David O'Reilly: Thank you, Sakai-san. So the first question on albumin demand in China and our confidence in the full year outlook, I'd like to ask Giles to comment on that. And then the second question on U.S. US Biosecure vis-a-vis the Innovent deal. I'd like to ask Christophe to answer that question, please. Giles Platford: Sure, Chris, and thank you, Sakai-san, for your question. It's true, our albumin portfolio did decline marginally by 2% for the first half. This was a result of the impact of shipment phasing to China, but also related to the continued government-imposed cost controls in the country, both of which were anticipated as well as some effect of tender timing globally. And I'd like to point out that with a somewhat slower near-term growth outlook for China linked to those government-imposed cost controls, we have been actively working to build sustainable market opportunities for albumin outside of China, and we do see continued growing demand for albumin worldwide. And we have successfully secured a number of tenders in markets ex-China, which will be delivered in the second half, hence, accelerating our growth for the balance of the year. So yes, we remain confident to deliver on our guidance of high single-digit growth for the year for albumin and for our IG portfolio. Thank you. Christophe Weber: Thank you, Sakai-san. This is Christophe here. Obviously, we take into consideration the geopolitical environment when we discuss a deal like our partnership with Innovent Biologics. So I will mention 2 points. One is that we will do -- we'll drive the global development of this asset, guaranteeing that it is meeting all the criteria required by regulatory agencies across the world. So that's very important. And the second point I will mention is that we will manufacture these molecules in the U.S. So we will do a full tech transfer and we manufacture -- we'll organize the manufacturing of this molecule in the U.S. And therefore, we think that this is also a way to mitigate the potential geopolitical risk. Thank you. Fumiyoshi Sakai: [Interpreted] Can you just -- Giles-san, can you give a margin update in PDT business? Giles Platford: Yes, absolutely. I can do that. So we continue to see our margin recovery year after year, and we expect to deliver continued margin improvement in fiscal '25. And that's part of the reason why we gave a slightly more modest guidance in terms of growth for this year. We are seeing more supply on the market. If you remember, Takeda was the first to recover post pandemic. So we benefited from strong growth the past couple of years in meeting unmet demand globally. We see that situation now normalizing. So we're being a little more selective in terms of tender participation ex-U.S., very much expected, anticipated and consistent with the guidance that we gave, and that's partly because we're trying to calibrate both the need to grow, but also the need to grow profitably and to ensure we're getting value recognition in the process. We see continued improvement in product mix. So our innovative subcutaneous IG portfolio has delivered 15% growth for the first half. So that product mix helps in improving margins. The BioLife productivity and efficiency efforts driven by data digital and technology transformation that I referenced earlier are also helping us to improve margin. And we have seen gradual improvement in yield in fractionation and process improvement across our manufacturing network. So all of that is contributing to an improvement in margin over time. Thank you, Sakai-san. Christopher David O'Reilly: For the next question, I'd like to call on Mike Nedelcovych from TD Cowen. Michael Nedelcovych: I have 2. My first is just a broad question on your celiac disease programs. I'm just curious what the breadth of your ambitions are here? How important could those programs become ultimately should they make it to the marketplace? And then my second question is on mezagitamab for IgAN. When we think about the target product profile for that agent, is it sufficient to have efficacy similar to competitor agents across mechanisms, but with potential treatment holidays? Or should we be looking for better efficacy? Christopher David O'Reilly: Thank you, Mike. I think both of those questions on our celiac ambitions and aspirations for mezagitamab, Andy you can answer those. Andrew Plump: Thanks, Chris. Mike, it's Andy. So firstly, on the celiac programs, we had 3 programs that were in proof-of-concept studies, one that we've discontinued, which was TAK-062, which was an orally administered glutinase, which failed to show benefits. And two, TAK-227, which is a transglutaminase 2 inhibitor that's got restricted and then TAK-101, which is a tolerizing vaccine. Both of those are still in Phase II studies right now. Of course, this is a huge unmet medical need with no established standards of care. The bar is quite high for moving forward and the science is quite tough. But we're excited to see data in the coming months and over the next year for both of those programs. So I think we can talk more about what the potential long term could look like after we've seen those data. In terms of mezagitamab, obviously, and you're referencing this, it's an incredibly competitive landscape. With mezagitamab, though, we've got a fairly unique opportunity here. I would say that in terms of efficacy, we wouldn't -- based on the data that we've seen, especially from the APO/BAF agents, I don't think that we expect to see more efficacy. I think the real opportunity with mezagitamab is at least similar efficacy. The 96-week data that I referenced that you'll see in the coming weeks at the upcoming ASN Week meeting is quite extraordinary. I think the real opportunity here is the potential for sustained benefit after relatively short-term dosing. And then secondly, the potential benefits on safety. Christopher David O'Reilly: [Interpreted] In interest of time, I would like to make the next question as final, Sogi-san, Bernstein. Miki Sogi: I have 2 questions. First question is about ENTYVIO. So this is to Julie. So you have mentioned that the evolving competition in the U.S. as well as the increasing -- the change in channel mix. I can imagine that those -- the dynamics are -- it's not really easily reversible. So should we assume that the slowing down the growth rate as you have included in the revision from 9% to 6%. Is this the kind of trend we should expect for the 2026 and beyond? And if that's the case, will you be revisiting the peak year sale of ENTYVIO at some point? That's first question. The second question is about the Innovent deal. I have a question about this IBI3001, very interesting product, the ADC -- bispecific ADC. For this molecule, should we think that this is kind of going to work as 2 ADCs in 1 molecule, meaning that it's just kind of working as EGFR ADC and the B7H3 ADC? Or if there's any synergy by putting these -- the functions in molecule? Those are 2 questions. Christopher David O'Reilly: Okay. Thank you, Miki. So the first question on ENTYVIO to Julie and the second on 3001 to P.K., please. Julie Kim: Thanks for the questions, Miki. In terms of the growth, what I would say is this, as I mentioned earlier, ENTYVIO has been able to hold share -- patient demand share in overall IBD. And what I would expect without giving any predictions about growth and whatnot that we'll provide for FY '26 in May. I would say that our growth is in line with market at this point in terms of patient demand, and we expect to be able to hold our share given the fact that we're still the only gut-selective molecule in IBD and the strong track record that we have, particularly in UC. And as I mentioned, where we see the significant competitive challenges is in CD thus far. In terms of the peak at this point, we are not changing our overall peak revenue guidance. Phuong Morrow: Thank you. And to add on related to IBI3001, happy to bring this forward. So we agreed and when discussing the data and the potential for this molecule with Innovent, it was based upon a few elements. The first is the fact that these targets are very well harmonized with our current disease area strategy in solid tumors, particularly in GI and thoracic cancers. These target specifically. And the second element is that we believe that, as they should target 2 elements and then use the same novel exatecan payload as well as platform that they would be able to very specifically harness a payload and result in more encouraging efficacy. We've seen some elements of that thus far in the earlier doses, as I noted, and we will continue to monitor as we progress up the dose levels. Christopher David O'Reilly: [Interpreted] Thank you very much. With this, we'd like to conclude today's webinar. Thank you very much for your participation today. We'd like to ask for your kind continued support. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good day, and welcome to the AGCO Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations. Please go ahead. Greg Peterson: Thanks, Gary, and good morning. Welcome to those of you joining us for AGCO's Third Quarter 2025 Earnings Call. We will refer to a slide presentation this morning that's posted on our website. at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP metrics in the appendix of the presentation. We will make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts, demand, product development and capital expenditure plans and timing of those plans and our expectations concerning the cost and benefits of those plans and timing of those benefits. We'll also cover future revenue, crop production, farm income, production levels, price levels, margins, earnings, operating income, cash flow, engineering expense, tax rates and other financial metrics. All of these forward-looking statements are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks are further described in the safe harbor included on Slide 2 in the accompanying presentation. Actual results could differ materially from those suggested in these statements. Further information concerning these and other risks is included in AGCO's filings with the SEC, including its Form 10-K for the year ended December 31, 2024, and subsequent Form 10-Q filings. AGCO disclaims any obligation to update any forward-looking statements, except as required by law. We'll make a replay of this call available on our corporate website later today. On the call with me this morning is Eric Hansotia, our Chairman, President and Chief Executive Officer; and Damon Audia, our Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead. Eric Hansotia: Thanks, Greg, and good morning to everyone joining the call today. We delivered a strong third quarter performance, underscoring the effectiveness of our strategic execution and the resilience of our global team. While macro conditions continue to be volatile, we benefited from a more favorable regional mix and stayed laser-focused on what we can control. Our disciplined approach to production and cost management continues to position us well in this environment. Thank you to the entire AGCO team for their continued focus in these 2 areas, where we remain agile in the face of a complex and evolving landscape, and our people have been instrumental in helping us navigate this uncertainty, maintaining our momentum and continuing to put farmers first. Net sales were $2.5 billion, down approximately 5% year-over-year or up nearly 6% when excluding Grain & Protein business divested last year. Strong growth in EME led the quarter, which continues to be our largest, most stable and most profitable region. Near record global crop production in 2025 is leading to an elevated grain inventories and putting pressure on commodity prices. While farm income is being supported by increased government assistance in the U.S., crop margins are still tight and farmers around the globe remain cautious on capital spend. During this industry downturn, we are staying focused on executing our strategy, supporting our dealers and customers and investing in technologies that will drive long-term growth. We also continue to look for every opportunity to limit the impact of tariffs on our farmers. We are closely monitoring evolving tariff policies and government support programs around the world while continuing to engage with suppliers and adjust our supply chain. We continue to assess and implement price increases where appropriate and feasible. For the quarter, consolidated operating margins were 6.1% on a reported basis and 7.5% on an adjusted basis. Our results reflect strong execution by our teams. We maintained solid margins through disciplined operational performance, favorable regional mix and continued progress on our restructuring initiatives. This consistency underscores the effectiveness of our strategy and our commitment to delivering long-term value. Notably, we achieved these margins despite another quarter of significant production cuts in North America as part of our ongoing efforts to destock the dealer channel. When comparing third quarter of 2025 to the same period last year, production was down nearly 50% in North America. Production levels are actually down nearly 70% from 2023. In addition to making further progress on reducing dealer inventories, we've also decreased company inventories. This continued discipline is reflected in our working capital improvements and free cash flow generation during the 9 months of the year, which was approximately $453 million up compared to the same period in 2024. Slide 4 provides an overview of industry unit retail sales by region for the first 9 months of 2025. The global farm equipment market continues to face significant headwinds. Brazil remains slightly up compared to the third quarter of 2024, driven primarily by demand for smaller and midsized tractors, coupled with favorable trade dynamics. Despite record soybean harvest and potential trade benefits, demand for larger equipment has yet to show meaningful improvement. High financing costs and political uncertainty are expected to continue, constraining demand in 2025, but the early signs of recovery point to a modest increase in 2026. In North America, tractor sales declined 10% in the first 9 months of 2025 compared to the same period in 2024, with the steepest drops occurring in the high horsepower categories. Driving this behavior is the significantly lower grain export demand, global trade uncertainty and continued high input costs. We expect these pressures to persist, particularly with the demand for larger equipment. Recent announcements of government support are expected to support net farm income, which may help unlock future equipment investments. There are also potential upsides if further progress can be made on top of the trade agreement that was announced earlier this week between the U.S. and China. For Western Europe, tractor sales were down 8% during the first 9 months of 2025 compared to the same period 1 year ago. The industry experienced double-digit percentage decreases across most markets. Demand and mix are expected to remain soft through the remainder of the year as lower income levels weigh on arable farmers and correspondingly large tractors. As AGCO's largest and most strategically important region, Europe continues to deliver stable demand that is less cyclical than other markets with strong and consistent operating margins. This performance provides valuable balance to our global portfolio, helping us to offset fluctuations in other markets, including those influenced by evolving U.S. trade dynamics. We remain confident in the region's ability to support our long-term growth, especially as Precision Ag grows there. Combined sales continue to decline across all 3 regions with North America experiencing the largest year-over-year drop at 29%. Amid industry-wide pressures, AGCO is performing more resiliently than in previous downturns and remains well positioned for the long-term growth. Looking ahead to 2026, current commodity prices and fundamental uncertainties continue to impact the global ag industry outlook. Positive market factors, including livestock and dairy prices, the replacement cycle and government payments are being offset by geopolitical tension, tariff impacts and difficult farm economics, which include elevated borrowing costs and rising input costs. Given the combination of all of these factors, there is increasing likelihood of markets being relatively flat in 2026 with North American large ag down and Europe and South America modestly up. This view confirms our assessment that the global industry is at the trough. Slide 5 outlines AGCO's factory production hours. To ensure year-over-year comparability, we've excluded Grain & Protein production hours from the 2024 baseline. Third quarter production hours were up approximately 6% year-over-year, driven by a favorable comparison in Europe, where quarter 3 2024 was impacted by the prolonged factory shutdowns as well as increased output in South America. In contrast, North America production was down over 50% again this quarter, reflecting our continued focus on reducing dealer inventories in response to soft market demand. And as I mentioned, production levels are actually down nearly 70% from 2023. Looking ahead, we now expect full year 2025 production to be down approximately 15% versus 2024, a slight revision from our prior estimate of down 15% to 20%, primarily due to stronger quarter 3 output in EME. Rightsizing inventory in North America remains a top priority, while Europe and South America will continue to see production effectively aligned with retail demand. Looking at regional inventory breakdown. In Europe, dealer inventory is now just over 3 months, slightly below our target. Fendt is below this average, while Massey Ferguson and Valtra are just above. Europe's near target inventory levels are encouraging, particularly given our strong exposure to the region. In South America, dealer inventory ticked up to around 4 months, slightly above our 3-month target and quarter 2 levels, given the decline in demand for low and medium horsepower tractors. The increase in inventory reflects mainly a more cautious industry outlook given the demand changes in quarter 3, which led us to adjust our forward sales expectations. In North America, we continue to make meaningful progress, reducing dealer inventory from 9 to 8 months, while still above our target, the reduction reflects the success of our disciplined production cuts with units being reduced almost 13% in the quarter. Our 3 high-margin growth drivers, globalizing and expanding our Fendt product line, growing Precision Ag and increasing our parts business remains central to our strategy. To unlock the full potential of these growth levers and transform AGCO into a higher-performing company throughout the cycles, there are 5 major strategic shifts we've just made in the past 2 years that position us for significant earnings growth. Let's start with a significant update regarding our resolution with TAFE. We recently announced the sale of our ownership interest in TAFE, generating approximately $230 million in after-tax proceeds. For the first time under my leadership, we now plan to move forward with a $1 billion share repurchase program, reflecting our confidence in the business and our commitment to shareholder returns. We plan to begin purchasing $300 million of shares in the fourth quarter. Turning to other key elements that are meaningfully reshaping our company. The creation of our PTx business is the most critical to helping us achieve our vision to be the trusted partner for industry-leading smart farming solutions. By combining Precision Planting, the ag assets of Trimble and 6 additional tech acquisitions over the last 5 years, plus doubling our engineering budget, we've built a $900 million platform with a path to $2 billion in Precision Ag revenues as synergies and scale take hold. As we strengthened our high-margin, high-growth portfolio, we exited the lower growth, lower-margin business of Grain & Protein, which lacked alignment with our core machine and technology products as well as our distribution strategy. Project Reimagine is a company-wide restructuring effort focused on automating, standardizing, simplifying, centralizing and in some cases, outsourcing work. With over 700 active projects, we are driving efficiency, lower costs and most importantly, improving the outcomes for our dealers, farmers and employees enabled by AI. This initiative is expected to reduce our cost base by $175 million to $200 million. Finally, FarmerCore is unique in our industry and is transforming our go-to-market strategy. We're taking service and support right to the farmers, online and on the farm by investing in digital tools and enabling dealers to shift from brick-and-mortar to mobile service models. This is about servicing the farmer, not just the product. We're making meaningful progress in North and South America with expansion to other markets planned in the future. Together, these 5 strategic shifts are shaping the AGCO we've envisioned, more focused, more agile and better positioned to deliver sustainable high-margin growth. The results include margins at this trough that are comparable to the company's margins at the previous cycle's peak. AGCO is delivering higher margins through the business cycle, driven by these structural changes to the company's portfolio and value proposition. Going deeper into Precision Ag, Slide 7 showcases 2 major innovation milestones that reflect AGCO as a leader in smart farming solutions. We've launched Phase 1 of FarmENGAGE, our new mixed fleet digital platform designed to deploy work plans, track fieldwork and collect task data from all machines on the farm regardless of brand. This retrofit-first solution enables AGCO equipment to seamlessly integrate with existing Trimble technology while also supporting interoperability with non-AGCO fleets. Looking ahead, Phase 2 will consolidate features into a unified platform experience and Phase 3 will complete the full farm operation cycle, delivering an end-to-end solution for planning, execution and optimization. Together, these phases position FarmENGAGE as an absolute cornerstone of our smart farming strategy. As you know, our goal is to be autonomous across the crop cycle by 2030. We are accelerating this journey and at a recent Tech Day in Germany, we unveiled the latest OutRun autonomous solution for tillage and fertilization. Tillage is now in beta testing and fertilization is in alpha. These build on the success of our OutRun autonomous grain card solution, which is already in production. These innovations offer autonomous capabilities for Fendt and competitive machines in 3 of the 5 major stages of the crop cycle, making us one of the industry leaders in this transformational technology. This progress reflects our commitment to delivering practical, scalable technologies for the mixed fleet that reduce labor dependency, improve efficiency and help farmers operate more profitably. On that exciting note, I'll hand it over to Damon for a deeper dive into the financials. Damon Audia: Thank you, Eric, and good morning. Slide 8 summarizes our regional net sales performance for the third quarter and year-to-date. Net sales for the quarter increased approximately 1% year-over-year, excluding the positive impact of currency translation. For comparability, we've also excluded the $251 million of sales associated with the divested Grain & Protein business in Q3 of 2024. Breaking net sales down by region. Europe, Middle East posted a 20% increase compared to the same period in 2024, excluding the impact of favorable currency effects. This reflects a recovery in the production levels and corresponding sales following extended plant downtime last year. Growth was strongest in the high horsepower and mid-range tractors. South America declined close to 10%, excluding favorable currency impact. Weaker industry demand drove most of the decrease with lower sales across most product categories. North America was down 32%, excluding unfavorable currency effects. The decline was driven by continued market softness and our focused underproduction to reduce dealer inventories. The largest decreases occurred in high horsepower tractors, sprayers and combines. Asia Pacific/Africa declined 5%, excluding unfavorable currency translation impacts. Lower demand across the Asian markets were partially offset by stronger performance in Australia and Africa. Finally, consolidated replacement parts were $498 million in the third quarter, up 2% year-over-year on a reported basis and down approximately 2% when excluding the favorable currency translation. Turning to Slide 9. Third quarter adjusted operating margin was 7.5%, 200 basis points higher than the prior year. The industry backdrop remains challenging with continued pressure from factory underabsorption and elevated discounting. The margin improvement was primarily driven by strong performance in our Europe/Middle East segment, where higher sales and production volumes supported improved operating leverage. By region, Europe/Middle East income from operations increased around $163 million, with operating margins approaching 16%. The improvement reflects the significantly higher volumes and sales compared to Q3 of 2024, which was impacted by the extended plant shutdowns. North American operating income declined approximately $56 million year-over-year with margins remaining negative again this quarter. Lower sales and significantly reduced production hours were the key drivers, coupled with a significantly weaker industry. South America operating income declined $23 million with margins down to around 6%, primarily due to lower volumes. Asia Pacific Africa posted a slight increase in operating income of $1 million, driven by lower manufacturing costs, partially offset by lower sales volume. Slide 10 shows our year-to-date free cash flow performance. As a reminder, free cash flow is defined as cash provided by or used in operating activities less capital expenditures. Free cash flow conversion is calculated as free cash flow divided by adjusted net income. Through September, we generated $65 million of free cash flow, an improvement of around $450 million versus last year's net outflow of $387 million for the same period. This was driven by stronger working capital performance and roughly $120 million in lower capital expenditures year-over-year. We continue to expect full year free cash flow to be within our targeted range of 75% to 100% of adjusted net income. Our capital allocation priorities remain unchanged. Reinvest in the business, potential bolt-on acquisitions, maintain investment-grade credit ratings and return capital to shareholders. As Eric mentioned, following the TAPI resolution and the Board approval of our new $1 billion share repurchase program, we expect to begin repurchasing $300 million of shares in the fourth quarter. We also recently declared our regular quarterly dividend of $0.29 per share. We remain focused on deploying capital effectively to drive long-term shareholder value, and we're encouraged by the increased flexibility to return capital through the preferred investor method of share repurchases. Slide 11 highlights our current 2025 market outlook across our 3 major regions. Our outlooks remain relatively unchanged since the second quarter call other than a modest adjustment to our North American large ag forecast. In North America, we continue to expect significantly lower industry demand in 2025. While net farm income has improved, supported by government programs and record high cattle prices, sentiment remains challenged by weak corn and soybean prices. Investment confidence is declining and interest rate cuts haven't yet provided meaningful relief. We're maintaining our outlook for the small tractor segment to be down approximately 5% and now expect large ag to be down around 30% versus our prior range of down 25% to 30%. In Western Europe, we continue to expect the industry demand to decline 5% to 10%. The market remains soft but relatively stable. Wheat prices are below historical averages and geopolitical uncertainty continues to weigh on sentiment. In South America, record soybean exports, partly driven by U.S. tariff barriers have supported trade flows. However, margins are under pressure from higher input costs and elevated interest rates in Brazil are dampening demand, especially for large ag. Under these conditions, we still expect Brazil to be flat to up 5% for the year. Slide 12 outlines the key assumptions supporting our full year 2025 outlook. We continue to expect global industry demand to be around 85% of mid-cycle levels. Our sales outlook remain unchanged despite a slightly softer pricing outlook now in the 0% to 1% range, which is down from approximately 1% in Q2, given the increase in competitive pricing in certain regions. We continue to anticipate a favorable currency impact of roughly 2%. Our guidance reflects current tariffs across our global footprint, along with mitigation efforts through cost actions and pricing. That said, the potential for additional U.S. tariffs or retaliatory measures fostered continued uncertainty. We're monitoring developments closely and we'll adjust our outlook if needed. Engineering expense is expected to remain effectively flat year-over-year. We still expect our adjusted operating margin to be approximately 7.5%, reflecting structural improvements in cost initiatives, positioning us roughly 350 basis points above our last trough in 2016. Lastly, we revised our effective tax rate to 33% to 35%, modestly better than our prior estimate of approximately 35%. Turning to Slide 13 for our current 2025 outlook. We continue to expect full year net sales of approximately $9.8 billion, consistent with our prior outlook. This reflects the modest changes in demand trends across key markets. We refined our earnings per share forecast to approximately $5, reflecting strong execution across our global operations. This assumes no material changes to existing trade measures. Capital expenditures are now expected to be around $300 million. While this represents a decrease from the prior estimate of $350 million, we remain focused on supporting strategic initiatives and maintaining flexibility in response to shifting demand trends. We continue to target free cash flow conversion of 75% to 100% of adjusted net income, supported by disciplined working capital management and improved inventory efficiency. As Eric noted, we're pleased with our performance for the third quarter in what remains a challenging and evolving year. Our teams have executed well, grown share and continued to reduce dealer inventories while supporting farmers' needs. With this updated outlook, we believe our results further demonstrate the structural improvements in AGCO's profitability. Even in a down cycle, we're delivering stronger margins and more consistent earnings, a reflection of our transformed business model. With that, I'll turn the call over to the operator to begin the Q&A. Operator: [Operator Instructions] Our first question today is from Kristen Owen with Oppenheimer & Company. Kristen Owen: Wondering if we can start here with the strong Europe results. And maybe just ask a simple question, how Europe performed relative to your expectations? I'm just trying to parse through some of the onetime items versus the underlying trends there and what's supporting the outlook for a little bit more constructive growth in 2026? And I'll start there. Damon Audia: Yes. Sure, Kristen. So I think Europe, I would say, performed modestly better than what we had expected more on the top line. So volumes were a little bit stronger than what we had originally anticipated. The production, what you saw with the margins heavily influenced by the production schedule, I would say, was relatively in line with what we had expected. So overall, we feel good. I think the key point for us as we look at Europe right now, the dealer inventory levels are sitting below the optimal level for us. So we feel very good as we go into the fourth quarter and into '26 here that we're sitting in a relatively strong position from producing in line with retail or hopefully, if the markets were to pick up. And again, we haven't given a full outlook for '26 yet, but the dealer inventory levels are positioned well there for '26. Kristen Owen: And then my follow-up, understanding it's very early days to digest, but any initial thoughts on the China trade agreement that was announced yesterday and how that might complement some of the government support that's been floated out there. Just early thoughts on what that could do for your North American outlook next year. Eric Hansotia: Yes. We see this as clearly net positive. There's a combination of the soybean purchases that are more clear now for this year and the next few years. So farmers can -- that's really the core of what farmers look to is market stability and predictability. But then there's also the government support that's been strengthened. And so it's a dual positive outlook. Having said that, we think this is going to be a little bit of a show-me situation where the farmers are going to need to have this -- have the trades actually happen, the deal actually finalized, the beans actually being purchased, which will then drive real pricing in the market. So our phones weren't ringing off the hook yesterday with all kinds of purchasing orders coming in. But it's net positive. That will just take some time to play out in the market. It's probably more of a 2026 effect. Operator: The next question comes from Jamie Cook with Truist Securities. Jamie Cook: I guess just my first question, just on the North America dealer inventory. It's nice that it came down to 8 months, I guess, versus 8 to 9 or 9 months last quarter. I mean this sounds like this is obviously going to go into -- the excess inventory is going to go into 2026. So just any color there on at what point in 2026 do you think we could get rightsized? And if we continue this way and given what you're saying about North America, is there greater risk in 2026, North America would be at a loss again for 2026? I guess that's my first question. And then I'll ask the next one after you answer this. Damon Audia: Yes, Jamie. So I think overall, North America, the team did a really good job in reducing the units on hand, as I think Eric said around 13% down sequentially. Given the change in our industry outlook for this year with large ag being down now around 30%. And as Eric alluded in his opening comments here, we do see North America down -- large ag down in North America -- next year as well. That is putting pressure on us to get to that 6-month target. I don't -- we won't get there by the end of the year. I think we'll make improvement from the 8 months down, but we won't get to the 6 months now. Again, that's based on our current outlook. I think as Eric just said on the prior question here, a lot of new information has come out over the last couple of days with the China trade agreement, with more conversations about subsidies for the farmers. And just to put it in perspective, again, our industry -- our inventory levels are based on the 12-month forward look. So again, if hypothetically, if large ag in North America was flat next year instead of what we're assuming is down, that would have changed my current 8 months, would have reduced it by around half a month. And so it's fairly sensitive to what looks -- what '26 will look like. So again, if we see that market turn here based on farmer sentiment, based on increased purchasing in '26, we're going to be in line with our target fairly quickly. So a little bit hard to answer right now because I think there's a little bit of flux in the system based on some of the most recent news. Jamie Cook: Okay. And then I guess just my second question, tariffs and the lower price. I think last quarter, the guidance assumed $0.45 in net tariff impact to EPS. Any update sort of with Section 232, how that impacts you? And just curious how we're managing the higher cost, but then obviously, you lowered your pricing assumption. So where are you seeing the discounting? And how do you think about pricing into 2026, given what some of your peers have communicated? Damon Audia: Yes. No, we're definitely -- I think the incremental Section 232 items had a relatively modest impact to our overall tariff cost. Again, as we've sort of quoted a net tariff number for 2025, I would say we are marginally worse relative to the $0.45 more due to the incremental lost volume that we're estimating here versus the industry. And so I think that's sort of a little bit of the challenge for us here. As we think about the pricing comment for this year, we have seen some increased competitive pricing tension more in South America and Europe, and that's what's forced us to change our outlook from what was up around 1% to somewhere in the range of 0% to 1%. We will still be net neutral to positive on price versus material cost, and that does include tariffs on a global basis. So we're still going to be able to cover it, but maybe not as much as we had hoped given the current environment. As we look into 2026, we're going to see how the industry dynamics play out. As we've said from the beginning, our goal is to limit the cost of the tariffs to us and to the farmers, where we can't do that, we know that those costs will be centralized likely here in North America, and we're going to look to try to spread pricing as broadly as possible. And as I, again, early look into '26, again, I think we'll -- as a total company, we should be able to cover the material costs and the pricing, but we want to get through the year-end before we give more official outlooks for '26. Operator: The next question is from Kyle Menges with Citigroup. Kyle Menges: Maybe just jumping off from the last question. It'd be helpful to just hear you guys elaborate a bit more on the pricing competition you're seeing, particularly, it sounds like in Brazil and Europe, just maybe what's going on there. Damon Audia: Yes. I think, Kyle, what we've seen is the South American market, especially Brazil, as we said the last quarter, has started to recover. It was the first of our 3 major markets into the downturn. It started to recover, mainly in the medium and low horsepower segments of the market, again, influenced a lot by the specialty crop farmers, coffee, citrus, -- and what we've seen is a little bit of a slowdown in those markets here. And so the market is still growing. I would say we were 0% to 5% last quarter. We were probably closer to the high end of that. And as we look at some of the competitive nature down there with some discounting, especially in that segment, it's reduced our outlook now closer to the lower end of that segment. Again, I think the markets are still doing well. But just given the push to try to drive volume there, we're seeing that segment of the market be a little bit more competitive in nature. Kyle Menges: Got it. And then just on your earlier comments on global retail sales, looking like they could be flattish year-over-year next year, assuming that's more so just talking about unit sales. I'm curious if that includes Precision at all. And would be helpful just to hear you discuss a little bit the trends you're seeing in demand for your precision solutions into 2026 and how you feel like you're positioned in that retrofit market going into next year? Damon Audia: Yes. So maybe I'll touch on the industry comments, and then I'll let Eric elaborate on the PTx business. So our outlook for next year is really based on retail unit sales. It's not really including parts or our PTx business. Think of that more as whole goods sales. Eric Hansotia: Yes. And then PTx , we're hitting all our forecast this year. It's going as we would plan it to be at this stage of the cycle. We're at the trough. So the margins are lower than where we ultimately want them to be. But we're signing up dealers. We've got 90 -- over 90% of our AGCO machines now going out of the factories with Trimble technology. Essentially, if you look at the 2 channels that we inherited, the Precision Planting and the PTx Trimble channels, we've got over 90% of the market covered in everywhere except for Brazil, and that's in the low 80s with that dealer network, and we're working on melting those together. The effort to end up with combined dealers that have the full portfolio is well underway. We've got 50 of those done. Target is to have 78 of them by the end of the year. That will cover about 70% of the U.S. market, which is the fastest-growing Precision Ag business. So just trying to give you a few data points on both channel as well as technology and our product. And then new technology, we had our Field Tech Days and PTx launched 11 new innovations this year, well ahead of what we had anticipated when we were putting the business together. So the innovation engine is probably running ahead of schedule. Financials are on track. Channel development is on track. We've got a new leader in charge of PTx. He's hitting the ground running really well, has visited many of our global operations in terms of sites and dealers. And so I'm very pleased with how that's going. Just as a reminder, retrofit doesn't go down as much as the rest of the business. It only declines about 1/3 as much as the overall decline of the whole goods. And so we're seeing -- although it's down, it's not down nearly as much. And as it recovers, we expect that, that will recover as well. Operator: The next question is from Tami Zakaria with JPMorgan. Tami Zakaria: I wanted to get a little more clarification on the pricing outlook being changed. Can you help us with which regions or region is driving that reduction in outlook? And I just wanted to make sure, is fourth quarter pricing still positive? Or are we talking about negative pricing? Damon Audia: Yes. So Tami, fourth quarter, it will still be positive. If you look at our year-to-date, I think we're up around 50 basis points, give or take. And so pricing will be up around 1% in the fourth quarter total company-wise. Again, if I think about the change in the pricing, again, based on the prior -- one of the prior questions, the change really was driven more in South America and Europe is sort of where we saw the reductions relative to our Q2 outlook for you guys. Tami Zakaria: Understood. And my next question is, I think I heard you say North America large ag, you now expect to be down next year. Can you help us frame what that down means as of right now? Are we talking about flat to down or down to some degree, but less than this year's 30s? Any way to frame that? Eric Hansotia: Yes. Prior to the news of the last 2 days, we would have said down, like, say, single digits, nowhere near as much as this year. But then since then, we've had a couple of pretty significant positive indicators in terms of farm support for farmers from the government and pricing stability of China buying soybeans. So where that will actually end up is unknown, but it won't be anywhere near what we saw this year. We believe we're at the bottom of a global industry. We believe pricing is probably at about its worst. We think pricing power will be stronger next year. And so I think that '25 is probably, in many cases, the worst of the cycle. Operator: The next question is from Stephen Volkmann with Jefferies. Stephen Volkmann: Damon, can you just give us a little bit of a walk into the fourth quarter? There's a pretty big margin expansion kind of implied in your guidance. And I'm just curious what are the buckets that kind of deliver that? Damon Audia: Yes. I think, Steve, for us, the margins in the fourth quarter should finish up at around 9% or a little bit over 9% to deliver the 7.5% full year. And as we look at some of the improvements, I think Europe, again, fourth quarter is generally a fairly strong quarter for Europe. And so with from a volume standpoint, so we should see the margins tick up there. Asia Pacific is one of the early -- was in the down market early, and we see that improving. So I think we see a little bit of the margin coming out of there. And then South America would be the other one. North America continues to be the challenge. And if I think about the margins in North America relative to the third quarter, given the increased level of underproduction. Again, we said on the scripted remarks that we were down around 50% and Q4 will be down we'll be cutting production over 50% as we continue to try to focus on that dealer inventory. So I think sequentially, those margins will be even lower here in the fourth quarter for North America. Stephen Volkmann: Okay Helpful. And then maybe just to focus on the restructuring program. So the $175 million to $200 million, is there a benefit of that in the fourth quarter? And then what would the benefit of that be in '26? Damon Audia: Yes. Again, year-over-year, we're picking up steam as we move through the restructuring actions. So there will be some benefit in the fourth quarter relative to last year. That's embedded in the outlook already. As I look at next year, you're going to get the carryover from the original $100 million to $125 million and you'll get some of the early parts of the incremental $75 million. So next year, as we look at the restructuring benefits today, I'd say it's probably in the range of $40 million to $60 million of incremental improvement relative to 2025. Operator: The next question is from Mig Dobre with R.W. Baird. Mircea Dobre: I want to go back to the tariff discussion, if we can. And what I'm confused about, frankly, is this interplay between Section 232 and just the normal reciprocal tariffs. And I guess the way I would ask the question, when we're sort of thinking about your guidance for 2025, there was a sort of cadence in the way these tariffs kind of came into play, not much impact in the first half, maybe more impact in the second. You also have FIFO accounting. So I'm wondering, is it fair to think that the impact from these tariffs is actually greater in 2026 than what's embedded in the 2025 guidance? And if so, is there a way to maybe quantify it for us? Damon Audia: Yes. Sure, Mig. So yes, in answer to your question, if we look at the -- there's a couple of variables to your point, we still have some costs that we have costs that have flown through our P&L related to the tariff payments we're making. Some of it is still tied up in inventory. And then we will have the full year run rate of those tariffs, assuming there are no changes. So again, when we think about that, we've also announced that we put price actions in effect in many of our businesses, PTx parts, whole goods for model year '26. And so we have only seen a portion of that, and that's why we're sort of giving you that net effect this year. But if I just try to quantify in absolute terms what the tariff costs are, again, not mitigating with price or other actions. For next year, again, assuming no changes to what's in effect today. I would tell you that the total tariff costs are less than 1% of my total company sales. So this year, we're guiding to $9.8 billion. I'd tell you the total tariff cost on an annualized basis would be less than 1% of that. Now that would be concentrated here in North America. So the percent would be more. But as we've talked about in the past, our philosophy is to try to price in the region where we can. But to the extent we're not able to pass all of that given competitive dynamics in that region, we look for opportunities to be strategic and increase prices in other parts of the world to offset that total cost here for the total company. Mircea Dobre: Okay. That's really helpful. And then maybe a quick follow-up on South America. And I don't know if this is the right way to think about it. But when I'm sort of looking at margin here, your revenue has gradually recovered sequentially through the year. We've seen a sequential step down in margin from the second to the third quarter despite revenue being higher. And I'm kind of wondering if this is a function of pricing, as you talked about earlier or if there's something else going on that we need to be aware of as we think about the fourth quarter? Damon Audia: Yes. So I think, Mig, there's been a couple of things. The mix, if you think about year-over-year and you're thinking more -- the mix is as we talked about the high horsepower segment, despite all of the geopolitical stuff that we're hearing about Brazil being a beneficiary, we're not seeing the large ag part of that market pick up yet. And so what we have been seeing is, again that medium, low horsepower specialty crops. So what you're seeing year-over-year there is really more of a mix challenge. In the quarter, we had a little bit of a warranty spike year-over-year, nothing significant, but just on a quarter year-over-year basis, warranty was a little bit higher. When I think about the fourth quarter, again, you're going to see that mix headwind come in, in South America as again, we're not seeing the large horsepower pick up. And if you look at the fourth quarter for South America specifically, last year, we called out a special tax benefit for R&D. It was about 1% to 1.5% of a margin lift. That's not repeating this year. And so those are the 2 drivers as I think about the fourth quarter is really the continued mix decline year-over-year and then that one tax benefit that I had in the fourth quarter of 2024. Operator: The next question is from Chad Dillard with Bernstein. Charles Albert Dillard: A question for you guys on North America. So can you walk through the path to margin recovery? Is there further restructuring that you can do? And then also, I guess, like how much of that headwind is just coming from tariffs? Damon Audia: Yes. So Chad, the part of the overall restructuring programs that we're talking about, some -- a portion of that is in North America. So we will see some marginal benefits of that as we move into next year. When I look at the margins right now or the negative margins it's heavily influenced by the level of underproduction. Again, I think as Eric mentioned, when you look at where we were producing in 2023, the number of hours versus what we're producing right now in the back half of '25, we're down around 70-plus percent in hours in North America. So when you just think about the cost of those factories running at that lower level of utilization, that is a significant drag on the margins. On top of that, as I said, the tariff costs are centralized here. The team is doing a nice job in trying to offset that I'd say, on a dollar basis, we're not offsetting it on a margin basis. So obviously, that's going to be margin dilutive. So the key for us is to get the volume, right? We look at this industry. And I think last year, when you exclude Grain & Protein, we were $2.3 billion or so, give or take. We need to get that volume back up. And whether that's the industry recovering, whether that's the continued focus on gaining share, all of those things are going to be critical. I'd say parts is doing quite well. But in North America, parts is a little bit weaker year-over-year. So again, that's a high-margin part of the business. So we need -- the volume has to start flowing back in North America, and it's not necessarily a reflection of what we're doing. It's more a reflection of the industry because when we look at Fendt, we're actually gaining share here in North America. You're just gaining share on a much smaller pie and you're not seeing that drop to the bottom line just given the overall industry decline. Charles Albert Dillard: Got it. That's super helpful. And then just secondly, you were talking about your pricing strategy to mitigate tariffs and talking about spreading it, I guess, more globally. I'd love to get a little bit more color on that. I guess what I'm trying to understand is how successful are you seeing pricing stick if you're looking to expand more globally than merely focusing on pricing in North America? Eric Hansotia: Maybe I'll take that one. Our strongest -- our biggest market is Europe, and we continue to grow share there even though we put pricing into that market. South America is probably the opposite. It's like Damon said, it's the most price competitive right now. And so it's been the one that's the most difficult for us to have pricing power at the moment. But big picture, South America is going to come back as the industry comes back. But we've had the most success in Europe, put the price in and gain share at the same time. So our disconnect between where we incur the tariffs and where we offset it has been working. Remember, there's a 3-pronged strategy there. Number one is work with our supply chain to minimize the cost impact and moving products around from -- within our supply base or within our manufacturing operations is item #1. Item #2 is Project Reimagine. We're going to take about $200 million out of our cost structure on a little over $1 billion base. So that's a self-help area. And then only third is the pricing action. And we've been really clear all the way along is we're going to put price around the globe wherever we can, where the market will bear, and that focuses on North America. Operator: The next question is from Joel Jackson with BMO Capital Markets. Joel Jackson: On your outlook that you expect next year, global sales flat, Europe up, the rest of the markets is down a bit. Can you speak to knowing what your inventory levels will be at the end of this year, what that might mean for underproduction in the various regions we might expect next year? Damon Audia: Yes, Joel, obviously, I think if we look around the world, Europe, we continue to be in a really good position. You didn't see much underproduction in Europe this year. And again, given the dealer inventories right now are sitting below our optimal level, I would say, sort of consider that relatively flat year-over-year, again, producing closer to retail or in line with retail, excuse me. South America, again, the industry is picking up year-over-year. If you remember, we had a lot of underproduction here in the first half of 2025. And so as I think about South America, you probably see some incremental positive from absorption on the full year. It will be first half weighted, and then we'll start to lap the comps that we're seeing here in the third and fourth quarter, where we're producing closer to retail. North America, again, is a little bit of a wildcard. Again, if you look at what we've said with North America large ag potentially being down, our dealer inventories at 8 months right now, hoping to get that closer to our target. That would likely result in some underproduction here in the early part of 2026. But as Eric said, given the recent news with the trade deal with potential incremental subsidies in my comment that if that changes the industry outlook for large ag, that may help us accelerate or not have to underproduce. But again, North America is still a little bit of a TBD next year. Joel Jackson: And then finally, can you maybe talk about what sort of subsea package states to package in the states of magnitude might move the needle for your end customers, $5 billion, $10 billion, $15 billion programs, whether that's $50 an acre, $100 an acre, have you thought about sort of what's needed to move the needle to get farmers to look at capital purchases and not just deleveraging or working capital? Eric Hansotia: Yes. I think it needs to be over $10 billion. $10 billion to $20 billion, anything in there will get farmers' attention. Granted, that money is not seen as the same as market-driven profitability. They're more likely with subsea money to pay down debt and other things because they're not sure if it's going to be sustainable into next year and year after. So if the trade deal really sticks and there's a 3-year commitment to purchase 25 million metric tons type purchasing or more, that's going to drive confidence way more in farmers than will the subsidy. Operator: The next question is from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: I just wanted to go back to maybe one of the earlier discussions on North America margins and tariffs. I just wanted to check, I guess, am I doing the math right based on what you talked about with the 1% of sales impact next year that, that kind of implies something approaching or kind of roughly $1 of tariff headwind. So if you could just comment on that? And then just related to that, I guess, based on what you're estimating today for kind of the North America outlook, fully accepting that there's a lot of moving pieces still, which quarter would you kind of expect to see the kind of peak pressure in? Damon Audia: So Angel, can you give peak pressure in what regard? Angel Castillo Malpica: In terms of how you kind of spread that tariff headwind, which I'm assuming there's a little bit of a ramp-up as you kind of work through inventories and the flow-through of that tariff impact on your kind of P&L. So just curious which quarter would kind of see the peak of it before it starts to comp the year numbers? Damon Audia: Yes. Well, I think the first question, again, is if our sales right now are $9.8 billion, I said less than 1%. So you're probably looking at sort of less than $1, call it, closer to $0.80, give or take, depending on how things finalize again, some of these tariffs, as you know, are still changing, and those will influence some of the small horsepower tractors that we buy from others -- that are imported from other countries. So I don't want to be too precise, but directionally, less than that. And again, that doesn't take into consideration the pricing actions that I mentioned as well. So again, when I gave Mig that number, that was the absolute tariff cost. That's not my net effect to P&L next year because I already have pricing actions in effect in parts in PTx for model year '26 equipment. And so the net number will be less than that. Again, we haven't given a specific outlook. We want to see how the fourth quarter unfolds, but it will be a lot less than that absolute number that I'm quoting you for the tariff costs themselves. as I think about the cadence, we're starting to already see that flow through our P&L in North America, depending on the product. Again, as you know, we buy a lot of these medium and low horsepower tractors from other companies, depending on the level of inventory that we had in stock and that our dealers had in stock, that's flowing through over a period of time, coupled with the cost that we're incurring for some of the raw materials that we're purchasing for our assembly operations here in the U.S. So again, I think it's going to phase itself in. As we get into the second quarter, I would think we'd work through most of the inventory that we've had, and we start to see more of the full effect, I'd say, directionally around Q2. Angel Castillo Malpica: That's very helpful. And then maybe earlier, I think you had indicated that flat volumes next year would actually reduce your inventory levels by about half a month. And I think your current assumptions was down single digits. I guess, first, can you put a finer point on kind of what that assumption was for North America? Is that closer to mid-single digits or high single digits type of decline? And then if for some reason, I guess, volumes in North America, large ag wind up being closer to down kind of mid-teens, which I think some investors kind of channel checks suggest that might be a realistic risk. I guess what's the sensitivity or math or impact on your inventory levels if it were to be closer to the mid-teens? And how much -- what does that mean for production next year? Damon Audia: Yes. So I mean, we haven't given a specific number related to what we were thinking for '26. Again, it's more -- as we look at the data, as we look at the analytical models running, we're starting to see it down. I think, as Eric said, sort of in that mid-single-digit range is what we were directionally looking at. I'd rather not speculate right now with all of the recent news that's come out this week. Again, I think as Eric said, those are both net positive data points for farmers in North America. And we're hopeful that, that has more of a positive catalyst as we go into '26. But obviously, to the extent it was down, you're using your mid-teens numbers, we would be forced to keep the underproduction probably longer to continue to reduce the dealer inventories. We want to make sure that we're not -- that we're getting that down to that 6 months as quickly as possible. And again, given the numbers you hear us quoting with production down over 50% again in the fourth quarter, we're being as aggressive as we can in trying to minimize the -- putting incremental inventory into the dealer channel here. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks. Eric Hansotia: Yes. Thank you for joining us today and all these thoughtful questions. AGCO continues to make meaningful progress on our transformation journey. We delivered a strong third quarter performance with strong margins, disciplined inventory management, accelerated cost reduction and healthy free cash flow generation year-to-date. I'm really proud of the team for achieving this amidst macro volatility by focusing on what we can control in a dynamic environment that always -- and always keeping our eyes on putting the farmer at the center. In fact, the feedback we're getting from our farmers is real strong. Our Net Promoter Score is at our all-time highest level in the company's history. They like the net impact of our products and what we're doing with our dealers to serve them better. In the quarter, Europe is our biggest market, continued to provide stability. We know farmers around the world are under pressure. Our priority is supporting them with efficient machines and technology that keep them productive and profitable. We continue to execute our strategic shifts that sharpen our focus and unlock long-term potential, including the TAFE exit, the PTx creation and Project Reimagine. Our innovation flywheel is spinning faster than ever with new autonomous solutions and the launch of FarmENGAGE, reinforcing us as one of the most progressive leaders in smart farming. And I think you'll see that on display big time at AGRITECHNICA the world's largest ag show coming up here in a week or so. That will be a great way to engage with all the exciting things that AGCO's got going on. Our 2025 financial outlook reflects our confidence in the strategy and the strength of our global team. Even in this challenging environment, we are investing in the future, gaining share, executing with agility and always putting the farmer first. Thank you for your participation today. We really appreciate it. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to PriceSmart, Inc.'s Earnings Release Conference Call for the Fourth Quarter of Fiscal Year 2025, which ended on August 31, 2025. After remarks from our company's representatives, David Price, Chief Executive Officer; and Gualberto Hernandez, Chief Financial Officer, you will be given an opportunity to ask questions as time permits. As a reminder, this conference call is limited to 1 hour and is being recorded today, Friday, October 31, 2025. A digital replay will be available following the conclusion of today's conference call through November 7, 2025, by dialing 1 (800) 770-2030 for domestic callers or 1 (647) 362-9199 for international callers and by entering the replay access code 5898084. For opening remarks, I would like to turn the call over to PriceSmart's Chief Financial Officer, Gualberto Hernandez. Please proceed, sir. Gualberto Hernandez: Thank you, operator, and welcome to PriceSmart Inc.'s earnings call for the fourth quarter of fiscal year 2025, which ended on August 31, 2025. We will be discussing the information that we provided in our earnings press release and our 10-K, which were both released yesterday afternoon, October 30, 2025. Also in these remarks, we refer to non-GAAP financial measures. You can find a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measures in our earnings press release and our 10-K. These documents are available on our Investor Relations website at investors.pricesmart.com, where you can also sign up for e-mail alerts. As a reminder, all statements made on this conference call other than statements of historical fact are forward-looking statements concerning the company's anticipated plans, revenues and related matters. Forward-looking statements include, but are not limited to, statements containing the words expect, believe, plan, will, may, should, estimate and some other expressions. All forward-looking statements are based on current expectations and assumptions as of today, October 31, 2025. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks detailed in the company's report on Form 10-K filed yesterday and other filings with the SEC, which are accessible on the SEC's website at www.sec.gov. These risks may be updated from time to time. The company undertakes no obligation to update forward-looking statements made during this call. Now I will turn the call over to David Price, PriceSmart's Chief Executive Officer. David Price: Thank you, Gualberto, and good morning, everyone. I'd like to start by expressing my sincere gratitude to the entire PriceSmart team. This is the first earnings call for both Gualberto and me in our new roles, and we're excited to be here with our shareholders. We're settling in well and energized by the opportunities ahead. I also want to thank Robert Price, our Executive Chairman, for his invaluable leadership during his multiple tenures as CEO, especially his most recent one. In his current role, Robert and I are working closely together, and I'm deeply appreciative of the productive, positive and collaborative relationship we have built. This year's results reflect the passion and dedication of our teams across clubs, distribution centers and offices in 13 countries working together to serve our members. We saw strong momentum in membership sales and income, driven by the commitment of our teams across digital, supply chain, merchandising and operations. They delivered on our mission and provided the value our members expect. Since stepping into the CEO role on September 1, I've had the opportunity to visit many of our clubs, distribution centers and offices. What I've seen firsthand makes me incredibly optimistic about the future of PriceSmart. But most importantly, I continue to be inspired by the passion and dedication of our teams throughout the regions we serve. I'm also excited to share a major milestone for the company. We have officially moved into our new corporate headquarters in San Diego. This move represents a meaningful step forward, providing us space designed to foster the kind of culture and ways of working that will support our people and mission for years to come. Now let's turn to the key factors and strategic priorities we are focused on to continue driving sales and delivering greater value to our members, starting with real estate. In August 2025, we opened our seventh warehouse club in Guatemala located in Quetzaltenango. In the third quarter of fiscal year 2025, we purchased land for our sixth warehouse club in the Dominican Republic in La Romana, about 73 miles east of the nearest club in Santo Domingo. The club will be built on a 5-acre property and is expected to open in spring 2026. In the first quarter of fiscal year 2026, we purchased land for our third warehouse club in Jamaica located in Montego Bay, about 100 miles west of the nearest club in Kingston. This club will also be built on a 5-acre site and is anticipated to open in summer 2026. Additionally, we executed a land lease for our fourth warehouse club in Jamaica located on South Camp Road, about 6 miles southeast from the nearest club in the capital of Kingston. The club will also be built on a 3-acre property and is anticipated to open in fall 2026. Once these 3 new clubs are open, we will operate 59 warehouse clubs in total. Before I continue, I want to take a moment to acknowledge the impact of Hurricane Melissa on our team members, their families and our members in Jamaica, the Dominican Republic and across the region. Our thoughts are with everyone affected, and we remain committed to supporting recovery efforts and ensuring the safety and well-being of our people and communities. Our operations in Jamaica were affected by both the preparations for and the impact of the storms landfall, resulting in the closure of our Jamaica clubs for a couple of days earlier this week. I'm deeply grateful for the dedicated efforts of our team. And with those efforts, we were able to reopen our clubs on Wednesday, October 29. Going forward, our focus continues to be the safety of our employees and our members. We are advancing on our plans to enter Chile, a market we believe offers strong potential for multiple PriceSmart warehouse clubs. As part of this initiative, we've hired a country general manager and signed an executory agreement for a prospective club site. While we haven't announced a target opening date, we're moving quickly and managing key factors that influence our opening dates, such as permitting and construction. In addition to opening new clubs in existing markets and Chile, we're continuing to optimize our current footprint, increasing club size, improving efficiency and expanding parking spaces at high-volume locations remain some of the most effective ways to drive sales and enhance the member experience. To support this strategy, we'll begin expansions and remodels at select clubs and parking lots across our markets in fiscal year 2026. Now moving to our supply chain transformation strategy. One of the key drivers in keeping prices low is improving how we move and distribute merchandise to our clubs. Today, we operate major distribution centers in Miami, Costa Rica and Panama. In the first quarter of fiscal year 2026, we adapted our Panama facility to handle cold merchandise and began operations at a new dry distribution center in Guatemala. Looking ahead, we plan to open PriceSmart run distribution centers in Trinidad and the Dominican Republic during fiscal year 2026. These local facilities are expected to improve product availability, reduce lead times and lower landed costs, among others [indiscernible] . Alongside these new distribution centers, we've begun implementing third-party distribution centers in China to consolidate merchandise sourced in the country, driving greater efficiencies and lowering costs. We're also exploring additional ways to enhance logistics in multi-club markets by leveraging a mix of PriceSmart managed and third-party operations. Finally, in select countries, we've introduced our own fleet of trucks to deliver merchandise directly to the clubs and capitalize on backhaul opportunities. In fiscal year 2025, we made significant progress migrating to our new forecasting and replenishment system, the RELEX platform. While we didn't complete implementation as originally anticipated, we remain on track and expect to finalize the migration in fiscal year 2026. This upgrade is a critical part of our supply chain strategy and is expected to boost productivity, improve inventory management and increase in-stock availability, ultimately driving sales growth and operational efficiency. Turning now to other ways we're enhancing membership. Our private label brand, member selection is a cornerstone of our strategy and a key differentiator in our product mix. These products are crafted to deliver high quality at competitive prices, offering our members exceptional value without compromise. During fiscal year 2025, private label sales represented 28.1% of total merchandise sales, up 50 basis points from 27.6% in the comparable period of fiscal year 2024. Some of the top-selling private label items this year included shredded mozzarella cheese, hypoallergenic baby wipes and cold extracted extra virgin olive oil. In Central America, we've renewed and enhanced our co-branded consumer credit card with Banco Credomatic BAC, which launched in July 2025. This new agreement offers higher cash back rewards on purchases at PriceSmart, pricemart.com, on BAC's travel program and other retailers and services, adding even more value for our members in that region. We continue to invest in omnichannel capabilities to meet our members where they are. Digital channel sales reached $306.7 million in fiscal year 2025, up 21.6% year-over-year and represented 6% of total net merchandise sales. Orders placed directly through our website or app grew 22.4% and average transaction value increased 3.7% compared to last fiscal year. As of August 31, 2025, approximately 60.1% of our members had created an online profile and 32.4% of our membership base has made a purchase on pricesmart.com or our app. We see continued opportunity in this space, and we will keep investing to enhance the digital experience we offer our members. For example, in fiscal year 2026, we will begin migrating our mobile application to fully native iOS and Android architecture to enhance speed, reliability and accessibility for our members. This foundation will allow faster deployment of new features and help us deliver an outstanding member experience in our digital channels. In the first quarter of fiscal year 2026, we expect to complete implementation of our new point-of-sale system, ELERA, a Toshiba product in all English-speaking Caribbean markets. Later in fiscal year 2026, we'll begin rolling out this system in our Spanish-speaking markets. ELERA will help us achieve faster checkout times, improve productivity and expand payment options among other benefits. Also in the first quarter of this fiscal year 2026, we began implementing Workday's human capital management system to replace legacy HR applications. This upgrade is designed to enhance the employee experience with modern, user-friendly tools while improving processes, strengthening compliance, providing scalable, integrated data to support our future growth. Now I'd like to highlight some of our sales results, starting with a strong fourth quarter. Net merchandise sales and total revenue were both over $1.3 billion in the fourth quarter. Net merchandise sales increased by 9.2% or 9.1% in constant currency. Comparable net merchandise sales in U.S. dollars and constant currency both increased by 7.5%. For the fiscal year ended August 31, 2025, total net merchandise sales reached almost $5.2 billion and total revenues were almost $5.3 billion. Net merchandise sales increased by 7.7% or 8.5% in constant currency, and comparable net merchandise sales increased by 6.7% or 7.5% in constant currency for the 12-month and 52-week periods, respectively. During the quarter, our average sales ticket grew by 0.5% and transactions grew 8.7% versus the same prior year period. For the 12-month period, our average ticket grew by 1.7% and transactions grew by 5.9% versus the prior year. The average price per item remained relatively flat year-over-year, while average items per basket increased approximately 1.7% compared to the prior year. Now looking at our business by segment. First, in Central America, where we had 32 clubs at quarter end, net merchandise sales for the fourth quarter increased 8.9% or 8% in constant currency, with a 6% increase in comparable net merchandise sales or 5.3% in constant currency. Additionally, we opened our ninth warehouse club in Costa Rica in April 2025 and our seventh warehouse club in Guatemala in August 2025, resulting in our high single-digit net merchandise sales growth. Although lower than net merchandise sales, all our markets in Central America had positive comparable net merchandise sales growth, validating the strong demand we're seeing in the region. Our Central America segment contributed approximately 360 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the quarter. Second, in the Caribbean, where we had 14 clubs at quarter end, net merchandise sales for the fourth quarter increased 6.3% or 7.5% in constant currency and comparable net merchandise sales increased 6.5% or 7.8% in constant currency. All of our markets in this segment had positive comparable net merchandise sales growth. Our Caribbean region contributed approximately 180 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the quarter. Last, in Colombia, where we had 10 clubs open at the end of our fourth quarter, net merchandise sales for the fourth quarter increased 18.2% or 18.7% in constant currency and comparable net merchandise sales increased 18.3% or 18.8% in constant currency. Colombia contributed approximately 210 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the quarter. In terms of merchandise categories, when comparing our fourth quarter sales to the same period in the prior year, our foods category grew approximately 7.6%. Our nonfoods category increased approximately 7.9% and our food services and bakery category increased approximately 7.5%. Our health services, including optical, audiology and pharmacy increased approximately 17%. Membership accounts grew 6.2% year-over-year to over 2 million. Platinum membership represented 17.9% of our total base as of August 31, 2025. That's up from 12.3% at the end of the prior year. This growth reflects our increased focus on the segment through targeted Platinum promotional campaigns. Fourth quarter membership income reached $22.6 million, a 14.9% increase over the same period last year, driven by higher Platinum penetration and a $5 annual fee increase for all membership types implemented gradually across fiscal year 2024 in all but one market. We continued with a strong 12-month renewal rate of 88.8% for fiscal year 2025. With that, I'll turn it over to Gualberto to continue the financial review. Gualberto Hernandez: Thank you, David. Continuing with the income statement. Total gross margin as a percentage of net merchandise sales for the fourth quarter of fiscal year 2025 remained unchanged at 15.7% when compared to the fourth quarter of fiscal year 2024. In dollars, total gross margin increased by $16.9 million or approximately 9% versus the same quarter of the prior fiscal year. Total revenue margins for the fourth quarter increased 10 basis points to 17.4% of total revenue when compared to the same period last year. The 10 basis point increase is primarily driven by the strong membership results that David mentioned before. Moving to SG&A. Total SG&A expenses increased to 13.5% of total revenues for the fourth quarter of fiscal year 2025 compared to 13.3% for the fourth quarter of fiscal year 2024. For the full fiscal year 2025, total SG&A expenses increased to 12.9% of total revenues compared to 12.7% of total revenues for fiscal year 2024. The increase in both periods is primarily due to investments in technology. The company incurred costs of approximately $600,000 in the fourth quarter and $3.7 million in the fiscal year related to growth and technology projects, such as the implementation of the RELEX and ELERA systems. Additionally, we had approximately $700,000 in the fourth quarter and $1.6 million in the fiscal year of onetime expenses associated with CFO transition costs as well as approximately $600,000 in the fourth quarter and $1.1 million in the fiscal year related to the relocation of the San Diego corporate office. For fiscal year 2026, G&A expenses will be impacted by the compensation of our Chief Executive Officer as our interim Chief Executive Officer in fiscal year 2025 declined to receive compensation for his services during his term. Operating income in the quarter increased 7.2% versus prior year to $52.8 million. Operating income for the fiscal year increased 5.2% versus prior year to $232.5 million. In other expenses in the fourth quarter, we recorded a loss of $6.4 million. This is better than the fourth quarter of fiscal year 2024 by $1 million, primarily driven by a decrease in foreign currency conversion transaction costs. Our effective tax rate for the fourth quarter of fiscal year 2025 came in at 32% versus 30.4% a year ago as we fell into a minimum tax position in some of our markets to close the year. Tax planning is central to us as it's a significant expense. It's also complicated as we operate in many jurisdictions, making it particularly complex to estimate quarter-by-quarter as the tax provision is projected and calculated on an annual basis. Despite the increase in the rate in the fourth quarter, it's important to note that for the full fiscal year 2025, the effective tax rate was 28.4%, down from 31.1% for the prior year period. This shows the result of our continued efforts in the area. Net income for the fourth quarter of fiscal year 2025 was $31.5 million or $1.02 per diluted share compared to $29.1 million or $0.94 per diluted share in the fourth quarter of fiscal year 2024. For the full fiscal year 2025, net income was $147.9 million or $4.82 per diluted share compared to $138.9 million or $4.57 per diluted share in the comparable prior year period. Adjusted EBITDA for the fourth quarter of fiscal year 2025 was $75.5 million compared to $70.7 million in the same period last year. Adjusted EBITDA for fiscal year 2025 was $320.7 million compared to $303.6 million in the same period last year. Moving on to our balance sheet and cash flow. We ended the quarter with cash, cash equivalents and restricted cash totaling $285.3 million in addition to approximately $73.2 million of short-term investments. From a cash flow perspective, net cash provided by operating activities reached $261.3 million in the fiscal year, an increase of $53.7 million versus prior year. Changes in our merchandise inventory and accounts payable positions contributed $17.7 million to the overall increase. The primary cause of this was a lower year-over-year increase in inventory compared to prior year due to 1 less club that opened in fiscal year 2025 versus the 3 clubs that we opened in fiscal year 2024 and due to the timing of holiday seasonal buildup. Net cash used in investing activities decreased by $46.6 million for fiscal year 2025 compared to the prior year, primarily due to a decrease in additions to property and equipment of $10.4 million and a net decrease in purchases less proceeds of short-term investments of $35.4. Net cash provided by financial activities during fiscal year 2025 increased by $164.2 million, primarily driven by $65.4 million net increase in long-term bank borrowings, a $66.8 million decrease in repurchases of our common stock and a $27.4 million decrease in cash dividend payments. When reviewing our cash balances, it is important to note that as of August 31, 2025, we had $59.7 million of cash, cash equivalents and short-term investments denominated in local currency in Trinidad, which we could not readily convert into U.S. dollars. In Honduras, we're currently able to source substantially all the U.S. dollars that we need, but we faced similar U.S. dollar liquidity challenges in the country from fiscal year 2023 to the first half of fiscal year 2025. We're monitoring this closely as the Central Bank still has strict controls there on the availability of U.S. dollars. Looking forward a little into our current first quarter, our comparable net merchandise sales for the 8 weeks ended October 26, 2025, were up 7.2% and 6.5% in constant currency. In closing, we are proud of all our accomplishments in the fourth quarter and fiscal year 2025. As we enter fiscal year 2026, we remain dedicated to our members, our people and our communities. We're excited about the many initiatives we have underway, especially on the technological front to make our point-of-sale, supply chain and other front and back-office processes more efficient and are looking forward to a year of growth in fiscal year 2026. Thank you for joining our call today. I will now turn the call over to the operator to take your questions. Operator, you may now start taking our callers' questions. Operator: [Operator Instructions] Your first question comes from Jon Braatz with Kansas City Capital. Jon Braatz: David, in Jamaica, I take it that you -- with the stores being open that they were undamaged during the hurricane. Is that correct? David Price: [Technical Difficulty] can you hear me? Jon Braatz: I don't know if you heard my question or not. David Price: I did, Jon. Okay. Let's restart. Yes. So regarding our clubs in Jamaica, they were not damaged. And we take great care in how we construct those buildings and knowing very well that we're in a hurricane area. And luckily, the storm turned west -- well, luckily for those locations, the storm turned westward kind of at the last minute. So we were kind of spared the full brunt of the storm. So we're open and we're flowing in the Kingston Port, we're starting to get merchandise in and -- but different parts of the islands had different impacts, right? And so it's going to take time for the country to recover. Jon Braatz: Okay. So you're getting merchandise in to reset? David Price: Yes. Jon Braatz: Okay. Okay. Looking at the 2 stores that you are going to build in Trinidad, Montego Bay and South Camp, South Camp is a smaller acreage. Is it going to be a smaller store than what is typical? David Price: That's not the intention. We're going to have to do some changes in our parking format to support the sort of parking that we require, but the intention is to have a typical size club there. Operator: Your next question comes from the line of Hector Maya with Scotiabank. Héctor Maya López: Congratulations to you both on your new roles. I know that you are still assessing the potential opportunities for expansion in Chile. And we saw your store opening pipeline for 2026 and 2027 and wanted to know if everything goes well in your analysis in Chile, would it be fair to assume that any first openings there might come in 2026 or 2027? Or should we assume that it might still take longer than 2027 to see something there? And also maybe -- sorry, yes, that one first and I have a follow-up. David Price: Okay. Well, thank you, Hector, for calling in today and for your question. So we haven't provided any information beyond what's in the 10-K about our opening plans. We do have a site that's under executory agreement. And so that's good. We continue to make progress there. And -- but we have not provided opening date information at this point. So that's all I can share with you. But I appreciate the question. Héctor Maya López: Understand. That's fair. Also on EBITDA margins by segment, could you please share a bit of the dynamics by country and if there were any methodology changes there, just making sure. Gualberto Hernandez: Yes, Hector, thank you for the question. There were no changes in the methodology. And as you know, we don't disclose details on this. But I can tell you that we have not seen any material mix changes that would impact EBITDA. Operator: Your next question comes from the line of John Braatz with Kansas City Capital. Jon Braatz: I'm back. David, as we look ahead in the next calendar year, there's going to be some changes in remittances from the U.S. back to a number of your countries. I guess my question is, there's a 1% [ increase ] Do you think that could have an impact on the sales performance of some of your stores? David Price: Thank you, John, for the question. That's an informed question. I mean you're right that several of our markets have a significant portion of GDP represented by remittances, particularly in Jamaica, Honduras, El Salvador, the largest, but Guatemala is not insignificant, neither is Nicaragua. Having said that, we have no indication so far a slowdown that's impacted consumption that we can see. Certainly, it's not out of the realm of cost that those will be an impact. But at this point, we don't have an indication that there's an impact from that flow of [indiscernible] Operator: That concludes our question-and-answer session. I will now turn it back over to David for closing comments. David Price: Great. Thank you very much. I just want to thank everyone for calling in today and send another message of gratitude to our team just for everything they do. We wouldn't be here without all of our great employees on the ground and in our central office. So thanks a lot, everyone. Have a good day. Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Welcome to the COP Defense Properties Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Venkat Kommineni, COPT's Defense Vice President of Investor Relations. Mr. Kommineni, please go ahead. Venkat Kommineni: Thank you, Kevin. Good afternoon, and welcome to COP Defense's conference call to discuss third quarter results. With me today are Steve Budorick, President and CEO; Britt Snider, Executive Vice President and COO; and Anthony Mifsud, Executive Vice President and CFO. Reconciliations of GAAP and non-GAAP financial measures that management discusses are available on our website in the results press release and presentation and in our supplemental information package. As a reminder, forward-looking statements made during today's call are subject to risks and uncertainties, which are discussed in our SEC filings. Actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update them. Steve? Stephen E. Budorick: Good afternoon, and thank you for joining us. The company's strong performance during the first half of the year continued throughout the third quarter and has resulted in an increase to our guidance for the year across several financial and operating metrics. We've extended our streak of achieving or outperforming our FFO per share guidance to 31 consecutive quarters. And in October, we successfully closed on 3 important financings, which prefund our 2026 bond maturity and provide additional liquidity to fund our external growth. Turning to results. FFO per share as adjusted for comparability was $0.69 in the quarter, $0.02 above the midpoint of guidance and $2.02 for the first 9 months. This is a 6.2% year-over-year increase for the quarter and a 5.2% increase for the first 9 months. Same-property cash NOI increased 4.6% year-over-year for both the quarter and the first 9 months. We continue to outperform on the leasing front. The portfolio ended the quarter at 95.7% leased. That's our highest level in 20 years. We signed 78,000 square feet of vacancy leasing in the quarter and 432,000 square feet during the first 9 months. This volume represents 36% of the unleased space we had at the beginning of the year. Recall, our initial vacancy leasing target of 400,000 square feet was increased to 450,000 square feet at the end of the second quarter. So our achievement year-to-date already represents 96% of that elevated target. Tenant retention remains strong at 82%, both during the quarter and the first 9 months. We reduced our lease expiration exposure through year-end 2026 by 25% or 1 million square feet since last quarter, and we expect significant progress in the fourth quarter. In recent weeks, we committed $72 million of capital to 2 external growth investments, both of which enhance our relationships with existing Defense/IT tenants. First, we commenced construction of 7700 Advanced Gateway in our Redstone Gateway campus, 100% pre-leased $27 million development, which is our fourth build-to-suit project with this tenant at that location. Second, we acquired Stonegate I in Chantilly, Virginia, a $40 million purchase of a strategic property fully leased to a top 20 U.S. defense contractor, which represents this tenant's ninth location in our portfolio. Year-to-date, we have committed roughly $125 million of capital to 3 new investments against our original target of $225 million. We are in the advanced stages of negotiations on multiple build-to-suit opportunities, and we expect to exceed our original capital commitment target. Turning to guidance. First, based on our strong performance year-to-date, we are increasing the midpoint of 2025 guidance for the following 6 metrics. FFO per share increases by $0.03 to $2.70 a share, which equates to 5.1% growth over 2024's results and is $0.04 above our initial guidance. Same-property cash NOI growth increased to 75 basis points to 4%, which is 125 basis points above initial guidance. Same property year-end occupancy increases by 20 basis points to 94.2%. Cash rent spreads on renewals increases by 200 basis points to 2%. Our vacancy leasing target increases by another 50,000 square feet to 500,000 square feet, which is 25% or 100,000 square feet above our initial target. and capital committed to new investments increases by $25 million to $250 million. Britt and Anthony will provide more details on these increases. On September 2, President Trump announced the relocation of Space Command's headquarters from Peterson Space Force -- based in Colorado Springs to Redstone Arsenal in Huntsville. The Command is expected to relocate to our Redstone Gateway secured parcel. Since the announcement, we've been active dialogue with the leadership at both Space Command and Redstone Arsenal to optimize their programming and sequencing activities for their new facilities. We expect the Command to lease roughly 450,000 square feet in total, most likely in increments over time. Beyond the direct development opportunity with Space Command, we also expect defense contractor growth that supports the Command will emerge in the Huntsville market. The government estimates this could eventually drive a 2:1 contractor tail over time, but this won't start to significantly materialize until Space Command has completed its relocation expected in 2027. Of similar importance, the missions at Redstone Arsenal will play a key role in building the planned Golden Dome Missile Defense Shield and is driving contractor opportunities more quickly than the Space Command relocation. In addition to the mission work our tenants already conduct to support missile defense in the park, we are in discussions with defense contractors seeking space to compete for the incremental opportunities arising from Golden Dome and one new lease has already been signed since the July funding and additional contract awards are expected as soon as year-end. Turning to the government shutdown. Since the end of September, the Senate has failed to pass a continuing resolution, putting the government into shutdown, which continues today. As a reminder, one, the government shutdowns do not materially impact our business as we still collect rent. And two, our buildings are well occupied because they are leased to essential missions. However, the shutdown does create some uncertainty around the timing of lease activities. Given the significant volume of government lease renewals contemplated in the fourth quarter, an extended shutdown could modestly impact our full year guidance for tenant retention and cash rent spreads due to timing delays. To be clear, any delay as a result of the shutdown only impacts the when for these renewals, not the if. Looking forward, we expect that when the FY 2026 defense appropriation is approved, it will support additional demand for our portfolio as the priority missions our tenants support are expected to see increased funding to counter an increasingly complex national security environment. These missions include intelligence, surveillance and reconnaissance, cybersecurity and network activities, naval sea and air technology development, unmanned aerial vehicles and missile defense and space activities. So with that, I'll turn the call over to Britt. Britt Snider: Thank you, Steve. Throughout the year, we have continued to see strong demand from defense contractors looking for new or incremental space to support mission programs and contracts, a significant amount of which requires SCIF. As we had anticipated, occupancy in our total portfolio declined 10 basis points sequentially, but the lease rate increased 10 basis points. More importantly, the lease rate in our Defense/IT portfolio increased 20 basis points to 97%. The short-term occupancy decline over the quarter was driven primarily by 2 known nonrenewals totaling less than 80,000 square feet. This expiring area has already been leased to defense contractors with occupancy commencing in the first half of next year. In the Fort Meade BW corridor, we leased the space related to 41,000 square foot -- 41,000 square foot nonrenewal by a financial services tenant in Columbia Gateway to RealmOne, a rapidly growing cybersecurity innovator. RealmOne is expanding its footprint in the park from a little over 10,000 square feet to over 50,000 square feet. This is a continuation of our successful effort to increase the concentration of defense and cyber tenants in our Columbia Gateway portfolio. And in Huntsville, we leased the space related to a 37,000 square foot nonrenewal resulting from M&A activity to Georgia Tech Research Institute or GTRI, for its expansion. GTRI is doubling its footprint to 75,000 square feet and will fully occupy 8800 Redstone Gateway. GTRI is a DoD-sponsored university affiliated research center, which serves missions at the Redstone Arsenal, including Army Air Defense Systems and the Missile Defense Agency. We continue to outperform in terms of vacancy leasing as we leased 78,000 square feet during the quarter and 432,000 square feet during the first 9 months of the year. Our third quarter volume exceeded our plan as we anticipated activity in the back half of the year would moderate due to the delayed appropriation, which wasn't passed until July. Despite the late appropriation approval, we have seen some contractors move forward and execute leases. Currently, we have another 110,000 square feet of deals in advanced negotiations, which led us to raise our full year target again to 500,000 square feet. Moving to renewal leasing. We executed nearly 800,000 square feet in the third quarter and achieved an exceptional tenant retention rate of 82%. During the first 9 months of the year, we executed 1.7 million square feet, also achieving a tenant retention rate of 82%, which is right in line with the midpoint of our full year guidance range of 82.5%. On Slide 23 of the flip book, we provide an update on our lease expirations in the fourth quarter, which totaled 1.7 million square feet in our Defense/IT portfolio. All but 75,000 square feet of these expirations are U.S. government leases and nearly 1.4 million square feet or 80% of these expirations are in secure full building leases to the U.S. government. We are working with the government on these renewals and expect 100% retention on these leases. Our retention rate guidance assumes that we renew roughly 700,000 square feet of this U.S. government space by year-end and the remaining 660,000 square feet in 2026. Turning to large leases expiring between third quarter of 2024 and through year-end of 2026, as shown on Slide 24 of the flip book, we renewed 5 large leases in the quarter, totaling 640,000 square feet at a 100% retention rate. This included a secure full building lease with the U.S. government in Maryland, a lease with Boeing in Alabama in their defense, space and security business and 3 data center shell leases in Northern Virginia, of which we own 10%, where cash rent spreads increased 91%. Over the last 5 quarters, we've renewed 1.9 million square feet of large leases at a 97% retention rate. We have 2 million square feet of large leases expiring over the next 5 quarters, and we continue to expect a 95% retention rate on the full set of large lease expirations. Cash rent spreads on renewals were up 7.5% during the quarter and up 2.4% during the first 9 months of the year. The outperformance in cash rent spreads during the quarter was driven by the extension of a lease with the U.S. government on our secure parcel in Huntsville, which was not contemplated in our previous guidance. The 210,000 square foot lease was extended for another 10 years and will now expire in 2040. We are increasing the midpoint of full year guidance for cash rent spreads by 200 basis points, which takes into account this lease and some early renewals expected in the fourth quarter, which were not previously anticipated. With respect to capital commitments, during the quarter, we executed a 101,000 square foot lease with Yulista and commenced construction on 7700 Advance Gateway, a $27 million development project. The tenant serves DoD missions at the Redstone Arsenal, including the U.S. Army Aviation and Missile Center. Our relationship with Yulista began in 2020 when we delivered their 3-building campus in Huntsville, totaling nearly 370,000 square feet. This expansion strengthens our relationship as Yulista is currently our 14th largest tenant and will occupy nearly 0.5 million square feet in our Redstone Gateway portfolio. Yesterday, we received more good news regarding Huntsville. We signed a 32,000 square foot lease with a defense contractor at 8500 Advance Gateway. This active development project, which we commenced only 2 quarters ago, is now 20% pre-leased. The tenant also serves DoD missions at the arsenal, including the Missile Defense Agency and its technology is central to the Golden Dome initiative. This is our first new lease tied to the Golden Dome, which was funded in July. We also have a strong pipeline of demand on the remaining availability in this building with over 300,000 square feet of prospects on 125,000 square feet of space, and we anticipate additional pre-leasing activity in the coming quarters. On Slide 13 of the flip book, we provide an overview of the $40 million acquisition in the Westfield submarket in Chantilly, Virginia completed just yesterday, which meets all of our investment criteria. Stonegate I is a 142,000 square foot building that is 100% leased to the 16th largest U.S. defense contractor in terms of defense revenue with 10 years of lease term remaining. We acquired the building at a 9% initial cash NOI yield, which exceeds our development yield threshold. The tenant's mission group serves defense demand drivers in the Westfield submarket, and the mission set has been executed out of this space for the last 25 years, and the property contains significant security enhancements. This building is a natural extension of our deep concentration in this important submarket. We own 10 buildings totaling over 1.5 million square feet that are over 94% leased, all within a 1-mile radius of Stonegate. We are the dominant landlord in this supply-constrained submarket as we now own roughly 1/3 of the 4 million square feet of office inventory. And the bulk of our current tenants serve the same demand drivers as the tenant in this building. In addition, Cushman & Wakefield identifies the Westfield submarket as the tightest submarket in Northern Virginia at 94% leased with Class A office rents increasing 25% over the past 5 years. Moving to our development pipeline. We have 1.3 million square feet of opportunities, which we consider 50% likely to win or better within 2 years or less. Beyond that, we are tracking another 1 million square feet of potential development opportunities. 100% of this 2.3 million square feet of development demand is at our Defense/IT locations. Overall, our leasing results continue to surpass our expectations and our recent accretive capital deployment initiatives serve to further expand our dominant footprint in 2 of our highly leased and supply-constrained submarkets strategically expand our relationships with our top defense tenants and above all, drive FFO per share growth and create shareholder value. With that, I'll hand it over to Anthony. Anthony Mifsud: Thank you, Britt. We reported third quarter FFO per share as adjusted for comparability of $0.69, which was $0.02 above the midpoint of guidance and represents a year-over-year increase of 6.2%. The outperformance versus the midpoint of our guidance was a combination of higher-than-anticipated same-property cash NOI, lower-than-anticipated interest expense as well as a $0.01 gain on an alternative investment. During the quarter, our same-property cash NOI increased 4.6%. The growth was driven primarily by the benefit from a 40 basis point increase in average occupancy in the same-property portfolio, lower-than-anticipated net operating expenses, including receipt of a nonrecurring real estate tax refunds and the burn off of free rent on development leases placed into service in 2023 and on leases that commenced later in 2024. The outperformance for the quarter was driven primarily by the net operating expense savings. Based on our achievement year-to-date, we are increasing the midpoint of our full year guidance for same-property cash NOI by 75 basis points to 4% with 4.6% growth during the first 9 months of the year, there are 2 offsetting factors to note in the fourth quarter. The first is $1 million of real estate tax refunds in the fourth quarter of last year that will not recur this year. And the second is the impact to NOI from a few previously discussed nonrenewals in the Fort Meade BW corridor, each of which are under 30,000 square feet. Despite these nonrenewals, we are increasing the midpoint of our year-end same-property occupancy by 20 basis points to 94.2% due to a few earlier-than-anticipated lease commencements now expected late in the fourth quarter. We've been very active in the capital markets over the past few months. When we established 2025 guidance in February, our forecast assumed we would prefund the capital required to repay our $400 million 2.25% bond in the fourth quarter. We are very pleased to report that we've had great success on this front, along with 2 other financings, all of which demonstrate the tremendous support we have from both fixed income investors and the banking community. On the bond issuance, in late September, we announced a $300 million 5-year unsecured bond offering at an initial credit spread of 125 to 130 basis points. The order book surpassed $3 billion, more than 10x oversubscribed. As a result of this tremendous investor demand, we upsized the offering to $400 million and priced the offering at a credit spread of 95 basis points and a yield to maturity of 4.6%. The credit spread achieved was tighter than the trading levels of all of our equal and higher-rated office peers, and these bonds continue to trade at levels that are tighter than those peers. We sincerely appreciate the support from the fixed income investor base and strongly believe this execution and the credit spread achieved is a testament to their appreciation of the resiliency of our cash flows and the strength of our strategy, portfolio, operations and balance sheet. In October, we recast our revolving credit facility. The last time we recast this facility was in the fall of 2022, a period when the debt capital markets were particularly constrained for office companies, which resulted in a downsized facility from $800 million to $600 million. With this new facility, we upsized the capacity by $200 million back to $800 million, extended the maturity by 3 years to 2030, expanded our bank group and most importantly, attained pricing at BBB flat, Baa2 spread levels as opposed to our current BBB- Baa3 rating. As a result, the SOFR spread on the credit facility declined by 20 basis points to 85 basis points. The SOFR spread on the term loan declined by 25 basis points to 105 basis points, and we eliminated the 10 basis point SOFR transition charge on both loans. Also in October, we closed on a $200 million 4-year secured revolving credit facility. This facility can be used to fund any investment or for general corporate purposes. However, we plan on using the capital to fund the construction of our development projects. Needless to say, we are very pleased with the $400 million of additional capital capacity from the line of credit and a new development facility and thankful for the commitment and support from existing and new lenders to the company. With respect to guidance, we are increasing the midpoint of 2025 FFO per share by $0.03 to $2.70, while narrowing the overall range. This increase is a result of our $0.02 of outperformance in the quarter and $0.01 from better-than-anticipated rate on the bond offering and the acquisition of Stonegate I. We are establishing fourth quarter guidance for FFO per share as adjusted for comparability in a range of $0.67 to $0.69, which is a $0.01 sequential decline based on the $0.01 nonrecurring gain in the third quarter and a $0.01 drag from the bond offering in the fourth quarter as the proceeds will be held as cash until maturity. These items are partially offset by the impact of Stonegate I. In 2026, prefunding the March maturity will result in a $0.01 drag in the first quarter until the repayment on March 15 and a $0.07 refinancing drag over the remainder of the year based on the roughly 235 basis point negative spread between the new bond and the maturing bond. This refinancing headwind is partially offset by the acquisition of Stonegate I, which is expected to be accretive to FFO per share by nearly $0.05 in 2025 and nearly $0.02 in 2026. The successful financing activities over the past few weeks generated the capital to repay our March 2026 bond maturity and puts us in an even stronger position to capitalize on external growth opportunities and deliver shareholder value. With that, I'll turn the call back to Steve. Stephen E. Budorick: So we achieved great results, highlighted by our strong leasing and recent capital deployment. We delivered FFO per share growth of 6.2% year-over-year, marking our 21st consecutive quarter of year-over-year growth. We expect 2025 to be our seventh consecutive year of FFO growth per share, and our revised guidance implies an annual increase of 5.1%. We increased the midpoint of 2025 guidance for 6 key metrics. We committed $72 million of capital to 2 new investments, both of which are fully leased, and we expect additional activity in the fourth quarter. And notably, we had great success on 3 financings, increasing our liquidity by $400 million and achieving a sector-leading credit spread on our bond offering. Finally, we continue to anticipate self-funding the equity capital invested in development and acquisitions on a leverage-neutral basis and compound annual FFO per share growth of over 4% between 2023 and 2026. So we are well on track to deliver another successful full year. Operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from Blaine Heck with Wells Fargo. Blaine Heck: Steve, can you give us an update on how you're thinking about how long of a lag there could be before we start to see the increased budget once approved and other positive policy decisions to really start impacting leasing decisions and activity mainly outside of Huntsville, which I think has its own demand driver dynamics. Stephen E. Budorick: Yes. So kind of pick up on your last point. Remember, the Golden Dome activities are already funded for the initial down payment through the One Big Beautiful Bill Act, and we see demand building right away. I wish I had a more specific answer for the first part of the question, which is when will the appropriation get approved. Clearly, the shutdown is not helping things. And before the shutdown, it was expected to do a continuing resolution into the end of November and then appropriate the 9 budgets in December. I'm not exactly sure it's not clear to us how that might be affected by the extended shutdown. Blaine Heck: That's helpful. I guess once approved, would you expect kind of a 6-month lag, a 9-month lag? How do you think this cycle compares with others that you've been through? And what was the lag that you've experienced in the past? Stephen E. Budorick: I got it. I would say this one, you'll start to see activity, I would think no later than 6 months. And I only say that, which is in contrast to our usual comments that demand arises 9 to 12 and sometimes 18 months after appropriation because we've had so many discussions with tenants that are contract contingent. They're planning for an expected win of a contract, and they need that appropriation for contract awards flow. So I would think it would be quicker this time around. There is pent-up need and expectation. Blaine Heck: Great. That's really helpful. Second question with respect to the acquisition of Stonegate I. I guess when I look at the aerial view in your presentation, this property seems to be just a little bit outside of the cluster that you've historically owned in that market. So without asking details on the seller, I'm just wondering if this acquisition might lead to more opportunities to acquire in that market and whether you'd be interested in growing -- continuing to grow your market share there? Stephen E. Budorick: Well, first, I'll take a little exception to your analysis. We have 2 buildings immediately across the street from this building and a secure campus kitty corner on that intersection. And it fits quite nicely into the geographical footprint of our portfolio in that market. And you'll come on a tour, and I'll show you that in person. With regard to expanding our concentration in that market, I've been interested in doing that for a long period of time. It's a -- we have key demand drivers in the market. It's one of the markets where although we have -- we're now up to about 1/3 of the inventory, that's relatively low for our deep concentration in the submarkets that we tend to have. So there are other good assets and there are a significant amount of defense contractors in buildings we don't own. And if the opportunity arose to acquire them with the kind of returns we achieved on this one, I would strongly look to do so. Operator: Our next question comes from Steve Sakwa with Evercore ISI. Steve Sakwa: Yes, just on that Stonegate, I guess, Steve, given the location, the tenant, kind of the work they put in, I guess I'm a little surprised at how good the yield is for you. Obviously, that's a great outcome for you guys. But I guess why is the yield so high on this? It just strikes me as kind of an above-market return for what seems like little risk. So is there something we're missing here? Stephen E. Budorick: There are 3 factors that really play into it. One, the seller had a specific time line to sell this asset, and they were delayed in getting their renewal done. We started looking at this building, I think, late 2024. So there was a pressured time frame to execute. We were by no means the lowest bidder, but the strength of our bid was clearly superior in terms of surety of capital and time to execute a transaction. So that was the second major factor. The third is the tenant was involved in influencing the outcome because they had a very strong preference that the asset be transferred to us because of our deep relationship with them. As I mentioned in our remarks, this is the ninth lease we have with the tenant in the building. And so all those 3 factors worked in our favor. Steve Sakwa: Okay. And I know I can't remember if it was Britt or Anthony talked about Page 23 where you have the 1.7 million square feet of space rolling. And I know you're highly confident that basically all the space is going to get renewed. But you do have this one purple box where you're basically, I guess, expecting about 660,000 feet to effectively get pushed into the first quarter of '26, which is understandable. Just from an accounting standpoint, what happens if that lease expires but doesn't get renewed? Does that go into holdover rent? Does it just stay at the same rent? What sort of happens from, I guess, your financials on that space? Anthony Mifsud: So on our financials, Steve, we execute holdover agreements or standstill agreements with the government. In the term of the expiration through the expected renewal date. So based on those standstill agreements, they continue to pay us rent at the expiring cash rent level. And that's what we will recognize as NOI during that standstill period. And then once the renewal is executed, we will catch up in that quarter for the impact on the straight-line rent of the term of the renewal. Steve Sakwa: Got it. So basically, there's -- you're just teated a little bit in terms of the uplift, you'll get that in the first quarter, but there's no negative impact in the fourth quarter from that holdover. That's correct. Operator: Our next question comes from Seth Bergey with Citi. Seth Bergey: With the Missile Defense Agency or Redstone Arsenal, do you kind of view the Golden Dome property as creating any near-term development opportunities? Or does this -- do you kind of currently view that as just driving leasing demand for that real estate? Stephen E. Budorick: Well, the answer is yes. Our portfolio is so well occupied now. An additional lease has got to go into a new development. We literally have no operating or minimal operating square footage to lease. The lease that we did execute yesterday, that's in a new development. And certainly, there are conversations with several contractors that contemplate much bigger commitments that would require build-to-suit or significant pre-leases to accommodate. So in essence, I think all of that Golden Dome incremental opportunity will be manifested in new developments. Seth Bergey: And is that kind of contemplated in the potential development square footage bucket? Or is that further out where that would be kind of incremental to what you've kind of outlined? Stephen E. Budorick: So the way we develop that pipeline, those are known opportunities where we've had conversations with specific tenants. There is no speculative kind of allowance put into that. So yes, there's quite a few of them in the active -- those prospects, we expect 50% likely to win in 2 years or less as well as some in the next 1 million square feet. Operator: Our next question comes from Rich Anderson with Cantor Fitzgerald. Richard Anderson: So Steve, can you talk a little bit about the process with Space Command moving from Peterson to Huntsville? I mean its worst kept secret perhaps, but was that a lobbying effort by you, by the government because they liked Huntsville? Like who drove the initial thought about moving it there? And what did you have to do as an organization to push that through to the point where we're at now where you've kind of gotten it to happen? Can you just talk about that? Stephen E. Budorick: Sure. The process is really quite protracted. Under Trump's first term, he created Space Force and then that kind of led to the natural creation of an integrated combatant command, Space Command. We're talking about Space Command relocating to Redstone Arsenal, not Space Force, to be clear. At that point in time, the Air Force was charged with determining the best location for the combatant command. And they went through a very comprehensive process. Many states and other facilities were competing to be the awardee. And that process determined Redstone Arsenal was the optimal location for the command. Subsequent to that decision, Other locations filed protests. It was reviewed by oversight in the DoD. It was readjudicated as properly awarded one time, then it was challenged again based on changes in criteria. We went through that process. It came out first again. It was readjudicated a second time. These last 2 events occurred during the Biden administration to Redstone Arsenal. And then President Joe Biden signed an executive order freezing it in Colorado. In the current administration, the executive order was overturned and the proper decision is determined by the DoD process. was allowed to be awarded to Redstone Arsenal. So I'd love to think I have influence to make that kind of stuff happening. But the reality is I'm rather -- or we are rather inconsequential. Now with regard to the opportunity coming to us, we're an integrated value proposition with the command on Redstone Arsenal. Remember, the Army is our indirect joint venture partner because we lease the space from them. And our purpose is to serve our shareholders, of course, but we're also there to help the missions on Redstone Arsenal succeed. So we're part of that value proposition, and we actually represent the quickest way to establish the proper mission operability for the United States government and taxpayer, and that's why we're getting the opportunity. Britt Snider: And Rich, this is Britt. I mean just one extra thing on that. I mean they really need to be behind the fence, and they can't wait for Milon. So the ability for us to control that secured parcel through an enhanced use lease behind the fence, that's really -- and there's really no other option that could meet their speed requirements and achieve the security they need. Richard Anderson: So it sounds like 450,000 directly 2x contract or tail, so call it 1.5 million square feet eventually associated with this effort. Is that Chapter 1? Or is there like a kind of a big growth story behind that in your mind? Stephen E. Budorick: So in my mind, I think that's the buck. Chapter 1 is the command, Chapter 2 is growth in the support of the command. Certainly, the command's importance and challenges are going to increase over time as the progression of defense activities further moves into space. And certainly, Golden Dome is going to be a huge component of developing new capabilities that, that command will have to coordinate. So that's one of the reasons why it makes so much sense to put the command here are the agencies that are building the systems that command is going to rely upon. Richard Anderson: That's my next question. The interplay between Golden Dome missile command and Space Command, I guess, is an obvious part of the selling point as well. Is that fair to say? Stephen E. Budorick: That's very fair. And remember, there's also NASA in a 50-year history of missile rocket and space activities and a deep, deep pool of PhD level workers that support those activities in Huntsville, Alabama. Richard Anderson: Okay. And my second question is perhaps not as cool and exciting, but just as equally as important. You had some really great success in terms of your debt issuance, interplay with the banks a 10x oversupplied that you talked about, Anthony. What do you think is driving -- what is -- what are the fixed income investor communities getting that the equity investor community is not getting? Because oftentimes, we see this -- we do a lot of work on fixed income investing and how that might foreshadow fortunes for the stock. Why is the fixed income community so sort of willing to be so supportive of you, whereas not that you've been -- your people aren't turned their back on the story, but you still haven't had the same type of performance in the equity markets that you had in the fixed income markets. Anything you can sort of talk about in terms of your conversations? Anthony Mifsud: Well, the fixed income investor community and the conversations we've had leading up to the offering as well as interactions that we have with them throughout the year, focus on really the things that we mentioned for the reasons for the success of the transaction. They look a little bit backward more than forward. They look at how the company has performed during the cycles, and they look at how the company performed during COVID, how we performed during the high inflationary environment of the last several years during the higher interest rate environment. And they -- from that, they see that the strategy that has been executed has created an incredibly resilient cash flow base and that the when you think about fixed income investors, typically, they would look at development and sort of turn their noses to it. Our -- the fixed income investors actually have a deep appreciation for the development pipeline that we execute because they see it in terms of the high level of pre-leasing and build-to-suit as incremental EBITDA in the future that's contractual that will continue to support the unsecured bonds. So how that then translates into how an equity investor might view the company, I'm not quite sure. But the fixed income community absolutely appreciates the strength of the strategy and the performance of the company over the past several years. Operator: Our next question comes from Dylan Burzinski with Green Street. Dylan Burzinski: Great to hear that the leasing story continues to play out. I guess just one thing that we were curious about, I think it was last week or maybe a week before the Trump administration or there was an article that the Trump administration has been making cuts to cyber defense and U.S. Cyber Command. So just sort of curious if that's having any sort of impact on the leasing demand prospects in the Fort Meade area given the prominence of the cyber demand there. Stephen E. Budorick: Well, I'm not familiar with the article you're looking at. So I can't really address that question specifically. But Cyber Command got a huge step-up funding in the one Big Beautiful Bill and the expected increase is significant for FY '26. I'm kind of shocked at the tone of the article as you describe it. I don't know if he's looking at some overhead in cyber activities outside of the DoD, but I can't really answer the question. Dylan. Britt Snider: I've seen some of that, too, and it's -- I've seen it more on the CISA side and less on -- not really on Cyber Command. In fact, there's a number of -- yes, I mean, there's a number of different efforts going on from a leasing perspective here that we're actually very encouraged about from Cyber Command and some of the related contractors. So I have heard some of that with CISA, but not Cyber Command. But... Stephen E. Budorick: Remember, Cyber Command is DoD activity. CISA is the rest of the government, and we don't serve CIS. Dylan Burzinski: Okay. That makes sense. And as I just look at it, sometimes these headlines just only talk about the high-level stuff rather than get into the details. So those comments are appreciated. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Budorick for closing remarks. Stephen E. Budorick: Thank you all for joining our call today. We are in our offices this afternoon, so please coordinate to Venkat if you'd like a follow-up call and enjoy your Halloween. Operator: Thank you for participating in today's COPT Defense Properties Third Quarter 2025 Results Conference Call. This concludes the presentation. You may now disconnect. Good day.